INDUSTRIAS BACHOCO S.A.B. DE C.V.
CONTENTS
1
2
4
7
8
10
11
12
13
14
17
Financial Highlights
Message to Shareholders
CEO’s Letter
Report from the Board of Directors
Report from Audit and Corporate Practices Committee
Senior Management Team
Board of Directors
Audit Committee and Corporate Practices
Key Information to Investors
BACHOCO: 30 years of building a successful brand
Consolidated Financial Statements
CONTENTS
1
2
4
7
8
10
11
12
13
14
17
Financial Highlights
Message to Shareholders
CEO’s Letter
Report from the Board of Directors
Report from Audit and Corporate Practices Committee
Senior Management Team
Board of Directors
Audit Committee and Corporate Practices
Key Information to Investors
BACHOCO: 30 years of building a successful brand
Consolidated Financial Statements
SALES
2013
83%
Chicken
Eggs
Balanced Feed
Other Business Lines
FINANCIAL
HIGHLIGHTS
4%
5%
8%
NET SALES
Total Net Sales
Net Sales from Mexico Operations
Net Sales from U.S. Operation
OPERATING RESULTS
Gross Profit
Operating Income
EBITDA Result
Net Income
Net income per Share (pesos)
Net Income per ADR (pesos)
Dividends Paid per Share
Total Assets
Total Liabilities
Total Stockholders’ Equity
Net Debt
Capital Expenditures
Figures in million pesos.
In December 2013, the free float of
the Company increased from
17.25% to 26.75%, due to the
founding family’s sale of a 9.5%
block of shares.
2013
2012
39,710.7
39,367.4
30,867.6
8,843.1
31,195.9
8,171.5
% Var.
0.9%
-1.1%
8.2%
2013
6,534.1
3,273.8
4,090.5
2,041.8
3.40
40.77
1.58
2013
28,781.6
8,630.4
20,151.1
5,664.9
575.4
2012
6,049.2
2,628.8
3,466.6
2,191.8
3.65
43.77
0.50
2012
28,040.2
8,951.5
19,088.7
2,420.8
951.8
% Var.
8.0%
24.5%
18.0%
-6.8%
-6.9%
-6.9%
216.8%
% Var.
2.6%
-3.6%
5.6%
134.0%
-39.5%
In July 2013, the Company
acquired a U.S. breeding operation,
located in Arkansas.
In 2013, the Company achieved
record net sales and EBITDA.
STATEMENT OF FINANCIAL POSITION DATA
EMPLOYEES
2013
24,486
2012
25,281
2011
25,326
ANNUAL REPORT 2013
01
MESSAGE TO
SHAREHOLDERS
Dear Shareholders of Industrias Bachoco:
Year 2013 was, in general terms, positive for Bachoco; we achieved
historical figures in sales and EBITDA while keeping a solid financial
position that allowed us to end the fiscal year with more than $5,600
million of negative net debt.
However, we faced important challenges along the way, in particular
the one related to bio-security. Sanitary and bio-security are important
issues for both Bachoco and the poultry industry, as these largely impact
production efficiency and product quality.
Despite the challenges we faced in 2013, the Company was able to
prove that it is a flexible company in its processes, which quickly adapts to
current conditions and takes the necessary actions to keep its presence
in the marketplace, ensuring that our customer have a constant supply of
products with consistent quality.
Some of the actions that took place to face this contingency were:
taking advantage of the geographical dispersion we have to redirect
our production and distribution processes; coordinating actions with
the sanitary authorities and keeping our customers, employees and
shareholders informed. All this led us to a prompt recovery of production
levels.
Regarding our operations located in the U.S., we reached positive results
in terms of EBITDA for the second consecutive year. We have not reached
the results we know can achieve in this operation, but we have identified
opportunity areas.
We quickly integrated our second acquisition in the U.S., an operation of
breeding hens, which timely reinforced our supply of hatching eggs.
We continue the process of reorganization in our structure and aligning
functions in our supply chain, in order to remain a flexible company, closer
to our markets and customers.
An important factor was the downtrend in the cost of main raw materials,
which we observed particularly towards the end of the year; we expect
this situation to continue and allow us to capitalize on decreases in our
production costs.
Our operating expenses remained practically unchanged with respect to
the previous year and below 9% of our total sales. This was mainly due
to strict control of expenses; capitalization of improvements in processes,
and investments made in information technology. We still have a long way
to go in this direction, and we will be focusing on achieving it.
In 2013, we had important changes in the management of the Company.
After successful careers in Bachoco and excellent performance of their
02
ANNUAL REPORT 2013
duties, José Luis Lopez Lepe and David Gastelum Cazares, Directors
of Personnel and Sales, respectively, retired. They have left a legacy of
knowledge and experience that will serve as a solid basis for the executives
who take those positions. Ismael Sanchez enters the Company to fill the
Director of Personnel position, and Andres Morales, who previously
served as Director of Marketing, now also takes the responsibility for
Sales management.
By the end of 2013, one of the two Family Trusts decided to sell a block of
shares equivalent to 9.5% of the total shares of the Company, with which
our float changed from 17.25% to 26.7% of the total shares outstanding.
An increase in the free float of the Company was one of the reiterated
requests from current and potential investors and financial analysts; as
a result of this decision, we observed an increase in the trading of our
shares.
As a result of the solid performance of Bachoco and the trust that the
participants of the market have in the Company, our shares had a positive
trade in the markets in which it participates, with yields of 46.6% on the
Mexican Bolsa and 44.2% on the New York Stock Exchange, when
compared with the closing price of 2012.
This year we are celebrating thirty years since the beginning of our
successful advertising campaign; during this time we have made a constant
effort to achieve branding identification in a generic product like chicken
and eggs in Mexico, in order to forge an identity and brand loyalty in our
products. We can say that this has been a successful effort; we have a
brand with the highest level of recognition in the Mexican poultry industry,
and the Company has earned several awards for this achievement.
Year 2014 has started with a good dynamic in the poultry industry. We
are prepared to focus on the opportunities that the market offers and to
face the challenges that arise; bio-security, the effects of the tax reform,
and more aggressive competition are issues that we will monitor closely.
Our goal is to remain as leaders of the poultry industry in Mexico, and to
continue strengthening our position globally, while continuing to deliver
positive results to our investors who have placed their trust in Bachoco.
Francisco Javier R. Bours Castelo
Chairman of the Board of Directors
MESSAGE TO
SHAREHOLDERS
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ANNUAL REPORT 2013
ANNUAL REPORT 2013
03
Francisco Javier R. Bours Castelo
Chairman of the Board of Directors
CEO’s LETTER
The following financial information for 2013 is presented in millions of
pesos unless otherwise indicated, with comparative figures for 2012.
It was prepared under IFRS accounting principles. This information
should be read in conjunction with our Audited Consolidated Financial
Statements, attached to this Annual Report.
It is estimated that in 2013, the Mexican economy grew 1.1%, below
expectation, with an inflation rate of 3.97%. The average rate peso-dollar
strengthened during the year, ending with 1% depreciation. Moreover
there was some uncertainty regarding the fiscal reforms that were
approved by the end of the year.
According to the National Poultry Union estimates, for 2013 the chicken
volume produced in Mexico slightly decreased, partly as a result of an
outbreak of avian flu that affected this industry. This decrease affected the
consumption of chicken, which had a reduction of about 1.5%. Meanwhile,
egg production showed a growth of about 6.1% and a 5.3% increase in its
consumption.
The reduction in poultry production was
present mainly during the first half of the
year; the lower production, combined
with a strong demand, resulted in a good
level of prices. This situation changed in
the second half when the poultry industry
went back to standard levels of production
leading to oversupply conditions in the
market.
The Company keeps a
solid financial structure,
with negative net debt
and a strong cash
position.
The cost of our main raw materials had a
reduction mainly towards the end of the
year, after posting historical increases in prices during the two previous
years.
For Bachoco, year 2013 was positive; we reached historical sales and
EBITDA results, with good control of operating expenses.
In July 2013, we acquired a U.S. breeding asset. This operation has a
capacity of around 350 thousand laying hens that produce hatching
eggs. Bachoco quickly integrated this new operation with the rest of its
facilities and currently is in the process of refining synergies between this
operation and the rest of the Company.
In 2013 we continued working hard on our quality systems, an essential
factor in providing adequate products to meet the needs of our customers.
We also continued to improve our information technology systems, which
are an important support in maintaining adequate control of operating
expenses and giving flexibility in our operations.
We have committed employees who have vast experience in the poultry
industry. It is thanks to their high performance we have achieved important
goals.
2013 & 2012 RESULTS
Net sales in 2013 totaled $39,711 million, an increase of 0.9% from
$39,367 million of net sales recorded in 2012. This increase was primarily
due to higher sales prices in our main business lines, offset by lower
volume in chicken products during the second and third quarters of 2013.
Sales of chicken products decreased 0.3% during 2013, as a result of an
increase of 3.5% in prices, offset by a 4% decrease in volume.
Egg sales increased 14.7% in 2013. This increase was attributable to
increases in egg prices, partially offset by a 2% decline in sales volume.
Sales of balanced feed decreased 8.6% in
2013, as a result of a 1.6% increase in prices,
partially offset by a 10.1% decline in volume
sold. This was a consequence of oversupply
conditions in the balanced feed market.
In the “other lines” item for 2013, sales of beef
value-added products and swine increased
when compared to 2012.
In 2013 the cost of sales totaled $33,117 million,
a 0.4% decrease when compared to $33,318
million cost of sales in 2012. This decrease is
primarily attributable to a 4.9% decrease in
sales volume of our main lines of business, partially offset by an increase in
the production cost of 4.7%.
Bachoco’s gross income for 2013 totaled $6,534 million and $6,049
million in 2012; this represented a gross margin of 16.5% and 15.4%,
respectively. The decrease in gross income is mainly due to lower sales
volume and prices in the second half of 2013.
Total operating expenses were $3,291 million in 2013, 3.1% lower than
expenses in 2012 of $3,397 million. The Company has kept a strict
control over its expenses across all processes. In 2013 and 2012, total
expenses represented 8.3% and 8.6% of the total sales of the Company.
In 2013, we achieved a net finance income of $118 million, a result that
compared with a net finance income of $165 million registered in 2012.
This was a result of interest earned in both years due our surplus in cash.
Rodolfo Ramos Arvizu
Chief Executive Officer
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ANNUAL REPORT 2013
05
CEO’s LETTER
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ANNUAL REPORT 2013
ANNUAL REPORT 2013
05
Rodolfo Ramos Arvizu
Chief Executive Officer
REVIEW AND
REPORT
The EBITDA result in 2013 and 2012 was $4,091 and $3,467 million,
respectively; this result let the Company reach an EBITDA margin
of 10.3% and 8.8% in those periods. The amount reached in 2013
represented a historical amount for the Company.
Total income taxes in 2013 were $1,350 million, compared to income
taxes of $602 million in 2012; the increase is mainly due a one-time
charge of $668 million as a result of the Mexican Tax Reform approved
in 2013.
As a result of all the above, the income for the year was $2,042 million
or 5.1% of net margin. This represented a decrease with respect to net
income of 2012 that reached $2,192 million and 5.6% of net margin.
Net income per Share in 2013 was $3.40 pesos or $40.8 pesos per
ADR; this result compares to a net income of $3.65 pesos or $43.8
pesos per ADR in 2012.
The Company keeps a solid financial structure, with negative net debt and
a strong cash position.
Total cash as of December 31, 2013 was $7,733 million, 50.3% higher
when compared to $5,145 million reached in the same period of 2012.
For 2013 and 2012, total debt for the Company was $2,068 and $2,724
million, respectively. Negative net debt as of December 31, 2013 was
$5,665 million, compared to a negative net debt of $2,421 million in 2012.
The Company’s capital expenditures in 2013 were $575 million,
mainly allocated to productivity projects and maintenance. Bachoco
will gradually restart its organic growth in Mexico in the following years;
therefore an increase in CAPEX is expected.
In 2013, the Company paid cash dividends of $1.584 pesos per Share,
which represented an estimated dividend yield of 3.6% per Share.
MAIN EFFECTS OF THE TAX REFORM
As a result of the Mexican tax reform approved by the end of 2013,
Bachoco, SA de CV, our main subsidiary, increased its income tax rate
from 21% to 30%, starting in 2014.
Rodolfo Ramos Arvizu
Chief Executive Officer
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ANNUAL REPORT 2013
ANNUAL REPORT 2013
07
REVIEW AND
REPORT
FROM THE BOARD
OF DIRECTORS
As Chairman of the Board of Directors of Industrias Bachoco, SAB de CV, and pursuant to the provisions of
Section IV of Article 28 of the Securities Market Law, I hereby inform you of the following:
This Board of Directors reviewed and approved the Chief Executive Officer’s report which supports the per-
formance of management for fiscal year ended as of December 31, 2013, and it was based on the independent
auditor’s Opinion.
The Board believes that the CEO’s report prepared in accordance with the Financial Reporting Standards
(“IFRS”) reflects the Company’s financial position and its operating results.
We believe that policies, accounting, and reporting principles followed by the Company are adequate and con-
sistent with the Audited Financial Statements attached to this Annual Report.
Additionally, this Board instructed the Company to continue to act in strict accordance with IFRS.
We determined that during this period the Company did not engage in unusual operations or other activities
different from its normal operations. No exemptions were granted to any member of the Board, executive officers
or any other member of the Company to take advantage of business opportunities for themselves or in favor of
third parties.
Lastly, attached to this report, the Board presents in the Annual Ordinary Shareholders’ Meeting the report of
the Auditing and Corporate Practices Committee, the Chief Executive Officer’s report, the report on prompt
compliance with tax obligations, and the report on the principal accounting and information policies and criteria
followed by the Company in the preparation of its financial statements for fiscal year 2013.
Francisco Javier R. Bours Castelo
Chairman of the Board of Directors
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ANNUAL REPORT 2013
ANNUAL REPORT 2013
07
COMMITTEE
REPORT
AUDIT AND CORPORATE
PRACTICES COMMITTEE
Dear members of the Board of Director and Shareholders,
It is my pleasure to inform you of the activities performed by this Committee during fiscal year 2013:
Regarding Corporate Practices, I hereby report the following:
• We determined that the performance of the Company’s Officers was consistent with the work plan and met
with expectations and guidelines.
• We reviewed the compensation package granted to the CEO and other senior officers.
• We verified that the Company did not grant any exemptions to its Directors, senior officers or other employ-
ees of the Company.
• We meticulously reviewed the transactions carried out with related parties and concluded they were con-
ducted in fair-market terms.
• We reviewed the policies and guidelines for the use of goods that constitute the equity of the Company
and its subsidiaries, by any related parties, as well as policies for granting of loans or any type of credit or
guarantees.
• The total transactions with related parties represented less than 3.0% of the Company’s net sales.
Regarding Audit Practices, I hereby report the following:
• We verified the application of the IFRS, implemented in 2012.
• We issued a recommendation for the appointment and hiring of external auditors to perform the 2013 fiscal
year audit, we ensured their independence, and subsequently analyzed the work program proposed by the
auditing firm.
• We supervised compliance of the agreement and evaluated their results, as well as evaluated the perfor-
mance of the external auditor in charge, concluding that the services provided were consistent with the terms
of the agreement.
• We reviewed the analyses, processes and observations of the external auditors while ensuring they were
made objectively, in order to provide prompt and reliable financial information.
• We analyzed and agreed with the audited financial statements, the auditing report, and the accounting poli-
cies used during fiscal year 2013 in the Company and its subsidiaries. Therefore, we recommended its ap-
proval.
• We reviewed and discussed the observations of the auditing firm; we concluded these were mainly reclas-
sifications resulting from variations between the auditing information and the non-audited quarterly reports
issued by the Company.
• We periodically reviewed the guidelines and the efficiency of internal controls and internal auditing controls
and did not detect any material deviations.
• We analyzed and assessed the additional or supplementary services provided by the external auditing firm,
as well as those provided by independent experts.
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ANNUAL REPORT 2013
COMMITTEE
REPORT
• We reviewed the proposals of unusual or nonrecurring transactions presented during the year 2013, to be
held by the Company or its subsidiaries in connection with the acquisition or disposal of goods, and the
granting of guarantees or assumption of liabilities by an amount equal or greater than 5% percent of the
Company’s consolidated assets, except for investments in debt securities or bank instruments, and gave our
opinion to the Board of Directors thereon.
• We reviewed and analyzed the report of the Board with respect to the Company’s corporate situation and
verified follow-up of the resolutions adopted by the Shareholders’ Meeting and the Board of Directors.
• We validated the efficiency and continuity of the mechanisms to receive and deal with claims in connection
with accounting and internal controls. During fiscal year 2013, no relevant observations were received from
shareholders, directors, relevant officers or any third party.
We made proposals to the Board relating to the basis on which to prepare and disclose financial information,
general guidelines and the implementation of internal control measures, and the accounting procedures that the
Company must follow.
In connection with the CEO´s report, this Committee heard the Executive Committee and with the sup-
port of the external firm Report, among other elements, we express the following:
We believe that the CEO’s report was prepared in accordance with the IFRS and reflects the Company’s finan-
cial position and its operating results. Therefore, we recommended to the Board of Directors that they approve
the audited financial statements to present them in the Annual Ordinary Shareholders’ Meeting.
We believe that policies, accounting, and reporting principles followed by the Company are adequate and suf-
ficient, taking into account the particular circumstances of the Company, and that such policies and criteria have
been applied consistently to the information submitted by the CEO, as detailed in the Audited Financial State-
ments attached to this Annual Report, and suggest that the Board instruct the Company to continue to act in strict
accordance with these principles.
Humberto Schwarzbeck Noriega
President of the Audit and Corporate Practices Committee
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ANNUAL REPORT 2013
ANNUAL REPORT 2013
09
ERNESTO SALMON CASTELO
ANDRES MORALES ASTIAZARAN
RODOLFO RAMOS ARVIZU
DANIEL SALAZAR FERRER
MARCO A. ESPARZA SERRANO
TRENT GOINS
RODOLFO RAMOS ARVIZU
Chief Executive Officer
TRENT GOINS
Chief Executive Officer, U.S. Operations
DANIEL SALAZAR FERRER
Chief Financial Officer
ERNESTO SALMON CASTELO
Director of Operations
ANDRÉS MORALES ASTIAZARAN
Director of Sales and Marketing
MARCO ANTONIO ESPARZA SERRANO
Comptroller Director
ISMAEL SANCHEZ MORENO
Director of Human Resources
ALEJANDRO ELIAS CALLES GUTIERREZ
Director of Purchasing
ISMAEL SANCHEZ MORENO
SENIOR
MANAGEMENT
TEAM
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ANNUAL REPORT 2013
ALEJANDRO ELIAS CALLES G.
ERNESTO SALMON CASTELO
ANDRES MORALES ASTIAZARAN
RODOLFO RAMOS ARVIZU
DANIEL SALAZAR FERRER
MARCO A. ESPARZA SERRANO
TRENT GOINS
ISMAEL SANCHEZ MORENO
ALEJANDRO ELIAS CALLES G.
SENIOR
MANAGEMENT
TEAM
BOARD OF DIRECTORS
Bachoco’s Board of Directors is comprised of eight Proprietary Shareholders Directors, four Alternate
Shareholders Directors, and two Independent Proprietary Directors. This board was last ratified on April 24,
2013. The Board’s main duties include the following:
• Determine policies, general strategies, and the organization and management criteria that guide the
activities of the Company.
• Prepare and develop programs to optimize resources management and the operation of the business,
such as budgets and financial planning.
• After considering the Auditing and Corporate Practices Committee’s opinion, approve the internal control
and guidelines of the internal auditing of the Company.
• Authorize acquisitions or disposing, as well as the granting of guarantees or the taking of liabilities for a value
equal to or higher than five per cent of the consolidated assets of the Company, except for investments in
debt securities or bank instruments, provided such are made in accordance with the policies approved by
the Board for such purposes.
• Review and authorize operating results and work plans, and the overall compensation of the Company’s
senior officers.
PROPRIETY SHAREHOLDERS DIRECTORS
Francisco Javier R. Bours Castelo, Chairman of the Board
José Gerardo Robinson Bours Castelo
Jesús Enrique Robinson Bours Muñoz
Jesús Rodolfo Robinson Bours Muñoz
Arturo Bours Griffith
Octavio Robinson Bours
Ricardo Aguirre Borboa
Juan Salvador Robinson Bours Martínez
INDEPENDENT PROPRIETARY DIRECTORS
Avelino Fernández Salido
Humberto Schwarzbeck Noriega
ALTERNATE SHAREHOLDERS DIRECTORS
José Eduardo Robinson Bours Castelo
Alternate of: Francisco Javier R. Bours Castelo y/o José Gerardo Robinson Bours Castelo
José Francisco Robinson Bours Griffith
Alternate of: Octavio Robinson Bours y/o Arturo Bours Griffith
Guillermo Pineda Cruz
Alternate of: Jesús Enrique Robinson Bours Muñoz y/o Jesús Rodolfo Robinson Bours Muñoz
Gustavo Luders Becerril
Alternate of: Juan Salvador Robinson Bours Martínez y/o Ricardo Aguirre Borboa
HONORARY MEMBERS OF THE BOARD
Enrique Robinson Bours Almada
Mario Javier Robinson Bours Almada
Juan Bautista Salvador Robinson Bours Almada
SECRETARY OF THE BOARD
Eduardo Rojas Crespo
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ANNUAL REPORT 2013
ANNUAL REPORT 2013
11
AUDIT COMMITTEE AND CORPORPORATE PRACTICES
KEY INFORMATION
TO INVESTORS
Bachoco has an Auditing and Corporate Practices Committee to support the Board of Directors, which is com-
posed of two Independent Directors and one Property Shareholder Director. This Committee was last ratified on
April 24, 2013 and its main duties include:
• Evaluate the performance of the independent auditing firm, as well as analyze their opinion, recommenda-
tions, reports and other information.
