producers globally.
Bachoco’s Profile
Industrias Bachoco is the leader in the Mexican poultry industry and one of the ten largest poultry
The Company was founded in 1952and became a public company in 1997, via a public offering of
shares on the Mexican and the New York stock exchanges.
Bachoco is a vertically-integrated company with operations in Mexico and the US; its headquarters
are located in Celaya, Guanajuato, 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 farms, 11 processing plants, 6 further process
plants, 20 feed mills, 24 hatcheries, and 64 distributed centers. Currently the Company employs
more than 25,000 people.
Currently 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.
Index
Highlights
Message to Shareholders
CEO’s Letter
Report from the Board of Directors
Audit and Corporate Practices Committee
Highlights to Investors
Board of Directors
Senior Management Team
Audit Committee and Corporate Practices
Bachoco, Closer to Our Customers
Social Responsibility
Consolidated Financial Statements
Highlights
OPERATING DATA
In millions pesos
Net sales
Gross profit
Operating income
EBITDA Result
Net income
EPS in Pesos
Earnings per ADR en pesos
Grossmargin
Operating margin
EBITDA margin
Net margin
U.S. Dollar 1
2014
$
$
2,832.5
629.4
362.2
416.8
266.6
0.44
5.33
22.2%
12.8%
14.7%
9.4%
2014
41,779.1
9,284.1
5,341.9
6,147.5
3,932.7
6.55
78.60
2013
39,710.7
6,534.1
3,273.8
4,090.5
2,041.8
3.40
40.77
22.2%
12.8%
14.7%
9.4%
16.5%
8.2%
10.3%
5.1%
2012
39,367.4
6,049.2
2,628.8
3,466.6
2,191.8
3.65
43.80
15.4%
6.7%
8.8%
5.6%
STATEMENT
OF FINANCIAL DATA
In millions pesos
TOTAL ASSETS
Cash and cash equivalents
Inventories
TOTAL LIABILITIES
Notes payable jo banks
Accounts payable
Long-term debt
TOTAL STOCKHOLDERS´ EQUITY
Capital stock
Retained earnings
1 One dollar equal to $14.75 pesos
In U.S. Dollar1
2014
$
$
$
2,362.2
811.4
201.2
710.6
54.1
269.2
112.0
1,648.6
79.6
1,526.3
2014
34,843.1
11,968.3
2,968.1
10,481.1
798.0
3,970.5
1,652.5
24,317.4
1,174.4
22,513.2
December 31
2013
28,781.6
7,721.0
4,158.4
8,630.4
557.6
2,818.9
1,510.2
20,151.1
1,174.4
18,586.2
2012
28,040.2
5,144.4
4,599.4
8,951.5
1,197.1
3,445.2
1,526.6
19,088.7
1,174.4
17,405.4
Message to Shareholders
Please let me share with you the results we achieved in 2014.
Year 2014 was a successful year for the Company, wherein external conditions positively
contributed; the Company was able to take advantage of those external conditions at the
same time that improved its internal performance in several processes.
Some of these external conditions were: a good balance between supply and demand for
poultry and swine products was presented for most of the year in both markets in which
Francisco Javier R. Bours Castelo
Chairman of the Board of Directors
we participate, and the downtrend in cost of our main raw material, present at the beginning of 2014,
remained for the year as we observed good levels of crops in Mexico and the US.
We continued with our strategy of getting closer to the customers by reorganizing our structure; now we work
through “Business Units”, where each business unit is responsible not only for the production process but also
for the service provided to the customers in an assigned region. This resulted in a better and closer service to
our customers, to meet the characteristics of products and requirements of each region we attend. This process
also changed the role of the corporate office which is now responsible for the coordination and integration of
each of these units to achieve a better performance of the whole Company.
Additionally, we concluded the implementation of a new commercial model, which is more oriented toward
the proximity and service improvement to seek a better relationship with our customers. Furthermore, we
also implemented a new supply chain methodology, which allows us to integrate and better align the
production and supply chain processes, once again, in order to serve our markets in a more efficient way.
It is important to state that even in this year when we capitalized on some benefits from these changes,
we believe that the largest benefits should come in the near future.
We continued working the necessary steps to ensure future growth; we increased the amount of
CAPEX to break some bottlenecks that we identified throughout the processes, plus we continued
with a relentless effort to improve efficiencies, which is a necessary condition for being successful in
this industry.
During 2014, the Company received several important certifications and awards, particularly in
Mexico; we were nominee as “The Supplier of the Year” by the convenience stores OXXO; the
KOTLER award for the best performance in marketing in Mexico, given by WOBI, an international
organization, and an award in Communication in the management of difficult situations, given
by AMCO, a Mexican Association of Communication.
In 2014, two of our further processing plants were certificated as SQF (Safe Quality Food), formalizing
what we have already been doing in these plants to ensure safe products. As a result, the Company
was nominated by the SQF institute for the “Supplier Achievement Award”. Meanwhile, in the US
we were the supplier of the year for A&W restaurants which is a division of Yum Brands.
In México, the Company also was certificated as NEEC “New Scheme of Enterprises Certificated”, which means
we are a trustful importer and exporter Company. Bachoco was the first company in the food sector to receive
this certification.
Going into our financials, as a result of all the above, we were able to consistently post strong financial results
each quarter of 2014; we had improvements in sales and profitability when compared to the previous year. The
EBITDA margin was 14.7%, the net margin was 9.4%, and EPS totaled $6.55 pesos, in 2014. In particular, we
posted historical levels of sales and EBITDA for the company.
It is also worthwhile to mention the great performance of our US operation, where we obtained historical
positive financial results, and we have defined a clearer vision of the potential we can reach in this operation.
Our financial results further strengthened the Balance Sheet, and left us in a strong financial position with net
cash at the end of 2014 of $9,518 million pesos, cash that will allow us to finance the organic growing plans in
our Mexico and US operations, as well as preparing us for future growth opportunities.
During this period, our shares increased its liquidity; the average number of shares and
ADRs of the Company traded in the BMV and NYSE doubled with respect to average of the
prior year. The prices also had an excellent performance reaching an increase of 40.3%
and 23.9%, respectively, at the year end.
All this was possible with the support of our management team and staff,
which represents almost 25,000 people, who worked hard and with
commitment to reach the Company’s goals, and at the
same time achieved efficiencies in their processes.
Even with the strong results previously communi-
cated, we still see many opportunities to improve
in performance and to face the external condi-
tions that arise; we will be working diligently on
that.
To conclude my message, I would like you to know of the commitment that we have with all of you, to keep our
position in Mexico as the leader of the poultry sector and to be one of the main players worldwide, while we
grow our business and maintain the solid financial structure that always characterizes us.
Chairman of the Board of Directors
CEO’s Letter
All figures discussed below are information for 2014, with comparative figures of 2013. It
was prepared under IFRS accounting principles, and is presented in millions of pesos unless
otherwise indicated. This information should be read in conjunction with our Audited
Consolidated Financial Statements.
In Mexico, where 79.8% of our income is generated, the economy grew 2.1% in 2014;
even though it was below initial expectations, it represented a higher increase than the
Rodolfo Ramos Arvizu
Chief Executive Officer
one reached in 2013. The inflation rate was 4.1%, and the exchange rate of the Mexican peso to the US dollar
was stable most of the year. This stability changed toward the end of the year, with a final depreciation of about
12.4% by the year end.
According to the Mexican National Poultry Union estimates, in 2014 chicken and eggs volume produced in
Mexico grew around 4.0% and 2.5%, respectively, which means the Mexican poultry industry retook its growth
during this year. Regarding the US poultry industry, according to USDA sources, the chicken volume produced
in the US also grew about 1.9% in 2014. Per capita consumption of poultry products grew in both markets.
Chicken supply was stable and demand remained solid in both markets, while other
sources of proteins, such are beef and swine, showed high prices most of the year;
these factors combined resulted in strong chicken prices in the markets in which we
participate.
Good crop seasons in Mexico and in the US during 2014 represented lower prices of our main raw material, a
condition that allowed us to reduce our unit cost and contributed to improvement in our operating results.
Our derivatives positions were healthy throughout year 2014; we followed a disciplined practice in this regard.
It is important to state that we ended the year with no currency derivative positions.
During 2014, we implemented several projects that will allow us to be closer to our customers and better
understand and attend to their needs, by supplying
products and services they need, at the same time that we
consolidate our brand as the best alternative for them.
2014 & 2013 RESULTS
Net sales in 2014 totaled $41,779 million, $2,068 million
more or a 5.2% increase in net sales, when compared to
$39,711 million reported in 2013. This increase was due
mainly to higher volume sold and stable demand in our
core business lines.
Net sales To t a l S G & A e x p e n s e s i n 2 0 1 4 w e r e $ 3 , 7 8 1 m i l l i o n , a n d
3 , 2 9 1 m i l l i o n i n 2 0 1 3 ; t h i s r e p r e s e n t e d a n i n c r e a s e o f
$ 4 9 0 m i l l i o n o r 1 4 . 9 % . T h e i n c r e a s e i s m a i n l y a t t r i b u t e d
t o h i g h e r v o l u m e s o l d a n d a d d i t i o n a l e x p e n s e s i n c u r r e d
i n t h e i m p l e m e n t a t i o n o f p r o j e c t s t o f u r t h e r i m p r o v e
t h e s e r v i c e s w e p r o v i d e i n o u r m a r k e t s . To t a l S G & A
e x p e n s e s a s a p e r c e n t a g e o f n e t s a l e s r e p r e s e n t e d 9 . 1 %
i n 2 0 1 4 a n d 8 . 3 % i n 2 0 1 3 .
I n 2 0 1 4 w e h a d o t h e r
e x p e n s e s o f $ 1 6 0 . 9 m i l l i o n ,
c o m p a r e d w i t h o t h e r
i n c o m e o f $ 3 0 . 7 m i l l i o n
r e p o r t e d i n 2 0 1 3 ; t h i s i s
m a i n l y a t t r i b u t e d t o l o s s e s
i n t h e s a l e o f s e v e r a l
u n u s e d a s s e t s d u r i n g t h e
y e a r.
T h e o p e r a t i n g i n c o m e i n
2 0 1 4 t o t a l e d $ 5 , 3 4 2 m i l l i o n ,
a 1 2 . 8 % i n m a r g i n a n d
6 3 . 2 % h i g h e r t h a n $ 3 , 2 7 3 . 8
m i l l i o n o f o p e r a t i n g i n c o m e ,
8 . 2 % i n m a r g i n , r e p o r t e d i n
2 0 1 3 .
I n 2 0 1 4 , w e r e a c h e d a n
h i s t o r i c a l a m o u n t i n t h e
E B I T D A r e s u l t ; i t w a s $ 6 , 1 4 8
m i l l i o n , r e p r e s e n t i n g a n
E B I T D A m a r g i n o f 1 4 . 7 % , c o m p a r e d t o E B I T D A o f $ 4 , 0 9 1
m i l l i o n i n 2 0 1 3 , w i t h a n E B I T D A m a r g i n o f 1 0 . 3 % .
T h e n e t f i n a n c i a l i n c o m e i n 2 0 1 4 w a s $ 2 4 7 m i l l i o n
h i g h e r w h e n c o m p a r e d t o n e t f i n a n c i a l i n c o m e o f $ 1 1 8
m i l l i o n i n 2 0 1 3 , m a i n l y a t t r i b u t e d t o h i g h e r i n t e r e s t
i n c o m e r e s u l t i n g f r o m h i g h e r l e v e l s o f c a s h a n d l o w e r
i n t e r e s t e x p e n s e s .
I n 2 0 1 4 , s a l e s o f o u r U S o p e r a t i o n r e p r e s e n t e d 2 0 . 2 % o f
o u r t o t a l s a l e s , c o m p a r e d w i t h 2 1 . 4 % i n 2 0 1 3 . D u r i n g
2 0 1 4 , w e r e d u c e d s l i g h t l y t h e v o l u m e p r o d u c e d i n t h e U S
o p e r a t i o n , m a i n l y t o i n c r e a s e e f f i c i e n c i e s ; o u r U S o p e r a t i o n
r e a c h e d a n h i s t o r i c a l l e v e l o f E B I T D A .
