Industrias Bachoco, S.A. de C.V.
Annual Report 2015

Plain-text annual report

INDUSTRIAS BACHOCO S.A.B. DE C.V. Growing ANNUAL REPORT 2015day every BACHOCO’S PROFILE Enrique Robinson Bours Life Honorary Chairman of the Board and Co-Founder Industrias Bachoco in the Mexican poultry industry and one of the ten largest poultry producers globally. leader is The Company was founded in 1952 and became a public company in 1997, via a public offering of shares on the Mexican and the New York stock exchanges. Bachoco is a vertically-integrated company with operations in Mexico and the US with its headquarters located in Celaya, Guanajuato, Mexico. Its main business lines are: chicken, table eggs, balanced feed, swine, and others, including further process products of turkey and beef. Currently the Company is rated AAA (MEX), the highest rating awarded by Fitch Mexico, and HR AAA which signals that the Company and their bonds both have the highest credit quality by HR Ratings de Mexico S.A. de C.V. Bachoco owns and manages more than 1000 farms 10 processing plants 7 further processing plants 20 feed mills 25 hatcheries 64 distribution centers The Company employs more than 25,000 people. 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 Growing every day Social Responsibility Consolidated Financial Statements 1 2 4 7 8 10 11 12 13 14 15 17 HIGHLIGHTS OPERATING DATA In millions pesos Net sales Gross profit Operating income EBITDA Result Net income EPS in pesos Earnings per ADR en pesos Gross margin Operating margin EBITDA margin Net margin 1 U.S. Dollar 2015 $ $ 2,686.2 545.1 293.6 341.3 221.9 0.37 4.43 2015 46,229.0 9,381.5 5,053.2 5,873.4 3,819.5 6.36 76.30 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 20.3 10.9 12.7 8.3 % % % % 20.3 10.9 12.7 8.3 % % % % 22.2 12.8 14.7 9.4 % % % % 16.5 8.2 10.3 5.1 % % % % 1 One dollar equal to $17.21 pesos STATEMENT OF FINANCIAL DATA In millions pesos TOTAL ASSETS Cash and cash equivalents Inventories TOTAL LIABILITIES Notes payable to banks Accounts payable Long-term debt TOTAL STOCKHOLDERS´ EQUITY Capital stock Retained earnings 1 In U.S. Dollars 2015 $ 2,350.2 888.4 197.8 $ 736.0 94.8 267.1 145.0 $ 1,614.1 68.2 1,438.1 December 31, 2015 40,446.6 15,290.1 3,404.3 12,667.2 1,631.9 4,597.1 2,495.1 27,779.4 1,174.4 24,749.6 2014 34,843.1 11,968.3 2,968.1 10,481.1 798.0 3,970.5 1,652.5 24,362.1 1,174.4 22,513.2 2013 28,889.7 7,732.7 2,738.2 8,738.5 557.6 3,375.6 1,510.2 20,151.1 1,174.4 18,586.2 1 One dollar equal to $17.21 pesos BALANCED FEED 5% OTHERS 4% EGG 7% CHICKEN 84% U.S.A. 24% MEXICO 76% NET SALES SALES BY GEOGRAPHY 2015 25,231 2014 24,829 2013 24,486 EMPLOYEES 1 ANNUAL REPORT 2015 MESSAGE TO SHAREHOLDERS Dear Shareholders of Industrias Bachoco: 2015 was a year that presented an important macroeconomic volatility, particularly in Mexico, there was an increase in the depreciation of the Mexican peso vs the US dollar. However, the economic growth was aligned with Mexican Central Bank expectations with low inflation rate levels. The first half of the year, the Mexican poultry industry presented a good balance between supply and demand. This was not the case for the second semester. A growth above historical levels in the national production, resulted in over-supply conditions in the second half of the year. In the US, the poultry industry also grew above its levels. However, the biggest historical normalized problem that this industry faced was the ban of US exports that some countries imposed due to the sanitary conditions, after the Avian Influenza outbreak that affected turkey farms and table eggs. Exports reduction put pressure mainly on leg-quarter prices. On the cost side, during 2015, there was a steady down trending cost of our main raw materials in U.S. dollar terms. This helped minimize the impact in cost due to the depreciation of the Mexican peso vs US dollar that affected mainly the second half of the year. In Mexico, we increased the total volume sold in all of our main business lines. In particular, chicken and balanced feed reached the largest volume sold for a year. Regarding our US operation, we continue to deliver positive results. In 2015, we reached the highest volume sold since 2011. During the year, we closed the acquisition of Morris Hatchery assets in Georgia, USA. This integration to our process allowed us to strengthen our supply chain, which enabled us to support the organic growth of the company in Mexico. At the end of the year, we announced the purchase agreement of a fully cooked facility located in Oklahoma City, USA. This will allow us to integrate other further processed customers into our sales mix and to reduce our dependency on the commodity market. We continue working on our growth plans for the company, we increased our CAPEX, focusing mainly on organic growth, and productivity projects along our supply chain. We increased the total volumen sold in all of our main business lines. Francisco Javier R. Bours Castelo Chairman of the Board of Directors ANNUAL REPORT 2015 2 During 2015, Bachoco was placed in the Top 50 of companies with the best reputation in Mexico according to the Merco survey; improving 21 places when compared to 2014. Bachoco was also ranked 48th of the responsible companies with better corporate governance. Likewise, our CEO, Rodolfo Ramos Arvizu was recognized as one of the 25 most respected CEOs in the country in 2015; where his strategic and commercial vision, behaviors and his sense of innovation were evaluated. international projection, achievement goals, ethical We considerer 2015 a positive year for the company, we reached historical levels of sales. Meanwhile, Aviagen recognized our US operation in Arkansas, for achieving the best performance in Top Hatch for Ross 308´s. At the same time, OK Foods was awarded as the Highest Quality Supplier for 2015 by Raising Cane’s. In November, Guillermo Ochoa Maciel was named as an Independent member of the Board of Directors of the Company, and President of the Audit and Corporate Practices Committee. Mr. Ochoa is also a financial expert. The EBITDA margin for 2015 was 12.7%, the net margin was 8.3% and equity per share totaled $6.36 pesos. In summary, we consider 2015 a positive year for the Company; we reached historical levels of sales and the second highest EBITDA margin for the Company in the last ten years, we also continue with a strong financial position with a net cash at the end of 2015 of $11,163.1 million pesos. All of this resulted in strengthening our Balance Sheet, which will allow us to finance the organic growth plans in both Mexico and US operations, as well as preparing us for future growth opportunities according to our long-term strategies. The Company remains a leader in the poultry industry in Mexico and an important player worldwide with a strong and trusting brand. During the year, the daily average of our shares in US dollars increased by 32.6% with respect the daily average in 2014. All of this was possible with the