• Prepare and present to the Board an opinion about the CEO’s report, and advise the Board of Directors
in the preparation of reports regarding policies and accounting principles and other criteria followed in the
preparation of financial statements, as well as on the operations and activities it has participated.
• Provide an opinion regarding the transactions with related persons.
• Ensure that relevant or unusual transactions have followed the Company’s authorized policies.
• Propose the hiring of independent specialists in the cases it deems advisable.
AUDIT COMMITEE AND CORPORATE PRACTICES
Humberto Schwarzbeck Noriega, President
Avelino Fernández Salido
Ricardo Aguirre Borboa
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ANNUAL REPORT 2013
13
AUDIT COMMITTEE AND CORPORPORATE PRACTICES
KEY INFORMATION
TO INVESTORS
DIVIDENDS
2013 2012
Total Dividends Paid (in million pesos)
950.4
Dividends per Share (in pesos)
1.584
Dividends per ADR (in pesos)
19.000
299.2
0.500
6.000
Yield
3.6%
1.6%
In December 2013, the free float of the Company increased from
17.25% to 26.75%, as a result of the selling of a block of 57 million
shares, from the founding family.
The founding family still holds control of the Company with the 73.25%
of total shares, by two Trusts: the Control Trust with 52% of total shares
and the Underwriting Trust with 21.25% of total shares.
BACHOCO STRENGTHS
• More than 60 years in the poultry industry.
• Wide brand recognition.
• National coverage in Mexico.
• Large distribution network.
• Strong balance sheet.
• Wide expertise in purchasing of raw material.
• Focused on productivity and controlling expenses.
• Product diversification to other proteins: beef and turkey.
MAIN CHARACTERISTICS OF SHARES
• Total shares in the Company: 600 million
• One single class of Shares with full rights: Class B
• One ADR is equal to 12 common shares
• Free float: 26.75%
• Market Cap: $2.8 billion pesos
• In 2013, the Company’s shares and ADRs reached a yield of
46.6% and 44.2%, respectively.
SHARE PRICES
Mexican Bolsa
in nominal pesos per share
The New York Stock Exchange
in U.S. dollar per ADR
Year High Low Close
Year High Low Close
2013
2012
2011
45.25
30.13
27.86
28.80
20.59
20.30
44.16
30.13
22.30
2013
2012
2011
43.08
27.97
28.75
27.02
18.86
17.40
40.27
27.92
19.07
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ANNUAL REPORT 2013
ANNUAL REPORT 2013
13
BACHOCO: 30 YEARS
OF BUILDING A SUCCESSFUL BRAND
In Mexico during the 80’s, no one thought that eggs or chicken
needed to have a brand. It can be said that there was no consumer
preference when purchasing these products. In the case of eggs, they
were sold in bulk, had no advertising and no brand identification.
Over these 30 years we have constantly worked on building the
BACHOCO brand, which has competed with strongly-established
local producers, successfully achieving a preference for our brand.
At that time, the growth of Bachoco depended mainly on its
production capacity and the scope of its distribution.
Given this fact, Bachoco initiated a dialogue with the consumers,
presenting a different point of view and generating brand recognition.
This was achieved by communicating the main characteristics of our
products: freshness, quality and nationalism (Mexican).
BACHOCO was the first “branded commodity” in the Mexican
poultry industry, a great communication effort that began in 1984 in
Mexico City and then later was extended to the whole country.
A successful and well-recognized advertising campaign, based
mainly on creative, fun and current issues billboards, acquainted the
consumer with our brand and our products.
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ANNUAL REPORT 2013
WHAT HAVE WE REACHED?
• Being present in the daily diet of Mexican consumers.
• Placed an affective and emotive relationship with our brand
BACHOCO .
•The BACHOCO brand has a perception of quality in the
market.
•BACHOCO is perceived as an original, innovative, intelligent,
honest, surprising, and dynamic brand.
During these years, we have integrated other brands into our
portfolio that, little by little, have gained the same recognition as our
leading brand in their own markets.
This is a continuous effort. We continue to work
to position our brands in new markets.
ANNUAL REPORT 2013
15
CONSOLIDATED
FINANCIAL
STATEMENTS
Reports of Independent Auditors
Consolidated Statements of Financial Position
Consolidated Statements of Income and Other Comprehensive Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
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24
25
26
Av. Tecnológico 100-901
Col. San Angel, 76030,
Querétaro, Qro.
Tel. (442) 238 2900
Fax (442) 238 2975
Report of Independent Registered Public Accounting Firm to the Board of Directors and
Stockholders of Industrias Bachoco, S.A.B. de C.V.
We have audited the accompanying consolidated statement of financial position of Industrias Bachoco, S.A.B. de
C.V. and subsidiaries (the “Company”) as of December 31, 2013, and the related consolidated statements of profit or
loss and other comprehensive income, changes in shareholders’ equity and cash flows for the year ended December
31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial
position of Industrias Bachoco, S.A.B. de C.V. and subsidiaries as of December 31, 2013 and the results of their
operations and their cash flows for the year ended December 31, 2013, in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2013, based on the
criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated April 28, 2014 expressed an unqualified opinion
on the Company’s internal control over financial reporting.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited
/s/ Abel García Santaella
C.P.C. Abel García Santaella
Querétaro, Qro., Mexico
April 28, 2014
18
Report of Independent Registered Public Accounting Firm to the Board of Directors and
Section 1.01 Stockholders of Industrias Bachoco, S.A.B. de C.V.
We have audited the internal control over financial reporting of Industrias Bachoco, S.A.B. de C.V. and subsidiaries (the
“Company”) as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
19
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended December 31, 2013 of the Company and our
report dated April 28, 2014 expressed an unqualified opinion on those financial statements.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
C.P.C. Abel García Santaella
Querétaro, Qro., Mexico
April 28, 2014
20
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Industrias Bachoco, S.A.B. de C V:
We have audited the accompanying consolidated statements of financial position of Industrias Bachoco, S.A.B. de C.V. and
subsidiaries (the “Company”) as of December 31, 2012 and January 1, 2012, and the related consolidated statements of
profit and loss and other comprehensive income, changes in equity and cash flows for the years ended December 31, 2012
and 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Industrias Bachoco, S.A.B. de C.V. and subsidiaries as of December 31, 2012 and January 1, 2012, and the
results of their operations and their cash flows for the years ended December 31, 2012 and 2011, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
As mentioned in note 4 to the 2013 consolidated financial statements, on November 1, 2011, the Company acquired 100%
percent of the voting stock of OK Industries, Inc. (the “Acquired Entity”) which owns five consolidated subsidiaries. OK
Industries, Inc. operates and is located in the United States of America (U.S.A.). The results of operations of the Acquired
Entity have been included in the consolidated financial statements from such date. The acquisition of this company
originated a gain on bargain purchase of $1,000,565, (thousands of Mexican pesos) which was booked in other income in
2011.
As mentioned in note 5 to the 2013 consolidated financial statements, on March 2, 2012, Bachoco USA, LLC. was
incorporated as a subsidiary of Industrias Bachoco, S.A.B. de C.V. and acquired 100% of the shares of OK Industries. From
such date Bachoco USA, LLC. acts as the holding company of OK Industries, Inc. and, therefore, of the operations of the
Company in the U.S.A.
KPMG Cárdenas Dosal, S.C.
/s/ Demetrio Villa Michel
Demetrio Villa Michel
Querétaro, México
April 30, 2013, except as to note 2 b) to the 2013 consolidated financial statements, which is as of April 14, 2014.
21
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22
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Profit and Loss and Other Comprehensive Income
Years ended December 31, 2013, 2012 and 2011
(Thousands of pesos, except share and per share amount)
Net revenues
Cost of sales
Gross profit
General, selling and administrative expenses
Other income (expenses), net
Operating income
Finance income
Finance costs
Net finance income
Note
2013
2012
2011
$
39,710,726
(33,176,599)
39,367,431
(33,318,207)
27,734,990
(24,797,037)
6,534,127
6,049,224
2,937,953
3,291,006
30,704
3,396,655
(23,810)
2,974,733
999,965
3,273,825
2,628,759
963,185
344,785
(226,366)
118,419
270,032
(105,000)
165,032
248,282
(70,640)
177,642
30
29
29
Profit before income taxes
3,392,244
2,793,791
1,140,827
Income taxes
Profit for the year
20
1,350,439
602,020
(38,616)
$
2,041,805
2,191,771
1,179,443
Other comprehensive income (loss) items:
Items that may be reclassified subsequently to profit or loss:
Currency translation effect
Items that will not be reclassified subsequently to profit or loss:
Actuarial remeasurements
Taxes from actuarial remeasurements
32,672
(186,095)
64,387
(61,057)
18,317
-
-
-
-
Other comprehensive (loss) income items
(10,068)
(186,095)
64,387
Comprehensive income for the year
Profit attributable to:
Controlling interest
Non-controlling interest
Profit for the year
Comprehensive income attributable to:
Controlling interest
Non-controlling interest
Comprehensive income for the year
$
$
$
$
$
2,031,737
2,005,676
1,243,830
2,038,422
3,383
2,184,567
7,204
1,177,346
2,097
2,041,805
2,191,771
1,179,443
2,028,354
3,383
1,998,472
7,204
1,241,733
2,097
2,031,737
2,005,676
1,243,830
Weighted average outstanding shares
599,992,952
598,959,882
599,822,448
Basic and diluted earnings per share
26 $
3.40
3.65
1.96
See accompanying notes to consolidated financial statements.
23
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S
24
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2013, 2012 and 2011
(Thousands of pesos)
Cash flows from operating activities:
Profit for the year
Adjustments for:
Deferred income tax recognized in profit or loss
Current income tax recognized in profit or loss
Bargain purchase on business combinations
Depreciation
Loss on sale of plant and equipment
Interest income
Interest expense
Unrealized foreign currency exchange
Foreign exchange loss on loans
Note
2013
2012
2011
$
2,041,805
2,191,771
1,179,443
20
14
30
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123,022
1,227,417
-
816,673
14,958
(314,245)
226,366
17,950
11,865
235,603
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65,323
(222,063)
105,000
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(52,687)
(108,202)
-
(1,047,245)
745,837
46,671
(193,777)
69,744
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Subtotal
4,165,811
3,160,754
726,971
Derivative financial instruments
Accounts receivable, net
Inventories, net
Current and non-current biological assets
Prepaid expenses and other current assets
Assets available for sale
Trade payable and other accounts payable
Related parties
Income taxes paid
Employee benefits
(8,797)
(8,091)
1,871,404
151,010
(287,478)
2,454
(70,540)
(33,944)
(843,906)
(84,110)
7,270
14,514
(1,368,368)
(24,720)
(116,728)
44,140
532,030
9,496
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(3,425)
2,689
(435,320)
126,624
(856,908)
(216,722)
(9,075)
443,987
17,670
-
22,153
Cash flows (used in) provided by operating activities
4,853,813
2,254,963
(177,931)
Cash flows from investing activities:
Acquisition of property, plant and equipment
Proceeds from sale of plant and equipment
Financial instruments
Other assets
Interest collected
Business acquisitions
(575,411)
57,795
(42,138)
(48,210)
314,245
(135,450)
(951,760)
81,591
(551,247)
62,726
222,063
-
(707,533)
83,946
(201,373)
(146,389)
193,777
(1,326,741)
Cash flows used in investing activities
(429,168)
(1,136,627)
(2,104,313)
Cash flows from financing activities:
Payment for repurchase of shares
Proceeds for repurchase of shares
Dividends paid
Proceeds from borrowings
Interest paid
Dividends paid to non-controlling interest
Currency translation effect
Disposal of non-controlling interest from disolution
Principal payment on loans
(3,071)
3,198
(950,400)
1,507,700
(226,366)
(780)
-
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(2,181,166)
(85,545)
96,538
(299,175)
3,069,787
(105,000)
(491)
(93,397)
(8,142)
(2,130,805)
(6,153)
5,944
(299,926)
1,921,609
(60,809)
(912)
33,440
-
(774,601)
Cash flows (used in) provided by financing activities
(1,850,885)
443,770
818,592
Net (decrease) increase in cash and cash equivalents
2,573,760
1,562,106
(1,463,652)
Cash and cash equivalents at January 1
4,179,541
2,625,661
3,967,874
Effect of exchange rate fluctuations on cash and cash equivalents
(36,407)
(8,226)
121,439
Cash and cash equivalents at December 31
$
6,716,894
4,179,541
2,625,661
See accompanying notes to consolidated financial statements.
25
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2013, 2012 and 2011
(Thousands of Mexican pesos, except amounts per share)
(1)
Reporting entity
Industrias Bachoco, S.A.B. de C.V. and subsidiaries (hereinafter Bachoco or the Company) is a public stock company with
variable capital incorporated on April 17, 1980, as a legal entity. The Company’s registered address is Avenida Tecnológico
401, Ciudad Industrial, Celaya, Guanajuato, Mexico.
The Company is engaged in breeding, processing and marketing poultry (chicken and eggs), swine and other products
(primarily balanced animal feed). Bachoco is a holding company that has control over a group of subsidiaries (see note 5).
The shares of the Company are listed on the Mexican Stock Exchange (BMV for its Spanish acronym) under the symbol
“Bachoco,” and in the New York Stock Exchange (NYSE), under the symbol “IBA”.
Significant event
During 2013, the Company informed the National Service of Sanity, Safety and Food Quality (SENASICA, by its Spanish
acronym) the presence of a H7N3 avian flu outbreak in some of the Company’s farms located in the state of Guanajuato
and in the limits of the Jalisco and Guanajuato states. The financial effects derived from the outbreak were a charge to cost
of sales in 2013 for $350,821 related to the destruction of birds and eggs inventory. As of the date of the issuance of the
consolidated financial statements, the National Agriculture, Husbandry, Rural Development, Fishing and Food Agency
maintains a monitoring process of the outbreak in both states.
(2)
Basis of preparation
a)
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS), issued by the International Accounting Standard Board (IASB), adopted by public entities in Mexico in accordance
with the amendments to Rules for Public Companies and other Entities Trading on the Mexican Stock Exchange,
established by the Mexican National Banking and Securities Commission on January 27, 2009, according to which,
beginning in 2012, the Company is required to prepare financial statements in accordance with IFRS as issued by the IASB.
On April 28, 2014, the accompanying consolidated financial statements and related notes were authorized for issuance by
the Company’s Finance Director, Mr. Daniel Salazar Ferrer and the Company’s Controller Director, Mr. Marco Antonio
Esparza Serrano, for the Audit Committee, Board of Directors and Stockholders’ approvals. In accordance with the
Mexican General Corporate Law and the bylaws of the Company, the stockholders are empowered to modify the
consolidated financial statements after their issuance.
b)
Reclassifications
(a) Criteria for classification of inventory and biological assets
During 2013, the Company decided to reclassify live poultry, formerly presented within inventory, to current biological
assets in order to provide a more accurate presentation based on the nature of the assets. Prior year financial information
was adjusted for such reclassification, for which reason the accompanying consolidated financial statements include a
consolidated statement of financial position as of January 1, 2012.
26
The following table shows the impact of the reclassifications of inventories to biological assets on the consolidated statement
of financial position:
Inventories, net
Current biological assets
Inventories, net
Current biological assets
December 31,
2012
originally reported
Increase or
(decrease)
from reclassification
5,829,837
266,482
6,096,319
(1,230,482)
1,230,482
December 31,
2012
retrospectively
reclassified
4,599,355
1,496,964
6,096,319
January 1, 2012
originally reported
Increase or
(decrease)
from reclassification
January 1, 2012
retrospectively
reclassified
4,562,355
217,354
4,779,709
(1,331,368)
1,331,368
3,230,987
1,548,722
4,779,709
$
$
$
$
The reclassification also resulted in changes to the consolidated statement of cash flows with respect to the amounts
reported for inventories and biological assets, as follows:
Inventories, net
Current and non-current biological assets
Inventories, net
Current and non-current biological assets
December 31, 2012
originally reported
Increase or
(decrease)
from reclassification
December 31, 2012
retrospectively
reclassified
(1,267,482)
(100,886)
(1,368,368)
(125,606)
100,886
(24,720)
(1,393,088)
(1,393,088)
December 31, 2011
originally reported
Increase or
(decrease)
from reclassification
December 31, 2011
retrospectively
reclassified
(387,569)
514,193
126,624
(342,715)
(514,193)
(856,908)
(730,284)
(730,284)
$
$
$
$
27
c)
Basis of measurement
The accompanying consolidated financial statements were prepared on the historical cost basis (historical cost is generally
based on the fair value of the consideration given in exchange for goods and services) except for the following material
items in the consolidated statement of financial position, which are measured at:
i.Fair value
•
•
•
Derivative financial instruments for trading and hedging, and the investments in primary debt and equity instruments at
fair value through profit or loss
Biological assets
Defined benefit plan assets
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 Company 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.
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
measurements in its entirety, which are described as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 inputs are inputs, other than quoted prices included within Level 1, which are observable either directly or indirectly.
Level 3 inputs are unobservable inputs.
ii.Present value
•
Defined benefit obligation
The present value discounts future cash flows to a present day amount using a discount rate.
d)
Functional and presentation currency
These consolidated financial statements are presented in thousands of Mexican pesos (pesos or $), national currency of
Mexico, which is the Company’s recording and functional currency, except for the foreign subsidiary that uses the U.S.
dollar as its recording and functional currency.
For disclosure purposes, in the notes to the consolidated financial statements, “thousands of pesos” or “$” means thousands
of Mexican pesos, and “thousands of dollars” means thousands of U.S. dollars.
When deemed relevant, certain amounts are included between parentheses as a translation into thousands of dollars, into
thousands of Mexican pesos, or both, as applicable. These translations are performed for the convenience of the reader at
the closing exchange rate, which is $13.09, as of December 31, 2013.
28
e)
Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these estimates.
Estimates and significant assumptions are reviewed on an ongoing basis. Changes arising from these reviews are
recognized in the period in which they are reviewed and in any future periods affected.
Critical accounting judgments and key sources of estimation uncertainty
Below are critical estimates and assumptions in the application of accounting policies with significant effects on the amounts
recognized in the consolidated financial statements, as well as information on assumptions and uncertainty of estimates that
have a significant risk of resulting in a material adjustment in future years.
i.Fair value of biological assets
The Company estimates the fair value of biological assets as the price that would be received or paid in an orderly
transaction between market participants at the measurement date. As part of the estimate, the Company considers the
maturity periods of such assets, the necessary time span for the biological assets to reach a productive stage, as well as
future economic benefits obtained.
The balance of current biological assets is integrated by hatching eggs, growing pigs and growing poultry, while the
balance of non-current biological assets is integrated by poultry in its different production stages, and breeder pigs.
Non-current biological assets are valued at its production cost less accumulated depreciation or accumulated impairment
losses, because the Company considers there is no observable or reliable market for such assets. Also, the Company
considers there is no reliable method for measuring the fair value of non-current biological assets. Current biological assets
are valued at fair value when there is an observable market, less sale expenses.
ii.Business combinations or acquisition of assets
Management uses its professional judgment to determine whether the acquisition of a group of assets constitutes a business
combination. This determination may have a significant impact in how the acquired assets and assumed liabilities are
accounted for, both at the initial recognition and subsequently.
Key sources of estimation uncertainty
The following are the key assumptions which are source of estimation uncertainty at the end of the reference reporting
period which may have a significant risk of causing a material adjustment to and do not have significant effects on the
recorded amounts in the consolidated financial statements.
iii. Assessments to determine the recoverability of deferred tax assets
As part of the tax analysis carried out by the Company, on an annual basis the Company prepares projections of taxable
income for purposes of determining if taxable income will be sufficient to recover the benefit of deferred tax assets
recognized from deductible temporary differences, including tax losses and other tax credits.
iv. Useful lives and residual values of property, plant and equipment
Useful lives and residual values of property, plant and equipment are used to determine depreciation expense of such assets
and are defined according to the analysis by internal and external specialists. Useful lives and residual values are reviewed
periodically at least once a year, based on the current conditions of the assets and the estimate of the period during which
29
they will continue to generate economic benefits to the Company. If there are changes in the estimate, measurement of the
net carrying amount of assets and the corresponding depreciation expense are prospectively affected.
v. Measurements and disclosures at fair value
Fair value is a measurement based on the price a market participant would be willing to receive to sell an asset or pay to
transfer a liability, and is not a measure specific to the Company. For some assets and liabilities, observable market
transactions or market information may be available. For other assets and liabilities, observable market transactions and
market information may not be available. However, the purpose of a measurement at fair value in both cases is to estimate
the price at which an orderly transaction to sell the asset or to transfer the liabilities would be carried out among the market
participants at the date of measurement under current market conditions.