T h e C o m p a n y ’s s a l e s o f c h i c k e n p r o d u c t s i n c r e a s e d 7 . 1 %
i n 2 0 1 4 , m a i n l y a s a r e s u l t o f 6 . 2 % i n v o l u m e a n d 0 . 9 %
i n c r e a s e i n c h i c k e n p r i c e s .
E g g s a l e s d e c r e a s e d 9 . 8 % i n 2 0 1 4 , a s a
r e s u l t o f a 1 0 . 3 % d e c r e a s e i n v o l u m e s o l d .
S a l e s o f b a l a n c e d f e e d d e c r e a s e d 4 . 2 % i n
2 0 1 4 , r e s u l t i n g f r o m a 5 . 4 % d e c r e a s e i n
p r i c e s , p a r t i a l l y o f f s e t b y a 1 . 4 % i n c r e a s e
i n v o l u m e s o l d ; i n p a r t i c u l a r, t h e p e t - f o o d
p r o d u c t s i n c r e a s e d a f t e r a y e a r o f o u r o w n
f e e d m i l l o p e r a t i o n .
I n 2 0 1 4 , t h e o t h e r b u s i n e s s l i n e s h o w e d a
g o o d p e r f o r m a n c e ; i n p a r t i c u l a r, s a l e s o f
s w i n e w e r e s t r o n g a s p r i c e s o f t h e s e
p r o d u c t s w e r e h i g h m o s t o f 2 0 1 4 .
C o s t o f s a l e s t o t a l e d $ 3 2 , 4 9 5 m i l l i o n f o r
t h e y e a r, 2 . 1 % l o w e r t h a n t h e $ 3 3 , 1 7 7
m i l l i o n r e p o r t e d i n 2 0 1 3 ; t h e d e c r e a s e i n
t h e c o s t o f s a l e s i s m a i n l y a t t r i b u t e d t o a
r e d u c t i o n i n t h e u n i t c o s t o f s a l e s , p a r t i a l l y c o m p e n s a t e d
b y a n i n c r e a s e i n t o t a l v o l u m e s o l d . T h e r e d u c t i o n i n u n i t
c o s t w a s a c o n s e q u e n c e o f a d e c l i n e i n t h e c o s t o f o u r
m a i n r a w m a t e r i a l s a s w e l l a s p r o d u c t i v i t y i m p r o v e m e n t s .
T h e s e n u m b e r s a l l o w u s t o p o s t a g r o s s p r o f i t o f $ 9 , 2 8 4
m i l l i o n , w h i c h r e p r e s e n t e d 2 2 . 2 % o f g r o s s m a r g i n i n 2 0 1 4 ,
h i g h e r t h a n $ 6 , 5 3 4 m i l l i o n o f g r o s s p r o f i t a n d a m a r g i n o f
1 6 . 5 % r e a c h e d i n 2 0 1 3 . T h e i n c r e a s e i n g r o s s i n c o m e
c o m p a r e d t o 2 0 1 3 i s m a i n l y d u e t o h i g h e r v o l u m e s o l d
a n d l o w e r p r o d u c t i o n c o s t .
EBITDA marginIncome per share Total taxes in 2014 were $1,656 million, this figure compares to total taxes of $1,350 million in 2013; the increase
is attributed to a higher income and a higher tax rate in 2014 in Mexico for our main subsidiary.
As a result, net income in 2014 was $3,933 million, a 9.4% net margin, which represents earnings per share of
$6.55 pesos, while in 2013 net income totaled $2,041.8 million, a 5.1% net margin, and $3.38 pesos of EPS.
Cash and equivalents as of December 31, 2014 totaled $11,968 million, an increase of $4,235.6 million or 54.8%
more than $7,721.0 million of cash and equivalents reported as of December 31, 2013.
Total debt as of December 31, 2014 was $2,451 million, compared to
$2,068 million reported as of December 31, 2013, mainly as a result of
higher short-term bank debt.
Our net cash as of December 31, 2014 totaled $9,518
million, compared with a net cash of $5,653 million as
of December 31, 2013.
Capex in 2014 totaled $1,241 million, an increase
when compared to $587 million expended in
2013. In 2014, the Company implemented new
projects oriented toward organic growth and
productivity improvements.
Chief Executive Officer
As Chairman of the Board of Directors of Industrias
Bachoco, 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
performance of management for fiscal year 2014, and it was based on the independent auditor’s Opinion.
The Board believes that the CEO’s report was prepared in accordance with the Financial Reporting
Standards and reflects the Company’s financial position and its operating results.
We believe that the Company’s policies, accounting and reporting principles followed are adequate and
consistent with the Audited Financial Statements.
This Board directed the Company to continue acting in strict accordance with IFRS principals.
We determined that during year 2014, the Company did not engage in unusual operations or other activities
different from the normal course of the business. 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, the Board presented 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 2014.
Chairman of the Board of Directors
Audit and Corporate Practices Committee
I am delighted to inform you of the activities performed by this Committee during fiscal year 2014.
Regarding Corporate Practices:
We concluded that the Officers’ performance was aligned with the Company’s objectives.
We inspected the CEO and senior officer’s compensation packages granted.
We checked that there was no existence of any grant or exceptions to Directors, senior officers or other
employees of the Company.
In 2014, the total transactions in connection to related parties represented less than 3.0% of the Company’s net
sales.
After an exhaustive review of the transactions carried out with related parties, we concluded that they were
conducted in fair-market terms.
We reviewed policies and guidelines related to 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.
Regarding Audit Practices:
As part of our functions, we have recommended the appointment and hiring of external auditors to perform
the 2014 fiscal year audit, we ensured their independence, and subsequently analyzed their work program.
We supervised the compliance of the agreement and evaluated their results. We also evaluated the performance
of the external auditor in charge; as a result, we concluded that the services provided were consistent with the
terms of the agreement.
We reviewed the processes, reports, analysis 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 policies
used during fiscal year 2014 in the Company and its subsidiaries. Therefore, we recommended the approval of
these documents.
We discussed the observations made by the auditing firm; we concluded these were mainly reclassifications
resulting from variations between the auditing information and the non-audited quarterly reports issued by the
Company.
We regularly reviewed the guidelines and the efficiency of internal controls, as well as the internal auditing
controls.
We analyzed and assessed the additional or supplementary services provided by the external auditing firm, as
well as those provided by independent experts.
We reviewed the proposals for unusual or nonrecurring transactions presented during the year 2014, 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 2014, 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 Chief Executive Officer´s report:
After having analyzed the CEO’s report, backed by the external auditing firm, this Committee believes that: the
CEO’s report was prepared in accordance with the IFRS principles and reflects the Company’s financial and
operating position. Accordingly, we recommend to the Board of Directors the approval of the Audited Financial
Statements.
We believe that their policies, accounting, and reporting principles followed are adequate and sufficient for
their particular circumstances, and that such policies and criteria have been applied consistently to the
information submitted by the CEO, as detailed in the Audited Financial Statements of 2014. Additionally, this
Committee suggested the Board instruct the Company to continue to act in strict accordance with these
principles.
President of the Audit and Corporate Practices Committee
Highlights to Investors
In 2014, the Company’s shares and ADRs reached a yield of 40.3% on the BMV and 23.9% on the NYSE
BACHOCO IN THE STOCKS
600 million shares
One single class (Class B)
Full rights
An ADR equals 12 shares
26.75% of float
An estimated $37,000 million pesos in market capitalization
The founding family holds control of the Company with 73.25% of total shares, by two Trusts:
Control Trust with 52%
Underwriting Trust with 21.25%
SHARE PRICES
Mexican Bolsa
Year
2014
2013
2012
2011
2010
High
68.50
45.25
30.13
27.84
26.99
Low
44.71
28.80
20.59
20.30
18.40
Average
Close
56.62
38.27
24.62
24.71
22.07
61.94
44.16
30.13
22.30
25.55
Year
2014
2013
2012
2011
2010
The New York Stock Exchange
Average
High
Low
61.24
43.08
27.97
28.75
26.10
40.37
27.02
18.86
17.40
17.01
50.84
35.92
22.41
24.04
20.91
Close
49.88
40.27
27.92
19.07
24.19
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 23, 2014. 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.
PROPRIETARY SHAREHOLDERS DIRECTORS
Francisco Javier R. Bours Castelo (Chairman of the Board), Jose Gerardo Robinson Bours Castelo, Jesus Enrique
Robinson Bours Muñoz, Jesus Rodolfo Robinson Bours Muñoz, Arturo Bours Griffith, Octavio Robinson Bours,
Ricardo Aguirre Borboa and, Juan Salvador Robinson Bours Martinez.
INDEPENDENT PROPRIETARY DIRECTORS
Avelino Fernandez Salido and, Humberto Schwarzbeck Noriega.
ALTERNATE SHAREHOLDERS DIRECTORS
Jose Eduardo Robinson Bours Castelo alternate of Francisco Javier R. Bours Castelo and Jose Gerardo Robinson
Bours Castelo. Jose Francisco Robinson Bours Griffith, alternate of Octavio Robinson Bours and Arturo Bours
Griffith. Guillermo Pineda Cruz, alternate of Jesus Enrique Robinson Bours Muñoz and Jesus Rodolfo Robinson
Bours Muñoz. Gustavo Luders Becerril, alternate of Juan Salvador Robinson Bours Martinez and 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
Audit Committee
and Corporate
Practices
Bachoco has an Auditing and Corporate Practices Committee to
support the Board of Directors, which is composed of two Independent
Directors and one Property Shareholder Director. This Committee was
last ratified on April 23, 2014 and its main duties include:
Evaluate the performance of the independent auditing firm, as well as
analyze their comments, recommendations, reports and other informa-
tion.
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 in which 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.
Bachoco, Closer
to Our Customers
In Bachoco, we know and understand
the value of being closer to our customer.
Being close to them is the better way to know
consumers needs and preferences as well as having
quick feedback.
The better we know their needs and preferences, the better we
can provide products and services to satisfy them. We can
improve our service offering, which allows us to strategically serve
all of them.
We intend to be a market-oriented company, so it is fundamental
to be close and to know our customers and consumers.
For this reason, the Company has implemented several projects, and
will continue to do so in the future, that allow us to interact and to
generate strategies that will exceed our customers satisfaction.
Social Responsibility
Bachoco’s Social Responsibility program is based on 5 cornerstones to achieve a complete program to
support our commitment of constant growth to reach every home and to be present every day. These
cornerstones are:
Together for our Bachoco team
Bachoco’s team is the greatest asset Bachoco owns; its people, their ideas and their commitment
to the organization are the keys to successfully achieving each of our plans and goals.
During 2014 we developed three major programs focused on our staff and consequently to
the Welfare Bachoco; Personal Welfare; Occupational Welfare and Social Welfare, through
which the company seeks to provide employees with programs that contribute to their overall
welfare and promote family unity as well as commitment to the environment, the community
and our Company.
Together for our Planet
A cornerstone that permanently seeks to contribute with positive impact to our environment
through the generation of programs and initiatives that contributes for that purpose.
We have water treatment plants in our processing plants that help us to mitigate the negative
effects of the water scarcity.
We are changing the use of fuel oil to natural gas, so that our plants are helping to reduce the
amount of emissions of gases and particles. Natural gas is an alternative fuel that has the
cleanest combustion.
We use Biogas, initially in our swine farms located in central Mexico, and are considering
expanding the project to other production processes. Biogas, besides having a high calorific
value, promotes sustainability in terms of energy costs and their respective impact on the
environment.
Together for our Business
Bachoco is a Company that fully complies with good Corporate Governance Practices; its
entire administration is professional, and the founding family participates only on the Board of
Directors.
We have a solid organizational structure that complies with all regulations established by the
Internal Control SAROX. This gives us a solid foundation to reach a sustained growth as
leaders of the poultry industry in Mexico and an efficient producer in the United States.
The goal of Bachoco is to continue to grow in a profitable way, while maintaining a solid financial
structure, to support the mission of remaining present every day in the diet of consumers.
Together for our Products
Bachoco has a wide range of products made under the highest standards of quality and safety.
We also have innovative products to meet specific segments such as cage-free eggs and egg
enriched products.
In Mexico, the BACHOCO brand is a highly recognized and prestigious brand and was the first
"branded commodity" in the poultry industry in Mexico.
Together for our Community
We are proud of being one of the main sources of employment opportunities; we provide
nearly 25,000 direct jobs, approximately 21 thousand of them in Mexico.