support of our management team and staff, integrated for more than 25,000 people. Through their hard work and commitment to reach the Company´s goals, they were also able to improve efficiencies in our processes. We still have many opportunities to improve our performance and face the external conditions that may be present. We will continue working hard on this. To conclude my message, I would like to remind you of the commitment that we have with all of you. Our goal is to keep our position in Mexico as the leader of the poultry sector and to be one of the main players worldwide, while continuing to grow our business with profitability, delivering positive results and maintaining the solid financial structure that always characterizes us. Francisco Javier R. Bours Castelo Chairman of the Board of Directors 3 ANNUAL REPORT 2015 CEO’S LETTER Dear Shareholders: All figures discussed below are information for 2015, with comparative figures of 2014. It was prepared under IFRS accounting principles, and is presented in millions of pesos unless otherwise indicated. In Mexico, where 76% of our income is generated, the economy grew 2.5% in 2015. At the end of the year, we faced volatile conditions as in most markets worldwide. This volatility had an effect in the Mexican peso, which depreciated about 20% vs the US dollar. to According the Mexican National Poultry Association estimates in 2015, chicken and egg volumes produced in Mexico grew around 5.5% and 2.0% respectively. These estimates show that the Mexican poultry industry retook its growth during this year, offsetting the slower rhythm than its normalized growth levels in 2013 and 2014. Regarding the US poultry industry, according to USDA sources, the chicken volumes produced in the US grew about 3% in 2015, also higher than its normalized growth rate. Per capita consumption of poultry products grew in both markets. Chicken supply in Mexico was stable during the first half of the year. By the second half of 2015, oversupply conditions were present, although demand remained solid in both Mexican and US markets. In respect to other sources of proteins, beef showed high prices most of the year and swine returned to more normalized levels after seeing significant price increases in 2014. The Industry in general benefited from lower raw material costs in US dollar terms. In Mexico, we were not able to capitalize those reductions, since the exchange rate compensated most of the prices adjustments in dollar terms, affecting our production costs. In the US, the poultry industry was affected by bans on exports, which some countries imposed due to sanitary conditions. Our derivatives positions were healthy throughout 2015; we followed a disciplined practice in this regard. Net sales in 2015 totaled $46,229.0 million; an increase of 10.7% compared to 2014. Rodolfo Ramos Arvizu Chief Executive Officer ANNUAL REPORT 2015 4 During 2015, we consolidated several projects that will allow us to be closer to our customers and to better understand and attend to their needs, supplying products and services they need, while continuing our efforts to increase the consolidation of our brand in the markets we participate in. Because of these efforts, in 2015 agencyScope Mexico, ranked us as the 5th of the most distinguished campaigns and the 9th of the most valued companies by its marketing in Mexico. 2015 & 2014 RESULTS Net sales in 2015 totaled $46,229.0 million; $4,450.0 million more or a 10.7% increase in net sales; when compared to $41,779.1 million reported in 2014. This increase was mainly due to higher volume sold. In 2015, sales of our US operation represented 24.1% of our total sales, compared with 20.2% in 2014. The Company’s sales of chicken products increased 10.6% in 2015, mainly as a result of 8.1% increase in volume and 2.5% increase in chicken prices. Egg sales increased 3.5% in 2015, as a result of 6.3% in total volume sold; partially compensated with a decrease of 2.6% in egg prices. Sales of balanced feed increased 31.6% in 2015, resulting from a 23.4% increase in total volume sold and an 8.2% increase in prices. In particular, the pet- food products volume continued with an important increase above the expectations we set when building our own production plant. In 2015, the other business line showed good performance as well. In particular, sales of beef had an increase of 18.7%, mainly due to an increase in the price of this product in the year. Cost of sales totaled $36,847.5 million for the year; 13.4% higher than the $32,495 million reported in 2014. The increase in the cost of sales was mainly attributed to more volume sold and an increase in the unit cost of sales, resulting in an increase in the cost of our main raw materials. These numbers allow us to post a gross profit of $9,381.5 million, which represented 20.3% of gross margin in 2015; higher than $9,284.1 million of gross profit and a margin of 22.2% reached in 2014. The increase in gross income compared to 2014 was mainly due to higher volume sold. Total SG&A expenses in 2015 were $4,323.4 million, an increase of $542.0 million or 14.3%, when compared to $3,781.3 million in 2014. Total SG&A expenses as a percentage of net sales represented 9.4% in 2015 and 9.1% in 2014. The increase is mainly attributed to higher volume sold and additional expenses incurred in the implementation of projects to further improve the services we provide in our markets. 5 ANNUAL REPORT 2015 In 2015, we had other expenses of $4.6 million, compared with other expenses of $160.9 million reported in 2014. This is mainly attributed to gains in the sale of several unused assets during the year. The operating income in 2015 totaled $5,053.5 million, a 10.9% margin; 5.4% lower than $5,341.9 million of operating income and 12.8% margin as reported in 2014. In 2015, we reached an EBITDA of $5,873.4 million, representing an EBITDA margin of 12.7%; lower when compared to EBITDA of $6,147.6 million in 2014, with an EBITDA margin of 14.7%. EBITDA margin in 2015 was the second largest in the last 10 years. The net financial income in 2015 was $446.6 million higher when compared to the net financial income of $246.9 million in 2014. This is mainly attributed to higher interest income resulting from higher levels of cash and lower interest expenses in the liabilities we have contracted. Total taxes in 2015 were $1,680.6 million, this figure compares to total taxes of $1,656.1 million in 2014; the increase is attributed to a higher income before taxes. As a result, net income in 2015 was $3,819.5 million, an 8.3% net margin; which represents earnings per share of $6.36 pesos. In 2014, net income totaled $3,932.7 million, a 9.4% net margin, and $6.55 pesos of EPS. Cash and equivalents as of December 31, 2015 totaled $15,290.1 million, an increase of $3,321.8 million or 27.8% more than the $11,968.3 million of cash and equivalents reported as of December 31, 2014. Total debt as of December 31, 2015 was $4,127.0 million, compared