When the price of an identical asset or liability is not observable, the Company determines the fair value using another
valuation technique which maximizes the use of relevant observable information and minimizes the use of unobservable
information. As the fair value is a measurement based on the market, it is measured using the assumptions that market
participants would use when they fix a price to an asset or liability, including assumptions about risk.
vi. Impairment of long-lived assets and goodwill
The carrying amount of long-lived assets is reviewed for impairment when situations or changes in circumstances indicate
that it is not recoverable, except for goodwill which is reviewed on an annual basis. If there are indicators of impairment, a
review is carried out to determine whether the carrying amount exceeds its recoverable value and whether it is impaired.
The recoverable value is the highest of the asset’s fair value, less selling costs, and its value in use which is the present value
of the future estimated cash flows generated by the asset. The value in use calculation requires the Company’s management
to estimate the future cash flows expected to arise from the asset and/or from the cash-generating unit and a suitable
discount rate in order to calculate present value.
vii.Contingencies
Due to their nature, contingencies can solely be resolved when they occur or one or more future events or one or more
uncertain events that are not entirely under the control of the Company. The assessment of such contingencies significantly
requires the exercise of judgments and estimates on the possible outcome of those future events. The Company assesses
the probability of loss of lawsuits and contingencies according to the estimates made by its legal advisors. These estimates
are reconsidered periodically.
viii.Other non-significant estimates
•
f)
Allowance for doubtful accounts (Note 9).
Basis of presentation
(b) i. New and amended IFRS that affect reported balances and/or disclosures in financial statements
In the current year, the Company adopted a series of new and amended IFRS issued by the IASB which are binding and go
into effect from fiscal years beginning on or after January 1, 2013.
Amendments to IFRS 7 Disclosures - Offset of financial assets and liabilities
The Company applied the amendments to IFRS 7 Disclosures- Offsetting of financial assets and liabilities for the first time in
the current year. Amendments to IFRS 7 require companies to disclose information about offsetting rights and related
agreements for recognized financial instruments that are subject to a master close-out netting agreement or similar
agreement.
30
Amendments to IFRS 7 apply retroactively. As the Company does not have any close-out netting agreement, the adoption
of the amendments had no significant effect in disclosures or in balances recognized in the consolidated financial
statements.
Modified standards on consolidation, joint arrangements, associates and disclosures
In May 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures standards that
comprise IFRS 10 Consolidated financial statements, IFRS 11 Joint arrangements, IFRS 12 Disclosure of interests in other
entities, IAS 27 (as revised in 2011) Separate financial statements and IAS 28 (as revised in 2011) Investments in associates
and joint ventures, were issued. Subsequent to the issuance of these standards, amendments to IFRS 10, IFRS 11 and IFRS 12
were issued to clarify certain transitional guidance on the first-time application of the standards.
In the current year, the Company has applied these standards for the first time, together with the amendments to IFRS 10,
IFRS 11, and IFRS 12 regarding the transitional guidance. Both IAS 27 and IAS 28 do not apply to the Company’s
consolidated financial statements, since these financial statements are not separate financial statements, nor does it have
investments on which it has significant influence or joint control that result in the application of the equity method. As of the
issuance date of the consolidated financial statement, separate financial statements were issued in order to comply with
statutory requirements for the Company as legal entity and IAS 27 was applied for its preparation.
The impact of these standards is shown below:
Impact of the application of IFRS 10
IFRS 10 replaces the parts of IAS 27 Consolidated and separate financial statements that deal with consolidated financial
statements and SIC-12 Consolidation – special purpose entities. IFRS 10 changes the definition of control such that an
investor has control over an investee when a) it has power over the investee, b) it is exposed, or has rights, to variable
returns from its involvement with the investee and c) has the ability to use its power to affect its returns. All three of these
criteria must be met for an investor to have control over an investee. Previously, control was defined as the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. Additional guidance has been
included in IFRS 10 to explain when an investor has control over an investee. Some guidance included in IFRS 10 that deals
with whether or not an investor that owns less than 50% of the voting rights in an investee has control over the investee is
relevant to the Company.
Specifically, the Company, through its subsidiary Bachoco, S.A. de C.V., has a 51% equity interest in four entities engaged in
breeding and marketing poultry. As the Company has substantive rights over such entities, which grant it the power over
the relevant activities that affect its variable returns arising from its interests, it has concluded that it has control over such
entities.
In addition, the Company has an equity interest of 64.00% in PEC LAB, S.A. de C.V., which also grants the Company
substantive rights in the entity, providing it the power over the relevant activities that affect its variable returns arising from its
interests, for which reason it has concluded that is has control over the entity.
Due to the application of IFRS 10, there were no changes to the consolidation of entities on which control thereon was
determined in prior periods.
Impact of the application of IFRS 11
IFRS 11 replaces IAS 31 Interests in joint ventures, and the guidance contained in a related interpretation, SIC-13 Jointly
controlled entities – non-monetary contributions by venturers, has been incorporated in IAS 28 (as revised in 2011).
IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified and
accounted for. Under IFRS 11, there are only two types of joint arrangements – joint operations and joint ventures.
31
The classification of joint arrangements under IFRS 11 is determined based on the rights and obligations of parties to the joint
arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties
to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the
parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the
liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement (i.e. joint ventures) have rights to the net assets of the arrangement.
The initial and subsequent accounting of joint ventures and joint operations is different. Investments in joint ventures are
accounted for using the equity method. Investments in joint operations are accounted for such that each joint operator
recognizes and records its assets, its liabilities, its revenues, and its expenses, relating to its interest in the joint operation in
accordance with the applicable standards.
As mentioned in the analysis of impact for the adoption of IFRS 10, Company’s management examined and assessed the
classification of the investments it has through its subsidiary Bachoco, S.A. de C.V., where it has equity interest of 51% to
determine whether or not it had control or joint control. Management concluded that such investments should be classified
as subsidiaries and not as joint arrangements. The Company also analyzed certain agreements it has entered into with
respect to broiler operations and determined that such arrangements constitute joint operations. The accounting for these
joint operations under IFRS 11 is consistent with the treatment previously applied by the Company and therefore no impact
of adoption has been reflected in the consolidated financial statements.
Impact of the application of IFRS 12
IFRS 12 is a new disclosure standard and is applicable to entities that have equity interests in subsidiaries, associates, joint
arrangements and/or unconsolidated structured entities. In general, the application of IFRS 12 has resulted in more
extensive disclosures in the consolidated financial statements, in relation to significant judgments made by the Company to
determine the nature of its equity interests in other entities, as well as the equity interest that the non-controlling entity has in
the Company’s activities and in its cash flows.
IFRS 13 Fair value measurement
The Company has applied IFRS 13 for the first time in the current year. IFRS 13 establishes a single source of guidance for
fair value measurements and disclosures about fair value measurements.
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair
value under IFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another
valuation technique.
IFRS 13 requires prospective application from January 1, 2013. In addition, specific transitional provisions were given to
entities such that they need not to apply the disclosure requirements set out in the Standard in comparative information
provided for prior periods before the initial application of the Standard. In accordance with these transitional provisions, the
Company has not made any new disclosures required by IFRS 13 for the 2012 comparative period. Other than the
additional disclosures, the application of IFRS 13 has not had any material impact on the amounts recognized in the
consolidated financial statements.
Amendments to IAS 1 Presentation of items of other comprehensive income
The Company applied the amendments to IAS 1 Presentation of items of other comprehensive income for the first time in
the current year. The amendments to IAS 1 require items of other comprehensive income to be grouped into two categories
in the other comprehensive income section: (a) items that will be reclassified to profit and loss and (b) items that will not be
reclassified to profit and loss. Income tax on items of other comprehensive income is required to be allocated on the same
basis and the amendments do not change the option to present items of other comprehensive income either before tax or
net of tax. The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive
income has been modified to reflect the changes. In addition to the aforementioned presentation changes, the application of
the amendments to IAS 1 does not result in any impact on profit and loss, other comprehensive income or total
comprehensive income.
32
IAS 19 Employee benefits – (revised in 2011)
In the current year, the Company applied IAS 19, Employee benefits (revised in 2011) and its consequential amendments for
the first time.
Amendments to IAS 19 change the accounting treatment of defined benefit plans and benefits for termination of the
employment relationship. The most important change refers to the accounting treatment for changes in defined benefit
obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and the fair
value of the plan assets when they occur and, therefore, eliminate the “corridor approach” allowed under the previous
version of IAS 19 and accelerate the recognition of prior service costs. The amendments require that all actuarial gains and
losses are recognized immediately through other comprehensive income, for the net asset or liability recognized in the
consolidated statement of financial position to reflect the total value of the deficit or surplus of the plan. Additionally, the
interest cost and the expected return on plan assets used in the previous version of IAS 19 are replaced with the amount of
net interest, which is calculated by applying the same discount rate to the net defined benefit asset or liability. In summary,
IAS 19 (revised in 2011) introduces certain changes in the presentation of the cost of defined benefits, including more
extensive disclosures.
Beginning January 1, 2013, the Company applied the new accounting, presentation and disclosure requirements
established in IAS 19 (revised in 2011). However, given that the adoption of this standard did not have a significant impact on
the Company’s consolidated statements of financial position, the corresponding comparative amounts were not
retrospectively adjusted. The effect of the adoption of this standard as of January 1, 2013 was $25,315.
(c) ii. New standards and interpretations not yet adopted
The Company has not applied the following new and revised IFRS that have been issued, but that they have not gone into
effect yet at December 31, 2013.
•
IFRS 9 Financial instruments, issued in November 2009 and amended in October 2010, introduced new
requirements for the classification and measurement of financial liabilities and derecognition.
All recognized financial assets that are within the scope of IAS 39 Financial instruments: recognition and measurement
are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held
within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows
that are solely payments of principal and interest on the outstanding principal are generally measured at amortized cost
at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their
fair value at the end of subsequent accounting periods.
The most significant effect of IFRS 9 with respect to the reclassification and measurement of financial liabilities is related
to the accounting for changes in the fair value of a financial liability (designated as at fair value through profit and loss),
attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities designated at fair
value through profit and loss, the amount of change in fair value of the financial liability attributable to changes in credit
risk of that liability is recognized in items of other comprehensive income, unless the recognition of the effects of
changes in the liability’s credit risk in items of other comprehensive income would create or enlarge an accounting
mismatch in profit and loss. Changes in fair value attributable to a financial liability’s credits risk are not subsequently
reclassified to profit and loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial
liability designated as fair value through profit and loss is presented in profit and loss.
IFRS 9 Financial instruments, issued in November 2013, introduces a new chapter for the accounting for hedges,
establishing a new hedge accounting model that is designed to be more adhered to how entities assume risk
management activities when they cover both financial and non-financial risk exposures. Similarly, it allows an entity to
apply solely the requirements introduced in IFRS 9 (2010) for the presentation of profits and losses on financial
liabilities designated at fair value through profit and loss, without applying the other requirements of IFRS 9, which
means that the portion of the change in fair value related to changes in the own entity’s credit risk can be presented in
items of other comprehensive income rather than in profit and loss.
33
As IFRS 9 (2013) eliminates the effective date of mandatory application of IFRS 9 (2013), IFRS 9 (2010) and IFRS 9
(2009), as well as the required disclosures of IFRS 7 derived from the adoption of IFRS 9, leaving the effective date
open to the end of the impairment, classification and measurement requirements. The Company has decided not to
adopt it until the effective date, and it is not practical to quantify the effect unless the aforementioned stages are
concluded definitively, and the final versions are issued.
• Amendments to IFRS 10, IFRS 12 and IAS 27, provide investment entities with an exemption to consolidate certain
subsidiaries and, rather, they require that an investment entity measures the investment of each one of the eligible
subsidiaries at fair value through profit and loss under IFRS 9 or IAS 39. In addition, these amendments require
disclosures about the reasons for which an entity is deemed an investment entity, entity’s unconsolidated subsidiaries’
details, and nature of the relationship and certain transactions between the investment entity and its subsidiaries. The
amendments are effective for annual periods beginning on or after January 1, 2014. The amendments to these
standards have not been early adopted, and their adoption is not expected to have an effect on the Company’s
financial information, as it is not classified as an investing entity.
• Amendments to IAS 19 (2011) Employee benefits, in regards to employee contributions on defined benefit plans, clarify
the requirements relating to how contributions from employees or third parties that are linked to the service should be
attributed to periods of service. In addition, it allows a practical resource if the amount of the contributions is
independent from the number of years of service in which contributions can be, but are not required to be recognized
as a reduction in the service cost in the period in which the related service is rendered. These amendments are effective
for annual periods beginning on or after July 1, 2014. The amendments to this standard have not been early adopted by
the Company and no material effects are expected due to their adoption since employees do not make contributions
to the defined benefit plan.
• Amendments to IAS 32 Offsetting financial assets and financial liabilities, with respect to offsetting financial assets and
financial liabilities and the related disclosures clarify existing application issues related to offsetting requirements.
Specifically, the amendments clarify the meaning of “currently has a legally recognized right to offsetting” and
“simultaneous realization and offsetting.” Amendments to IAS 32 are effective for annual periods beginning on or after
January 1, 2014, applied retroactively. This standard has not been early adopted by the Company, and no material
effects on its consolidated financial statements are expected since the Company does not have offsetting agreements.
• Amendments to IAS 36 Impairment of assets, reduce the circumstances in which the recoverable amount of assets or
cash generating units are required to be disclosed, clarify the disclosures required, and introduce an explicit
requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount
(based on fair value less costs of disposal) is determined using a present value technique. Amendments to IAS 36 are
effective for annual periods beginning on or after January 1, 2014. The amendments to this standard have not been
early adopted by the Company and no material on the amounts recognized in the consolidated financial statements
since the Company has included the majority of the disclosures required by this amended IAS.
• Amendments to IAS 39 Financial instruments, recognition and measurement, clarify that there is no need to
discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met. A novation indicates
an event where the original parties to a derivative agree that one or more settling counterparties replace their original
counterparty to become a new counterparty to any of the parties. In order to apply the amendments and continue
hedge accounting, novation to a central counterparty (CCP) must happen as a consequence of laws or regulations or
the introduction thereof. Amendments to IAS 39 are effective for annual periods beginning on or after January 1, 2014.
The amendments to this standard have not been early adopted by the Company and no material effects are expected
on the consolidated financial statements due to their adoption, since the Company does not have novation
agreements.
• Annual Improvements to 2010-2012 Cycle make amendments to: IFRS 2, Share-Based Payment, by amending the
definitions for consolidation (irrevocability) of concessions and market conditions, and adding definitions for
performance condition and service condition; IFRS 3, Business Combinations, which require that contingent
considerations classified as an asset or liability are measured at fair value at the reporting date; IFRS 8, Operating
34
segments, requires disclosure of the judgments made by management in applying the aggregation criteria to operating
segments, clarifying that reconciliations of segment assets are required solely if assets are reported regularly; IFRS 13,
Fair Value Measurement, clarifies that the issuance of IFRS 13 and the amendments to IFRS 9 and IAS 39 did not
remove the ability to measure certain short-term receivables and payables on an undiscounted basis (amendment to
conclusion bases solely); IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets, clarifying that the gross
amount of property, plant and equipment is adjusted in a manner consistent with a revaluation of the carrying amount;
and IAS 24, Related Party Disclosures, clarifying how payments to entities providing management services are to be
disclosed. These improvements are applicable to annual periods beginning on or after 1 July 2014. The Company has
yet to complete its evaluation of whether these improvements will have a significant impact on its consolidated financial
statements.
• Annual Improvements to 2011-2013 Cycle makes amendments to the following standards: IFRS 1 First-time adoption
of IFRS, clarifying which versions of IFRSs can be used on initial adoption (amendments to conclusion bases solely);
IFRS 3, clarifying that the standard excludes from its scope the accounting for the formation of a joint arrangement in
the financial statements of the joint arrangement itself; IFRS 13, clarifying the scope of the portfolio exception of
paragraph 52 of the standard, which allows an entity to measure the fair value of a group of financial assets and
financial liabilities on the basis of the price that would be received for selling a net long position or at which a net short
position would be transferred, both for a particular risk exposure in an orderly transaction between market participants
at the measurement date under current market conditions; IAS 40 Investment property, clarifying the interrelationship
of IFRS 3 and IAS 40 when classifying a property as an investment property or as an owner-occupied property. These
improvements are applicable to annual periods beginning on or after 1 July 2014. The Company has yet to completed
its evaluation of whether these improvements will have a significant impact on its consolidated financial statements,
except for improvements to IFRS 1, which is a standard applicable solely to first-time adopters, and therefore no
impacts are expected at a consolidated level for the Company.
•
Interpretation of the International Financial Reporting Standards (IFRIC) 21 Levies, provides guidance on when to
recognize a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS
37 Provisions, contingent liabilities and contingent assets, and those where the timing and amount of the levy is certain.
The interpretation identifies the binding event for the recognition of a liability as the activity that triggers the payment of
the levy in accordance with the relevant legislation. In addition, it provides the following guidance in the recognition of a
levy payment liability, where the liability is recognized progressively if the binding event occurs over a period of time,
and if an obligation is triggered on reaching a minimum threshold, the liability is recognized when that minimum
threshold is reached. This interpretation is effective for periods beginning on or after January 1, 2014, with early
adoption permitted. The Company has not early adopted this IFRIC. The Company has yet to complete its evaluation
of whether this interpretation will have a material impact on its consolidated financial statements.
(3)
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements, and have been applied consistently by the Company and its subsidiaries.
a)
Basis of consolidation
i. Subsidiaries
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases (see note 5).
ii. Transactions eliminated in consolidation
Profits and losses of subsidiaries acquired or sold during the year are included in the consolidated statements of profit and
loss and other comprehensive income from the acquisition date to the selling date, as the case may be.
35
Where necessary, subsidiaries’ financial statements are adjusted to align their accounting policies with the Company
accounting policies.
Significant consolidated intercompany balances and transactions, and any unrealized gains and losses arising from
transactions between consolidated companies have been eliminated in preparing the consolidated financial statements.
iii.Business acquisitions
Business acquisitions are accounted for using the acquisition method. For each business acquisition, non-controlling interest
in the acquiree is valued either at fair value or according to the proportionate interest in acquiree’s identifiable net assets.
On a business acquisition, the Company evaluates the assets acquired and the liabilities assumed for proper classification
and designation according to the contractual terms, economic circumstances and relevant conditions at the acquisition
date.
Goodwill is originally valued at cost, and represents any excess of the transferred consideration over the net assets
acquired and liabilities assumed. If after a revaluation, the net amount of identifiable acquired assets and assumed liabilities
as of the acquisition date exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the
acquired company and the fair value of the prior shareholding of the acquirer in the acquired company (if any), the excess is
immediately recognized in the consolidated statement of profit and loss and other comprehensive income as a purchase
gain at bargain price.
Transaction costs, other than those associated with the issuance of debt or equity securities, that the Company incurs
related to a business combination are expensed as incurred.
Certain contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is
classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes
in the fair value of the contingent consideration will be recognized in profit and loss.
b)
Foreign currency
i.Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Company at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the
functional currency at the exchange rate at that date. The foreign currency gain and loss on monetary items is the difference
between amortized cost in the functional currency at the beginning of the period, adjusted for interest and effective
payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the
reporting period.
Non-monetary assets and liabilities denominated in foreign currencies that are valued at fair value are retranslated to the
functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the
transaction.
Foreign currency differences arising in translation are recognized in profit and loss.
ii.Translation of foreign operations
Assets and liabilities, including goodwill and fair value adjustments arising on acquisition, of foreign operations whose
functional currency differs from the reporting currency, are translated into pesos at exchange rates at the reporting date.
Income and expenses are translated to pesos at the average exchange rate of the period of the transactions.
Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency
translation reserve in stockholders’ equity.
36
Foreign exchange gains and losses arising from an item received from or payable to a foreign transaction, whose settlement
is neither planned nor likely in the foreseeable future, are considered part of a net investment in a foreign transaction and are
recognized under the “other comprehensive income” account, and presented within stockholders’ equity in the foreign
currency translation reserve. For the years ended December 31, 2013, 2012 and 2011 the Company did not enter into such
operations.
c)
Financial instruments
i. Non-derivative financial assets
Non-derivative financial assets of the Company include cash and cash equivalents, primary financial instruments (financial
assets designated at fair value through profit or loss and financial assets held to maturity), trade receivable and other
receivables.