Bachoco has a strong commitment with the neighboring communities’ workplaces; an exam-
ple is that of providing support in situations of natural disasters, such as financial and recons-
truction support, or through our project SUMA (Mobile Emergency Service Food).
Highlights 2014
The following is a description of some of the main actions that the Company carried out in
each of the cornerstones of our Social Responsibility Program:
Around 25,000 employees.
Their benefits are above
those established by law.
The program "Sowing Life"
was born, rehabilitating
more than 12 public spaces
and planting 1,500 trees.
60% of the vacancies in high
level positions were covered
by internal employees.
We created more than
4,500 new jobs and
participated in 18 job
fairs.
We finished the construction
of the water treatment plant
in Monterrey and Lagos de
Moreno; these facilities are
already operating as in the
rest of our processing plants.
We received the Kotler award for Best Marketing in Mexico for
the Strategic Practice of Marketing. In the United States, we
were the supplier of the year for A&W Restaurants, from Yum
Group.
We hired 65 young people in
We provided 346,000 hours
training, thus bringing in
of training, with an invest-
young people with high
ment of $14.1 million of
potential.
pesos.
We implemented the
security and safety
food system (SICSA)
for the certification of
our distribution centers
located in Mexico.
In our program “The Week of
Health”, more than 9,000
employees participated.
We participated in the
program “Clean Beach” in
Coatzacoalcos by collecting
garbage.
We received the certification
SQF in the processing plants
of Monterrey and Mérida.
We treat our animals always
following the rules laid down
for their care and welfare.
We started the program of BIOGAS in some of our facilities,
replacing traditional fuels, which provided us with efficiencies
in cost and environmental emissions.
The SUMA program
provided more than
5,000 meals, to the
victims of the Hurricane
Odile in Baja California.
Reports of Independent Auditors
Consolidated Statements of Financial Position
Consolidated Statements of Income and Other Comprehensive Income
Consolidated Statements of Changes in Stockholders Equily
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
19
21
22
23
24
25
Av. Tecnológico 100-901
Col. San Angel, 76030,
Querétaro, Qro.
Tel. (442) 238 2900
Fax (442) 238 2975
Independent Auditor’s Report to the
Board of Directors and Stockholders of
Industrias Bachoco, S.A.B. de C.V. and
Subsidiaries
We have audited the accompanying consolidated financial statements of Industrias Bachoco, S. A. B. de
C. V. and subsidiaries (the Company), which comprise the consolidated statements of financial position as
of December 31, 2014 and 2013, and the consolidated statements of profit or loss and other
comprehensive income, changes in stockholders’ equity and cash flows for the years ended December 31,
2014 and 2013, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB), and for such internal control as management
determines is necessary to enable preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Independent auditor’s responsibility
Our responsibility is to express and opinion of these consolidated financial statements based on our
audits. We conducted our audits in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
Company’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating
appropriateness of accounting policies used and the reasonableness of accounting estimates made by the
Company’s management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
19
Opinion
In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects,
the financial position of Industrias Bachoco, S. A. B. de C. V. and subsidiaries as of December 31, 2014
and 2013, and their financial performance and their cash flows for the years ended December 31, 2014
and 2013, in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Other matter
The consolidated financial statements of Industrias Bachoco, S. A. B. de C. V. and subsidiaries for the
year ended December 31, 2012, were audited by other auditors, who expressed an unqualified opinion
on April 15, 2013.
The accompanying consolidated financial statements have been translated into English for the
convenience of readers.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. Abel García Santaella
April 14, 2015
20
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21
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Profit and Loss and Other Comprehensive Income
Years ended December 31, 2014, 2013 and 2012
(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
Profit before income taxes
Income taxes
Profit for the year
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
Other comprehensive (loss) income items
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
Note
22
22
29
28
28
20
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2014
2013
2012
$
41,779,087
(32,494,974)
39,710,726
(33,176,599)
39,367,431
(33,318,207)
9,284,113
6,534,127
6,049,224
(3,781,326)
(160,919)
(3,291,006)
30,704
(3,396,655)
(23,810)
5,341,868
3,273,825
2,628,759
367,227
(120,319)
246,908
344,785
(226,366)
118,419
270,032
(105,000)
165,032
5,588,776
3,392,244
2,793,791
1,656,110
1,350,439
602,020
$
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2,041,805
2,191,771
295,197
(25,812)
7,744
277,129
32,672
(61,057)
18,317
(10,068)
(186,095)
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2,031,737
2,005,676
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5,740
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3,383
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2,041,805
2,191,771
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5,740
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3,383
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7,204
4,209,795
2,031,737
2,005,676
$
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$
Weighted average outstanding shares
599,955,240
599,992,952
598,959,882
Basic and diluted earnings per share
25
$
6.55
3.40
3.65
See accompanying notes to consolidated financial statements.
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23
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2013 and 2012
(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
Depreciation
Loss on sale and derecognized of plant and equipment
Interest income
Interest expense
Unrealized foreign currency exchange
Foreign exchange loss on loans
Note
2014
2013
2012
$
3,932,666
2,041,805
2,191,771
20
20
14
28
28
280,070
1,376,040
805,650
152,830
(347,364)
118,090
-
82,148
123,022
1,227,417
816,673
14,958
(314,245)
226,366
17,950
11,865
235,603
-
837,807
65,323
(222,063)
105,000
-
(52,687)
Subtotal
6,400,130
4,165,811
3,160,754
Derivative financial instruments
Accounts receivable, net
Inventories
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
5,066
(665,742)
(246,515)
(83,023)
(76,149)
(9,530)
602,297
72,938
(1,056,082)
42,654
(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
-
(3,425)
Cash flows provided by operating activities
4,986,044
4,853,813
2,254,963
Cash flows from investing activities:
Payments for acquisition of property, plant and equipment
Proceeds from sale of plant and equipment
Restricted cash
Financial instruments
Other assets
Interest collected
Business acquisitions
Option agreement on potential acquisition
(1,288,520)
62,342
(8,008)
78,522
(42,087)
347,364
-
(139,655)
(575,411)
57,795
-
(42,138)
(48,210)
314,245
(135,450)
-
(951,760)
81,591
-
(551,247)
62,726
222,063
-
-
12
Cash flows used in investing activities
(990,042)
(429,168)
(1,136,627)
Cash flows from financing activities:
Payment for repurchase of shares
Proceeds for repurchase of shares
Dividends paid
Dividends paid to non-controlling interest
Currency translation effect
Disposal of non-controlling interest from disolution
Proceeds from borrowings
Principal payment on loans
Interest paid
(7,019)
8,523
-
(845)
-
450
1,454,050
(1,098,575)
(118,090)
(3,071)
3,198
(950,400)
(780)
-
-
1,507,700
(2,181,166)
(226,366)
(85,545)
96,538
(299,175)
(491)
(93,397)
(8,142)
3,069,787
(2,130,805)
(105,000)
Cash flows provided (used in) by financing activities
238,494
(1,850,885)
443,770
Net increase in cash and cash equivalents
Cash and cash equivalents at January 1
4,234,496
2,573,760
1,562,106
6,716,894
4,179,541
2,625,661
Effect of exchange rate fluctuations on cash and cash equivalents
76,664
(36,407)
(8,226)
Cash and cash equivalents at December 31
$
11,028,054
6,716,894
4,179,541
See accompanying notes to consolidated financial statements.
24
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2014, 2013 and 2012
(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 publicly traded company and was 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”.
(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 14, 2015, the accompanying consolidated financial statements and related notes
were authorized for issuance by the Company’s Chief Financial Officer, Mr. Daniel Salazar
Ferrer, 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 should they deem it necessary.
b)
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 items in the consolidated
statement of financial position, which are measured at:
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i. Fair value
•
•
•
Derivative financial instruments for trading and hedging, and the related primary
investments measured 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.
c)
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
issued by Bank of Mexico, which is of $14.75 and $13.09, as of December 31, 2014 and 2013
respectively.
d)
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.
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Estimates and significant assumptions are reviewed on an ongoing basis. Changes in
estimates are recognized in the period in which they occur and in any future periods affected.
The following are the critical accounting estimates and assumptions used by management in
the application of the Company’s accounting policies, which are significant to the amounts
recognized in the consolidated financial statements.
Critical accounting judgments
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 includes hatching eggs, growing pigs and growing
poultry, while the balance of non-current biological assets includes poultry in its different
production stages, and breeder pigs.
Non-current biological assets are valued at production cost less accumulated depreciation or
accumulated impairment losses, as there is no observable or reliable market for such assets.
Additionally, 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 estimated selling 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 on initial
recognition and subsequently.
iii. Aggregation of operating segments
The Company’s chicken and egg operating segments are aggregated to present one
reportable segment (Poultry) as they have similar products and services, production
processes, classes of customers, methods used for distribution, and the nature of the
regulatory environment in which they operate.
Key sources of estimation uncertainty
i.
Assessments to determine the recoverability of deferred tax assets
On an annual basis the Company prepares projections to determine if it will generate
sufficient taxable income to utilize its deferred tax assets associated with deductible
temporary differences, including tax losses and other tax credits.
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ii.
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 determined with the assistance of internal and
external specialists as deemed necessary. 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 they will continue to generate economic benefits to the
Company. If there are changes in the related estimate, measurement of the net carrying
amount of assets and the corresponding depreciation expense are affected prospectively.
iii.
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 assign a price to an asset or liability, including assumptions
about risk.
iv.
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
an appropriate discount rate in order to calculate present value.
v.
Employee retirement benefits
The Company uses assumptions to determine the best estimate for its employee retirement
benefits. Assumptions and estimates are established in conjunction with independent
actuaries. These assumptions include demographic hypothesis, discount rates and expected
increases in remunerations and future permanence, among others. Although the assumptions
are deemed appropriate, a change in such assumptions could affect the value of the
employee benefit liability and the results of the period in which it occurs.
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vi.
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 other contingencies with the assistance of its
legal advisors. These estimates are reconsidered periodically and at least annually.
e)
Basis of presentation
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 went into effect on January 1, 2014 as it relates to its consolidated financial
statements.
Amendments to IFRS 10, IFRS 12 y IAS 27 (revised 2011), Consolidated Financial
Statements, Disclosures of
in Other Entities and Separate Financial
Statements
Interest
Amendments to IFRS 10, IFRS 12 and IAS 27, provide 'investment entities' an exemption
from the consolidation of particular subsidiaries and instead require that an investment entity
measure the investment in each eligible subsidiary at fair value through profit or loss in
accordance with IFRS 9 or IAS 39. In addition, the amendments also require disclosures
about why the entity is considered an investment entity, details of the entity's unconsolidated
subsidiaries, and the nature of relationship and certain transactions between the investment
entity and its subsidiaries. Since the Company does not qualify as an investment entity, the
adoption of these amendments does not generate an impact in its consolidated financial
statements.
Amendments to IAS 32, Offsetting Financial Assets and Financial Liabilities
Amendments to IAS 32, Offsetting Financial Assets and Financial Liabilities, clarify existing
application issues relating to the offsetting requirements. Specifically, the amendments clarify
the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous
realization and settlement’. The Company adopted these amendments and did not have any
significant impacts in those financial instruments subject to offsetting in the consolidated
statement of financial position, mainly because such instruments meet the definition of having
a legal right recognized to be offset and intention is to settle them on a net basis. Additionally,
no financial instruments were identified as not previously offset and for which the
amendments to the standard have represented offsetting in the reporting period.
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Amendments to IAS 36, Impairment of assets
Amendments to IAS 36 Impairment of Assets, reduce the circumstances in which the
recoverable amount of assets or cash-generating units is required to be disclosed, clarify the
disclosures required, and introduce an explicit requirement to disclose the discount rate used
in determining impairment (or reversals of impairment) where recoverable amount (based on
the fair value less costs of disposal) is determined using a present value technique. The
adoption of these amendments did not have impacts in the Company’s consolidated financial
statements because there were not indicators of impairment in the reporting periods.
Additionally, with regards to the impairment test of goodwill, the Company has determined
that the value in use of its cash generating units represented the recoverable amount of the
corresponding cash generating units, in accordance with the accounting policy described in
note 3 i) ii.
Amendments to IAS 39, Financial Instruments: Recognition and Measurement
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 clearing counterparties replace their original counterparty to
become the new counterparty to each 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 of laws or regulations. There was no
impact in the Company’s consolidated financial statements since it does not have derivative
financial instrument for purposes of hedging that are novated.