to $2,450.5 million reported as of December 31, 2014; mainly as a result of higher short-term bank debt. Our net cash as of December 31, 2015 totaled $11,163.1 million, compared with a net cash of $9,517.9 million as of December 31, 2014. Capex in 2015 totaled $1,824.5 million, an increase when compared to $1,241.1 million expended in 2014. In 2015, the Company implemented new projects oriented toward organic growth and productivity improvements. Rodolfo Ramos Arvizu Chief Executive Officer ANNUAL REPORT 2015 6 REPORT FROM THE BOARD OF DIRECTORS 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 2015, 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 2015, 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 2015. Francisco Javier R. Bours Castelo Chairman of the Board of Directors 7 ANNUAL REPORT 2015 AUDIT AND CORPORATE PRACTICES COMMITTEE Dear Members of the Board of Directors and Shareholders of Industrias Bachoco: In accordance with the terms of Article 43 section I of the Mexican Market Security Law (LMV), this report is issued by the President of the Audit and Corporate Practices Committee of Industrias Bachoco S.A.B. de C.V. This report has been submitted to the Audit and Corporate Practices Committee of the Company, which validated content, scope and conclusions for submission to the opinion and validation of the Board of Directors and to the Annual and General Ordinary Shareholders’ Meeting of the Company that will take place in April 2016 in compliance with article 28, paragraph IV a) of the LMV. Regarding Corporate Practices: We concluded that the Officers performance was aligned with the Company’s objectives. We reviewed the CEO and senior officers and compensation packages were granted. We checked that there was no existence of any grant or exceptions to Directors, senior officers or other employees of the Company. In 2015, the total transactions in connection to related parties represented less than 3.5% 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. We analyzed and assessed the services provided by the independent experts, when it was required. Regarding Audit Practices: As part of our functions, we have recommended the appointment and hiring of external auditors to perform the 2015 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 2015 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 did not detect any material deviations. We analyzed and assessed the additional or supplementary services provided by the external auditing firm, as well as those provided by independent experts. We reviewed the proposals for unusual or nonrecurring transactions presented during the year 2015, to be held by the Company or its subsidiaries in connection with the acquisition or disposal of goods, and the ANNUAL REPORT 2015 8 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 2015, 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 2015. Additionally, this Committee suggested the Board instruct the Company to continue to act in strict accordance with these principles. Conclusions: The recommendations of the Audit and Corporate Practices Committee have been, or are being addressed by the Administration of the company. During the reporting period, the Audit and Corporate Practices Committee did not receive from Shareholders, Directors, relevant executives, employees and in general from any third party, any remarks about accounting, internal controls and other matters relating to the Internal or External Audit, other than those issued by the management during the preparation or revision of the respective documentation; no complaints were received about any irregular matters regarding the Administration. The Audit and Corporate Practices Committee has followed, within its competence and in accordance with the instructions received, the resolutions of the Board of Directors and the Shareholders ‘ Meeting during the reporting period. From all the above, the Audit and Corporate Practices Committee has fulfilled the functions stated in Article 42, paragraph II of the LMV, during the reporting period. Guillermo Ochoa Maciel President of the Audit and Corporate Practices Committee 9 ANNUAL REPORT 2015 HIGHLIGHTS TO INVESTORS In 2015, the Company´s shares and ADRs reached a yield of 13.0% on the BMV and a decrease of 1.3% 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 $42,000 million pesos in market capitalization The founding family holds 73.25% of total shares by two Trusts: • Control Trust with 52.00% • Underwriting Trust with 21.25% Share Prices Bolsa Mexicana de Valores In pesos per Share The New York Stock Exchange In dollars per ADR Year High Low Average Close Year High Low Average Close 2015 2014 2013 2012 2011 89.73 68.55 45.25 30.13 27.86 59.23 44.71 28.80 20.59 20.3 71.74 56.62 38.27 24.62 24.71 70.05 61.94 44.16 30.13 22.3 2015 2014 2013 2012 2011 63.49 61.24 43.08 27.97 28.75 45.64 40.37 27.02 18.86 17.4 54.09 50.84 35.92 22.41 24.04 49.23 49.88 40.27 27.92 19.07 Source: Yahoo finance ANNUAL REPORT 2015 10 BOARD OF DIRECTORS Bachoco’s Board of Directors is comprised of eight Proprietary Shareholder Directors, four Alternate Shareholder Directors, and three Independent Proprietary Directors. This board was last ratified on April 22, 2015 and on November 3rd, 2015. 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 resource 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, Humberto Schwarzbeck Noriega, Guillermo Ochoa Maciel. 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 11 ANNUAL REPORT 2015 SENIOR MANAGEMENT TEAM Ernesto Salmon Castelo Director of Operations Andres Morales Astiazaran Director of Sales Daniel Salazar Ferrer Chief Financial Officer Rodolfo Ramos Arvizu Chief Executive Officer Augusto Franco Gomez Director of Marketing R. Trent Goins Chief Executive Officer, U.S. Operations Alejandro Elias Calles Gutierrez Director of Purchasing Ismael Sanchez Moreno Director of Human Resources ANNUAL REPORT 2015 12 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 November 3, 2015 and its main duties include: Evaluate the performance of the independent auditing firm, as well as analyze their comments, recommendations, reports and other information. Prepare and present to the Board an opinion about the CEO’s report, and advise the Board of Directors in the preparation of reports regarding policies and accounting principles and other criteria followed in the preparation of financial statements, as well as on the operations and activities 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 COMMITTEE AND CORPORATE PRACTICES Guillermo Ochoa Maciel (President) Humberto Schwarzbeck Noriega Avelino Fernandez Salido Ricardo Aguirre Borboa. 