The Company initially recognizes accounts receivable and cash equivalents on the date that they arise. All other financial
assets (including assets designated at fair value through profit and loss) are initially recognized on the trading date, which is
the date that the Company becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to cash flows from the asset expire, or it transfers
the rights to receive the contractual cash flows in a transaction in which all the risks and rewards of ownership of the financial
asset are substantially transferred.
Financial assets and liabilities are offset and the net amount is presented in the statement of financial position solely if the
Company has a legal right to offset the amounts and intends either to settle them on a net basis of financial assets and
liabilities or otherwise realize the asset and settle the liability simultaneously.
Financial assets valued at fair value through profit and loss
A financial asset is presented at fair value through profit and loss if it is classified as held-for-trading or is designated as such
on initial recognition. Financial assets are designated at fair value through profit and loss if the Company manages such
investments and makes purchase and sale decisions based on their fair value in accordance with the Company´s
investment or risk management policy. Costs attributable to the acquisition or issue of such financial assets are recognized
in profit and loss as incurred. Financial assets at fair value through profit and loss are measured at fair value, and changes
therein are recognized in profit and loss.
Held-to-maturity financial assets
Held-to-maturity financial assets are financial assets that the Company has the intention and ability to hold such debt
instruments to maturity. Held-to-maturity financial assets are originally recognized at fair value plus any directly attributable
transaction costs. Subsequently to initial recognition, held-to-maturity financial assets are measured at their amortized cost
by using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant
amount of held-to-maturity financial assets would result in the reclassification of all held-to-maturity investments as available-
for-sale, and prevent the Company from classifying investment securities as held-to-maturity for the current and the
following two years.
The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest
income or cost over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter
period, to the net carrying amount on initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the
acquisition date, which are subject to an insignificant risk of changes in their fair value, and are used by the Company in the
management of its short-term commitments.
37
Receivables
Receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are
recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, receivables
are measured at amortized cost. Receivables comprise trade and other receivables.
ii. Non-derivative financial liabilities
Debt and/or equity instruments are classified as financial liabilities or as equity according to the substance of the contractual
agreement and the definitions of liability and equity.
All financial liabilities are initially recognized on the trade date, which is the date that the Company becomes a party to the
contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations are met, cancelled or expire.
The Company has the following non-derivative financial liabilities: short-term and long-term debt, and trade and other
payables.
The aforementioned financial liabilities are originally recognized at fair value, plus costs directly attributable to the
transaction. Subsequently, these financial liabilities are measured at amortized cost during their term.
iii. Derivative financial instruments
Derivative financial instruments entered into for fair value hedging or for trading purposes are initially recognized at fair
value; any attributable transaction costs are recognized in profit and loss as incurred. Subsequent to the initial recognition,
such derivative financial instruments are measured at fair value, and changes in such value are immediately recognized in
profit and loss.
Fair value of derivative financial instruments that are traded in recognized financial markets is based on quotes issued by
these markets; when a derivative financial instrument is traded in the “over the counter” market, the fair value is determined
based on internal models and market inputs accepted in the financial environment.
The Company analyzes if there are embedded derivatives that should be segregated from the host contract and accounted
for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely
related. A separate instrument with the same terms as those of the embedded derivative meets the definition of a derivative,
and the combined instrument is not measured at fair value through profit and loss. Changes in fair value of the separable
embedded derivatives are immediately recognized in profit and loss. At December 31, 2013, 2012 and 2011, the Company
has not recognized embedded derivatives.
The Company has derivative financial instruments designated as fair value hedged for its exposure to commodity price risks
resulting from its operating activities. Derivative financial instruments that do not meet the requirements for hedge
accounting treatment are accounted for as trading derivative financial instruments.
On initial designation of the derivative as a hedging instrument, the Company formally documents the relationship between
hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge
transaction, and the methods that will be used to assess the prospective and retrospective effectiveness of the hedging. The
Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether
the hedging instruments are expected to be highly effective in offsetting the changes in the fair value of the respective
hedged items during the period for which the hedge is designated and whether the actual results of each hedge are within a
range of 80 – 125 percent.
If the hedging instrument no longer meets the criteria for the hedging accounting treatment, expires or is sold, terminated or
exercised, or the designation is revoked, then hedging accounting treatment is discontinued prospectively.
38
iv. Capital stock
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares are
recognized as a deduction from equity, net of any tax effects.
Stock repurchase
When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as
treasury shares and are presented in the reserve for repurchase of shares. When treasury shares are sold or are re-issued
subsequently, the amount received as well as the resulting surplus or deficit on the transaction is recognized in equity.
d)
Property, plant and equipment
i.Recognition and measurement
Property, plant and equipment, are recorded at acquisition cost less accumulated depreciation, except for land, and any
accumulated impairment losses. Land is measured at the acquisition costs les any accumulated impairment losses.
Acquisition cost includes the purchase price, as well as any cost directly attributable to the acquisition of the asset, including
all costs to directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating
in the manner intended by management.
When components of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
An item of property, plant and equipment is derecognized at the time of disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Gains or losses on the sale of an item of property, plant and
equipment are determined by comparing the proceeds from the sale with the carrying amount of property, plant and
equipment, and are recognized net under “other income (expenses)” in profit and loss for the year.
ii.Subsequent costs
The replacement cost of an item of property, plant and equipment is capitalized if the future economic benefits associated
with the cost are expected to flow to the Company and the related cost is reliably determined. The carrying amount of the
replaced item is written off from the accounting records. Maintenance and repair expenses related to property, plant and
equipment are expensed as incurred.
iii.Depreciation
During 2013, based on the analysis performed by the Company, a change to the estimate of residual values of certain fixed
assets occurred, which resulted in a decrease to depreciation expense of $49,061, recorded in the consolidated statement
of profit and loss and other comprehensive income for the year.
Depreciation is calculated on the cost of the asset less its residual value, using the straight line method, based on the
estimated useful life of the assets. Depreciation is recognized in profit and loss beginning from the time when the assets are
available for use. Land is not depreciated.
39
Below are the estimated useful lives for 2013, 2012 and 2011:
Buildings
Machinery and Equipment
Vehicles
Computers
Furniture
Average
useful Life
46
19
11
8
11
The Company has estimated the following residual values, including the aforementioned change from the Company’s
current year analysis, described on note 2 (e) iv:
Buildings
Machinery and Equipment
Vehicles
Computers
Furniture
e)
Goodwill
Residual Value
9%
8%
5%
0%
2%
Goodwill arises as a result of the acquisition of a business over which control is obtained and is measured at cost less
cumulative impairment losses; it is subject to annual tests for impairment.
f)
Biological assets
Biological assets are measured at fair value less costs of sale, with any change therein recognized in profit and loss. Costs of
sale include all costs that would be necessary to sell the assets, excluding finance costs and income taxes.
The Company’s biological assets consist of growing poultry, poultry in its different production stages, hatching eggs,
breeder pigs, and growing pigs.
When fair value cannot be reliably, verifiably and objectively determined, assets are valued at production cost less
accumulated depreciation, and any cumulative impairment loss (reduction). Depreciation related to biological assets forms
part of the cost of inventories and current biological assets and is ultimately recognized within cost of sales in the statement
of profit and loss and other comprehensive income.
Depreciation of poultry and breeder pigs is estimated based on the expected future life of such assets and is calculated on a
straight-line basis.
Poultry in its different production stages
Breeder pigs
Expected average useful life
(weeks)
40-47
156
Biological assets are classified as current and non-current assets, based on the nature of such assets and their purpose,
whether for commercialization or for reproduction and production.
40
g)
Leased assets
Operating leases entered into by the Company as of December 31, 2013, 2012 and 2011 are not recognized in the
Company’s statement of financial position. Operating lease rentals paid by the Company are recognized in profit and loss
using the straight-line method over the lease term, even though payments may not be made on the same basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets.
However, when there is no reasonable certainty that ownership will be obtained at the end of the lease term, assets are
depreciated over the shorter of the lease term or their useful lives. As of December 31, 2013, 2013, and 2011 the Company
has not entered into any finance lease agreements.
h)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on average cost, and
includes expenditure incurred for acquiring inventories, production or transformation costs, and other costs incurred for
bringing them to their present location and condition.
Agricultural products derived from biological asses are processed chickens and commercial eggs.
Net realizable value is the estimated selling price in the ordinary course of business, less the costs necessary to make the
sale.
Cost of sales represents cost of inventories at the time of sale, increased, if applicable, by reductions in inventory to its net
realizable value, if lower than cost, during the year.
The Company records the necessary reductions in the value of its inventories for impairment, obsolescence, slow
movement and other factors that may indicate that the use or performance of the items that are part of the inventory may be
lower than the carrying value.
i)
Impairment
i.Financial assets
A financial asset that is not recorded at fair value through profit and loss is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of a loss
event after the initial recognition of the asset, and that such loss event had a negative impact on the estimated future cash
flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an
amount due to the Company, evidence that a debtor may go bankrupt, or the disappearance of an active market for a
security. In addition, for an investment in an equity security, a significant or prolonged reduction in its fair value below its cost
is objective evidence of impairment.
The Company considers evidence of impairment for financial assets valued at amortized cost (accounts receivables and
held-to-maturity investment securities) both individually and collectively. All individually significant receivables and held-to-
maturity investment securities are assessed for specific impairment. Assets that are not individually significant are collectively
assessed for impairment by grouping together assets with similar risk characteristics.
In assessing collective impairment, the Company uses historical trends of probabilities of default, timeliness of recoveries
and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit
conditions are such that the actual losses are greater or less than those suggested by historical trends.
41
An impairment loss related to a financial asset valued at amortized cost is calculated as the difference between the carrying
amount of the asset and the present value of estimated future cash flows discounted at the effective interest rate. Losses are
recognized in profit and loss and reflected in an allowance account against receivables or held-to-maturity investment
securities. Interest on impaired assets continues being recognized. When a subsequent event that occurs after impairment
has been recognized, it results in the reduction of the loss amount; this reduction is reversed through profit and loss.
ii.Non-financial assets
The carrying amounts of the Company´s non-financial assets, other than inventories, biological assets and deferred tax
assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the recoverable amount of the asset is estimated. Goodwill and indefinite-lived intangible assets are tested
annually for impairment on the same dates.
The Company defines the cash generating units and also estimates the periodicity and cash flows that they should generate.
Subsequent changes in the group of cash-generating units, or changes in the assumptions that support the cash flow
estimates or the discount rate could impact the carrying amounts of the respective asset.
The main assumptions for developing estimates of recoverable amounts requires the Company’s administration to estimate
the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate its
present value. The Company estimates cash flow projections considering current market conditions, determination of future
prices of goods and volumes of production and sales. In addition, for the purposes of the discount and perpetuity growth
rate, the Company uses indicators of market and expectations of long-term growth in the markets in which the Company
operates.
The Company estimates a discount rate before taxes for the purposes of the goodwill impairment test that reflects the risk of
the cash-generating units and that enables the calculation of present value of expected future cash flows, as well as to reflect
risks that were not included in the cash flow projection assumptions and premises. The discount rate that the Company
estimates is based on the waged average cost of capital. In addition, the discount rate estimated by the Company reflects
the return that market participants would require if they had made a decision about an equivalent asset, as well as the
expected generation of cash flow, time, and risk-and-return profiles.
The Company annually reviews the circumstances which led to an impairment loss arising from cash-generating units to
determine whether such circumstances have been changed and that may result in the reversal of previously recognized
impairment losses. An impairment loss in respect of goodwill is not reversed. For other long-lived assets, an impairment loss
is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if the impairment loss had not been recognized.
Impairment losses are recognized in profit and loss. Impairment losses recognized in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of CGUs), and
subsequently to reduce the carrying amount of the other long-lived assets within the cash-generating unit (or group of
CGUs) on a pro rata basis.
j)
Available-for-sale assets
Assets available for sale mainly consist of foreclosed assets as well as an aircraft included with the acquisition of OK
Industries, Inc. (see note 4a). The Company sold this aircraft in 2012.
Immediately before being classified as available-for-sale, assets are valued according to the Company’s accounting policies
in accordance to the applicable IFRS. Subsequently, available-for-sale assets are recorded at the lower of the carrying
amount and fair value less cost of sale of the assets. Impairment losses on initial classification of available-for-sale assets and
subsequent revaluation gains and losses are recognized in profit and loss. Previously recognized gains exceeding any
cumulative impairment loss are not recognized.
Foreclosed assets are recorded at the lower of fair value less cost of sale or net carrying amount of the related account
receivable.
42
k)
Other assets
Other long-term assets primarily include prepayments for the purchase of property, plant and equipment, investments in
insurance policies and guarantee deposits.
The Company owns life insurance policies of some of the former stockholders of Bachoco USA (foreign subsidiary). The
Company records these policies at net cash surrender value (see note 16).
l)
Employee benefits
Benefit plan in Mexican operation
The Company has a retirement plan in which non-union workers in Mexico participate. Pension benefits are determined
based on the salary of workers in their last three years of service, the number of years worked at the Company and their age
at retirement. This pension plan includes:
i.Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions to a separate
entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined
contribution plans are recognized as an employee benefit expense in profit and loss in the periods during which the related
services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that the Company has
the right to a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan due
more than 12 months after the end of the period in which the employees render the service are discounted at present value.
ii.Defined benefit plan
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. It is funded by contributions
made by the Company and is intended to meet the Company’s labor obligations to employees.
The Company´s net obligations in respect of defined benefit plans is calculated separately for each plan, estimating the
amount of the future benefit that the employees have earned in return for their service in the current and prior fiscal years;
that benefit is discounted to determine its present value, and is reduced by the fair value of the plan assets. The discount rate
is the yield at the end of the reporting period on high quality corporate bonds (or governmental bonds in the instance that a
deep market does not exist for high quality corporate bonds) that have maturity dates approximating the terms of the
Company´s obligations and that are denominated in the currency in which the benefits are expected to be paid. Net
interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorized as follows:
•
•
•
Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and
settlements)
Net interest expense or income
Remeasurement
The Company presents the first two components of defined benefit cost in profit or loss. Gains and losses for reduction of
service are accounted for as past service costs.
The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation
results in a benefit to the Company, the recognized asset is limited to the present value of any economic benefits available in
the form of refunds from the plans or reductions in future contributions to the plans.
When the benefits of a plan are modified or improved, the portion of the improved benefits related to past services by
employees is recognized in profit and loss on the earlier of the following dates: when there is a modification or reduction to
the plan, or when the Company recognizes the related restructuring costs or termination benefits.
43
Remeasurement adjustments, comprising actuarial gains and losses, the effect of changes to the asset ceiling (if applicable)
and the return on plan assets (excluding interest), is reflected immediately in the statement of consolidated statement of
financial position with a charge or credit recognized in other comprehensive income in the period in which they occur.
Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be
reclassified to profit or loss.
iii.Short-term benefits
Short-term employee benefits are valued on a non-discounted basis and are expensed as the respective services are
rendered.
A liability is recognized for the amount expected to be paid under the short-term cash bonus plans or statutory employee
profit sharing (PTU for its acronym in Spanish), if the Company has a legal or constructive obligation to pay such amounts
as a result of prior services rendered by the employee, and the obligation may be reliably estimated.
iv.Termination benefits from constructive obligation
The Company recognizes, as a defined benefit plan, a constructive obligation from past practices. The liability accrues
based on the services rendered by the employee. Payment of this benefit is made in one installment at the time that the
employee voluntarily ceases working for the Company.
Benefit plan in foreign subsidiary
The Company maintains a 401(k) defined contribution retirement plan covering all employees meeting certain eligibility
requirements. The Company contributes to the plan at the rate of 50% of employee’s contributions up to a maximum of 2%
of the individual employee’s compensation.
m)
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
When the effect of time value of money is significant, the amount of the provision is the present value of the disbursements
expected to be necessary to settle the obligation. The discount rate applied is determined before taxes, and reflects market
conditions at the reporting date and takes into account the specific risk of the relevant liability, if any. The unwinding of the
present value discount is recognized as a financial cost.
n)
Interests in joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the 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 Company as a joint operator recognizes, in relation to its interest in a joint operation: its assets, including its share of any
assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the
output arising from the joint operation; its share of the revenue from the sale of the output by the joint operation, and its
expenses, including its share of any expenses incurred jointly.
The Company accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in
accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
44
The Company has joint operations derived from the broiler agreements for the development of its biological assets. For
such operations, the Company accounts for its biological assets, its obligations derived from technical support, as well as
the expenses it incurs with respect to the joint operations. The live poultry produced by the joint operation is ultimately used
internally by the Company and may be sold by the Company to third parties. As a result, the joint operation itself does not
generate any revenues.
o)
Revenues
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration
received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive
evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have
been transferred to the customer, recovery of the consideration relating to the transaction is probable, the associated costs
and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and
the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be
measured reliably, the discount is recognized as a reduction of revenue.
p)
Financial income and costs
Financial income comprises interest income from funds invested, fair value changes on financial assets at fair value through
profit or loss and foreign currency exchange gains. Interest income is recognized in profit and loss, using the effective
interest method. Dividend income is recognized in profit and loss on the date that the Company´s right to receive the
payment is established.
Financial costs comprise interest expense for borrowings, foreign currency exchange losses and fair value changes on
financial assets at fair value through profit and loss. Borrowing costs that are not directly attributable to the acquisition,
construction or production of a qualifying asset are recognized in profit and loss using the effective interest method.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the costs of those
assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the
temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing
costs eligible for capitalization.
Exchange gains and losses are reported on a net basis.
q)
Income taxes
Tax expenses comprise current and deferred tax. Current taxes and deferred taxes are recognized in profit and loss
provided they do not relate to a business combination, or items recognized directly in equity or in other comprehensive
income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the fiscal year, which can be applied
to taxable income from previous years, using tax rates enacted or substantively enacted in each jurisdiction at the reporting
date, plus any adjustment to taxes payable with respect to previous years. Current tax payable also includes any tax liability
arising from the payment of dividends.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities and
the amounts used for tax purposes. Deferred tax is not recognized for:
•
the initial recognition of assets or liabilities in a transaction that is not a business combination and did not affect neither
accounting or taxable profit or loss;
• differences related to investments in subsidiaries to the extent that it is probable that the Company is able to control the
reversal date, and the reversion is not expected to take place in the near future.
•
taxable temporary differences arising from the initial recognition of goodwill.
45
Deferred tax is determined by applying the tax rates that are expected to apply in the period in which the temporary
differences will reverse, based on the regulations enacted or substantively enacted at the reporting date.
The measurement of deferred tax assets and liabilities reflect the tax consequences derived from the manner in which the
Company expects to recover or settle the carrying amounts of its assets and liabilities.
In determining the amount of current and deferred tax, the Company takes into account the impact of uncertain tax
positions and whether additional taxes and interest may be due. The Company believes that balance for the tax liabilities are
adequate for all open tax years based on its assessment of several factors, including the interpretation of the tax law and
prior experience.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that
it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed
at each reporting date and are reduced to the extent that it is not probable that the related tax benefit will be realized.
r)
Earnings per share
The Company presents information on basic and diluted earnings per share (EPS) related to its ordinary shares. Basic EPS
is computed by dividing the profit and loss attributable to the holders of the Company’s common shares by the weighted
average number of outstanding ordinary shares during the period, adjusted for treasury shares held. Diluted EPS is
determined by adjusting the profit and loss attributable to the holders of the ordinary shares and the outstanding weighted
average number of ordinary shares, adjusted for treasury shares held, for the potential dilutive effects of all ordinary shares,
including convertible instruments and options on shares granted to employees. At December 31, 2013, 2012 and 2011, the
Company has no dilutive potential ordinary shares, for which reason basic and diluted EPS is the same.
s)
Segment information
An operating segment is a component of the Company that: i) is engaged in business activities from which revenues and
expenses may be obtained and incurred, including revenues and expenses related to transactions with any of the other
components of the Company, ii) which results are reviewed periodically by the chief operating decision maker for the
purpose of resource allocation and assessment of segment performance, and iii) for which discrete financial information
exists.
The Company discloses reportable segments based on operating segments whose revenues exceed 10% of the combined
revenues from all segments, whose absolute value of profit or loss exceeds 10% of the combined absolute value of profit or
loss from all segments, whose assets exceed 10% of the combined assets from all segments, or that result from the
aggregation of two or more operating segments when they have similar economic characteristics and meet the
aggregation criteria in IFRS.
t)
Costs and expenses by function
Costs and expenses in the consolidated statements of profit and loss and other comprehensive income were classified by
their function. The nature of costs and expenses is presented in Note 22.
u)
Statement of cash flows
The Company presents cash flows from operating activities by using the indirect method, in which the income or loss is
adjusted by the effects of items that do not require cash flows, including those related to investing or financing activities.
The Company classifies all interest received from its investments and accounts receivable as investment activities, and all
interest paid interest as financing activities.
46
(4)
Business and asset acquisitions
a) OK Industries acquisition
On November 1, 2011, the Company acquired 100% percent of the voting stock of OK Industries, Inc. and subsidiaries. OK
Industries, Inc. is engaged in breeding, processing and marketing of poultry (chicken) to supplier autoservices networks, fast
food networks and others in the United States of America and foreign markets. The aggregate purchase price that was paid
in cash amounted $1,269,306 (93.4 million dollars). The acquisition was accounted for as a business combination in
accordance with the requirements of IFRS 3 Business Combinations.