IFRIC 21, Levies
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 obligating event for the recognition of a liability
as the activity that triggers the payment of the levy in accordance with the relevant legislation.
It provides guidance on recognition of a liability for the payment of levies, where the liability is
recognized progressively if the obligating 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. There was no impact in the Company’s consolidated financial
statements, since the levies to which it is subject, other than income taxes and consumption
taxes, are recognized at the time the obligating event to settle the obligation arises, which
already coincides with the principles of this interpretation.
Additionally, the Company early adopted a series of new and amended IFRS issued by the
IASB in the current year:
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Amendments to IAS 19, Employee benefits
Amendments to IAS 19 (2011) Employee Benefits, in regards to employee contributions on
defined benefit plans, clarify the requirements that relate to how contributions from
employees or third parties that are linked to service should be attributed to periods of service.
If the amount of the contributions is independent of the number of years of service, they can
be recognized as a reduction in the service cost in the period in which the related service is
rendered or be attributed to the periods of service by using the projected unit credit method.
There was no impact in the Company’s consolidated financial statements as employees do
not make contributions to its defined benefit plans.
Annual Improvements 2010-2012 Cycle
Annual Improvements 2010-2012 Cycle makes amendments to: IFRS 2 Share-based
payment, by amending the definitions of vesting condition and market condition, and adding
definitions for performance condition and service condition; IFRS 3 Business combinations,
which require contingent consideration that is classified as an asset or a liability to be
measured at fair value at each reporting date; IFRS 8 Operating segments, requiring
disclosure of the judgments made by management in applying the aggregation criteria to
operating segments, clarifying that reconciliations of segment assets are only required if
segment assets are reported regularly; IFRS 13 Fair value measurement, clarifies that issuing
of IFRS 13 and the amendments of IFRS 9 and IAS 39 did not remove the ability to measure
certain short-term receivables and payables on an undiscounted basis (amends basis for
conclusions only); IAS 16 Property, plant and equipment and IAS 38 Intangible assets
clarifying that the gross amount 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. The adoption of these improvements did
not represent any impacts in the consolidated financial statements of the Company, except
for the inclusion of the disclosures related to the judgment made by the management in the
application of the aggregation criteria of its poultry reportable segment.
Annual Improvements 2011-2013 Cycle
Annual Improvements 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 (amends basis for conclusions only); IFRS 3 Business combinations, 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 Fair value measurement,
clarifying the scope of the portfolio exception of paragraph 52, which permits 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 to sell a net long position for a particular risk exposure or to
transfer a net short position 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
property as investment property or owner-occupied property. There was no impact in the
these
Company’s consolidated
amendments.
financial statements as a result of early adopting
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Annual Improvements 2012-2014 Cycle
Annual Improvements 2012-2014 Cycle makes amendments to the following standards: IFRS
5 Non-current Assets Held for Sale and Discontinued Operations, which adds specific
guidance for cases in which (1) an entity reclassifies an asset from “held for sale” to “held for
distribution” or vice versa and (2) cases in which held-for-distribution accounting is
discontinued; IFRS 7 Financial Instruments: Disclosures clarifying (1) whether a servicing
contract is continuing involvement in a transferred asset for the purpose of determining the
disclosures required and (2) the applicability of the amendments to IFRS 7 on offsetting
disclosures to condensed interim financial statements; IAS 19 Employee Benefits indicating
that the high quality corporate bonds used in estimating the discount rate for post-
employment benefits should be denominated in the same currency as the benefits to be paid;
and IAS 34 Interim Financial Reporting clarifying the meaning of 'elsewhere in the interim
report' and requires a cross-reference in such reports. There was no impact in the Company’s
consolidated financial statements as a result of early adopting these amendments.
Amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets
Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets, clarify
that “the use of revenue-based methods to calculate the depreciation or amortization of an
asset is not appropriate because revenue generated by an activity that includes the use of an
asset generally reflects factors other than the consumption of the economic benefits
embodied in the asset”. There was no impact in the Company’s consolidated financial
statements as it does not use a revenue-based method to calculate either depreciation or
amortization of its assets.
Amendments to IAS 16, Property, plant and equipment and IAS 41, Agriculture
The amendments clarify that bearer plants that were previously considered as biological
assets will be included in the scope of IAS 16 instead of IAS 41, to be accounted for in the
same manner as property, plant and equipment items. There was no impact in the
Company’s consolidated financial statements as it does not hold living plants as biological
assets.
Amendments to IFRS 10, Consolidated financial statements and IAS 28, Investments in
associates and joint ventures
Amendments to IAS 28 require that gains and losses resulting from transactions between an
entity and its associate or joint venture relate only to assets that do not constitute a business.
As well, a new requirement has been introduced that gains or losses from downstream
transactions involving assets that constitute a business between an entity and its associate or
joint venture must be recognized in full in the investor's financial statements. Additionally an
entity needs to consider whether assets that are sold or contributed in separate transactions
constitute a business and should be accounted for as a single transaction.
On the other hand, for consolidated financial statements, an exception from the general
requirement of full gain or loss recognition has been introduced into IFRS 10 for the loss
control of a subsidiary that does not contain a business in a transaction with an associate or a
joint venture that is accounted for using the equity method.
32
There was no impact in the Company’s consolidated financial statements as it does not have
investments in associates nor joint ventures.
Amendments to IFRS 11, Joint Arrangements
Amendments to IFRS 11 Joint Arrangements, issued in May 2014, require the acquirer of an
interest in a joint operation whose activity constitutes a business as defined in IFRS 3
Business combinations, to apply all accounting principles on the basis of the business
combinations guidance in IFRS 3 and other IFRSs, except for those who conflict with IFRS 11
to business
guidance. Additionally,
combinations and apply to initial acquisition as well as to the acquisition of an additional
interest in a joint operation. Recognized amounts from acquisitions of interests in joint
operations from previous periods are not subject to adjustments. There was no impact in the
Company’s consolidated financial statements as it has not acquired interests nor holds joint
operations that constitute a business.
information applicable
require disclosing
they
IFRS 14, Regulatory Deferral Accounts
IFRS 14, Regulatory Deferral Accounts, issued in January 2014, specifies the financial
reporting requirements for 'regulatory deferral account balances' that arise when an entity
provides goods or services to customers at a price or rate that is subject to rate regulation. It
permits an entity which is a first-time adopter of IFRS to continue to account, with some
limited changes, for 'regulatory deferral account balances' in accordance with its previous
GAAP. There was no impact in the Company’s consolidated financial statements as it does
not operate in a regulated environment nor is it a first-time adopter of IFRS.
Amendments to IFRS 10, IFRS 12 and IAS 28, Investment Entities: Applying the
Consolidation Exception
that
the exemption
from preparing consolidated
financial
The amendments confirm
statements for an intermediate parent entity is available to a parent entity that is a subsidiary
of an investment entity, even if the investment entity measures all of its subsidiaries at fair
value. Also, the amendments considers that a subsidiary that provides services related to the
parent’s investment activities should not be consolidated if the subsidiary itself is an
investment entity. On the other hand, they consider that when applying the equity method to
an associate or a joint venture, a non-investment entity investor in an investment entity may
retain the fair value measurement applied by the associate or joint venture to its interests in
subsidiaries. Finally, an investment entity measuring all of its subsidiaries at fair value
provides the disclosures relating to investment entities required by IFRS 12. The early
adoption of these amendments did not cause an impact in the consolidated financial
statements of the Company because it does not qualify as an investment entity.
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Amendments to IAS 1, Disclosure Initiative
The amendments include changes regarding materiality, clarifying that information should not
be obscured by aggregating or by providing immaterial information. Also, materiality
considerations apply to all the parts of the financial statements, and even when a standard
requires a specific disclosure, materiality considerations do apply. Regarding the statement of
financial position and statement of profit and loss and other comprehensive income, the
amendments introduce a clarification that the list of line items to be presented in these
statements can be disaggregated and aggregated as relevant and additional guidance on
subtotals in these statements. Additionally, they clarify that an entity’s share of OCI of equity-
accounted associates and joint ventures should be presented in aggregate as single line
items based on whether or not it will subsequently be reclassified to profit or loss. As well,
regarding the notes to the financial statements, the amendments add additional examples of
possible ways of ordering the notes to clarify that understandability and comparability should
be considered when determining the order of the notes in the financial statements.
The early adoption of these amendments did not cause significant impacts in the
consolidated financial statements of the Company
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 are not yet effective for periods beginning on January 1, 2014.
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments issued in July 2014, is the replacement of IAS 39 Financial
Instruments: Recognition and Measurement. This standard includes requirements for
recognition and measurement, impairment, derecognition and general hedge accounting.
This version supersedes all previous versions and is mandatorily effective for periods
beginning on or after January 1, 2018, with early adoption being permitted. IFRS 9 (2014)
does not replace the requirements for portfolio fair value hedge accounting for interest rate
risk since this face of the project was separated from the IFRS 9 project.
IFRS 9 (2014) is a complete standard that includes the requirements previously issued and
the additional amendments to introduce a new expected loss impairment model and limited
changes to the classification and measurement requirements for financial assets. More
specifically, the new impairment model is based on expected credit losses rather than
incurred losses, and will apply to debt instruments measured at amortized cost or FVTOCI,
lease receivables, contract assets and certain written loan commitments and financial
guarantee contracts. Regarding the new measurement category of FVTOCI, it will apply for
debt instruments held within a business model whose objective is achieved both by collecting
contractual cash flows and selling financial assets.
The Company is in the process of assessing the potential impacts from the adoption of this
standard in its financial statements.
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IFRS 15, Revenue from Contracts with Customers
IFRS 15 Revenue from contracts with customers, was issued in May 2014 and applies to
annual reporting periods beginning on or after 1 January 2017, earlier application is
permitted. Revenue is recognized as control is passed, either over time or at a point in time.
The standard outlines a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. In applying the revenue model to
contracts within its scope, an entity will: 1) Identify the contract(s) with a customer ; 2) Identify
the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the
transaction price to the performance obligations in the contract; 5) Recognize revenue when
(or as) the entity satisfies a performance obligation. Also, an entity needs to disclose sufficient
information to enable users of financial statements to understand the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts with customers.
The Company is in the process of assessing the potential impacts from the adoption of this
standard in its consolidated financial statements.
(3) Significant accounting policies
The significant accounting policies set out below have been applied consistently to all periods
presented in these consolidated financial statements.
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 is lost (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.
Where necessary, subsidiaries’ financial statements are adjusted to align their accounting
policies with the Company’s consolidated accounting policies.
Significant intercompany balances and transactions, and any unrealized gains and losses
arising from transactions between consolidated companies have been eliminated in preparing
these consolidated financial statements.
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iii. Business combinations
Business combinations are accounted for using the acquisition method. For each business
combination, any non-controlling interest in the acquiree is valued either at fair value or
according to the proportionate interest in the acquiree’s identifiable net assets.
On a business combination, 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 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 entity and the fair value of the prior shareholding of the acquirer in the acquired
entity (if any), any excess is immediately recognized in the consolidated statement of profit
and loss and other comprehensive income as a bargain purchase gain.
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 are 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 translated 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 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 transaction differences arising in translation are recognized in profit and
loss.
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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 Mexican pesos at the 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 associated with translating foreign operations into the reporting
currency (Mexican peso) are recognized in other comprehensive income, and presented in
the foreign currency translation reserve in stockholders’ equity.
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, 2014, 2013 and
2012 the Company did not enter into such transactions.
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 measured 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.
37
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
fair value plus any directly attributable
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
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.
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 instrument 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.
38
All financial instrument 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 instrument liability when its contractual obligations are
met, cancelled or expire.
The Company has the following non-derivative financial instrument 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 contractual 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.
The Company enters into derivative financial instruments, which are designated as fair value
hedges 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.
39
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.
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.
40
iii. Depreciation
During 2013, based on the analysis performed by the Company, a change was made to the
estimate of residual values of certain items of property, plant and equipment, 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.
Below are the estimated useful lives for 2014, 2013 and 2012:
Buildings
Machinery and Equipment
Vehicles
Computers
Furniture
Average
useful Life
46
19
11
8
11
The Company has estimated the following residual values as of December 31, 2014 and
2013:
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 whose fair value can be measured reliably 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.
41
When fair value cannot be reliably, verifiably and objectively determined, assets are valued at
production cost less accumulated depreciation, and any cumulative impairment loss.