13 ANNUAL REPORT 2015 BACHOCO GROWING EVERY DAY In Bachoco, we know and understand the value of growing every day and adding value to the Company. It is very important for us to grow with profitability, while focusing on the aspects we can improve to be more in line with our strategies. During the year, we were able to achieve the highest chicken and balanced feed volume sold in Mexico and the highest volume sold for a year in our US operation. We increased the volume sold during 2015 in our main business lines. All this growth was possible thanks to our projects and efforts to be closer to our customers. We are going to continue focusing in our organic growth at different stages of our process and searching for opportunities, which must align with our strategies and principles. The Company has and will continue implementing several projects, allowing us to add value to our company and our investors, and be closer to our customers at the same time. ANNUAL REPORT 2015 14 SOCIAL RESPONSIBILITY Bachoco’s Social Responsibility program is based on 5 essential cornerstones seeking to achieve an integral approach for the improvement of collaborators, surrounding communities and the environment. We work hard every day to achieve these goals and 2015 was evidence of it. TOGETHER FOR OUR BACHOCO TEAM We consolidated the Bachoco Welfare program by focusing on three specific areas: Occupational Welfare, Personal Welfare and Social Welfare. Through this program, the company seeks more people join our initiatives and perceive the value of belonging to a company focused on taking care of the life quality of its collaborators. TOGETHER FOR OUR PLANET The interaction we have with the environment is a key aspect in which we seek to contribute in a positive way. Proof of these efforts are the water treatment plants in our production centers. TOGETHER FOR OUR BUSINESS We define strategic lines in which we focus our efforts. Following those strategic lines, we consolidated programs such as the deployment of Bachoco´s Cultural Model, the Corporative University and Bachoco Welfare, thinking always of our people. TOGETHER FOR OUR PRODUCTS Our work in safety and food quality is a continuous task and we consolidated it through the certification in SQF (Safe Quality Food) in our processing plant in Culiacan, which joins the rest of our processing plants that have already received this international recognition. TOGETHER FOR OUR COMMUNITY Our commitment and collaboration with neighboring communities constitutes one of our working areas. Beyond providing support in natural disaster situations, we also developed initiatives that contribute to the community improvement. 15 ANNUAL REPORT 2015 HIGHLIGHTS 2015 More than 25,000 employments. With benefits above those established by law. We continue with our processing plants certification of Industria Limpia by PROFEPA. In order to guarantee safe working conditions, we evaluated more than 50 critical tasks in our workstations through ergonomic studies. We implemented a national health and safety campaign with nearly 10,000 employees participating. More than 16,000 employees have participated in our certification programs regarding our cultural model (vision, mission, beliefs and values) and ethics code. Our water treatment plant in Monterrey started operations, joining our other facilities already operating in México. 310 thousand hours of training on different topics. We organized our first institutional running race “Unidos por la Alimentación”. The money raised was donated to the refurbishment of Community Kitchens in the Celaya, Guanajuato area. We had our first Bachoco´s Day with the participation of more than 1,400 students from different universities in Mexico. We organized the first Family Day in our operations in Fort Smith, Ar. 1 2 3 4 5 6 7 8 9 10 ANNUAL REPORT 2015 16 CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Auditors Consolidated Statements of Financial Position Consolidated Statements of Income and Other Comprehensive Income Consolidated Statement of Changes in Stockholders Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements 18 20 21 22 23 24 1819I S E I R A D I S B U S D N A . . V C E D . . B A S . , O C O H C A B S A R T S U D N I I n o i t i s o P l i a i c n a n F f o s t n e m e t a t S d e t a d i l o s n o C 3 1 0 2 d n a 4 1 0 2 , 5 1 0 2 , 1 3 r e b m e c e D ) s o s e p f o s d n a s u o h T ( 3 1 0 2 4 1 0 2 5 1 0 2 e t o N y t i u q e d n a s e i t i l i b a i L 3 1 0 2 4 1 0 2 5 1 0 2 e t o N s t e s s A 2 9 3 6 1 , , 0 0 2 1 4 5 , 0 5 2 4 6 6 , 2 3 7 3 3 1 3 3 0 9 , , 0 5 8 2 2 6 1 , , 1 0 6 5 7 3 3 , , 5 1 5 0 7 9 3 , , 3 0 1 7 9 5 4 , 5 9 0 4 5 , , 7 5 6 6 5 4 , 2 8 9 9 5 7 , 3 3 0 7 2 1 , 5 0 2 8 4 2 , 8 2 6 5 6 1 , 5 4 9 3 4 4 4 , , 2 1 5 5 5 6 5 , , 9 1 8 2 4 6 6 , , 0 1 2 0 1 5 1 , , 0 7 4 2 5 6 1 , , 7 2 1 5 9 4 2 , , 1 3 1 6 3 7 2 , , 7 9 1 2 8 0 3 , , 6 3 0 9 6 3 3 , 5 4 2 8 4 , 9 9 8 0 9 , , 8 1 2 0 6 1 , 6 8 5 4 9 2 4 , , 6 6 5 5 2 8 4 , , 1 8 3 4 2 0 6 , , 1 3 5 8 3 7 8 , , 8 7 0 1 8 4 0 1 , , 0 0 2 7 6 6 2 1 , , 2 3 4 4 7 1 1 , , 2 3 4 4 7 1 1 , , 2 3 4 4 7 1 1 , 1 0 6 9 9 , , 1 4 6 9 9 3 , 1 4 6 9 9 3 , 5 0 1 1 0 1 , 7 1 0 4 1 4 , 2 2 6 7 7 7 , 8 2 2 6 8 5 8 1 , , 4 5 1 3 1 5 2 2 , , 6 1 6 9 4 7 4 2 , 1 0 3 9 3 , 6 4 6 4 4 , 8 4 4 0 5 , ) 0 9 0 7 8 ( , ) 7 6 9 0 6 ( , ) 5 3 0 9 7 ( , , 7 0 1 8 0 2 ) 6 9 1 7 9 ( , , 9 3 4 0 1 7 , 5 4 8 1 1 1 0 2 , , 4 0 4 7 1 3 4 2 , , 0 3 9 8 2 7 7 2 , , 6 4 1 1 5 1 0 2 , , 0 5 0 2 6 3 4 2 , , 8 7 3 9 7 7 7 2 , $ 7 1 7 1 8 1 0 2 9 1 7 1 0 2 1 2 4 2 1 2 6 2 7 2 t b e d m r e t - g n o l f o n o i t r o p t n e r r u C t b e d m r e t t r o h S : s e i t i l i b a i l t n e r r u C l e b a y a p s t n u o c c a r e h t o d n a e b a y a p e d a r T l 5 3 7 1 1 , s e i t r a p d e t a e r o t e u D l l e b a y a p x a t e m o c n I s e i t i l i b a i l t n e r r u c l a t o T : s e i t i l i b a i l m r e t g n o L , 6 0 1 4 0 0 1 , , 3 9 0 8 1 3 2 , 9 6 6 6 , , 4 8 5 5 2 9 4 4 2 1 , , 4 1 6 2 4 2 1 , , 8 7 5 4 7 9 2 , , 7 2 4 3 3 5 2 , 8 7 6 3 , 9 2 9 1 , , 2 2 5 4 9 1 , 2 2 2 8 3 7 2 , , 1 6 0 8 6 9 2 , , 9 6 2 4 0 4 3 , , 4 7 1 0 2 4 1 , , 8 2 4 1 0 5 1 , , 4 9 7 1 5 6 1 , , 9 3 5 5 3 1 1 , , 7 7 0 9 7 3 1 , , 8 0 8 7 8 5 1 , , 4 9 8 6 1 7 6 , , 2 6 0 6 3 0 1 1 , , 2 6 2 6 4 0 4 1 , t s e r e t n i g n i l l o r t n o c - n o N y t i u q e l a t o T t s e r e t n i g n i l l o r t n o c o t e l b a t u b i r t t a y t i u q E s t n e m l l a t s n i t n e r r u c g n d u l c x e i , t b e d m r e t g n o L 3 5 0 9 4 , 3 8 5 8 5 , 8 4 0 0 6 , s e r a h s f o e s a h c r u p e r r o f e v r e s e R i m u m e r p e r a h S k c o t s l a t i p a C : y t i u q E x a t e m o c n i d e r r e f e D s t i f e n e b e e y o p m E l s e i t i l i b a i l m r e t g n o l l a t o T s e i t i l i b a i l l a t o T i s g n n r a e d e n a t e R i e v r e s e r n o i t a l s n a r t y c n e r r u c n g e r o F i t e n , s t n e m e r u s a e m e r l a i r a u t c A , 4 9 4 7 9 3 5 1 , , 1 7 9 1 5 8 0 2 , , 8 8 9 1 2 7 4 2 , , 9 4 4 2 5 6 1 1 , , 4 5 7 4 5 0 2 1 , , 1 3 1 8 8 1 3 1 , , 6 3 9 9 0 1 1 , , 3 3 2 9 0 1 1 , , 1 3 1 4 3 4 1 , 0 4 9 4 3 , , 9 5 2 4 4 3 , 9 9 5 0 5 3 8 7 3 9 4 , , 4 6 7 9 4 3 , 8 2 0 8 2 4 7 2 1 4 5 , , 5 9 2 4 5 4 , 6 0 9 3 9 5 , 3 8 1 2 9 4 3 1 , , 7 5 1 1 9 9 3 1 , , 0 9 5 4 2 7 5 1 , s t n e m t i m m o C s e i c n e g n i t n o C $ 7 8 8 9 9 1 0 1 1 1 2 1 3 1 4 1 1 1 0 2 5 1 6 1 s s o l r o t i f o r p h g u o r h t e u a v r i l a f t a s e i t i r u c e s n i t n e m t s e v n I s t n e m u r t s n i l a i c n a n i f e v i t a v i r e D s t n e l i a v u q e h s a c d n a h s a C : s t e s s a t n e r r u C s t e s s a t n e r r u c r e h t o d n a s e s n e p x e d a p e r P i e l l a s r o f d e h s t e s s A s t e s s a s t n e r r u c l a t o T : s t e s s a t n e r r u c - n o N t e n i , t n e m p u q e d n a t n a p l , y t r e p o r P s t e s s a l i l a c i g o o b t n e r r u c - n o N x a t e m o c n i d e r r e f e D l l i w d o o G s t e s s a t n e r r u c - n o n r e h t O s t e s s a s t n e r r u c - n o n l a t o T s e i t r a p d e t a e r l m o r f e u D s e i r o t n e v n I s t e s s a l i l a c i g o o b t n e r r u C t e n , i l e b a v e c e r s t n u o c c A , 7 7 6 9 8 8 8 2 , , 8 2 1 3 4 8 4 3 , , 8 7 5 6 4 4 0 4 , $ y t i u q e d n a s e i t i l i b a i l l a t o T , 7 7 6 9 8 8 8 2 , , 8 2 1 3 4 8 4 3 , , 8 7 5 6 4 4 0 4 , $ s t e s s a l a t o T . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n g n i y n a p m o c c a e e S 20 INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES Consolidated Statements of Profit and Loss and Other Comprehensive Income Years ended December 31, 2015, 2014 and 2013 (Thousands of pesos, except share and per share amount) Net revenues Cost of sales Gross profit General, selling and administrative expenses Other (expenses) income, net Operating income Finance income Finance costs Net finance income Profit before income taxes Income taxes Profit for the year 2015 2014 2013 $ 46,229,049 (36,847,508) 41,779,087 (32,494,974) 39,710,726 (33,176,599) 9,381,541 9,284,113 6,534,127 (4,323,374) (4,640) (3,781,326) (160,919) (3,291,006) 30,704 5,053,527 5,341,868 3,273,825 593,845 (147,292) 446,553 367,227 (120,319) 246,908 344,785 (226,366) 118,419 5,500,080 5,588,776 3,392,244 1,680,560 1,656,110 1,350,439 Note 22 22 29 28 28 20 $ 3,819,520 3,932,666 2,041,805 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 Income taxes related to actuarial remeasurements 21 Other comprehensive (loss) income 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 502,332 (25,944) 7,783 484,171 295,197 (25,812) 7,744 277,129 32,672 (61,057) 18,317 (10,068) 4,303,691 4,209,795 2,031,737 3,812,840 6,680 3,926,926 5,740 2,038,422 3,383 3,819,520 3,932,666 2,041,805 4,297,011 6,680 4,204,055 5,740 2,028,354 3,383 4,303,691 4,209,795 2,031,737 $ $ $ $ $ Weighted average outstanding shares 599,631,383 599,955,240 599,992,952 Basic and diluted earnings per share 25 $ 6.36 6.55 3.40 See accompanying notes to consolidated financial statements. 21 s m e t i e v i s n e h e r p m o c r e h t O i s g n n r a e d e n i a t e R k c o t s l a t i p a C t s e r e t n i g n i l l o r t n o c o t e l b a t u b i r t t A I S E I R A D I S B U S D N A . . V C E D . . B A S . , O C O H C A B S A R T S U D N I I y t i u q E ' l s r e d o h k c o t S n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C 3 1 0 2 d n a 4 1 0 2 , 5 1 0 2 , 1 3 r e b m e c e D d e d n e s r a e Y ) s o s e p f o s d n a s u o h T ( , 9 8 6 8 8 0 9 1 , ) 0 8 7 ( 7 2 1 ) 7 2 2 8 1 ( , , ) 0 0 4 0 5 9 ( l a t o T y t i u q e ) 8 6 0 0 1 ( , , 5 0 8 1 4 0 2 , , 7 3 7 1 3 0 2 , , 6 4 1 1 5 1 0 2 , ) 5 4 8 ( 0 5 4 4 0 5 1 , , 9 2 1 7 7 2 , 6 6 6 2 3 9 3 , , 5 9 7 9 0 2 4 , , 0 5 0 2 6 3 4 2 , ) 8 7 8 ( - 7 7 6 3 1 , , ) 2 6 1 9 9 8 ( , 1 7 1 4 8 4 , 0 2 5 9 1 8 3 , , 1 9 6 3 0 3 4 , , 8 7 3 9 7 7 7 2 , g n i l l o r t n o c - n o N l a i r a u t c A s t n e m e r u s a e m e r n g i e r o F y c n e r r u c 8 9 6 6 3 , ) 0 8 7 ( - - - 3 8 3 3 , - 3 8 3 3 , 1 0 3 9 3 , ) 5 4 8 ( 0 5 4 - 0 4 7 5 , - 0 4 7 5 , 6 4 6 4 4 , ) 8 7 8 ( - - - 0 8 6 6 , - 0 8 6 6 , 8 4 4 0 5 , , 1 9 9 1 5 0 9 1 , 7 2 1 - , ) 0 0 4 0 5 9 ( - - - - ) 7 2 2 8 1 ( , ) 7 2 2 8 1 ( , , 2 2 4 8 3 0 2 , - ) 8 6 0 0 1 ( , ) 0 4 7 2 4 ( , , 4 5 3 8 2 0 2 , , 5 4 8 1 1 1 0 2 , - 4 0 5 1 , - , 6 2 9 6 2 9 3 , ) 0 4 7 2 4 ( , ) 7 6 9 0 6 ( , - - - - , 9 2 1 7 7 2 ) 8 6 0 8 1 ( , , 5 5 0 4 0 2 4 , , 4 0 4 7 1 3 4 2 , - - 7 7 6 3 1 , , ) 2 6 1 9 9 8 ( , 0 4 8 2 1 8 3 , ) 8 6 0 8 1 ( , ) 5 3 0 9 7 ( , - - - - - , 1 7 1 4 8 4 ) 1 6 1 8 1 ( , , 1 1 0 7 9 2 4 , , 0 3 9 8 2 7 7 2 , ) 1 6 1 8 1 ( , ) 6 9 1 7 9 ( , ) 6 1 9 6 2 ( , - - - - - ) 4 7 1 0 6 ( , ) 4 7 1 0 6 ( , ) 0 9 0 7 8 ( , - - - - , 7 9 1 5 9 2 , 7 9 1 5 9 2 , 7 0 1 8 0 2 - - - - - , 2 3 3 2 0 5 , 2 3 3 2 0 5 , 9 3 4 0 1 7 t s e r e t n i l a t o T t e n e v r e s e r n o i t a l s n a r t d e n i a t e R i s g n n r a e r o f e v r e s e R f o e s a h c r u p e r s e r a h s e r a h S i m u m e r p l a t i p a C k c o t s e t o N , 0 6 3 5 0 4 7 1 , 4 7 4 9 9 , , 1 4 6 9 9 3 , 2 3 4 4 7 1 1 , $ 3 1 0 2 , 1 y r a u n a J t a e c n a l a B - - - , ) 0 0 4 0 5 9 ( - - 7 2 1 - 6 4 8 2 9 , , 2 2 4 8 3 0 2 , , 8 6 2 1 3 1 2 , , 8 2 2 6 8 5 8 1 , - - - , 6 2 9 6 2 9 3 , - , 6 2 9 6 2 9 3 , 1 0 6 9 9 , - 4 0 5 1 , - - - - - - - - - - - , 1 4 6 9 9 3 - - - - - - - - - , 2 3 4 4 7 1 1 , - - - - - - - 4 2 4 2 1 2 t s e r e t n i g n i l l o r t n o c - n o n o t d a p s d n e d v D i i i t e n , s e r a h s f o e l a s d n a e s a h c r u p e R t c e f f e n o i t p o d a R 9 1 S A I : r a e y e h t r o f e m o c n i e v i s n e h e r p m o C e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f t i f o r P r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 3 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B i d a p s d n e d v D i i - - - - - - 4 2 t e n , s e r a h s f o e l a s d n a e s a h c r u p e R l n o i t u o s i d m o r f t s e r e t n i g n i l l o r t n o c - n o n f o l a s o p s i D r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 4 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B : r a e y e h t r o f e m o c n i e v i s n e h e r p m o C e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f t i f o r P t s e r e t n i g n i l l o r t n o c - n o n o t d a p s d n e d v D i i i , 4 5 1 3 1 5 2 2 , , 5 0 1 1 0 1 , 1 4 6 9 9 3 , 2 3 4 4 7 1 1 , - , ) 2 6 1 9 9 8 ( , ) 6 1 2 7 7 6 ( - - - ) 9 9 6 ( , 6 1 2 7 7 6 - , 0 4 8 2 1 8 3 , , 0 4 8 2 1 8 3 , - - - - - - 6 7 3 4 1 , - - - - - - - - - - 4 2 4 2 t s e r e t n i g n i l l o r t n o c - n o n o t d a p s d n e d v D i i i : r a e y e h t r o f e m o c n i e v i s n e h e r p m o C e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f t i f o r P s e r a h s f o e s a h c r u p e r r o f e v r e s e R s e r a h s f o e l a s d n a e s a h c r u p e R r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T i d a p s d n e d v D i i , 6 1 6 9 4 7 4 2 , , 2 2 6 7 7 7 , 7 1 0 4 1 4 , 2 3 4 4 7 1 1 , $ 5 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n g n i y n a p m o c c a e e S 22 INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2015, 2014 and 2013 (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 Goodwill impairment loss Loss on