On March 2, 2012 Bachoco USA, LLC. was incorporated as a subsidiary of the Company and Bachoco USA, LLC
acquired 100% of the shares of OK Industries, Inc.
The consolidated financial statements of the Company as of December 31, 2011 include the consolidated statement of
financial position of OK Industries, Inc. and subsidiaries, as of such date, based on the best estimate of the fair value of net
asset as of the acquisition date, and its results of operations for the two-month period ended December 31, 2011. The fair
values of these assets acquired were determined using the cost and market approaches.
The cost approach, which estimates fair value by determining the current cost of replacing an asset with another of
equivalent economic utility, was utilized primarily for plant and equipment. The cost to replace a given asset reflects the
estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. The
market approach, which indicates fair value for a subject asset based on available market pricing for comparable assets, was
utilized primarily for property. The market approach calculates fair value based on financial multiples available for similar
entities and adjustments for the lack of control or lack of marketability that market participants would consider in
determining fair value.
Due to their short-term maturities, the Company believes the carrying amounts of cash equivalents, accounts receivables,
other current assets, accounts payable and other current liabilities approximate their fair value at the acquisition date. At the
acquisition date, inventories are recorded at their fair value less selling expenses. The investment in insurance policies is
recorded at its aggregate net cash surrender value, both of which approximate fair value at the acquisition date.
Identifiable assets acquired and liabilities assumed
A summary of the fair value of the main classes of consideration transferred and the recognized amounts of acquired
assumed assets and assumed liabilities at the date of acquisition (November 1, 2011) is included below, as well as
measurement period adjustments made to the balance of certain items. Such adjustments arose from additional information
obtained during the measurement period and were recognized retroactively at the date of acquisition in accordance with
IFRS 3:
47
Previously
recognized value
Measurement
period
adjustment
Adjusted
balance
Current assets
Property, plant and equipment
Other assets
Total assets
$
Current liabilities
Deferred income tax
Non-controlling interest
Acquired assets, net
Consideration paid
1,332,762
1,693,980
153,364
3,180,106
(390,001)
(519,189)
(7,025)
2,263,891
1,269,306
Gain on bargain purchase
$
994,585
-
(53,531)
-
(53,531)
-
59,511
-
5,980
1,332,762
1,640,449
153,364
3,126,575
(390,001)
(459,678)
(7,025)
2,269,871
1,269,306
1,000,565
The gain on bargain purchase was generated given that the fair value of the net assets acquired as of the acquisition date
exceeded the consideration transferred. The bargain purchase gain stemmed from the fact that former strategies resulted in
a high cost structure with limited opportunity to improve profitability for the entity. As a consequence, the fair value of the
enterprise as a whole was determined to be less than fair value of the assets that comprise the entity. Thus, a bargain
purchase gain was recognized as bargain purchase price in the consolidated statements of profit and loss and other
comprehensive income, within other income (expenses), net (see note 30).
Had the acquisition occurred on January 1, 2011, management estimates that consolidated revenues and consolidated
profits for the year ended December 31, 2011 would have totaled $34,809,853 and $911,952, respectively.
The consolidated revenue of the acquired business for the year ended on December 31, 2011 is disclosed in note 6b.
Costs related to OK industries acquisition.
During 2011, the Company incurred costs related to the acquisition of OK Industries, Inc. of $11,426 corresponding to
external legal fees and due diligence costs. The external legal fees and due diligence costs have been included in other
expenses in the Company’s consolidated statement of profit and loss and other comprehensive income for the year ended
December 31, 2011 (note 29).
b) Trosi de Carne, S.A. de C.V. acquisition
On August 20, 2011, Induba Pavos, S.A. de C.V. (subsidiary) acquired certain assets of Trosi de Carne, S.A. de C.V. In
accordance with IFRS 3, such net assets qualify as business combination. The net assets acquired are used to the
production of high processed products from beef and pork.
Below is a summary of the net assets acquired at their fair value (determined within the measurement period and recorded
at the acquisition date in accordance with IFRS 3) and the purchase price paid in cash.
48
Property, plant and equipment
Working capital
Deferred income tax
Acquired assets, net
Consideration paid
Gain on bargain purchase
$
$
98,385
24,232
(18,170)
104,447
57,723
46,724
A gain on bargain purchase was recognized in the consolidated statement of profit and loss and other comprehensive
income, on the other income (expenses), net (see note 29).
c) Acquisition of property, plant and equipment of Mercantil Agropecuario Coromuel, S.A. de C.V.
On December 16, 2011, Bachoco, S.A. de C.V. (subsidiary) acquired certain assets from Mercantil Agropecuaria Corumel,
S.A. de C.V., entity located in the state of Baja California Sur. The transaction consisted of the acquisition of property, plant
and equipment, for an amount of $55,522. The acquisition was intended to increase the brand commercial presence and
improve the distribution channels in that region.
d) Acquisition of Morris Hatchery, Inc.
On July 9, 2013, the Company reached an agreement to acquire assets from the breeding farms of Morris Hatchery Inc.,
located in Arkansas, United States of America. This acquisition mainly consists of poultry equipment and inventory, and has
a capacity of breeding birds that produce hatching eggs. The hatching eggs will ultimately be used internally by the
Company, benefitting the United States of America operations given that they did not previously have the capacity of
breeding birds that produce hatching eggs. The Company concluded that the transaction represented the acquisition of a
business.
Below is a summary of the fair value of the net assets acquired as of the acquisition date in conformity with IFRS 3, as well as
the purchase price paid. The amounts are final; accordingly the Company will not take advantage of the use of the
measurement period permitted by IFRS 3.
Acquired assets and identifiable assumed liabilities
Current and non-current biological assets
Inventories
Property, plant and equipment
Other assets
Acquired assets, net
Cash consideration paid
Goodwill
$
$
Previously Recognized
Value
77,237
3,257
11,982
194
92,670
135,450
(42,780)
Third party acquisition costs paid by the Company were not material, given that it utilized mostly its own resources in the
acquisition. Given that the acquisition was for the benefit of the Company’s own internal operations, it is impracticable to
determine the amount of revenues generated by Morris Hatchery since its acquisition.
49
(5)
Subsidiaries of the Company
Subsidiaries and Company´s shareholding percentage in such subsidiaries as of December 31, 2013 and 2012 are listed
below:
Name
Shareholding percentage in subsidiaries
December 31,
Bachoco, S.A. de C.V.
Bachoco USA, LLC. & Sub.
Campi Alimentos, S.A. de C.V.
Induba Pavos, S.A. de C.V.
Bachoco Comercial, S.A. de C.V.
PEC LAB, S.A. de C.V.
Aviser, S.A. de C.V.
Operadora de Servicios de Personal, S.A. de C.V.
Secba, S.A. de C.V.
Servicios de Personal Administrativo, S.A. de C.V.
Sepetec, S. A. de C.V.
Country
México
U.S.
México
México
México
México
México
México
México
México
México
2013
99.99
100.00
99.99
99.99
99.99
64.00
99.99
99.99
99.99
99.99
99.99
2012
99.99
100.00
99.99
99.99
99.99
64.00
99.99
99.99
99.99
99.99
99.99
The main subsidiaries of the group and their activities are as follows:
- Bachoco, S.A. de C.V. (BSACV) (includes four subsidiaries which are 51% owned, and over which BSACV has control).
BSACV is engaged in breeding, processing and marketing poultry goods (chicken and eggs).
- On March 2, 2012, Bachoco USA, LLC was incorporated in the State of Delaware, United States of America as a wholly
owned subsidiary of the Company with 100% of the shareholding. From that date, Bachoco USA, LLC holds the shares of
OK Industries, Inc. and, therefore, of the operations of the Company in the United States of America. OK Industries, Inc.
(acquired in November 2011) comprises five controlled subsidiaries. OK Industries, Inc. owns 100% of the shares of four of
these subsidiaries, and 85% of the shares of the remaining subsidiary as a result of a dissolution of shares in 2012. Their
primary activity includes the production of chicken products mostly marketed in the United States of America and, to a
lesser extent, in other foreign markets.
- Campi Alimentos, S.A. de C.V., is engaged in producing and marketing balanced animal feed, mainly for selling to third
parties.
- The main activity of Bachoco Comercial, S.A. de C.V. and Induba Pavos, S.A. de C.V. is the distribution of chicken, turkey
and beef value-added products.
- On January 4, 2012 PEC LAB, S.A. de C.V. was constituted. As of such date PEC LAB, S.A. de C.V. is the holding of the
shares of Pecuarius Laboratorios, S.A. de C.V., previously owned by the Company and other shareholders. Its main activity
consists of the production and distribution of medicines and vaccines for animal consumption.
- Aviser, S.A. de C.V., Operadora de Servicios de Personal, S.A. de C.V., Secba, S.A. de C.V., Servicios de Personal
Administrativo, S.A. de C.V. and Sepetec, S.A de C.V. are engaged in providing administrative and operating services
rendered to their related parties.
None of the Company’s contracts or loan agreements restrict the net assets of the Company’s subsidiaries.
50
(6) Operating segments
Reportable segments have been determined based on a line of product approach. Intersegment transactions have been
eliminated. The poultry segment consists of chicken and egg operations. The information included in the “Others” segment
corresponds to pigs, balanced feed for animal consumption and other insignificant by-products.
Inter-segment pricing is determined on an arm’s length basis. The accounting policies of operating segments are as those
described in note 3 s).
Below is the information related to each reportable segment. Performance is measured based on each segment’s income
before taxes, in the same manner as it is included in management reports that are reviewed by the Company’s General
Director. Each segment’s profits are used in measuring performance as management believes such information is the most
appropriate for assessing the results of certain segments.
$
$
a) Operating segment information
Net revenues
Cost of sales
Gross profit
Income before taxes
Income taxes
Net income attributable to controlling interest
Property, plant and equipment, net
Goodwill
Total assets
Total liabilities
Purchases of property, plant and equipment, net
Depreciation and amortization
Net revenues
Cost of sales
Gross profit
Income before taxes
Income taxes
Net income attributable to controlling interest
Property, plant and equipment, net
Goodwill
Total assets
Total liabilities
Purchases of property, plant and equipment, net
Depreciation and amortization
Year ended December 31, 2013
Poultry
35,943,862
29,847,653
6,096,209
3,164,288
1,252,784
1,890,572
10,425,139
256,244
25,725,596
(7,759,814)
514,466
(731,797)
Others
3,766,864
3,328,946
437,918
227,956
97,655
147,850
1,227,310
88,015
3,055,995
(870,631)
60,945
(84,876)
Year ended December 31, 2012
Poultry
35,797,169
30,210,843
5,586,326
2,580,005
486,251
1,939,733
10,363,200
212,833
25,224,900
(8,093,729)
942,351
(752,492)
Others
3,570,262
3,107,364
462,898
213,786
115,769
244,834
1,586,316
88,015
2,815,284
(857,766)
9,409
(85,315)
Total
39,710,726
33,176,599
6,534,127
3,392,244
1,350,439
2,038,422
11,652,449
344,259
28,781,591
(8,630,445)
575,411
(816,673)
Total
39,367,431
33,318,207
6,049,224
2,793,791
602,020
2,184,567
11,949,516
300,848
28,040,184
(8,951,495)
951,760
(837,807)
51
$
Net revenues
Cost of sales
Gross profit
Income before taxes
Income taxes
Net income attributable to controlling interest
Property, plant and equipment, net
Goodwill
Total assets
Total liabilities
Purchases of property, plant and equipment, net
Depreciation and amortization
b) Geographical information
Year ended December 31, 2011
Poultry
24,697,212
22,058,417
2,638,795
1,024,662
(20,135)
1,093,861
11,652,108
212,833
23,335,598
(6,779,658)
662,009
(722,286)
Others
3,037,778
2,738,620
299,158
116,165
(18,481)
83,485
460,837
88,015
1,381,722
(557,834)
45,524
(23,551)
Total
27,734,990
24,797,037
2,937,953
1,140,827
(38,616)
1,177,346
12,112,945
300,848
24,717,320
(7,337,492)
707,533
(745,837)
When submitting information by geographic area, revenue is classified based on the geographic location where the
Company’s customers are located. Segment assets are classified in accordance with their geographic location.
Geographical information for the Others segment is not included below as it is all generated domestically in Mexico.
Net revenues
Non-current assets other than financial
instruments, deferred tax assets, post-
employment benefit assets, and rights arising
under insurance contracts
Non-current biological assets
$
Property, plant and equipment, net
Goodwill
Year ended December 31, 2013
Domestic
poultry
27,426,465
Foreign
poultry
8,517,397
Total
35,943,862
840,622
8,936,020
212,833
212,833
269,314
1,489,119
43,411
43,411
1,109,936
10,425,139
256,244
256,244
Net revenues
Non-current assets other than financial
instruments, deferred tax assets, post-
employment benefit assets, and rights
arising under insurance contracts
Non-current biological assets
Property, plant and equipment, net
Goodwill
Year ended December 31, 2012
Domestic
poultry
Foreign
poultry
$
27,625,702
8,171,467
Total
35,797,169
942,781
8,863,652
212,833
163,339
1,499,548
-
1,106,120
10,363,200
212,833
52
Year ended December 31, 2011
Domestic
poultry
23,318,433
Foreign poultry (two-
months operations)
1,378,779
Total
24,697,212
877,059
10,011,659
212,833
152,583
1,640,449
-
1,029,642
11,652,108
212,833
Net revenues
Non-current assets other than financial
instruments, deferred tax assets, post-
employment benefit assets, and rights arising
under insurance contracts
Non-current biological assets
$
Property, plant and equipment, net
Goodwill
c) Major Customers
In Mexico, the Company’s products are traded among a large number of customers, without significant concentration with
any specific customer. Therefore, in 2013, 2012 and 2011, no customer represented over 10% of the Company’s total
revenues.
The Company has transactions with Ozark Mountain Poultry, Inc. representing 14%, 12% and 4% of total sales outside of
Mexico during the years ended December 31, 2013, 2012 and 2011, respectively.
(7) Cash and cash equivalents
The consolidated balances of cash and cash equivalents as of December 31, 2013 and 2012 are as follows:
Cash and banks
$
Investments with maturities less than three months
Cash and cash equivalents
Restricted cash
December 31
2013
2012
594,183
6,121,330
6,715,513
1,381
1,592,555
2,586,471
4,179,026
515
Total cash and cash equivalents and restricted cash
$
6,716,894
4,179,541
Restricted cash corresponds to the minimum margin required by the intermediary related to the Company’s derivative
financial instruments, in order to meet future commitments that may stem from adverse market movements affecting prices
on the open positions as of December 31, 2013 and 2012.
Investments with maturities less than three months include cash of $29,858 and $38,431, related to high-liquidity
investments for 2013 and 2012, respectively (see Note 8).
(8)
Financial instruments and risk management
The Company is exposed to market risks, liquidity risks and credit risks for the use of financial instruments, for which reason
it exercises its risk management.
53
This note presents information on the Company’s exposure to each one of the aforementioned risks, the Company’s
objectives, policies and processes for the measurement and management of financial risks.
Risk management framework
The philosophy adopted by the Company seeks to minimize risks and, therefore maximize business stability, focusing
decisions on creating an optimum combination of products and assets that produce a risk – return ratio more in agreement
with the risk profile of its stockholders.
In order to establish a clear and optimum organizational structure with respect to risk management, a Risk Committee has
been established which is the specialized body in charge of defining, proposing, approving and implementing the
objectives, policies, procedures, methodologies and strategies, as well as the determination of the maximum limits of
exposure to risk and contingency plans.
Management by type or risk
a)
Categories of financial assets and liabilities
The Company’s financial assets and liabilities are shown below:
Financial assets
Cash and cash equivalents
Investments designated at fair value through profit and loss
Investments held to maturity
Accounts receivable
Financial assets for trading purposes
Financial liabilities
Measured at fair value through profit and loss
Measured at amortized cost
Trade payables and sundry creditors
$
$
b)
Credit risk
December 31,
2013
2012
6,716,894
972,641
31,465
1,635,338
-
4,179,541
923,010
38,958
1,741,639
2,701
(557,592)
(1,510,210)
(2,970,090)
(1,197,056)
(1,526,602)
(3,094,632)
Credit risk is defined as the potential loss of a portfolio of an amount owed to the Company due to lack of payment from a
debtor, or for breach by a counterparty with which derivative financial instruments and primary financial instruments
transactions are conducted.
The risk management process contemplates the use of derivative financial instruments and primary financial instruments,
which are exposed to a market risk, but are also to counterparty risk.
Measurement and monitoring of counterparty risk
The Company, in terms of valuation and monitoring of derivative financial instruments and primary financial instruments,
measures its counterparty risk by identifying the Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment
(DVA).
For investments in primary financial instruments in national currency, the financial instruments valuation models used by
price suppliers incorporate market movements and credit quality of issuers, thereby implicitly including the counterparty risk
of the transaction in the fair value determination; therefore, the position in primary financial instruments includes the
54
counterparty risk and no other study and/or related study is carried out. The price of the instruments obtained from the
price supplier is mid prices, which is the mid-price between the buying price and the selling price. As of December 31, 2013
and 2012, the balance of held to maturity investments is $31,465 and $38,958, respectively.
Investments in primary financial instruments in foreign currency not listed in Mexico are valued at prices contained in the
broker's statements of account. The Company validates these market prices with Bloomberg, which incorporate market
movements and the credit quality of issuers; thereby implicitly including the counterparty risk of the transaction and no
related adjustment is carried out. The prices obtained from Bloomberg are mid prices.
For derivative financial instruments traded in over the counter markets, CVA and/or DVA is calculated in Bloomberg for
risk monitoring purposes, but it is not reflected in the Company's books as part of the derivative instruments fair value. As of
December 31, 2013 and 2012, the credit risk not reflected in derivative financial instruments is not considered material.
Trade accounts receivable and other accounts receivable measurement and monitoring
It is the policy of the Company to establish an allowance for doubtful accounts to cover the balances of accounts receivable
that are not likely to be recovered. To set the required allowance, the Company considers historical losses, assesses current
market conditions, as well as customers' financial conditions, accounts receivable in litigation, price differences, portfolio
aging and current payment patterns.
The impairment assessment of accounts receivable is performed on a collective basis, as there are no accounts with
significant balances, and in the short-term. The Company's products are marketed to a large number of customers without
any significant concentration with a specific customer. As part of the objective evidence that an account receivable portfolio
is impaired, the Company considers past experiences with respect to collection, increases in the number of overdue
payments in the portfolio exceeding the average loan period, as well as observable changes in national and local economic
conditions that correlate to defaults.
The Company has a credit policy under which each new customer is analyzed individually in terms of its creditworthiness
before offering it payment terms and conditions. The Company's review includes internal and external assessments, and in
some cases, bank references and a search in the Public Registry of Properties. Purchase limits that represent the maximum
open amount are set for each customer. Customers that do not meet the Company's credit references can solely conduct
transactions in cash or through advance payments.
The allowance for doubtful accounts includes trade accounts receivable that are impaired, which amount to $86,564 and
$58,910 as of December 31, 2013 and 2012, respectively. The reconciliation of movements the allowance for doubtful
accounts, and the analysis of past-due accounts receivable but not impaired, are presented in note 9.
The Company receives guarantees on credit lines granted to its clients, which consist of real and personal property, such as
land, buildings, houses, vehicles, credit cards, cash deposits and others. As of December 31, 2013 and 2012, the guarantees
fair value, determined through an appraisal at the time the loan is granted, is $497,490 and $517,269 respectively.
The fair value of trade accounts receivable is similar to the carrying amount, as the terms granted under credit lines are of a
short nature and do not include significant financial components.
(d)
Investments
The Company limits its exposure to credit risk with respect to derivative and primary financial instruments by investing solely
in liquid securities and solely with counterparties that have a credit rating scale or investing grade. Management constantly
monitors credit ratings, and as it invests solely in securities with high credit ratings, it is not expected that any counterparty
fails to fulfill its obligations.
Investments in debt and equity instruments with a credit rating less than those referred to in the preceding paragraph are
authorized by the Risk Committee and the Board of Directors.
55
(e)
Financial guarantees granted
It is the Company’s policy to grant financial guarantees solely to 100% owned subsidiary companies.
(f)
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure, which as of the reporting date is as
follows:
Investments held to maturity
Cash and cash equivalents
Investments designated at fair value through profit and loss
Interest-rate derivative financial instruments for trading purposes
Derivative financial instruments on commodities for trading purposes
Accounts receivable net of guarantees received
December 31,
2013
2012
$
$
31,465
6,716,894
972,641
-
-
1,120,529
8,841,529
38,958
4,179,541
923,010
152
2,549
1,212,141
6,356,351
Investments designated at fair value through profit and loss include $29,858 and $38,431 in highly liquid of investments for
2013 and 2012, respectively.
c)
Liquidity risk
Liquidity risk is defined as the potential loss stemming from the impossibility to renew liabilities or enter into other liabilities
under normal terms, the early or forced sale of assets or the need to grant unusual discounts in order to meet obligations, or
by the fact that a position cannot be disposed of, acquired or covered promptly through the establishment of an equivalent
contrary position.