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.
g)
Leased assets
Operating leases entered by the Company 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, 2014 and 2013, the Company has not
entered into any significant 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.
42
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
together assets with similar risk
characteristics.
impairment by grouping
for
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.
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 or cash generating units, as the lowest between
its value in use and the fair value less cost of sale. 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.
43
The main assumptions for developing estimates of recoverable amounts requires the
Company’s management 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 rates, the Company uses indicators of
market and expectations of long-term growth in the markets in which it operates.
The Company estimates a discount rate before taxes for the purposes of the goodwill
impairment test that reflects the risk of the corresponding 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 weighted 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
Available for sale assets mainly consist of foreclosed assets. 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.
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.
44
The Company owns life insurance policies of some of the former stockholders of Bachoco
USA, LLC and Subsidiaries (foreign subsidiary). The Company records these policies at net
cash surrender value which approximates its fair value (see note 16).
l)
Employee benefits
The Company grants to its employees in Mexico and abroad, different types of benefits as
described below and detailed in note 21:
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 its 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 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,
which is the case in Mexico) 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
The Company presents service cost as part of operating income in the consolidated
statements of profit or loss and other comprehensive income (loss). Gains and losses for
reduction of service are accounted for as past service costs.
45
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 curtailment to the plan, or when the Company recognizes the related
restructuring costs or termination benefits.
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 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 equity and is not 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 obligations
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.
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.
46
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 such assets, liabilities,
revenues and expenses.
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 with third parties.
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 and dividend income
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.
47
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
Income tax expenses comprise current and deferred tax. Current income taxes and deferred
income 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 income 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 income tax payable also
includes any tax liability arising from the payment of dividends.
Deferred income tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities and the amounts used for tax purposes. Deferred income 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.
Deferred income 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 income 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 income 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 the balance for its income tax liabilities are adequate for
all tax years subject to be reviewed by the tax authorities based on its assessment of several
factors, including the interpretation of the tax laws and prior experience.
48
A deferred income 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 income 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, 2014 and 2013,
the Company has no potentially dilutive 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 (note 2 d).
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 as financing activities.
49
(4) Business and asset acquisitions
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 in accordance with IFRS 3.
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 did not utilize the use of the twelve month 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
$
Acquisition value
77,237
3,257
11,982
194
92,670
135,450
(42,780)
The 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 Inc. since its acquisition.
50
(5) Subsidiaries of the Company
Subsidiaries and Company´s shareholding percentage in such subsidiaries as of December
31, 2014 and 2013 are listed below:
Name
Shareholding percentage in
subsidiaries
December 31,
Country
México
Bachoco, S.A. de C.V.
U.S.
Bachoco USA, LLC. & Subsidiary
México
Campi Alimentos, S.A. de C.V.
México
Induba Pavos, S.A. de C.V.
México
Bachoco Comercial, S.A. de C.V.
México
PEC LAB, S.A. de C.V.
Aviser, S.A. de C.V.
México
Operadora de Servicios de Personal, S.A. de C.V. México
México
Secba, S.A. de C.V.
Servicios de Personal Administrativo, S.A. de C.V. México
México
Sepetec, S. A. de C.V.
2014
99.99
100.00
99.99
99.99
99.99
64.00
99.99
99.99
99.99
99.99
99.99
2013
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).
- 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. Their primary activity includes the production of
chicken products and hatching eggs, 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.
- PEC LAB, S.A. de C.V. is the holding of the shares of Pecuarius Laboratorios, S.A. de C.V.
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 its
subsidiaries.
51
(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
operations of pigs, balanced feed for animal consumption and other by-products that do not
meet the quantitative thresholds to be considered as reportable segments.
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 regularly reviewed by the Company’s chief operating decision maker.
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
Year ended December 31, 2014
Other
3,784,433
3,165,918
618,515
374,186
109,592
Poultry
37,994,654
29,329,056
8,665,598
5,214,590
1,546,518
Total
41,779,087
32,494,974
9,284,113
5,588,776
1,656,110
3,662,769
264,157
3,926,926
11,017,198
261,749
31,786,586
9,578,370
1,037,556
88,015
3,056,542
902,708
12,054,754
349,764
34,843,128
10,481,078
1,128,331
112,785
1,241,116
Depreciation and amortization
738,663
66,987
805,650
As of December 31, 2014
Total revenue
Intersegments
Net revenues
Poultry
revenues
37,995,157
503
37,994,654
Others
revenues
4,433,379
648,946
3,784,433
$
$
52
$
$
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
Depreciation and amortization
As of December 31, 2013
Total revenue
Intersegments
Net revenues
Net revenues
Cost of sales
Gross profit
Income before taxes
Income taxes
Net income attributable to
controlling interest
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
Others
3,766,864
3,328,946
437,918
227,956
97,655
Total
39,710,726
33,176,599
6,534,127
3,392,244
1,350,439
1,890,572
147,850
2,038,422
10,425,139
256,244
26,129,798
7,943,868
531,465
731,797
1,227,310
88,015
2,759,879
794,663
56,128
84,876
11,652,449
344,259
28,889,677
8,738,531
587,593
816,673
Poultry
revenues
35,943,862
0
35,943,862
$
$
Others
revenues
4,012,486
245,622
3,766,864
Year ended December 31, 2012
Others
3,570,262
3,107,364
462,898
213,786
115,769
Poultry
35,797,169
30,210,843
5,586,326
2,580,005
486,251
Total
39,367,431
33,318,207
6,049,224
2,793,791
602,020
1,939,733
244,834
2,184,567
942,351
752,492
9,409
85,315
951,760
837,807
As of
December 31,
2012
Total revenue
Poultry
revenues
Other
revenues
$ 35,797,169
-
$ 35,797,169
3,713,375
143,113
3,570,262
Intersegments
Net revenues
53
b)
Geographical information
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 because the totality is generated domestically in
Mexico.
Net revenues
Non-current assets other than
financial
instruments,
deferred tax assets, post-
employment benefit assets,
and
in
investments
insurance policies
Non-current biological assets
Property,
plant
and
equipment, net
Goodwill
Net revenues
Non-current assets other than
instruments,
financial
deferred tax assets, post-
employment benefit assets,
and
in
investments
insurance policies
Non-current biological assets
Property,
plant
and
equipment, net
Goodwill
Year ended December 31, 2014
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$ 29,556,202
8,955,964
(517,512)
37,994,654
791,256
317,977
9,386,883
1,630,315
212,833
48,916
-
-
-
1,109,233
11,017,198
261,749
Year ended December 31, 2013
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$ 27,426,465
8,943,090
(425,693)
35,943,862
840,622
269,314
8,936,020
1,489,119
212,833
43,411
-
-
-
1,109,936
10,425,139
256,244
Domestic
poultry
Year ended December 31, 2012
Operations
between
geographical
segments
Foreign
poultry
Total
Net revenues
$
27,625,702
8,223,808
(52,341)
35,797,169
54
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 2014, 2013 and 2012, no
customer represented over 10% of the Company’s total revenues.
In the United States of America, the Company has transactions with Ozark Mountain Poultry,
Inc. representing 24%, 14% and 12% of total sales outside of Mexico during the years ended
December 31, 2014, 2013 and 2012, respectively.
(7) Cash and cash equivalents
The consolidated balances of cash and cash equivalents as of December 31, 2014 and 2013
are as follows:
December 31
2014
2013
Cash and banks
Investments with maturities less than three
months
$
3,282,730
594,183
7,745,324
6,121,330
Cash and cash equivalents
11,028,054
6,715,513
Restricted cash
Total cash and cash equivalents and
restricted cash
8,008
1,381
$
11,036,062
6,716,894
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, 2014 and 2013.
(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.
This note presents
the
aforementioned risks, as well as the Company’s objectives, policies and processes for the
measurement and management of financial risks.
the Company’s exposure
to each one of
information on
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.
55
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
the objectives, policies,
procedures, methodologies and strategies, as well as the determination of the maximum
limits of exposure to risk and contingency plans.
implementing
At December 31, 2014 and 2013, the Company has not identified embedded derivatives.
The Company’s derivative financial instruments as of December 31, 2014 and 2013, don’t
meet the requirements to be treated as a hedges for accounting purposes.
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 (correspond to investments held for sale)
Investments held to maturity
Accounts receivable
Long-term receivables
Derivative financial instruments
December 31,
2014
2013
$
11,036,062
6,716,894
910,519
972,641
56,252
1,953,968
104,495
6,669
67,219
1,656,162
87,927
11,735
Financial liabilities
Measured at fair value through profit and loss
Measured at amortized cost
Trade payables, sundry creditors and expenses
payable
(797,982)
(1,652,470)
(557,592)
(1,510,210)
(3,530,546)
(3,068,249)
$
b)
Credit risk
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
In terms of valuation and monitoring of derivative financial instruments and primary financial
instruments Over the Counter (OTC), the Company currently measures its counterparty risk
by identifying the Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA).
56
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;
the
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, 2014 and 2013, the balance of
held to maturity investments is $56,252 and $67,219, respectively.
the position
instruments
in primary
therefore,
includes
financial
Investments in primary financial instruments denominated in a foreign currency, not listed in
Mexico, are valued at prices contained in the broker's statements of account. The Company
validates these market prices using 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.
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, except as described in note 6
c, 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. For each customer, purchase limits are
established, which represent the maximum credit amount. 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 $110,462 and $86,564 as of December 31, 2014 and 2013, respectively.
The reconciliation of movements of 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, 2014 and 2013, the guarantees fair value, determined
through an appraisal at the time the loan is granted, is $589,430 and $497,490 respectively.
57
The fair value of trade accounts receivable is similar to the carrying amount, as the terms
granted under credit lines are of a short term nature and do not include significant finance
components.
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.
Financial guarantees granted
It is the Company’s policy to grant financial guarantees solely to 100% owned subsidiary
companies.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure, which as of
the reporting date is as follows:
Cash and cash equivalents
Investments designated at fair value through
profit and loss (correspond to investments
held for sale)
Investments held to maturity
Accounts receivable net of guarantees
received
Derivative financial instruments
December 31,
2014
11,036,062
$
2013
6,716,894
910,519
56,252
1,469,033
6,669
13,478,535
$
972,641
67,219
1,246,599
11,735
9,015,088
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.
58
Monitoring
The Company’s areas of risk management and financial planning measure, monitor and
report to the Risk Management 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.
Maturity table
December 31, 2014
1 to 3 years
3 to 5 years
Less than 1
year
Trade payables, sundry creditors
and expenses payable
Variable-rate maturities
In U.S. dollars
In pesos
Interest
Total financial liabilities
$
3,530,546
-
221,250
576,732
73,377
4,401,905
$
-
152,470
153,300
305,770
-
-
1,500,000
78,353
1,578,353
December 31, 2013
1 to 3 years
3 to 5 years
Less than 1
year
Trade payables, sundry creditors
and expenses payable
Variable-rate maturities
In U.S. dollars
In Mexican pesos
Interest
Total financial liabilities
$
3,068,250
-
392,700
164,892
89,554
3,715,396
$
-
10,210
179,108
189,318
-
-
1,500,000
48,704
1,548,704
59
At least on a monthly basis, management evaluates and advises the Board of Directors on its
liquidity. As of December 31, 2014, 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,
among others), 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 Management 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.
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
60
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 of the country and is very variable.
For contracts entered into through the commercialization support scheme with Fideicomisos
Instituidos en la Relacion con la Agricultura (FIRA), there are no purchase periods
established as this program is focused on selling excess crops that weren’t sold through the
contract agriculture program. Normally these purchases are made at the end of each harvest
cycle.
As of December 31, 2014 and 2013, the Company has effective hedging positions of corn
long “puts” with ASERCA, maturing in March, July, September and December 2015 and
2014. The gain on valuation of these instruments is $5,518, $120,560 and $0, in 2014, 2013
and 2012 respectively, recorded within cost of sales.
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, 2014 and 2013
is 18,987 thousand dollars ($280,058) and 14,819 thousand dollars ($193,981), respectively.
Moreover, as of December 31, 2014, the Company has outstanding hedge positions of long
puts of sorghum with FIRA expiring in March 2015. The gain on valuation of these
instruments is $2,028 and was recorded in cost of sales. As of December 31, 2013, the
Company did not have outstanding hedging positions of long puts with FIRA.