disposal of plant and equipment Interest income Interest expense Unrealized foreign currency exchange Foreign exchange loss on loans Note 2015 2014 2013 $ 3,819,520 3,932,666 2,041,805 20 20 14 15 28 28 192,070 1,488,490 769,270 38,619 90,279 (489,934) 147,292 - 33,300 280,070 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 Subtotal 6,088,906 6,400,130 4,165,811 Derivative financial instruments Accounts receivable, net Due from related parties Inventories Current and non-current biological assets Prepaid expenses and other current assets Assets held for sale Trade payable and other accounts payable Due to related parties Income taxes paid Employee benefits 5,425 521,603 (3,518) (448,404) (256,969) (401,711) (1,465) 629,631 38,595 5,066 (663,813) (1,929) (246,515) (83,023) (76,149) (9,530) 602,297 72,938 (2,087,286) 43,375 (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) Net cash provided by operating activities 4,128,182 4,986,044 4,853,813 Cash flows from investing activities: Payments for acquisition of property, plant and equipment (1,909,771) (1,288,520) Proceeds from sale of plant and equipment Restricted cash Investment in securities Other assets Interest collected Bussiness acquisition including option agreement Loans granted to related parties 71,427 (25,771) (317,030) (55,698) 489,934 (190,595) (189,075) 62,342 (8,008) 78,522 (42,087) 347,364 (139,655) - (575,411) 57,795 - (42,138) (48,210) 314,245 (135,450) - Net cash used in investing activities (2,126,579) (990,042) (429,168) Cash flows from financing activities: Payment for repurchase of shares Proceeds from issuance of repurchased shares Dividends paid Dividends paid to non-controlling interest Disposal of non-controlling interest from disolution Proceeds from borrowings Principal payment on loans Interest paid (40,612) 54,289 (899,162) (878) - 3,903,200 (2,231,596) (147,292) (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) Net cash provided by (used in) financing activities 637,949 238,494 (1,850,885) Net increase in cash and cash equivalents 2,639,552 4,234,496 2,573,760 Cash and cash equivalents at January 1 11,028,054 6,716,894 4,179,541 Effect of exchange rate fluctuations on cash and cash equivalents 352,885 76,664 (36,407) Cash and cash equivalents at December 31 $ 14,020,491 11,028,054 6,716,894 See accompanying notes to consolidated financial statements. 23 INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES Notes to the Consolidated Financial Statements Years ended December 31, 2015, 2014 and 2013 (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). On April 8, 2016, the accompanying consolidated financial statements and related notes were authorized for issuance by the Company’s Chief Financial Officer, Mr. Daniel Salazar Ferrer, for review and approval by the Audit Committee, Board of Directors and stockholders. In accordance with Mexican General Corporate Law and the Company’s bylaws, 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 fair value: • Derivative financial instruments for trading and hedging, and investment in securities at fair value through profit or loss • Biological 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: 24 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 $), the official currency of Mexico, which is the currency in which the Company’s accounting records are maintained and functional currency, except for the foreign subsidiaries for which the U.S. dollar is the currency in which accounting records and maintained and functional currency. For disclosure purposes, in the notes to the consolidated financial statements, “thousands of pesos” or “$” 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 $17.21, $14.75 and $13.09 pesos to one U.S. dollar as of December 31, 2015, 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. 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 believes that 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 subsequent thereto. 25 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, the nature of the regulatory environment in which they operate, and similar economic characteristics as evidenced by similar five-year trends in gross profit margins. These factors are evaluated at least annually. 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. 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 hypotheses, discount rates and expected increases in remunerations and future employee service periods, 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. 26 vi. Contingencies A contingent liability is defined as: • • A possible obligation that arises from past events and whose existence can only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company, or a present obligation that arises from past events but is not recognized because: a. b. it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability. The assessment of such contingencies requires the exercise of significant judgments and estimates on the possible outcome of those future events. The Company assesses the probability of loss arising from lawsuits and other contingencies with the assistance of its legal advisors. These estimates are reconsidered periodically at each reporting period. e) Issue of new IFRS i. New and amended IFRS that affect reported balances and/or disclosures in financial statements All new and amended IFRS issued by the IASB mandatorily effective on January 1, 2015 were early adopted by the Company in 2014. ii. New IFRS in issue but not yet effective 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, 2015. 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. Another revised version of IFRS 9 was issued in July 2015 mainly to introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments. 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. All recognized financial assets that are within the scope of IAS 39 are required to be subsequently measured at amortized cost or fair value. With regard to the measurement of financial liabilities designated as of fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. 27 In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized. The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced. The Company is in the process of assessing the potential impacts from the adoption of this standard in its financial statements. 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 January 1, 2018, 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. IFRS 16, Leases IFRS 16 Leases was issued in January 2016 and supersedes IAS 17 Leases and related interpretations. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 is effective for periods beginning on or after 1 January 2019, with earlier adoption permitted if IFRS 15 has also been applied. Under IFRS 16 a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the liability accrues interest. This will typically produce a front-loaded expense profile (whereas operating leases under IAS 17 would typically have had straight- line expenses) as an assumed linear depreciation of the right-of-use asset and the decreasing interest on the liability will lead to an overall decrease of expense over the reporting period. The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that rate cannot be readily determined, the lessee shall use their incremental borrowing rate. However, a lessee may elect to account for lease payments as an expense on a straight-line basis over the lease term for leases with a lease term of 12 months or less and containing no purchase options (this election is made by class of underlying asset); and leases where the underlying asset has a low value when new, such as personal computers or small items of office furniture (this election can be made on a lease-by-lease basis). IFRS 16 establishes different transitional provisions, including retrospective application or the modified retrospective application where the comparative period is not restated. 28 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). 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 disposal date. Where necessary, subsidiaries’ financial statements are adjusted to align their accounting policies with the Company’s consolidated accounting policies. ii. Transactions eliminated in consolidation 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. 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. In 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 29 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 principal 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 at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. 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 amounts receivable or payable to a foreign operation, whose settlement is neither planned nor likely in the foreseeable future, are considered part of a net investment in a foreign operation 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, 2015, 2014 and 2013 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, investment in securities (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. 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. 30 Held-to-maturity financial assets Held-to-maturity financial assets are debt instruments that the Company has the intention and ability to hold to maturity. Held-to-maturity financial assets are originally recognized at fair value plus any directly attributable transaction costs. Subsequently to initial recognition, held-to-maturity financial assets are measured at their amortized cost by using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity financial assets would result in the reclassification of all held- to-maturity investments as available-for-sale, and prevent the Company from classifying investment securities as held-to-maturity for the current and the following two years. The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income or cost over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date, which are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments. 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. 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 and accounts payable to related parties. 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. Government grants are recognized initially as a liability, and subsequently recognized to profit and loss as the related obligation is settled. 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 unless the derivative is designated and is effective as a hedging instrument, in which case, its recognition in profit and loss will depend on the nature of the hedging. 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. 31 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 (commodities) resulting from its operating activities. Derivative financial instruments that do not meet the requirements for hedge accounting treatment are accounted for as trading derivative financial instruments. On initial designation of the derivative as a hedging instrument, the Company formally documents the relationship between hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, and the methods that will be used to assess the prospective and retrospective effectiveness of the hedging. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value of the respective hedged items during the period for which the hedge is designated and whether the actual results of each hedge are within a range of 80 – 125 percent. If the hedging instrument no longer meets the criteria for the hedging accounting treatment, expires or is sold, terminated or exercised, or the designation is revoked, then hedging accounting treatment is discontinued prospectively. Any gain or loss recognized in other comprehensive income and accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss. 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 less 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 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. 32 An item of property, plant and equipment is derecognized at the time of disposal or when no future economic benefits are expected to arise from the continued use of the asset. Gains or losses on the sale of an item of property, plant and equipment are determined by comparing the proceeds from the sale with the carrying amount of property, plant and equipment, and are recognized net under “other income (expenses)” in profit and loss for the year. ii.Subsequent costs The replacement cost of an item of property, plant and equipment is capitalized if the future economic benefits associated with the cost are expected to flow to the Company and the related cost is reliably determined. The carrying amount of the replaced item is written off from the accounting records. Maintenance and repair expenses related to property, plant and equipment are expensed as incurred. iii. Depreciation 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 2015, 2014 and 2013: 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, 2015, 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. 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. 