Liquidity risk management process considers the management of the assets and liabilities included in the consolidated
statements of financial position (Assets Liabilities Management - ALM) in order to anticipate funding difficulties because of
extreme events.
Monitoring
The Company’s areas of risk management and financial planning measure, monitor and report to the Risk Committee
liquidity risks associated with the ALM and prepare limits for the authorization, implementation and operation thereof, as
well as contingent action measures in case of liquidity requirements.
Liquidity risk caused by differences between current and projected cash flows at different dates are measured and
monitored, considering all asset and liability positions of the Company denominated in local and foreign currency. Similarly,
funding diversification and sources to which the Company has access are evaluated.
The Company quantifies the potential loss arising from early or forced sale of assets or sale at unusual discounts to meet its
obligations in a timely manner, as well as by the fact that a position cannot be disposed of, acquired or covered timely
through the establishment of a contrary equivalent position.
Liquidity risk monitoring considers a liquidity gap analysis, scenarios for lack of liquidity and use of alternative sources of
financing.
Below are the contractual maturities of the financial liabilities, including estimated interest payments. As of the date of the
consolidated financial statements, there are no financial instruments which have been offset or recognized positions that are
subject to offsetting rights.
56
Maturity table
December 31, 2013
Less than 1 year
1 to 3 years
3 to 5 years
Trade payables and sundry creditors
Variable-rate maturities
In U.S. dollars
In Mexican pesos
Interest
Total financial liabilities
$
$
2,970,090
392,700
164,892
89,554
3,617,236
-
-
10,210
179,108
189,318
-
-
1,500,000
48,704
1,548,704
As of December 31, 2012 (pesos and dollars)
Financial liabilities
Financial debt (pesos)
Financial debt (payable in dollars)
Debt securities
Derivative financial instruments on commodities at
fair value through profit or loss
Trade payable and other accounts payable
Carrying
amount
Current
contractual cash
flows
Non-current
contractual cash
flows
$
$
580,158
643,500
1,500,000
1,332
3,445,245
6,170,236
437,996
643,500
-
1,332
3,445,245
4,528,075
142,162
-
1,500,000
-
-
1,642,161
The Company, at a minimum on a monthly basis, evaluates and advises the Board of Directors on the Company's liquidity.
As of December 31, 2013, the Company has evaluated that it has sufficient resources to meet its obligations in the short and
long term; therefore, it does not consider having liquidity gaps in the future and it will not be necessary to sell assets to pay
its debts at unusual discounts or at out-of-market prices.
d)
Market risk
Market risk is defined as the potential loss of a portfolio of derivative financial instruments and primary financial instruments
held for trading purposes, for changes in risk factors that affect the valuation of short or long positions. In this sense, the
uncertainty of future losses resulting from changes in market conditions (interest rates, foreign currency, prices of
commodities, etc.), which directly affects movements in the price of both assets and liabilities, is detected.
The Company measures, monitors and reports all financial instruments subject to market risk, using sensitivity measurement
models to show the potential loss associated with movements in risk variables, according to different scenarios on rates,
prices and types of change during the period.
Monitoring
Sensitivity analyses are prepared at least monthly and are compared with the limits established. Any excess identified is
reported to the Risk Committee.
Stress tests
At least monthly, the Company conducts stress tests calculating the value of the portfolios and considering changes in risk
factors observed in historical dates of financial stress.
57
i. Commodities price risk
The Company seeks to protect itself against variations in the agreed-upon price of primary commodities used in its
operations, making use of derivative financial instruments that are designated as either accounting hedges or economic
hedges.
With respect to risks related to commodities designated in a formal hedging relationship, the Company seeks protection
against downward variations in the agreed-upon price of corn and/or sorghum with the producer, which may represent an
opportunity cost as there are lower prices in the current market upon receiving the inventory, and to hedge the risk of a
decline in prices between the receipt date and that of inventory consumption.
Purchases of corn and/or sorghum are formalized through an agreement denominated "Forward buy-sell agreement",
which has the following characteristics:
• Transaction date
• Number of agreed-upon tons
• Harvest, state and agricultural cycle from which the harvest comes
• Price of product per ton, plus quality award or penalty
Agricultural agreements that result in firm commitments are linked to two corn and/or sorghum agricultural cycles, and in
contracting purchases: both contracting cycles and dates are itemized as follows:
•
Fall-winter Cycle - The registration window period is at the discretion of the Agency of Services for Distribution and
Development of Agricultural Markets (ASERCA, for its Spanish acronym), which is usually between December and
March, while the fall-winter cycle harvest period takes place during May, June and July. However, corn and/or harvest
could lengthen up to one month or several months, depending on the weather conditions, such as drought and frost.
• Spring-summer Cycle - The registration window period is at the discretion of ASERCA; the spring-summer cycle
usually takes place during the July and August and the harvest depends on each State and is very variable.
The Company carries out prospective effectiveness tests at the beginning of each hedge and, at least on a quarterly basis,
retrospective effectiveness tests. The hedges are and will be highly effective since they are between the 80%-125% range.
As of December 31, 2013, the Company has effective hedging positions of corn long puts with ASERCA, maturing in
March, July, September and December 2014. The gain on valuation of these instruments is $120,560, recorded within cost
of sales. At December 31, 2012, there were no open positions of long put hedge options with ASERCA.
The Company maintains a contractual agreement with ASERCA in which the Company will pay 55% of the option
premium and ASERCA will pay the remaining 45%. In case the option is In the Money (Strike>Forward), the Company will
recover the 55% portion paid and an additional 22.5% which is equivalent to 50% of the portion paid by ASERCA. Due to
its nature and according to the established by IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance, the portion paid by ASERCA must be recognized as an income over the term of the instrument in order to
match it against the costs it is intended to offset, on a systematic basis. The effect of such benefit as of December 31, 2013
and 2012 is $14,819 and $0, respectively.
With respect to the risk in commodities that are not designated in a formal hedging relationship and to which the Company
is exposed, sensitivity tests on corn and sorghum futures agreements are entered into, considering different (bullish and
bearish) scenarios. These results can be seen in paragraph g) of this note.
ii. Chicken price risk
The Company is exposed to financial risks mainly related to changes in the chicken price. The Company does not
contemplate a significant drop in chicken price in the future; therefore, it has not entered into any derivative financial
instrument or other agreement for managing the risk related to a decrease in chicken price.
58
The Company reviews chicken prices frequently in order to evaluate the need of having a financial instrument to manage
the risk.
iii. Exchange risk
The Company is exposed to fluctuations in the exchange rate mainly on MXP/dollars parity in the Company's assets and
liabilities, such as: primary financial instruments (investments), derivative financial instruments hedging commodities, which
are denominated in a currency other than the Company's functional currency. In this regard, the Company has
implemented a sensitivity analysis to measure the effects that currency risk may have over the assets and liabilities described.
The Company protects itself through economic hedging with derivative financial instruments, a percentage of its estimated
exposure to exchange rate variations in relation to sales and purchases projected during the year and in the months
needed. Maturities of all instruments referred to as hedges for foreign exchange risk are less than one year from the
contracting date.
As of December 31, 2013 and 2012, the Company does not have derivative financial instrument positions to hedge
exchange rate risks.
iv. Foreign currency position
The Company has financial instrument assets and liabilities denominated in foreign currency on which there is an exposure
to currency risk.
Below is the foreign currency position that the Company has as of December 31, 2013 and 2012.
Assets
Cash and cash equivalents
Primary financial instruments
Accounts receivable
Other accounts receivable
Prepaid expenses
Total assets
Liabilities
Trade accounts payable
Other accounts payable
Financial debt
Total Liabilities
Net liability position
December 31,
2013
2012
Dollars
MXP
Dollars
MXP
39,843
29,284
38,810
12,170
62,564
182,671
(142,124)
(17,156)
(30,000)
(189,280)
(6,608)
521,546
383,333
508,017
159,305
818,967
2,391,168
(1,860,405)
(224,568)
(392,700)
(2,477,673)
(86,505)
28,198
29,529
36,771
11,696
39,051
145,245
(133,325)
(14,846)
(50,000)
(198,171)
(52,926)
362,905
380,036
473,245
150,529
502,585
1,869,300
(1,715,893)
(191,071)
(643,500)
(2,550,464)
(681,164)
The following is a detail of exchange rates effective during the fiscal year:
Average exchange rate
for the year ended December
31,
2013
12.76
2012
13.16
Spot exchange rate at
December 31,
2013
13.09
2012
12.87
Dollars
$
The exchange rate at April 28, 2014 is $13.13.
59
The Company carries out a sensitivity analysis related to the effect that the movement in the exchange rates may have on its
financial information. These results are shown in paragraph g) of this note. These analyses represent the scenarios that
Management considers reasonably possible that would have occurred at the end of the fiscal year.
v. Interest rate risk
The Company is exposed to fluctuations in rates for primary financial instruments, such as investments, bank loans and debt
securities. This risk is managed through derivative financial instruments such as interest rate swaps or others, taking into
account market conditions and the criterion of its Risk Committee and Board of Directors.
Interest rate fluctuations impacted mainly bank loans by changing either their fair value (fixed rate debt) or its future cash
flows (variable rate debt). Management does not have a formal policy to determine how much of the Company's exposure
should be at fixed or variable rate. However, at the time of obtaining new loans, Management uses its judgment to decide
whether it considers that a fixed or variable rate would be more favorable during the period foreseen to maturity.
As a follow-up to this risk, the Company performs, at least monthly, sensitivity tests to measure the effect of the change in
interest rates in the instruments described in the preceding paragraph, which are listed in subsection g) of this note.
e)
Financial instruments at fair value
The amounts of accounts payable, accounts receivable and short-term debt approximate their fair value because of their
nature and short-term maturities.
The following table details the fair value of financial instruments at amortized cost included in the consolidated statement of
financial position:
Liabilities recorded at amortized
cost
Carrying
amount
Fair value
Carrying
amount
Fair value
2013
2012
Debt securities
$
1,500,000
1,519,065
1,500,000
1,507,562
f)
Fair value hierarchy
The following table presents financial assets and financial liabilities measured at fair value and those that are not measured at
fair value, but whose fair value disclosure is required, in accordance with its category within the fair value hierarchy.
Measurements of financial assets and liabilities in Level 2 of the fair value hierarchy have been determined in accordance
with a market approach for identical instruments.
As of December 31, 2013
Investments in primary instruments at fair value though
profit and loss
Current and non-current biological assets
Debt securities (measured at amortized cost)
Derivative financial instruments on commodities
Level 1
Level 2
Level 3
Total
$
253,125
719,516
2,530,110
-
-
2,783,235
$
-
(1,519,065)
11,735
(787,814)
-
-
-
-
-
972,641
2,530,110
(1,519,065)
11,735
1,995,421
60
As of December 31, 2012
Investments in primary instruments at fair value
through profit and loss
Current and non-current biological assets
Interest rate derivative financial instruments
Debt securities (measured at amortized cost)
Derivative financial instruments on commodities at fair
value through profit and loss
Level 1
Level 2
Level 3
Total
$
-
2,603,084
-
-
923,010
-
152
(1,507,562)
2,549
(1,332)
$
2,605,633
(585,732)
-
-
-
-
-
-
923,010
2,603,084
152
(1,507,562)
1,217
2,019,901
g)
Quantitative sensitivity measurements
Following are sensitivity analyses for the more significant risks to which the Company is exposed as of December 31, 2013.
These analyses represent the scenarios that Management considers reasonably possible that could have occurred at the
end of fiscal year 2013.
i. Derivative Financial Instruments (DFIs)
As of December 31, 2013, the Company's derivative financial instruments were comprised of instruments to hedge
commodity risk only. At year-end levels, the level of exposure of the existing instruments is a loss of $372.
If at the end of the fiscal year 2013, the bullish price of corn and of short ton of soybean increased 7.5%, the amount of loss
related to the Company’s derivative financial instruments would increase to $1,630, affecting the profit and loss of the
period to a greater loss on derivative financial instruments. If on the other hand, the aforementioned prices decreased 7.5%,
then the effect would be the opposite; i.e., the Company would have experienced a benefit in the profit and loss of the
period of $666.
ii. Interest rate risk
As of December 31, 2013, the total position of primary financial instruments by financial debt and debt securities
demonstrates a level of annual exposure to losses of $7,113.
If, as of the 2013 closing date, variable rates to which the Company is exposed had been higher by 25 basis points, the
amount of interest paid would increase to $4,896 affecting the income of the year. If on the other hand, these rates
decreased by 25 basis points, then the effect would be the opposite; i.e., a benefit in the income of the year of $4,896.
iii. Exchange risk
As of December 31, 2013, the Company's net monetary liability position in foreign currency was $86,505.
If, as of the 2013 closing date, the exchange rate increased $0.50 cents, the gain (loss) from foreign currency position
would decrease by $2,341, affecting the Company’s profit and loss and stockholders’ equity with a loss from foreign
currency exchange effects. If, on the other hand, the exchange rate increased by $0.50, then the effect would be the
opposite; that is, an increase in profit and loss and stockholders’ equity of $2,341 for a financial position gain.
61
(9)
Accounts receivable, net
As of December 31, 2013 and 2012, accounts receivable are as follows:
Trade receivables
Allowance for doubtful accounts
Creditable value-added tax and other recoverable
taxes
$
$
Past-due but not impaired portfolio
December 31,
2013
1,704,583
(69,245)
2012
1,788,320
(46,681)
592,464
2,227,802
478,999
2,220,638
Below is a classification of trade accounts receivable according to their aging as of the reporting date, excluding receivables
that are in a legal process:
Current
Overdue 0 to 60 days
Overdue over 60 days
December 31,
$
$
2013
1,470,294
120,258
27,467
1,618,019
2012
1,502,596
208,704
18,110
1,729,410
As of December 31, 2013 and 2012 the Company has receivables in a legal process (receivables for which legal counsel is
seeking recoverability) of $86,564 and $58,910, respectively.
The Company believes that non-impaired amounts that are overdue by more than 60 days can still be collected, based on
the historical behavior of payments and analysis of credit ratings of customers.
Reconciliation of movements in allowance for doubtful accounts
Balance as of January 1
Increase in allowance
Amounts written off during the year
Balance as of December 31,
2013
2012
$
$
(46,681)
(29,980)
7,416
(69,245)
(38,537)
(13,501)
5,357
(46,681)
To determine the recoverability of an account receivable, the Company considers any change in the credit quality of the
account receivable from the date of authorization of the credit line to the end of the reference period. In addition, the
Company estimates that the credit risk concentration is limited as the customer base is very large and there are no related
party receivables or receivables from entities under common control.
62
(10)
Inventories
As of December 31, 2013 and 2012, and January 1, 2012, inventories are as follows:
Raw materials and by-products
Medicine, materials and spare parts
Finished feed
Processed chicken (net of value allowance of
$
$30,203 as at January 1, 2012)
Commercial eggs
Beef
Turkey
Processed products
Total
$
December 31,
2013
2012
January 1,
2012
1,100,971 $
633,829
209,082
689,102
43,213
23,013
25,090
13,922
2,738,222 $
2,751,718 $
640,953
292,056
784,329
67,533
17,090
37,812
7,864
4,599,355 $
1,883,163
487,178
83,601
717,572
33,217
13,658
12,598
-
3,230,987
Inventory consumption for the years ended December 31, 2013, 2012 and 2011 was $26,041,102, $26,452,636 and
$18,033,819 respectively.
(11)
Biological assets
As of December 31, 2013 and 2012, and January 1, 2012, biological assets are as follows:
Balance as at January 1, 2013
Increase due to purchases
Sales
Net increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as at December 31, 2013
Balance as at January 1, 2012
Increase due to purchases
Sales
Increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as at December 31, 2012
Current biological
assets
1,496,964
227,864
-
283,175
24,683,964
-
(25,270,795)
(998)
1,420,174
Current biological
assets
1,548,722
38,123
(7,166)
257,261
25,407,628
-
(25,735,178)
(12,426)
1,496,964
$
$
$
$
Non-current
biological assets
1,106,120
328,059
(178,543)
1,242,535
1,073,261
(1,221,754)
(1,242,535)
2,793
1,109,936
Non-current
biological assets
1,029,642
207,230
(325,116)
1,222,906
1,067,717
(861,339)
(1,222,906)
(12,014)
1,106,120
Total
2,603,084
555,923
(178,543)
1,525,710
25,757,225
(1,221,754)
(26,513,330)
1,795
2,530,110
Total
2,578,364
245,353
(332,282)
1,480,167
26,475,345
(861,339)
(26,958,084)
(24,440)
2,603,084
The balance of current biological assets is comprised of hatching eggs, growing pigs and growing poultry; while noncurrent
biological assets are comprised of breeder poultry in its different stages of production and breeder pigs.
63
The change fair value of biological resulted in a decrease of $7,857 in 2013, an increase of $11,010 in 2012 and a decrease
of $12,984 in 2011.
The Company is exposed to different risks relating to its biological assets:
•
•
•
Future excesses in the offer of poultry products and a decline in the demand growth of the chicken industry may
negatively affect the Company’s results.
Increases in raw material prices and price volatility may negatively affect the Company’s margins and results.
In addition, in the case of the Company’s operations in the United States of America, the cost of corn and grain may be
affected by an increase in the demand for ethanol, which may reduce the market’s available corn inventory.
• Operations in Mexico and the United States of America are based on animal breeding and meat processing, which are
subject to sanitary risks and natural disasters.
• Hurricanes and other adverse climate conditions may result in additional inventory losses and damage to the
Company’s facilities and equipment.
(12)
Prepaid expenses and other current assets
As of December 31, 2013 and 2012, prepaid expenses and other current assets are as follows:
December 31,
2013
2012
Advances to suppliers of inventories
Prepaid expenses of services
Other receivables
Prepaid expenses of insurance and bonds
Total
$
$
801,390
184,001
112,207
58,764
1,156,362
505,667
240,706
79,999
42,506
868,878
(13) Assets available for sale
As of December 31, 2013 and 2012, assets available for sale are as follows:
Buildings
Land
Other
Total
December 31,
2013
2012
$
$
18,242
28,168
2,643
49,053
18,502
30,361
2,644
51,507
64
(14)
Property, plant and equipment
As of December 31, 2013 and 2012, property, plant and equipment are comprised as follows.
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Balance as at
January 1, 2013
Additions
Disposals
Currency
translation
effect
Balance as at
December 31,
2013
$
$
1,056,145
9,397,122
9,081,660
1,170,321
138,172
145,669
38,841
562,750
21,590,680
770
153,685
462,988
167,324
3,151
5,778
-
(206,303)
587,393
(59)
(19,482)
(25,267)
(133,483)
(130)
(1,760)
(11,989)
-
(192,170)
Balance as at
January 1 2013
Depreciation for
the year
Disposals
326
17,521
5,114
164
59
54
-
-
23,238
Currency
translation
effect
(199,952)
(515,833)
(86,936)
(5,232)
(8,720)
(816,673)
15,844
15,088
71,640
130
1,570
104,272
(2,278)
(768)
(32)
(42)
(7)
(3,127)
1,057,182
9,548,846
9,524,495
1,204,326
141,252
149,741
26,852
356,447
22,009,141
Balance as at
December 31,
2013
(4,607,271)
(4,724,963)
(789,154)
(126,897)
(108,407)
(10,356,692)
Additions
25,722
103,998
415,116
66,565
6,226
12,023
10,985
311,125
951,760
Disposals
-
(1,727)
(84,521)
(159,845)
(67)
(607)
-
-
(246,767)
Currency
translation
effect
Balance as at
December 31,
2012
(3,916)
(67,973)
(56,335)
(989)
(719)
(536)
-
-
(130,468)
1,056,145
9,397,122
9,081,660
1,170,321
138,172
145,669
38,841
562,750
21,590,680
$
$
(4,420,885)
(4,223,450)
(773,826)
(121,753)
(101,250)
(9,641,164)
Balance as at
January 1,
2012
1,034,339
9,362,824
8,807,400
1,264,590
132,732
134,789
27,856
251,625
21,016,155
$
$
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
Balance as at
January 1, 2012
Depreciation for
the year
Disposals
Balance as at
December 31, 2012
$
$
(4,176,884)
(3,773,081)
(747,689)
(112,452)
(93,104)
(8,903,210)
(256,796)
(469,250)
(93,734)
(9,430)
(8,602)
(837,807)
12,795
18,881
67,597
129
456
99,858
(4,420,885)
(4,223,450)
(773,826)
(121,753)
(101,250)
(9,641,164)
65
Carrying amounts, net
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Balance as at
December 31, 2013
Balance at December 31,
2012
$
$
1,057,182
4,941,575
4,799,532
415,172
14,355
41,334
26,852
356,447
11,652,449
1,056,145
4,976,237
4,858,210
396,495
16,419
44,419
38,841
562,750
11,949,516
Depreciation expense during the fiscal years ended December 31, 2013, 2012 and 2011 was $816,673, $837,807 and
$745,837, respectively, which were charged to cost of sales and operating expenses.