Due to the above, the Company has a contractual agreement with FIRA in which it will absorb
50% of the premium payment option and FIRA the remaining 50%. Because of its nature and
as established by IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance, the portion paid by FIRA should be recognized as income over the periods the
related costs are incurred, on a systematic basis. The effect of such benefit as of December
31, 2014 and 2013 was 358 thousand dollars ($5,281) and $0, respectively.
61
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, as of December 31, 2014 and 2013 it has not entered into any derivative financial
instrument or other agreement for managing the risk related to a decrease in chicken price.
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/US dollar 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 the 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 the foreign exchange risk are less than one year from
the contracting date.
As of December 31, 2014 and 2013, 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, 2014 and
2013.
62
Assets
Cash and cash equivalents
Primary financial instruments
Accounts receivable
Other accounts receivable
Total assets
Liabilities
Trade accounts payable
Other accounts payable
Financial debt
Total Liabilities
Net liability position
December 31,
2014
2013
Dollars
Mexican
Pesos
Dollars
Mexican
Pesos
1,866
24,849
35,061
12,598
74,375
27,526
366,527
517,154
185,824
1,097,031
39,843
29,284
38,810
12,170
120,107
521,546
383,333
508,017
159,305
1,572,201
(157,336)
(10,110)
(15,000)
(182,446)
(108,071)
(2,320,708)
(149,118)
(221,250)
(2,691,076)
(1,594,045)
(142,124)
(17,156)
(30,000)
(189,280)
(69,173)
(1,860,405)
(224,568)
(392,700)
(2,477,673)
(905,472)
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 could occur at the end of the year.
The following is a detail of exchange rates effective during the fiscal year:
Average exchange rate
Dollars
$
2014
13.30
2013
12.76
Spot exchange rate at
December 31,
2014
14.75
2013
13.09
The exchange rate at the date of issuance of the consolidated financial statements is $14.90.
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 Management 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.
63
To monitor 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 presents the fair value of the financial instruments that are recognized at
amortized cost, together with the carrying amount included in the consolidated statement of
financial position:
Liabilities recorded at
amortized cost
Carrying
amount
Fair
value
Carrying
amount
Fair
value
2014
2013
Debt securities
$ 1,500,000
1,514,205
1,500,000
1,519,065
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 assets and liabilities in Level 2 of the fair value hierarchy have been
determined in accordance with a market approach for similar instruments.
Level 1
Level 2
Level 3
Total
As of December 31, 2014
Investments in primary instruments at fair
value though profit and loss
(corresponds only to assets held for
sale)
Derivative financial instruments
Debt securities (measured at amortized
cost)
As of December 31, 2013
Investments in primary instruments at fair
value though profit and loss
(corresponds only to assets held for
sale)
Derivative financial instruments on
commodities
Debt securities (measured at amortized
cost)
$
302,464
608,055
-
-
6,669
(1,514,205)
$
302,464
(899,481)
-
-
-
-
910,519
6,669
(1,514,205)
(597,017)
Level 1
Level 2
Level
3
Total
$
253,125
719,516
-
-
11,735
(1,519,065)
$
253,125
(787,814)
-
-
-
-
972,641
11,735
(1,519,065)
(534,689)
64
g)
Quantitative sensitivity measurements
Following are sensitivity analyses for the most significant risks to which the Company is
exposed as of December 31, 2014. These analyses represent the scenarios
that
Management considers reasonably possible that could have occurred at the end of such
fiscal year.
i. Derivative Financial Instruments (DFIs)
As of December 31, 2014, the Company's position on derivative financial instruments was
only comprised by instruments to hedge commodity risk only.
If at the end of the fiscal year 2014, 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 $4,966, affecting the profit and loss of the period by 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 $12,377.
ii. Interest rate risk
As described in note 17, the company has a financial debt denominated in pesos and dollars,
which pays interest at a variable rate based on TIIE and LIBOR, respectively.
If, as of the 2014 closing date, variable rates to which the Company is exposed had been
higher by 50 basis points, the amount of interest paid would increase to $12,111 reducing the
income of the year. If on the other hand, these rates decreased by 50 basis points, then the
effect would be the opposite; i.e., a benefit in the income of the year of $12,111.
iii.Exchange risk
As of December 31, 2014, the Company's net monetary liability position in foreign currency
was $1,594,045.
If, as of the 2014 closing date, the exchange rate increased $0.50 cents, the result from
foreign currency position, which in 2014 resulted in a net exchange gain, would decrease by
$54,035, reducing 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 decreased by
$0.50, then the effect would be the opposite; that is, an increase in profit and loss and
stockholders’ equity of $54,035 with a gain from foreign currency exchange effects.
65
(9) Accounts receivable, net
As of December 31, 2014 and 2013, accounts receivable are as follows:
Trade receivables
Allowance for doubtful accounts
Other receivables
Income tax receivable
Recoverable value-added tax and
other recoverable taxes
$
December 31,
2014
2013
1,690,237
(76,793)
340,524
56,512
1,704,583
(69,245)
20,824
73,146
966,027
592,463
$
2,976,507
2,321,771
Past-due but not impaired portfolio
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, which has not been subject
to impairment:
Current
Overdue 0 to 60 days
Overdue over 60 days
December 31,
2014
925,872
644,465
9,438
1,579,775
$
$
2013
1,470,294
120,258
27,467
1,618,019
As of December 31, 2014 and 2013 the Company has receivables in a legal process
(receivables for which legal counsel is seeking recoverability) of $110,462 and $86,564,
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
Applications
Currency translation effect
Balance as of December 31,
2014
(69,245)
(16,163)
9,529
(913)
(76,793)
$
$
2013
(46,681)
(29,801)
7,416
(179)
(69,245)
66
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.
(10) Inventories
As of December 31, 2014 and 2013, inventories are as follows:
December 31,
2014
2013
Raw materials and by-products
Medicine, materials and spare parts
Balanced feed
Processed chicken
Commercial eggs
Processed beef
Processed turkey
Other processed products
Total
$
$
1,226,778 $
656,618
218,951
777,734
35,957
23,008
17,561
11,454
2,968,061 $
1,100,971
633,829
209,082
689,102
43,213
23,013
25,090
13,922
2,738,222
Inventory consumption for the years ended December 31, 2014, 2013 and 2012 was
$24,873,999, $26,041,102 and $26,452,636 respectively.
(11) Biological assets
As of December 31, 2014 and 2013, biological assets are as follows:
$
Balance as at January 1, 2014
Increase due to purchases
Sales
Net increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as at December 31, 2014
$
Current
biological
assets
1,420,174
301,516
-
227,892
24,324,638
-
(24,789,388)
16,596
1,501,428
Non-current
biological
assets
1,109,936
296,846
(222,283)
1,426,359
1,088,254
(1,194,779)
(1,426,359)
31,259
1,109,233
Total
2,530,110
598,362
(222,283)
1,654,251
25,412,892
(1,194,779)
(26,215,747)
47,855
2,610,661
67
$
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
$
Current
biological
assets
1,496,964
227,864
-
283,175
24,683,964
-
(25,270,795)
(998)
1,420,174
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
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
The “Other” category includes the change in fair value of biological assets that resulted in
decreases of $23,096 and $7,857 in 2014 and 2013, an increase of $11,010 in 2012.
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.
68
(12) Prepaid expenses and other current assets
As of December 31, 2014 and 2013, prepaid expenses and other current assets are as
follows:
Advances to suppliers of inventories $
Prepaid expenses of services
Option agreement on potential
acquisition
Prepaid expenses for purchase of
property, plant and equipment to
related parties
Prepaid expenses of insurance and
bonds
Other receivables
Total
December 31,
2014
2013
866,119
145,849
154,875
12,500
801,390
184,001
-
-
64,979
58,764
134,755
1,379,077
$
91,383
1,135,539
Effective June 20, 2014, the Company executed an option agreement with Morris Hatchery,
Inc. that gives the Company the right to purchase its hatching egg operations located in
Gillsville, Georgia once the contractual obligations made by Morris Hatchery Inc. with its
customers have concluded, which wasn’t completed by December 31, 2014. As consideration
for this right, the Company made a nonrefundable payment of $10,500 thousand dollars
($154,875) which will be credited against the aggregate purchase price upon closing. The
aggregate purchase price for the hatching egg operations is $25,000 thousand dollars upon
closing. If the Company chooses to exercise this option, once it is exercisable, then
management expects the closing of the purchase to be prior to December 31, 2015.
(13) Assets available for sale
As of December 31, 2014 and 2013, assets available for sale are as follows:
Buildings
Land
Other
Total
December 31,
2014
2013
$
$
22,965
32,779
2,839
58,583
18,242
28,168
2,643
49,053
The Company recognized a gain from the sale of these assets as of December 31, 2014 of
$5, a loss of $24 during 2013 and a gain of $1,427 in 2012.
69
(14) Property, plant and equipment
As of December 31, 2014 and 2013, 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
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
Balance as at
January 1,
2014
1,057,182
9,548,846
9,524,495
1,204,326
141,252
149,741
26,852
356,447
22,009,141
Additions Disposals
30,833
101,388
298,248
114,453
8,178
8,512
-
679,504
1,241,116
(29)
(87,755)
(113,567)
(149,487)
(82,768)
(6,410)
(5,410)
(44,085)
(489,511)
Currency
translation
effect
6,196
107,511
107,546
1,738
1,118
1,172
-
-
225,281
Balance as at
December 31,
2014
1,094,182
9,669,990
9,816,722
1,171,030
67,780
153,015
21,442
991,866
22,986,027
Balance as at
January 1
2014
(4,607,271)
(4,724,963)
(789,154)
(126,897)
(108,407)
(10,356,692)
Depreciation
for the year
Disposals
(188,909)
(513,983)
(87,375)
(5,954)
(9,429)
(805,650)
52,135
58,514
81,874
77,317
4,499
274,339
Currency
translation
effect
(10,617)
(30,454)
(970)
(928)
(301)
(43,270)
Balance as
at December
31, 2014
(4,754,662)
(5,210,886)
(795,625)
(56,462)
(113,638)
(10,931,273)
Balance as at
January 1,
2013
1,056,145
9,397,122
9,081,660
1,170,321
138,172
145,669
38,841
562,750
21,590,680
Additions Disposals
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)
Currency
translation
effect
326
17,521
5,114
164
59
54
-
-
23,238
Balance as at
December 31,
2013
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
January 1
2013
(4,420,885)
(4,223,450)
(773,826)
(121,753)
(101,250)
(9,641,164)
Depreciation
for the year
Disposals
(199,952)
(515,833)
(86,936)
(5,232)
(8,720)
(816,673)
15,844
15,088
71,640
130
1,570
104,272
Currency
translation
effect
(2,278)
(768)
(32)
(42)
(7)
(3,127)
Balance as
at December
31, 2013
(4,607,271)
(4,724,963)
(789,154)
(126,897)
(108,407)
(10,356,692)
$
$
$
$
$
$
$
$
70
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,
2014
Balance as at
December 31,
2013
$
$
1,094,182
4,915,328
4,605,836
375,405
11,318
39,377
21,442
991,866
12,054,754
1,057,182
4,941,575
4,799,532
415,172
14,355
41,334
26,852
356,447
11,652,449
Additions of property, plant and equipment in 2013 include assets acquired through business
combinations of $11,982 that consist of buildings for $7,095, machinery and equipment for
$461, furniture for $77 and transportation equipment for $4,349. During the year ended
December 31, 2014 no assets were acquired through business combinations.
Depreciation expense during the years ended December 31, 2014, 2013 and 2012 was
$805,650, $816,673 and $837,807, respectively, which were charged to cost of sales and
operating expenses.
(15) Goodwill
2014
2013
Balances at beginning of the year
Business combinations (Note 4)
Foreign currency effects
Balances at end of year
$
$
344,259
-
5,505
349,764
300,848
42,780
631
344,259
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:
71
Cash-generating unit
Bachoco - Istmo and Peninsula regions $
Campi
Ok Farms- Morris Hatchery Inc.
$
2014
Final balance
of the year
Projection
period
(years)
5
5
5
212,833
88,015
48,916
349,764
2013
Cash-generating unit
Final balance
of the year
Projection
period
(years)
Bachoco - Istmo and Peninsula regions $
Campi
Ok Farms- Morris Hatchery Inc.
$
212,833
88,015
43,411
344,259
5
5
5
Annual
discount
rate
(%)
9.93%
9.93%
8.24%
Annual
growth rate
(%)
2.70%
2.10%
0.00%
Annual
discount
rate
(%)
10.33%
10.33%
8.74%
Annual
growth rate
(%)
2.70%
2.10%
0.00%
(16) Other non-current assets
Other non-current assets consist of the following:
December 31,
2014
2013
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
$
167,935
133,214
41,187
17,341
104,495
54,512
42,558
428,028
35,754
15,956
87,927
37,955
39,793
350,599
$
72
(17) Financial debt
Significant borrowings are secured by guaranties, according to the terms of the borrowing
agreements.
Note 8 discloses the carrying amount and fair value of the Company’s borrowings.
a)
Short-term financial debt is as follows:
Loan of USD$30,000 thousand dollars 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.
Loan in the amount of USD$15,000 thousand dollars,
maturing in January 2015, at LIBOR (3) rate plus 1.04
percentage points.
Denominated in pesos, maturing in January 2015, at TIIE
(1) FIRA (2) less 0.70 percentage points.
Denominated in pesos, maturing in January 2015, at TIIE
(1) FIRA (2) rate plus 1.25 percentage points
December 31,
2014
2013
392,700
148,500
$ 221,250
193,000
250,000
-
-
-
Total short-term debt
$ 664,250
541,200
Annual weighted average interest rate of short-term loans denominated in pesos for 2014,
2013 and 2012 was 2.78%, 3.72% and 4.97% , respectively. Average interest rate for short-
term loans existing as of December 31, 2014 and 2013, was 3.68% and 3.10%, respectively.
Annual weighted average interest rate of short-term loans denominated in dollars for the
years 2014, 2013 and 2012 was 1.10%, 1.49% and 1.06% , respectively. Average interest
rate for loans existing as of December 31, 2014 and 2013 was 1.24% and 1.37%,
respectively.
(1) TIIE (for its acronym in Spanish) = Interbank Equilibrium Rate
(2) FIRA (for its acronym in Spanish) = Trust Established in Relation to Agriculture
(3) LIBOR= London Interbank Offered Rate
73
b)
Long-term debt consists of the following:
Denominated in pesos, maturing in 2015 and 2016, at
TIIE (1) plus 1.00 percentage points.
Denominated in pesos, maturing in January 2014, at
TIIE (1) FIRA (2) rates less 0.55 percentage points.
Denominated in pesos, maturing in September 2017,
at TIIE (1) rates plus 0.63 percentage points.
Denominated in pesos, maturing in August 2015, at
TIIE (1) FIRA (2) rates less 0.90 percentage points.
Denominated in pesos, maturing in April 2017, at TIIE
(1) rates plus 0.25 percentage points.
Debt securities (subsection (d))
December 31,
2014
2013
10,209
22,329
-
4,273
102,000
124,000
49,993
1,500,000
1,786,202
-
-
-
1,500,000
1,526,602
Less current maturities
Long-term debt, excluding current maturities
(133,732)
$ 1,652,470
(16,392)
1,510,210
Long-term annual weighted average interest rate for 2014, 2013 and 2012 was 3.72%, 4.93%
and 5.40%, respectively. Average rate for current loans as of December 31, 2014 and 2013
was 3.68% and 4.40%, 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 2014 and 2013, the Company made early payments on its long-term debt of $201,300
and $11,833 respectively, without payment of fees for early termination.
As of December 31, 2014 and 2013, total unused lines of credit, totaled $5,282,600 and
$5,418,099, respectively. In both years, the Company did not pay any fee for undrawn
balances.
Maturities of long-term debt, excluding current maturities, as of December 31,
c)
2014, are as follows:
Year
2016
2017
Amount
4,502
1,647,968
1,652,470
$
$
Interest expense on total loans during the years ended December 31, 2014, 2013 and 2012,
amounted to $87,624, $97,025 and $71,005, respectively.
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,
2014, among which are:
74
a) Provide financial information at request from the bank.
b) Not to contract liabilities with financial cost or grant loans that may affect payment
obligations.
c) Notify the bank regarding the existence of legal issues that could substantially affect
the financial situation of the Company.
d) Not to perform substantial changes to the nature of the business, or the administrative
structure.
e) 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)
Issuance of 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.
The debt securities will be paid at the expiration of the contractual term. Direct costs arising
from debt issuance or contract are deferred 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, 2014.
75
(18) Trade accounts and other accounts payable
Trade payables
Sundry creditors and expenses
payable
Provisions
Statutory employee profit sharing
Retained payroll taxes and other
local taxes
Direct employee benefits
Interest payable
Government grant
Others
December 31,
2014
3,257,291
$
2013
2,764,766
273,255
215,003
19,939
167,205
33,894
1,920
1,947
61
3,970,515
$
303,483
133,103
29,140
129,122
5,504
3,275
-
7,208
3,375,601
Note 8 discloses the Company’s exposure to the exchange and liquidity risks related to trade
accounts payable and other accounts payable.
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. As a result of this
investigation, CFC imposed several fines to the Company for supposedly having certain
practices where the price of chicken was manipulated. Although the Company and its legal
advisors consider that the interposed legal processes are well sustained and attended, a
provision that is considered adequate has been recognized.
Additionally, the National Water Commission (CNA, for its Spanish acronym) imposed credits
and fines to the Company for supposed infractions made by the Company in water
administration for exploitation of livestock. The Company has recognized a provision for the
amount that it expects to be probable to pay.
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 of
December 31, 2014 and 2013, the Company has recorded provisions of $22,125 (US$1,500
thousand) and $19,635 (US$1,500 thousand) for the amount that it expects to be probable to
pay.
(19) Transactions and balances with related parties
(a) Transactions with management
Compensation
The following table shows the compensation paid to the directors and executives for services
provided in their respective positions for the years ended December 31, 2014, 2013 and
2012, which is included in employee costs (see note 23):
76
December 31,
2014
2013
2012
Compensation
$
39,538
52,805
39,288
(b) Transactions with other 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
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,
2013
2014
2012
$
$
32,202
-
-
1,302
-
19
33,523
42,719
-
-
-
13
18
42,750
38,664
20
50
448
29
19
39,230
ii.Expenses and balances payable to related parties
Transaction value
December 31,
2013
2014
Balance as of
December 31,
2012
2014
2013
359,258
153,891
21,283
925
361,497
147,192
13,766
753
467,499 $ 76,482
23,267
129,119
6,858
11,844
97
44
21,813
18,151
-
242
55,166
31,423
21,397
57,100
29,421
22,525
62,035
27,282
19,815
19,140
21,967
18,026
4,315
4,688
6,454
1,971
33,227
23,649
1,647
2,384
2
452
2,294
590
397
568
2
63
8,415
4,458
253
610
5
1
147
$
1,964
7,375
10,137
452
-
$ 127,033
54,095
$
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.
Airplane leasing expenses
Taxis Aéreos del Noroeste, S.A.
de C.V.
77
As of December 31, 2014 and 2013, balances payable to related parties correspond to
current accounts denominated in pesos that bear no interest and are payable in a short-term
basis.
As of December 31st 2014 the Company has a prepayment for the purchase of property,
plant and equipment for $12,500 paid to Autos y Tractores de Culiacan S.A. de C.V., which is
included on note 12.
(20) Income Tax
Under the tax legislation in Mexico and the United States of America, in effect through
December 31, 2014, entities are subject to pay Income Tax (ISR, by its Spanish acronym).
The Mexican Congress approved tax reforms that 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, 2014 and
2013 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 Company’s US subsidiary is
38.79% (includes state and federal taxes).
Until December 31, 2014 BSACV, the Company’s primary operating subsidiary, was subject
to ISR under the ISR law. Effective as of January 1, 2014, the simplified regime was
eliminated and is substituted with the agriculture, cattle-raising, forestry and fishing regime,
which is applicable for entities exclusively dedicated to such activities. The new 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 is 21% on annual taxable income up to 10 million pesos, and for
taxable income in excess of that amount, the tax rate is 30%.
b)
Tax charged to profit and loss
For the years ended December 31, 2014, 2013 and 2012, the income tax (benefit) expense
included in profit and loss is as follows:
78
2014
December 31
2013
2012
$
1,211,006
-
230,255
-
1,441,261
165,034
49,815
1,656,110
$
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
Operation in Mexico:
Current ISR
Current IETU
Deferred ISR
Deferred ISR from tax rate change
Foreign operation:
Current ISR
Deferred ISR
Total ISR expense
Total income tax expense
The income tax expense attributable to income before income taxes, was different from the
amount computed by applying the ISR rate of 30% in 2014 and 21% in 2013 and 2012 as a
result of the items listed below:
2014
December 31,
2013
2012
ISR
Percentage
ISR
Percentage
ISR
Percentage
$ 1,676,633
30% $
712,371
21% $ 586,696
21%
(112,388)
(2%)
(64,401)
(2%)
(47,627)
(7,101)
(0%)
(9,213)
(0%)
1,740
(2%)
0%
26,712
1%
23,188
1%
61,777
2%
-
-
(453)
(0%)
-
73,038
-
-
-
1%
13,872
0%
674,810
20%
-
-
(784)
(0%)
(188)
0%
(113)
$ 1,656,110
30% $ 1,350,439
39% $ 602,020
-
-
(0%)
21%
Expected expense
Increase (decrease)
resulting from:
Net effects of inflation
(Non-taxable income)
Non-deductible
expenses
Effect of rate difference
from the agricultural
regime
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 for income
taxes
c)
Deferred income tax
The Company and each one of its subsidiaries determine deferred taxes that are reflected at
a consolidated level on an individual basis. BSACV, the main operating subsidiary of the
Company is subject to tax payment under the agricultural regime, in which the tax base for
ISR is determined on collected revenues minus paid deductions.
79
The tax effects of temporary differences, tax losses and tax credits that give rise to significant
portions of deferred tax assets and liabilities as at December 31, 2014 and 2013 are detailed
below:
Deferred tax assets
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Prepaid expenses
Other provisions
Net deferred tax assets
Deferred tax assets
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Other provisions
Total deferred tax assets
Deferred tax liabilities
Inventories
Employee benefits
Accounts receivable
Property, plant and equipment
Prepaid expenses
Derivative financial instruments
Total deferred tax liabilities
Net deferred tax liability
December 31,
2014
2013
5,019
14,071
6,376
21,383
245
2,284
49,378
2,218
17,121
8,595
3,858
3,148
-
34,940
December 31,
2014
2013
1,120,240
7,445
423
4,073
13,817
1,145,998
1,188,259
-
411,312
2,365,619
257,133
5,872
4,228,195
3,082,197
1,350,373
-
262
86,779
-
1,437,414
1,235,848
786
316,374
2,407,779
22,615
190,143
4,173,545
2,736,131
$
$
$
$
d)
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
$
2,586
2,586
3,324
3,324
December 31,
2014
2013
80
e)
Unrecognized deferred tax liabilities
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 temporary difference, and the
reversal is not expected to take place in the foreseeable future.
f)
Movement in temporary differences during the fiscal year
January 1,
2014
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
December
31, 2014
(2,179)
(7,744)
-
(1,717)
148
11,472
-
(1,125,260)
(21,515)
(6,800)
(25,455)
(16,101)
1,188,259
410,870
51,578
-
2,365,620
257,329
-
51,558
5,872
3,032,819
Acquired or/
Recognized
directly in
equity
-
(25,405)
-
-
-
-
-
December
31, 2013
(1,352,591)
(5,110)
(8,857)
-
(90,637)
1,235,848
316,374
5,634
2,389,609
-
(19,771)
216,555
2,701,191
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Other provisions
Inventories
Accounts receivable
Property, plant and
equipment
Prepaid expenses
Derivative financial
instruments
$ (1,352,591)
(5,110)
(8,857)
(90,637)
-
1,235,848
316,374
2,389,609
216,555
-
2,701,191
Net deferred tax liability $
229,510
(8,661)
2,057
66,899
(16,249)
(59,061)
94,496
(75,567)
40,774
5,872
280,070
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
$
(754,765)
(40,401)
(9,254)
(858)
(10,043)
1,284,699
221,133
1,871,086
36,343
Prepaid expenses
Net deferred tax liability $ 2,597,940
(597,826)
60,696
397
858
(80,594)
(48,851)
95,241
512,889
180,212
123,022
81
g)
Tax on assets and tax loss carryforwards
As at December 31, 2014, tax loss carryforwards, and recoverable tax on assets (IMPAC, for
its Spanish acronym) expires as shown below. Amounts are indexed for inflation as permitted
by the Mexican income tax law:
Year
2006
2013
2014
$
$
Amount as of
December 31, 2014
Tax loss
carryforwards
Recoverable
IMPAC
-
13,385
57,891
71,276
-
-
2,586
2,586
Year of
expiration /
maturity
2016
2023
2024
h)
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
recognized in its consolidated 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 of employee benefits 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.