(15) Goodwill
2013
2012
Balances at beginning of the year
$
300,848
300,848
Business combination additional amounts recognized
during the year (Note 4)
Effect of difference in foreign currency exchange rate
42,780
631
-
-
Balances at end of year
$
344,259
300,848
The recoverable amount of the cash-generating unit is determined based on a calculation of its value in use, which uses
projections of the estimated cash flows based on financial budgets approved by the administration, prevailing for a
determined projection period, which are discounted using an annual discount rate.
Projections of the cash flows during the budgeted period are based on sales projections which include increases due to
inflation, as well as the projection of expected gross margins and operating margins during the budgeted period. Cash
flows that exceed such period are extrapolated using an annual stable growth rate, which is the long-term weighted
average growth rate for the market in which the cash-generating unit operates.
The assumptions and balances of each cash-generating unit are as follows:
Cash-generating unit
Bachoco - Istmo and península regions
Campi
Ok Farms- Morris Hatchery Inc.
2013
Final balance of the
year (thousands of
pesos)
$ 212,833
88,015
43,411
$ 344,259
Projection
period
(years)
5
5
5
Annual
discount rate
(%)
10.33%
10.33%
8.74%
Annual
growth rate
(%)
2.70%
2.10%
0.00%
66
Cash-generating unit
Bachoco - Istmo and península regions
Campi
2012
Final balance of the
year (thousands of
pesos
$ 212,833
88,015
$ 300,848
Projection
period
(years)
5
5
Annual
discount rate
(%)
Annual
growth rate
(%)
9.97%
9.97%
3.80%
2.50%
(16) Other non-current assets
Other non-current assets consist of the following:
December 31,
2013
2012
Advances for purchase of property, plant and equipment
Investments in life insurance (note 3 (k))
Guarantee deposits
Other long-term receivable
Intangible assets in process
Other
Total non-current assets
$
$
133,214
35,754
15,956
87,927
37,955
39,793
350,599
131,561
33,659
15,589
81,843
-
39,259
301,911
(17)
Financial debt
Major borrowings are secured by guaranties, according to the terms of the borrowing agreements.
Note 8 discloses the carrying amount and fair value of borrowings.
a)
Short-term financial debt is as follows:
Loan in the amount of USD$20,000, maturing in April 2013, at LIBOR (3) rate
plus 0.84 percentage points.
Denominated in pesos, maturing in January 2013, at TIIE (1) plus 0.60
$
percentage points.
Denominated in pesos, maturing in December 2013, at TIIE (1) FIRA (2) less
0.88 percentage points.
Denominated in pesos, maturing in December 2013, at TIIE (1) FIRA (2) less
0.89 percentage points.
Denominated in pesos, maturing in November 2013, at TIIE (1) FIRA (2) less
0.70 percentage points.
Loan of USD$30,000 denominated in USD, maturing in June 2013, at LIBOR
(3) rate plus 1.62 points.
Loan of USD$30,000 denominated in USD, maturing in June 2014, at LIBOR
(3) rate plus 1.20 points.
Denominated in pesos, maturing in January, October, December 2014, at TIIE
(1) FIRA (2) less 0.70 percentage points.
Total short-term debt
December 31,
2013
-
-
-
-
-
-
2012
257,400
200,000
59,368
82,628
96,000
386,100
392,700
148,500
-
-
$
541,200
1,081,496
67
Annual weighted average interest rate of short-term loans denominated in pesos for 2013, 2012 and 2011 was 3.72%,
4.97% and 5.53%, respectively. Average interest rate for short-term loans existing as of December 31, 2013 and 2012,
was 3.10% and 4.68%, respectively.
Annual weighted average interest rate of short-term loans denominated in dollars for the years 2013, 2012 and 2011 was
1.49%, 1.06% and 0.8702%, respectively. Average interest rate for loans existing as of December 31, 2013 and 2012 was
1.37% and 1.38%, respectively.
(1)
(2)
(3)
b)
TIIE (for its acronym in Spanish) = Interbank Equilibrium Rate
FIRA (for its acronym in Spanish) = Trust Established in Relation to Agriculture
LIBOR= London Interbank Offered Rate
Long-term debt consists of the following:
December 31,
2013
2012
Denominated in pesos, maturing in 2013, at TIIE (1) rate plus 0.60
percentage points.
Denominated in pesos, maturing in 2015 and 2016, at TIIE (1) plus 1.00
percentage points.
Denominated in pesos, maturing in December 2013, at TIIE (1) FIRA (2)
rates less 1.00 percentage point.
Denominated in pesos, maturing in January 2014, at TIIE (1) FIRA (2)
rates less 0.55 percentage points.
Debt securities (subsection (d))
$
-
22,329
-
4,273
1,500,000
1,526,602
Less current maturities
Long-term debt, excluding current maturities
(16,392)
1,510,210
$
37,500
34,449
14,667
55,546
1,500,000
1,642,162
(115,560)
1,526,602
Long-term annual weighted average interest rate for 2013, 2012 and 2011 was 4.93%, 5.40% and 5.58%, respectively.
Average rate for current loans as of December 31, 2013 and 2012 was 4.40% and 5.43%, respectively.
(1) TIIE (for its acronym in Spanish) = Interbank Equilibrium Rate
(2) FIRA (for its acronym in Spanish) = Trust Established in Relation to Agriculture
During 2013 and 2012, the Company made early payments on its long-term debt of $11,833 and $398,134 respectively,
without payment of fees for early termination.
As at December 31, 2013 and 2012, total unused lines of credit in pesos totaled $5,418,099 and $2,664,911, respectively.
In both fiscal years, the Company did not pay any fee for undrawn balances.
c)
Maturities of long-term debt, excluding current maturities, as of December 31, 2013, are as follows:
Year
2015
2016
2017
Amount
7,720
2,490
1,500,000
1,510,210
$
$
Interest expense on total loans during the years ended December 31, 2013, 2012 and 2011, amounted to $97,025,
$71,005 and $40,688, respectively.
68
Certain bank loans establish certain affirmative and negative covenants, as well as the requirement to maintain certain
financial ratios, which have been met as of December 31, 2013, among which are:
a)
b)
c)
d)
e)
Provide financial information at request from the bank.
Not to contract liabilities with financial cost or grant loans that may affect payment obligations.
Notify the bank regarding the existence of legal issues that could substantially affect the financial situation of the
Company.
Not to perform substantial changes to the nature of the business, or the administrative structure.
Not to merge, consolidate, separate, settle or dissolve except for those mergers in which the Company or
surety are the merging company and do not constitutes a change on control of the entities of the group to
which the Company or the surety belong, at the date of the agreement.
d)
Debt for issuing debt securities
On August 28, 2012, the Company was authorized to issue debt securities in the total amount of the program of
$5,000,000 or the equivalent in UDIS (1), on a revolving basis, for a term of five years from the date of the authorization
letter from the Mexican Banking Commission. The initial issuance dated August 31, 2012 was of $1,500,000 pesos with
ticker symbol: "BACHOCO 12" for a term of 1,820 days, equivalent to 65 periods of 28 days, approximately five years,
with 15,000,000 debt securities and a par value of $100 pesos per certificate.
From the date of issuance, and while the debt securities have not been paid, they will accrue annual gross interest on their
par value, at an annual interest rate, which is calculated by adding 0.60 percentage points at the 28-day TIIE, and in the
event the 28-day TIIE were not published, at the nearest term published by the Bank of Mexico. The common
representative of the stock-holders will calculate the accrued interest two business days prior to the beginning of each
interest period of 28 days, according to the payment schedule, computed from the date of issuance or at the beginning of
each interest period and governed precisely during that interest period.
Debt securities will be paid at the expiration of the issuance term. Direct costs arising from debt issuance or contract are
capitalized and amortized as part of financial expense using the effective interest rate through the expiration of each
transaction. Such costs include commissions and professional fees.
(1)
UDIS = Investment units
Derived from the issuance of the Debt securities, the Company is subject to certain requirements, affirmative and negative
covenants, with which they comply as of December 31, 2013.
(18)
Trade accounts and other accounts payable
Trade payables
Sundry creditors
Expenses payable
Statutory employee profit sharing
Retained payroll taxes and other local taxes
Direct employee benefits
Current ISR liability
Interest payable
Others
December 31,
2013
2,764,765
205,324
194,159
29,140
129,122
5,504
383,511
3,275
44,312
3,759,112
$
$
2012
2,838,500
256,132
142,799
30,849
110,737
10,755
-
883
54,590
3,445,245
69
Note 8 discloses the Company’s exposure to the exchange and liquidity risks related to trade accounts payable and other
accounts payable.
(19)
Transactions and balances with related parties
(a)
Transactions with management
(g) Management payment
The following table shows the total payment to our directors and executives for services provided in their respective
positions for the years ended December 31, 2013, 2012 and 2011, which is included in employee costs (see note 23):
Net payment
$
52,805
39,288
44,472
December 31,
2013
2012
2011
(b)
Transactions with related parties
Below is a summary of the Company’s transactions and balances with other related parties:
i. Revenues
Sales of products to:
Vimifos S.A de C.V.
Frescopack S.A de C.V
Maquinaria Agrícola, S.A. de C.V.
Llantas y Accesorios, S.A. de C.V.
Autos y Accesorios, S.A. de C.V.
Alfonso R. Bours, S.A. de C.V.
Taxis Aéreos del Noroeste, S.A. de C.V.
Transaction value
December 31,
2012
2013
$
$
42,719
-
-
-
-
13
18
42,750
38,664
20
-
50
448
29
19
39,230
2011
24,314
8
21
125
500
29
28
25,025
70
ii. Expenses and balances payable to related parties
Transaction value
December 31,
2012
2013
Balance as of
December 31,
2011
2013
2012
Purchases of food, raw materials and
packing supplies
Vimifos, S.A. de C.V.
Frescopack, S.A. de C.V.
Pulmex 2000, S.A. de C.V.
Qualyplast, S.A. de C.V.
Purchases of vehicles, tires and spare
parts
Maquinaria Agrícola, S.A. de C.V.
Llantas y Accesorios, S.A. de C.V.
Autos y Accesorios, S.A. de C.V.
Autos y Tractores de Culiacán, S.A. de
C,V.
Camiones y Tractocamiones de Sonora,
S.A. de C.V.
Agencia MX-5 S.A de C.V.
Alfonso R. Bours, S.A. de C.V.
Distribuidora Automotriz de los Mochis,
S.A. de C. V.
Airplane leasing expenses
Taxis Aéreos del Noroeste, S.A. de C.V.
$
$
361,497
147,192
13,766
753
467,499
129,119
11,844
44
347,062 $
119,950
10,302
6
57,100
29,421
22,525
62,035
27,282
19,815
69,205
21,640
24,995
21,967
18,026
23,207
23,649
2,294
590
-
1,647
397
568
-
3,333
-
767
2,135
-
21,813
18,151
-
242
8,415
4,458
253
610
5
1
147
42,855
22,766
-
-
8,529
4,724
4,055
5,026
15
69
-
-
$
7,375
10,137
10,063
-
54,095
$
-
88,039
As at December 31, 2013 and 2012, balances payable to related parties correspond to current accounts denominated in
pesos that bear no interest and are payable in a short-term basis.
(20)
Income Tax
Under the tax legislation in Mexico in effect through December 31, 2013, companies must pay the greater of Income Tax
(ISR, by its Spanish acronym) or Flat Income Tax (IETU, by its Spanish acronym). If IETU is payable, the payment will be
considered final, not subject to recovery in subsequent years. The Mexican Congress approved tax reforms that were
enacted in 2013 but will be in effect beginning January 1, 2014, which include a new ISR Law and the elimination of IETU.
a)
ISR
The Company and each of its subsidiaries file separate income tax returns (including its foreign subsidiary, which files
income tax returns in the United States of America, based on its fiscal year ending in April of every year). For the years
ended December 31, 2013 and 2012 the applicable rate under the general tax regime in Mexico is 30%; this rate will be
applicable in future years as well. The applicable rate for the foreign subsidiary is 38.79%. Until December 31, 2013
BSACV, the Company’s primary operating subsidiary, was subject to ISR under the provisions of a simplified regime, which
is applicable to companies engaged exclusively in agriculture, cattle-raising, fishing, forestry and other activities. The ISR
Law establishes that the aforementioned activities are exclusive activities when no more than 10% of an entity’s total
revenues are generated from something other than those activities or otherwise from the production of processed
products. BSACV has complied with such provision. The simplified regime established that the taxable income for ISR is
determined over collected income less paid deductions. The tax rate for this regime was 21%.
71
As a result of the new ISR law, which was enacted in 2013 and is effective as of January 1, 2014, the simplified regime was
eliminated and is substituted with the an agriculture, cattle-raising, forestry and fishing regime, which is applicable for entities
exclusively dedicated to such activities. The ISR Law establishes that such activities are exclusive when no more than 10% of
the entities’ total revenues are generated from something other than those activities or from industrialized products. In order
to determine ISR, under the agricultural, cattle-raising, forestry and fishing regime, taxable income is calculated by adding
collected revenue and subtracting paid deductions; the tax rate will be 21% on annual taxable income up to 10 million pesos,
and for taxable income in excess of that amount, the tax rate will be 30%.
b)
IETU
Through December 31, 2013, IETU was calculated applying the rate of 17.5% to profit determined based on cash flows less
some authorized tax credits.
IETU credits were derived mainly from the unamortized negative IETU basis, taxable salaries for ISR purposes and social
security contributions, as well as credits derived from deductions of certain assets such as inventories and property, plant
and equipment.
IETU was required to be paid when it was greater than ISR for the same fiscal year. To determine the IETU payable, the
income tax paid for the same period was subtracted from the current IETU.
If a negative IETU base was determined because authorized deductions exceeded taxable income, no current IETU was
payable. The amount of the negative base multiplied by the IETU rate resulted in an IETU credit, which may be applied
against ISR for the same year or, if applicable, against IETU payable in the next ten years. According to the Income Tax Law,
crediting IETU against ISR of the same fiscal year was not applicable for fiscal years 2013, 2012 and 2011.
As discussed above, the Mexican Congress eliminated the IETU Law, beginning January 1, 2014.
c)
Tax charged to profit and loss
For the years ended December 31, 2013, 2012 and 2011, the income tax expense (benefit) included in profit and loss is as
follows:
Operation in Mexico:
Current ISR
Current IETU
Deferred ISR
Deferred ISR from tax rate change
Foreign operation:
Deferred ISR
Total ISR expense (benefit)
2013
December 31
2012
2011
$
$
1,227,189
228
(527,449)
674,810
1,374,778
(24,339)
1,350,439
366,417
-
207,079
-
573,496
28,524
602,020
69,578
8
(100,307)
-
(30,721)
(7,895)
(38,616)
72
Total income tax expense (benefit)
The income tax expense (benefit) attributable to income before income taxes, was different from the amount computed by
applying the ISR rate of 21% in 2013, 2012 and 2011 as a result of the items listed below:
2013
December 31,
2012
ISR
712,371
$
Percentage
ISR
Percentage
ISR
21% $ 586,696
21% $ 239,574
2011
Percentage
21%
(64,401)
(9,213)
-
23,188
-
13,872
674,810
(188)
1,350,439
(2%)
(0%)
(47,627)
1,740
(2%)
(67,883)
0%
870
-
-
1%
0%
20%
-
61,777
(453)
-
-
-
-
-
(219,931)
27,021
(18,112)
2%
(0%)
-
-
(6%)
0%
(19%)
2%
(1%)
-
-
0%
(113)
39% $ 602,020
(0%)
21% $
(155)
(38,616)
0%
(3%)
Expected expense
Increase (decrease) resulting from:
Net effects of inflation
(Non-taxable income) Non-
deductible expenses
Gain on purchase of foreign
subsidiary
Effect of general regime rate
Effect of recognition of deferred
assets not recognized previously
Effect from non-deductible employee
benefits
Effect from change on tax rate in the
new ISR Law
Other
Expense (benefit) for income taxes $
d)
Deferred income tax
Through December 31, 2012, based on its financial projections, the Company considered it would pay ISR in future years.
In addition, as a result of the elimination of IETU in 2014, the Company will only pay ISR in the future and considered this tax
as the base for the determination of deferred tax effects.
The tax effects of temporary differences and tax credits that give rise to significant portions of deferred tax assets and
liabilities as at December 31, 2013 and 2012 are detailed below:
December 31,
2013
2012
$
Deferred tax assets
Accounts payable
Employee benefits
PTU payable
Effect from derivative financial instruments
Tax loss carryforwards
Total deferred tax assets
Deferred tax liabilities
Inventories
Accounts receivable
Property, plant and equipment
Prepaid expenses
Advances to suppliers
Total deferred tax liabilities
Net deferred tax liability
$
1,352,591
5,110
8,857
-
90,637
1,457,195
1,235,848
316,374
2,389,609
26,412
190,143
4,158,386
2,701,191
754,765
40,401
9,254
858
10,043
815,321
1,284,699
221,133
1,871,086
36,343
-
3,413,261
2,597,940
73
e)
Unrecognized deferred tax assets
Deferred tax assets that have not been recognized in the Company’s consolidated financial statements are as follows:
Recoverable tax on assets
Total
f)
Unrecognized deferred tax liabilities
December 31,
2013
2012
$
3,324
3,324
3,992
3,992
Deferred taxes related to investments in subsidiaries have not been recognized as the Company is able to control the
moment of the reversal of the difference, and the reversal is not expected to take place in the near future.
g)
Movement in temporary differences during the fiscal year
January 1,
2013
Recognized in
profit and loss
Accounts payable
Employee benefits
PTU payable
Effects on derivative financial
instruments
Tax loss carryforwards
Inventories
Accounts receivable
Property, plant and equipment
Advanced deductions
Advances to suppliers
Net deferred tax liability
$
(754,765)
(40,401)
(9,254)
(858)
(10,043)
1,284,699
221,133
1,871,086
36,343
-
$
2,597,940
(597,826)
60,696
397
858
(80,594)
(48,851)
95,241
512,889
(9,931)
190,143
123,022
Acquired or/
Recognized
directly in equity
-
(25,405)
-
-
-
-
-
-
5,634
(19,771)
December 31,
2013
(1,352,591)
(5,110)
(8,857)
-
(90,637)
1,235,848
316,374
2,389,609
26,412
190,143
2,701,191
January 1, 2012
Recognized in
profit and loss
Recognized directly
in equity
December 31,
2012
$
Accounts payable
Employee benefits
PTU payable
Effects on derivative financial
instruments
Tax loss carryforwards
Inventories
Accounts receivable
Property, plant and equipment
Currency translation effect
Advanced deductions
Net deferred tax liability
$
(649,678)
(46,889)
(9,002)
1,704
(96,772)
1,056,327
204,213
1,905,590
14,404
20,210
2,400,107
(105,087)
6,488
(252)
(2,562)
86,729
228,372
16,920
(11,138)
-
16,133
235,603
-
-
-
-
-
-
-
-
(37,770)
-
(37,770)
(754,765)
(40,401)
(9,254)
(858)
(10,043)
1,284,699
221,133
1,894,452
(23,366)
36,343
2,597,940
74
h)
Tax on assets and tax loss carryforwards-
As at December 31, 2013, tax loss carryforwards, and recoverable tax on assets (IMPAC) expires as shown below.
Amounts are indexed for inflation as permitted by Mexican income tax law:
Year
2006
2011
2012
2013
Tax loss carryforwards
$
$
-
10,153
15,678
209,835
235,666
Amount as at
December 31, 2013
Recoverable
IMPAC
3,324
-
-
-
3,324
Year of expiration
2016
2021/2032
2022
2032/2033
i)
Impacts on the tax reform for changes beginning 2014
As discussed above, the Mexican Congress approved a new ISR Law that was enacted in 2013 but will go into effect
beginning January 1, 2014. Due to this tax reform, the Company has recognized in its financial statements a charge to 2013
results in the amount of $674,810 of deferred income tax mainly arising from the measurement of deferred assets and
liabilities determined based on the new agriculture, cattle-raising, forestry and fishing regime, for the change in the general
income tax rate to 30% and for the limitation to the deductible amount of certain employee benefit expenses provisioned.
The main income tax impact to the Company is related to the increase from 21% to 30% in the tax rate of BSACV, the
Company’s primary operating subsidiary, and to the deductible limitation of 53% of wage expenses that are tax exempt
income for workers.
(21)
Employee benefits
a)
Employee benefits in Mexico
Defined contribution plans
The Company has a defined contribution plan which receives contributions from both the employees and the Company.
Employees can make contributions from 1% to 5% of their wage and the Company is obligated to make contributions as
follows: i) from the first to the fifth year of service of 1% of the wage, ii) from the sixth year of services of the employee the
contribution of the Company is increased by 1% until it reaches 5%, and iii) for the subsequent years the Company
contribution will be the same as the employee’s. When an employee retires from the Company he/she has the right to
receive the contribution he/she has made to the plan, and i) if the employee retires between the first and the fourth year of
services, he/she does not have the right to receive the contribution made by the Company, ii) if he/she retires on the fifth
year of services he/she has the right to receive 50% of the contributions made by the Company and, for each additional
service year, the employee has the right to receive an additional 10% of the contributions made by the Company.