82
The expenses for paid contributions to defined contribution plans were $7,973, $11,708 and
$14,434, in 2014, 2013 and 2012, respectively.
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 $42,742, $40,023 and $39,681, in 2014, 2013 and
2012, 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.
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.
83
The projected net liability presented on the consolidated statements of financial position is as
follows:
Present value of unfunded obligations
Present value of funded obligations
Total present value of benefit obligations (PBO)
Plan assets at fair value
Projected liability, net
$
$
i. Composition and return of plan assets
December 31,
2014
90,899
314,804
405,703
(314,804)
90,899
2013
48,245
312,170
360,415
(312,170)
48,245
Fixed income securities
Variable income securities
Actual return of the
plan’s assets
Composition of the
plan’s assets
2014
5.99%
7.69%
2013
3.83%
9.81%
2014
63%
37%
100%
2013
68%
32%
100%
ii. Movements in the present value of defined benefit obligations (PBO)
2014
2013
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
$
$
360,415
(31,091)
24,438
29,768
22,173
405,703
385,178
(19,213)
26,680
28,138
(60,368)
360,415
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
$
$
2014
2013
312,170
-
(20,011)
26,283
(3,638)
314,804
263,250
36,626
(8,482)
20,087
689
312,170
84
iv. Expense recognized in profit and loss
Current service cost
Interest cost, net
Interest cost on obligation
Curtailment gain
Actual return on plan assets
v. Actuarial gains and losses
2014
2013
2012
$
24,438
3,485
26,680
8,051
-
-
-
-
-
-
$
27,923
34,731
21,876
-
26,638
(657)
(24,522)
23,335
Amount accumulated as at 1 January
Recognized during the year
Amount accumulated as at 31
December
$
$
2014
(86,372)
25,812
2013
(25,315)
(61,057)
(60,560)
(86,372)
2012
29,624
(54,939)
(25,315)
vi. Actuarial assumptions
Primary actuarial assumptions at the consolidated financial statements date (expressed as
weighted averages) are as follows.
Discount rate as at 31 December
Rate for future salary increases
Rate for future pension increases
2014
8.00%
4.50%
3.50%
2013
8.50%
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 17.13 years for men and 10.92 years for women (Experience Chart of Demographic
Mortality for Active EMSSA 1997).
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
$
$
$
$
December 31,_
2014
405,703
(314,804)
90,899
2013
360,415
(312,170)
48,245
22,173
(60,368)
(3,638)
(689)
85
viii. Sensitivity analysis of the defined benefits obligations as of December 31, 2014
Pension
plan
(266,298)
(216,605)
(334,923)
Seniority
premium
Constructive
obligation
Total
PBO
(84,908)
(79,874)
(90,594)
(54,497)
(51,033)
(58,423)
(405,703)
(347,512)
(483,940)
Discount rate 8.50%
Rate increase (+ 1%)
Rate decrease (- 1%)
ix. Expected cash flows
Total
2015-2025 $ (336,422)
x. Future contributions to the defined benefits plan
The Company does not expect to make contributions to the defined benefit plans in the
following financial year.
b)
Foreign employee benefits
Defined contribution plans
Bachoco USA, LLC. (foreign subsidiary) has a defined contribution retirement 401(k) plan,
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 contribution. The cumulative contribution expense for this plan was
$6,597, $5,681 and $4,131 for the year ended December 31, 2014, 2013 and 2012,
respectively.
Equity-based compensation
Bachoco USA, LLC. 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, 38,000 and
38,500 units were outstanding as of December 31, 2014 and 2013, respectively, all of which
were fully vested. The total liability under this plan totaled $3,516 and $3,503 as at December
31, 2014 and 2013, respectively. The expense for this plan for the year ended December 31,
2014, 2013, and 2012 was of $0, $0, and $9,319, respectively.
86
c)
PTU
Industrias Bachoco, S.A.B de C.V. and BSACV has 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, 2014 and 2013 is shown in note 18, Trade payable and other accounts
payable.
(22) Costs and expenses by nature
Cost of sales
General, selling and administrative
expenses
Total costs and expenses
Inventory consumption
Wages and salaries
Freight
Maintenance
Other utility expenses
Depreciation
Leases
Other
Total
2014
2013
2012
$
32,494,974
33,176,599
33,318,207
3,781,326
3,291,006
3,396,655
36,276,300
36,467,605
36,714,862
24,873,999
4,451,457
2,948,439
1,077,940
1,193,449
805,650
311,585
613,781
36,276,300
26,041,102
3,028,830
2,495,673
1,028,511
1,119,094
816,673
286,022
1,651,700
36,467,605
26,452,636
2,922,160
2,412,771
1,037,982
1,120,314
837,807
290,066
1,641,126
36,714,862
$
$
$
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.
(23) 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.
2014
2013
2012
Lease expenses
$
311,585
286,022
290,066
The amount of annual rentals payable, arising from lease agreements for the following five
years is as follows:
87
2015
2016
2017
2018
2019
$
67,563
44,590
48,009
36,311
43,082
(24) Stockholders’ equity and reserves
a)
Capital risk management
An adequate capital risk management allows ongoing business continuity and
the
maximization of the return towards the Company’s investors, which is why management has
taken actions that ensure the Company maintains an adequate balance of the funding
sources that build its capital structure.
Within its activities in risk management, the Company ensures that the ratio between financial
debt and EBITDA of the last 12 months doesn’t exceed 2.75 times and that the interest
coverage ratio is at least 3 to 1.
During 2014 and 2013 these ratios were below the thresholds established by the Company’s
Risk Committee.
b)
Common stock and premiums
As of December 31, 2014 and 2013, the Company’s capital stock is represented by
600,000,000 Series “B” registered shares with a par value of $1 peso per share.
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 as follows:
Familiar Trusts
- Control Trust
- Placement Trust
Floating Position (2)
Before the Transaction
After the Transaction
Shares(1)
Position
496,500,000 82.75%
312,000,000 52.00%
184,500,000 30.75%
103,500,000 17.25%
Shares(1)
Position
439,500,000 73.25%
312,000,000 52.00%
127,500,000 21.25%
160,500,000 26.75%
(1) All Series B shares with voting power.
(2) Operating at the BMV and the NYSE.
88
Based on the information provided to the Company, as of December 31, 2014, stockholders
with 1% or more interest in the Company, in addition to the family trusts, are as follows:
Royce & Associates, LLC
Shares
Position
9,419,520
1.6%
c)
Other comprehensive income items
i. Foreign currency translation reserve
This concept is related to the translation of the Company’s U.S. 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.
d)
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
$576,600 was approved to be used in the reserve for acquisition own shares.
The following table shows the movements of the reserve for acquisition of shares during the
years ended December 31, 2014, 2013 and 2012:
Balance as at
January 1
(+)Total
shares
purchased
(-)Total shares
sold
Balance as at
December 31
2014
2013
2012
-
-
227,400
149,475
100,000
3,704,731
(149,475)
(100,000)
(3,932,131)
-
-
-
The net amount of repurchase and treasury share sale transactions gave rise to a gain of
$1,504, $127 and $10,993 during the years ended December 31, 201 4, 2013 and 2012,
respectively, recognized within equity.
As at December 31, 2014, the Company has no treasury shares.
89
e)
Dividends
During the years ended December 31, 2014, 2013 and 2012, the Company has declared and
paid the following dividends:
In 2014, the Company didn’t declare dividends or pay any dividends.
In 2013, the Company declared dividends 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 per outstanding share, 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 the Company declared and paid dividends to its shareholders for a nominal value
amount of $299,175 or $0.50 per outstanding share.
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 20(a), beginning on January 1, 2014, a new withholding tax
of 10% for resident individuals in Mexico and for all residents in foreign countries who receive
dividends from entities was established. 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
2014, 2013 and 2012, net income of BSACV, accounted for 72%, 71% and 79% 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 as of December 31, 2014 on tax bases of the contributions made by
stockholders (CUCA), totaling $2,515,234, may be refunded to them tax-free, to the extent
that such amount is the same or higher than equity.
(25) Earnings per share
Earnings per share for the years ended December 31, 2014, 2013 and 2012 are $6.55, $3.40
and $3.65, respectively. The calculation of basic earnings per share was based on income
attributable to ordinary stockholders of $3,926,926, $2,038,422 and $2,184,567 for the years
ended December 31, 2014, 2013 and 2012, respectively.
The average weighted number of common outstanding in 2014, 2013 and 2012 was
599,955,240, 599,992,952 and 598,959,882 shares, respectively.
90
The Company has no ordinary shares with potential dilutive effects.
(26) Commitments
• Bachoco USA, LLC has self-insurance programs for health care costs and workers’
payments. The subsidiary is liable for health care claims up to $5,163 (350 thousand
dollars) each year per plan participant and workers’ payments claims up to $14,750 (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 $50,342 (3,413
thousand dollars) and $48,472 (3,703 thousand dollars) as at December 31, 2014 and
2013, respectively. Likewise, the consolidated statement of comprehensive income
includes expenses relating to self-insurance plans of $101,293 (7,616 thousand dollars),
$85,006 (6,494 thousand dollars) and $85,161 (6,617 thousand dollars) for the years
ended December 31, 2014, 2013 and 2012, respectively. The Company is required to
maintain letters of credit on behalf of the subsidiary of $50,150 (3,400 thousand dollars)
and $44,506 (3,400 thousand dollars) as at December 31, 2014 and 2013, respectively, 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.
(27) 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.
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 the Mexican tax authorities for the fiscal
year of 2009, nothing has come to its attention as a result of those reviews that would
indicate that a contingency exists.
91
(28) Financial income and costs
Interest income
Income from interest in accounts
$
receivable
Foreign exchange gain, net
Effects of valuation of derivative financial
instruments
Financial income
2014
337,769
9,595
19,863
-
2013
298,141
2012
209,170
16,104
28,085
2,455
12,893
35,212
12,757
367,227
344,785
270,032
Effects of valuation of derivative financial
instruments
Interest expense and financial expenses on
financial debt
Commissions and other financial expenses
Financial costs
Financial income, net
(2,229)
-
-
(87,624)
(97,025)
(71,005)
(30,466)
(120,319)
246,908
(129,341)
(226,366)
118,419
(33,995)
(105,000)
165,032
$
(29) Other income (expenses)
Other income
Sale of scrap of biological assets, raw
materials, by-products and other
Total other income
Other expenses
Cost of disposal of biological assets, raw
materials, by-products and other
Other
Total other expenses
Total other income (expenses), net
$
2014
2013
2012
$
722,653
722,653
332,623
332,623
271,385
271,385
(623,148)
(260,424)
(883,572)
(160,919)
(244,054)
(57,865)
(301,919)
30,704
(257,182)
(38,013)
(295,195)
(23,810)
92
HEADQUARTERS
DEPOSITARY BANK
Industrias Bachoco, S.A de C.V.
BNY MELLON
INVESTOR RELATIONS
Daniel Salazar
Av. Tecnológico 401
Celaya, Guanajuato.
38030, Mexico
T.+ 52 (461) 618.35.00
F.+52 (461) 611.65.02
BNY MELLON SHAREOWNER SERVICES
Chief Financial Officer
shrrelations@cpushareownerservices.com
T. +52 (461) 618.35.55 (Mexico)
inversionistas@bachoco.net
T. US: 888 BNY ADRS
T. 201 680 6825
PROXY SERVICES
shareowner@bankofny.com
Toll Free: 1.888.269.2377
T. (212) 815.37.00
INDEPENDENT AUDITORS
Deloitte Touche Tohmatsu /
Galaz, Yamazaki, Ruiz Urquiza, S.C.
T. +52 (442) 238.29.44
STOCK INFORMATION
Share in the BMV: BACHOCO
Bonds in the BMV: BACHOCO12
ADR in the NYSE: IBA
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