The Company makes payments equivalent to 2% of the integrated wage of its workers to the defined contribution plan for
the retirement saving fund system established by the Mexican law. The expense for this concept was $40,023, $39,681
and $38,699, in 2013, 2012 and 2011, respectively.
Defined benefits plan
The Company has a defined benefit pension plan covering non-unionized personnel in Mexico. The benefits are based on
the age, years of service and the employee’s payment. The retirement age is 65 years, with a minimum of 10 years of
services, and there is an option for an anticipated retirement option, in certain circumstances, at 55 years of age. The
Company’s policy to fund the pension plan is to make contributions up to the maximum amount that can be deducted for
ISR purposes based on the projected unit credit method.
75
Additionally, according to the Mexican Federal Labor Law, the Company is obligated to pay a seniority premium as a
retirement benefit if an employee retires and has at least 15 years of services, which consists of a sole payment of 12 days for
each worked year based on the last wage, limited to the two minimal wages established by law.
The Company recognizes as a benefit plan, a constructive obligation from past practices. Such constructive obligation is
associated with service time the employee has worked on the Company. The payment of this benefit is disbursed in a single
installment at the time the employee voluntarily stops working for the Company.
The plans in Mexico expose the Company to actuarial risks such as: interest rate risk, longevity risk and salary risk:
Interest risk
Longevity risk
Salary risk
A decrease in the interest rate for the governmental bonds will increase the plan’s
liability.
The present value of the defined benefit plan liability is calculated by reference to the best
estimate of the mortality of plan participants both during and after their employment. An
increase in the life expectancy of the plan participants will increase the plan’s liability.
The present value of the defined benefit plan liability is calculated by reference to the
future salaries of plan participants. As such, an increase in the salary of the plan
participants will increase the plan’s liability.
The projected net liability presented on the consolidated statements of financial position is integrated as follows:
Present value of unfunded obligations
Present value of funded obligations
Total present value of benefit obligations (PBO)
Plan assets at fair value
Unrecognized actuarial losses
Projected liability, net
i. Composition and return of plan assets
December 31,
2013
48,245
312,170
360,415
(312,170)
-
48,245
$
$
2012
121,928
263,250
385,178
(263,250)
(25,315)
96,613
Fixed income securities
Variable income securities
Total
Actual return of the plan’s
assets
2013
5.52%
2.37%
7.89%
2012
5.31%
3.44%
8.75%
Composition of the plan’s
assets
2013
2012
70%
30%
70%
30%
100%
100%
(h) ii.
Movements in the present value of defined benefit obligations (PBO)
2013
2012
PBO as at January 1
Benefits paid by the plan
Service cost
Interest cost
Actuarial (gains) losses recognized in the statement of
comprehensive income
PBO as at December 31
$
$
385,178
(19,213)
26,680
28,138
(60,368)
360,415
321,270
(31,513)
21,876
26,638
46,907
385,178
76
iii. Movements in the fair value of plan assets
Plan assets at fair value as at January 1
Plan contributions
Benefits paid by the plan
Expected return on plan assets
Actuarial losses (gains) in the statement of comprehensive
income
Fair value of plan assets as at December 31
$
$
iv. Expense recognized in profit and loss
2013
2012
263,250
36,626
(8,482)
20,087
689
312,170
250,856
15,125
(19,877)
24,522
(7,376)
263,250
Current service cost
Interest cost, net
Interest cost on obligation
Curtailment gain
Prior service cost
Actual return on plan assets
v. Actuarial gains and losses
Amount accumulated as at 1 January
Recognized during the year
Amount accumulated as at 31 December
vi. Actuarial assumptions
2013
2012
2011
26,680
8,051
-
-
-
-
34,731
21,876
26,620
-
26,638
(657)
-
(24,522)
23,335
-
24,496
-
20,937
(25,815)
46,238
2013
(25,315)
(61,057)
(86,372)
2012
29,624
(54,939)
(25,315)
2011
-
29,624
29,624
$
$
$
$
Primary actuarial assumptions at the consolidated financial statements date (expressed as weighted averages) are as
follows.
Discount rate as at 31 December
Expected return on plan assets at 1 January
Future salary increases
Future pension increases
2013
8.50%
N/A
4.50%
4.25%
2012
7.50%
7.50%
4.50%
4.25%
The assumptions related to mortality are based on statistics and experiences over the Mexican population. The average
expected life of an individual that retires at 65 years of age is 10.85 years for men and 6.72 years for women (Experience
Chart of Demographic Mortality for Active EMSSA 1997).
77
vii. Historical information
Present value of defined benefit obligation
Plan assets at fair value
Plan deficit
Experience adjustments arising from plan liabilities
Experience adjustments arising from plan assets
$
$
$
$
360,415
(312,170)
48,245
(60,368)
(689)
385,178
(263,250)
121,928
46,907
7,376
December 31,_
2013
2012
viii. Sensitivity analysis of the defined benefits obligations as of December 31, 2013
Discount rate 8.50%
Rate increase (+ 1%)
Rate decrease (- 1%)
Pension plan
Seniority
premium
Constructive
obligation
Total PBO
(225,650)
(186,196)
(277,487)
(86,880)
(79,508)
(92,373)
(47,885)
(44,936)
(51,223)
(360,415)
(310,640)
(421,083)
ix. Expected cash flow for each benefit
Pension plan
2014-2023
$
225,650
Seniority
premium
86,880
Constructive
obligation
Total
47,885
360,415
x. Future contributions to the defined benefits plan
The Company does not expect to make contributions to the defined benefit plans on the following financial year.
b)
Foreign employee benefits
Bachoco USA, LLC. (foreign subsidiary) has a defined contribution retirement plan of 401(k), covering all employees who
meet certain eligibility requirements. The Company contributes to the plan at the rate of 50% of employee’s contributions
up to a maximum of 2% of the individual employee’s payment. The cumulative contribution expense for this plan was
$5,681, $4,131 and $471 for the year ended December 31, 2013, 2012 and 2011, respectively.
Bachoco USA, LLC. Also has a deferred payment agreement with certain key employees. Amounts payable under this plan
are vested after 10 years from the date of the agreement. The benefit value of each unit is equal to the increase in the initial
book value from the date of the agreement to the conclusion of the vesting period. Under the agreement, 38,500 units
were outstanding as of December 31, 2013 and 2012, respectively, all of which were fully vested. The total liability under this
plan totaled $3,503 and $3,449 as at December 31, 2013 and 2012, respectively. The expense for this plan for the year
ended December 31, 2013, 2012, and 211 was of $0, $9,319, and $0, respectively.
c)
PTU
Industrias Bachoco, S.A.B de C.V. and BSACV have no employees. Each of the subsidiaries of the Company that has
employees in Mexico is required under Mexican laws to pay employees, in addition to their payment and benefits, statutory
employee profit sharing in an aggregate amount equal to 10% of each subsidiary’s taxable income. The accrued liability as
of December 31, 2013 and 2012 is shown in note 18, Trade payable and other accounts payable.
78
(22) Costs and expenses by nature
Cost of sales
General, selling and administrative expenses
Total costs and expenses
Leases
Inventory consumption
Depreciation
Freight
Maintenance
Other
Other utility expenses
Wages and salaries
Total
$
$
$
$
2013
33,176,599
3,291,006
36,467,605
286,022
26,041,102
816,673
2,495,673
1,028,511
1,651,700
1,119,094
3,028,830
36,467,605
2012
33,318,207
3,396,655
36,714,862
290,066
26,452,636
837,807
2,412,771
1,037,982
1,641,126
1,120,314
2,922,160
36,714,862
2011
24,797,037
2,974,733
27,771,770
188,244
18,033,819
745,837
1,995,055
1,152,297
1,731,140
1,022,305
2,903,073
27,771,770
(23) Employee costs
Wages and salaries
Contributions to pension fund
Expenses related to defined benefit plans
Payments for severance expenses
2013
3,028,830
36,625
12,885
31,518
3,109,858
2012
2,922,160
15,125
4,481
40,040
2,981,806
2011
2,903,073
15,100
28,223
48,534
2,994,930
$
$
The employee cost is presented in cost of sales and general administrative and sale expenses line items.
(24) Operating leases
Company as lessee
The Company has entered into operating leases for certain offices, production facilities, and automotive and computer
equipment. Some leases contain renewal options. These agreements have terms between one and five years.
Lease expenses
2013
286,022
$
2012
290,066
2011
188,244
The amount of annual rentals payable, arising from lease agreements for the following five years is as follows:
2014
2015
2016
2017
2018
$
58,109
40,480
38,053
36,174
21,928
(25) Stockholders’ equity and reserves
a)
Common stock and premiums
As of December 31, 2013, 2012 and 2011, the Company’s capital stock is represented by 600,000,000 Series “B”
registered shares with a par value of $1 peso per share.
79
The Robinson Bours family owned 496,500,000 shares through two family trusts: the placement trust and the control
trust, which collectively represented 82.75% of the Company’s total shares.
On December 9, 2013, the members of the placement trust decided to sell 57,000,000 shares that represent 9.5% of
the total shares of the Company. The transaction was conducted through the BMV at market price.
After the sale of the shares, the Company’s capital stock was distributed as follows:
Before the Transaction
Shares(1)
496,500,000
312,000,000
184,500,000
103,500,000
Position
82.75%
52.00%
30.75%
17.25%
After the Transaction
Shares(1)
439,500,000
312,000,000
127,500,000
160,500,000
Position
73.25%
52.00%
21.25%
26.75%
Familiar Trusts
- Control Trust
- Placement Trust
Floating Position (2)
(1)
All Series B shares with voting power.
(2) Operating at the BMV and the NYSE.
Based on the information provided to the Company, as of December 31, 2013, stockholders with 1% or more interest in the
Company, in addition to the family trusts, are as follows:
Royce & Associates LLC
River Road Asset Management LLC
b)
Other comprehensive income items
i. Foreign currency translation reserve
As of December 31, 2013
Shares
Position
17,885,652
6,777,060
3.0%
1.1%
This concept is related to the translation of the Company’s United States of America operations from their functional
currency (U.S. dollar) to the reporting currency, the Mexican peso.
ii. Actuarial remeasurements
Actuarial remeasurements are recognized as other components of comprehensive income and are related to variations in
actuarial assumptions that generate actuarial gains or losses as well as adjust the actual yields from plan assets from the net
interest cost calculated over the net defined benefits liability balance. Actuarial remeasurements are presented net of
income tax within other comprehensive income in the consolidated statement of changes in stockholders’ equity.
c)
Reserve for repurchase of shares
In 1998, the Company approved a stock repurchase plan in conformity with the Mexican Securities Trading Act and
created a reserve for that purpose of $180,000 charged to retained earnings in such year.
Pursuant to a resolution at the General Ordinary Stockholders’ Meeting, an amount of $391,560 was approved to be used
in the reserve for acquisition own shares.
80
The following table shows the movements of the reserve for acquisition of shares during the years ended December 31,
2013, 2012 and 2011:
Reconciliation of treasury shares
Total shares as at December 31, 2012
(+) Total shares purchased in 2013
(-) Total shares sold in 2013
Balance as at December 31, 2013
Total shares as at December 31, 2011
(+) Total shares purchased in 2012
(-) Total shares sold in 2012
Balance as at December 31, 2012
Total shares at January 1, 2011
(+)Total shares purchased in 2011
(-)Total shares sold in 2011
Balance as at December 31, 2011
Number of
shares
-
100,000
(100,000)
-
227,400
3,704,731
(3,932,131)
-
200,000
257,400
(230,000)
227,400
The net amount of repurchase and treasury share sale transactions gave rise to a gain of $127 and $10,993 during the
years ended December 31, 2013 and 2012, respectively, and a loss of $209 as at December 31, 2011, recognized within
equity.
As at December 31, 2013, the Company has no treasury shares.
d)
Dividends
During the years ended December 31, 2013, 2012 and 2011, the Company has declared and paid the following dividends:
In 2013, the Company declared dividends on April and December as follows:
• On April 24th, the Company declared a payment of dividends in cash at nominal value of $350,400 or $0.584
pesos per outstanding share. The payment was made in two even installments of $0.292 pesos in May and July, 2013.
• On December 6th, the Company declared a second payment of dividends in cash in the amount at nominal value of
$600,000 or $1.00 peso per outstanding share, which was paid on December 23, 2013.
In 2012 and 2011 the Company declared and paid dividends to its shareholders for a nominal value amount of $299,175
and $299,926 respectively, or $0.50 per outstanding share in nominal pesos.
Dividends that the Company pays to stockholders are subject to ISR solely insofar as such dividends exceed the balance in
its net tax income account (CUFIN) consisting of income in which ISR is already paid by the Company. The ISR paid on
dividends corresponds to a tax payable by legal entities and not by individuals. However, as a result of changes to the
income tax law described in note 20a, beginning on January 1, 2014 there is a new tax of 10% for individuals who receive
dividends from entities. Such tax is considered a withholding tax by the entity that pays the dividends. This tax will be
applicable only to the income generated from period 2014. Thus, the Company must update its CUFIN from income
generated up to December 31, 2013 and must calculate a new CUFIN with the income generated from January 1, 2014.
The Company obtains most of its revenue and net income from BSACV. For fiscal years 2013, 2012 and 2011, net income
of BSACV, accounted for 71%, 79% and 86% respectively, of consolidated net income. Dividends for which BSACV pays
ISR will be credited to the Company’s CUFIN account, and accordingly, any future liabilities arising from ISR will arise when
such amounts are distributed as dividends by the Company to the stockholders.
The restated amount on tax bases of the contributions made by stockholders (CUCA), totaling $2,416,635, may be
refunded to them tax-free, to the extent that such amount is the same or higher than equity.
81
(26) Earnings per share
Earnings per share for the years ended December 31, 2013, 2012 and 2011 are $3.40, $3.65 and $1.96, respectively. The
calculation of basic earnings per share was based on income attributable to ordinary stockholders of $2,038,422,
$2,184,567 and $1,177,346 for the years ended December 31, 2013, 2012 and 2011, respectively.
The average weighted number of common outstanding in 2013, 2012 and 2011 was 599,992,952, 598,959,882 and
599,822,448 shares, respectively.
The Company has no ordinary shares with potential dilutive effects.
(27) Commitments
• Bachoco USA, LLC (foreign subsidiary) has self-insurance programs for health care costs and workers’ payments. The
subsidiary is liable for health care claims up to $4,582 (350 thousand dollars) each year per plan participant and
workers’ payments claims up to $13,090 (1,000 thousand dollars) per event. Self-insurance costs are recorded based
on the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. The
provision for this concept is recorded in the accompanying consolidated statement of financial position within current
liabilities amounting to $48,472 (3,703 thousand dollars) as at December 31, 2013. Likewise, the consolidated
statement of comprehensive income includes expenses relating to self-insurance plans of $85,006 (6,494 thousand
dollars) for the year ended December 31, 2013. The Company is required to maintain letters of credit on behalf of the
subsidiary of $44,506 (3,400 thousand dollars) to secure self-insured workers' payments.
•
The Company has entered into grain supply agreements with third parties as part of the regular course of its
operations.
(28) Contingencies
a)
Insurance
The Company has not contracted full coverage insurance for its facilities, interruption of activities or corporate civil liability in
respect of property and environmental damage resulting from accidents in the Company’s property or that relate to
Company operations. Until appropriate insurance coverage is obtained, there is a risk that the loss or destruction of certain
assets may have a significant adverse effect on the Company’s operations and financial situation.
b)
•
•
•
Lawsuits
The Company is involved in a number of lawsuits and claims arising from the regular course of business. In the
opinion of the Company’s management, they are not expected to have significant effects on the Company’s
financial position, operating results and future consolidated statements of cash flows.
Bachoco USA, LLC. is involved in claims with the United States of America Department of Labor and the Unites
State Immigration and Customs Enforcement, and various other matters related to its business, including workers’
payment claims and environmental issues. As at December 31, 2013 and 2012, the Company has recorded
provisions for potential claims of $19,635 (1,500 thousand dollars) and $25,740 (2,000 thousand dollars), which
are included within current liabilities.
On December 2009, the Mexican Federal Competition Agency (CFC, for its Spanish acronym) released a news
report in which it announced an investigation on the Mexican poultry industry in reference to possible monopolistic
practices. The accusation was not referenced to a specific entity. The Company, as well as other producers and
distributors, was required to provide information to the CFC during the subsequent years. As a result the CFC
determined the following:
82
- On November 2012, the CFC imposed a fine of $1.4 million pesos to Bachoco, arguing Bachoco conspired with
local producers to manipulate the chicken price in Chetumal, Quintana Roo. Price manipulation is a prohibited
practice under Mexican law.
- On January 2013, the CFC released a new announcement with a new fine of $1.6 million pesos, arguing Bachoco
conspired with local producers to manipulate the chicken price in Cancún, Quintana Roo.
In all cases, the Company disagreed with the CFC’s resolution and appealed all of the resolutions according to the
provisions of Mexican law, to assert its rights as a company that contributes to the development of the country and
to a free market. The Company and its attorneys do not believe that it is probable that it will receive an unfavorable
outcome for which reason it has not provisioned any amounts.
c)
Tax contingencies
In accordance with tax laws, Mexican authorities are empowered to review transactions carried out during the five
years prior to the most recent ISR return filed. For the operations in the United States of America, the authorities of
that country are empowered to review transactions carried out during the three years prior to the due date of the
most recent annual tax return. Although the Company is under review by tax authorities, nothing has come to its
attention as a result of those reviews that would indicate that a contingency exists.
(29) Financial income and costs
Interest income
Income from interest in accounts receivable
Foreign exchange gain, net
Effects of valuation of financial instruments
Financial income
Effects of valuation of financial instruments
Interest expense and financial expenses on financial debt
Commissions and other financial expenses
Financial costs
Financial income, net
2013
298,141
16,104
28,085
2,455
344,785
-
(97,025)
(129,341)
(226,366)
118,419
$
$
2012
209,170
12,893
35,212
12,757
270,032
-
(71,005)
(33,995)
(105,000)
165,032
2011
182,274
11,503
54,505
-
248,282
(896)
(40,688)
(29,056)
(70,640)
177,642
(30) Other income (expenses)
Other income
Sale of scrap of biological assets, raw materials, by-
products and other
Bargain purchase gain - domestic business acquisition
(note 4b)
Bargain purchase gain - foreign business acquisition
(note 4a)
2013
2012
2011
$
332,623
271,385
202,780
-
-
-
-
46,724
1,000,565
Total other income
332,623
271,385
1,250,069
Other expenses
Cost of disposal of biological assets, raw materials, by-
products and other
Business acquisition-related costs (note 4a)
Other
Total other expenses
Total other income (expenses), net
(244,054)
-
(57,865)
(301,919)
30,704
$
(257,182)
-
(38,013)
(295,195)
(23,810)
(193,707)
(11,426)
(44,971)
(250,104)
999,965
83
COMPANY
DESCRIPTION
Industrias Bachoco is the leader in the Mexican poultry
industry, and one of the largest poultry producers globally.
The Company was founded in 1952, and became a public
company in 1997, via a public offering of shares on the
Mexican and The New York Stock Exchange. Bachoco is
a vertically integrated company headquartered in Celaya,
Guanajuato located in Central Mexico. Its main business
lines are: chicken, eggs, balanced feed, swine, and turkey
and beef value-added products.
Bachoco owns and manages more than a thousand facilities,
organized in production complexes in México and in the
U.S. Currently the Company employs more than 24,000
people.
The Company is rated AA+ (MEX), representing high credit
quality by Fitch Mexico, S.A. de C.V., and HR AA+ which
signals that the Company and the offering both have high
credit quality by HR Ratings de Mexico S.A. de C.V.
Enrique Robinson Bours Almada
Life Honorary Chairman of the Board and Co-Founder
HEADQUARTERS
Industrias Bachoco, S.A de C.V.
Av. Tecnológico 401
Col. Ciudad Industrial C.P. 38010
Celaya, Guanajuato, México
T.+ 52 (461) 618.35.00
F.+52 (461) 611.65.02
DEPOSITARY BANK
The Bank of New York Mellon
P.O. Box 11258
Church Street Station
New York, N.Y. 100286USA
Toll Free: 1.888.269.2377
T. (212) 815.37.00
shareowner@bankofny.com
INDEPENDENT AUDITORS
Deloitte Touche Tohmatsu/Galaz, Yamazaki, Ruiz Urquiza, S.C.
T. +52 (442) 238.29.44
INVESTOR RELATIONS
Daniel Salazar
Chief Financial Officer
Claudia Cabrera
Investor Relations
T. +52 (461) 618.35.55
inversionistas@bachoco.net
claudia.cabrera@bachoco.net
STOCK INFORMATION
Share in the BMV: BACHOCO
Bonds in the BMV: BACHOCO12
ADRs in the NYSE: IBA
www.bachoco.com.mx