33 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 into 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, 2015, 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 expenditures incurred for acquiring inventories, production or transformation costs, and other costs incurred for bringing them to their present location and condition. Agricultural products derived from biological asses are processed chickens and commercial eggs. Net realizable value is the estimated selling price in the ordinary course of business, less the costs necessary to make the sale. Cost of sales represents cost of inventories at the time of sale, increased, if applicable, by reductions in inventory to its net realizable value, if lower than cost, during the year. The Company records the necessary reductions in the value of its inventories for impairment, obsolescence, slow movement and other factors that may indicate that the use or performance of the items that are part of the inventory may be lower than the carrying value. i) Impairment i. Financial assets A financial asset that is not recorded at fair value through profit and loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of a loss event after the initial recognition of the asset, and that such loss event had a negative impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Company, evidence that a debtor may go bankrupt, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged reduction in its fair value below its cost is objective evidence of impairment. The Company considers evidence of impairment for financial assets valued at amortized cost (accounts receivables and held-to-maturity investment securities) both individually and collectively. All individually significant receivables and held-to-maturity investment securities are assessed for specific impairment. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. 34 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. 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) Held-for-sale assets Available for sale assets mainly consist of foreclosed assets. Foreclosed assets are initially recorded at the lower of fair value less costs to sell or the net carrying amount of the related account receivable. Immediately before being classified as held-for-sale, assets are valued according to the Company’s accounting policies in accordance to the applicable IFRS. Subsequently, held-for-sale assets are recorded at the lower of the carrying amount and fair value less costs to sell. Impairment losses on initial classification of held-for-sale assets 35 and subsequent remeasurement gains and losses are recognized in profit and loss. Recognized gains shall not exceed cumulative impairment losses previously recognized. k) Other assets Other long-term assets primarily include advances for the purchase of property, plant and equipment, investments in insurance policies and security deposits. The Company owns life insurance policies of some of the former stockholders of Bachoco USA, LLC (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. 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. 36 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), are 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. 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 37 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. 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 either 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. 38 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, 2015, 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. (4) Business and asset acquisitions Acquisition of assets from breeding farms from Morris Hatchery, Inc. 2013y 2015 On July 9, 2013 and July 10, 2015, the Company reached agreements to acquire assets from the breeding farms of Morris Hatchery Inc., located in the states of Arkansas and Georgia in the United States of America. These acquisitions mainly consist of poultry equipment and biological assets comprised principally of breeding birds that produce hatching eggs. The acquisitions benefit the Company given that it did not previously have the capacity of breeding birds that produce hatching eggs, which are used internally. The Company concluded that the transactions represented the acquisition of businesses 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 provisional measurement period permitted by IFRS 3. 39 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 2013 2015 $ $ 77,237 3,257 11,982 194 92,670 135,450 (42,780) - 235,486 300 11,581 247,367 371,300 (123,933) 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 or income attributable to the acquired business. Management believes that pro forma revenues and profit for the year, giving effect to the acquisition as of the beginning of the period, do not differ materially from historical revenues and profit for the year reported in the statements of profit or loss and comprehensive income. (5) Subsidiaries of the Company A list of subsidiaries and the Company´s shareholding percentage in such subsidiaries as of December 31, 2015, 2014 and 2013 are presented below: Name Shareholding percentage in subsidiaries Bachoco, S.A. de C.V. Bachoco USA, LLC. & Subsidiary Campi Alimentos, S.A. de C.V. Induba Pavos, S.A. de C.V. Bachoco Comercial, S.A. de C.V. PEC LAB, S.A. de C.V. Aviser, S.A. de C.V. Operadora de Servicios de Personal, S.A. de C.V. Secba, S.A. de C.V. Servicios de Personal Administrativo, S.A. de C.V. Sepetec, S. A. de C.V. Country México U.S. México México México México México México México México México December 31, 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 2015 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. 40 - 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. (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. Year ended December 31, 2015 $ Poultry 41,789,451 32,906,801 8,882,649 5,196,883 1,590,892 3,599,728 11,805,132 366,280 36,085,954 11,325,636 1,646,968 694,502 Other 4,439,598 3,940,707 498,892 303,197 89,668 213,112 1,382,999 88,015 4,360,624 1,341,564 177,541 74,768 Total 46,229,049 36,847,508 9,381,541 5,500,080 1,680,560 3,812,840 13,188,131 454,295 40,446,578 12,667,200 1,824,509 769,270 Poultry revenues 41,796,064 (6,613) 41,789,451 $ $ Other revenues 4,484,348 (44,750) 4,439,598 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 Depreciation and amortization Total revenue Intersegments Net revenues 41 Year ended December 31, 2014 Other $ 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 Poultry 37,994,654 29,329,056 8,665,598 5,214,590 1,546,518 3,662,769 11,017,198 261,749 31,786,586 9,578,370 1,128,331 738,663 3,784,433 3,165,918 618,515 374,186 109,592 264,157 1,037,556 88,015 3,056,542 902,708 112,785 66,987 As of December 31, 2014 Total revenue Intersegments Net revenues Poultry revenues 37,995,157 (503) 37,994,654 Other revenues 4,433,379 (648,946) 3,784,433 $ $ Year ended December 31, 2013 Poultry Other $ 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 35,943,862 29,847,653 6,096,209 3,164,288 1,252,784 1,890,572 10,425,139 256,244 26,129,798 7,943,868 531,465 731,797 3,766,864 3,328,946 437,918 227,956 97,655 147,850 1,227,310 88,015 2,759,879 794,663 56,128 84,876 Total 41,779,087 32,494,974 9,284,113 5,588,776 1,656,110 3,926,926 12,054,754 349,764 34,843,128 10,481,078 1,241,116 805,650 Total 39,710,726 33,176,599 6,534,127 3,392,244 1,350,439 2,038,422 11,652,449 344,259 28,889,677 8,738,531 587,593 816,673 As of December 31, 2013 Total revenue Intersegments Net revenues b) Geographical information Poultry revenues 35,943,862 - 35,943,862 $ $ Other revenues 4,012,486 (245,622) 3,766,864 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 operations are carried out entirely within Mexico. 42 Year ended December 31, 2015 Domestic poultry Foreign poultry Operations between geographical segments Total $ 30,686,151 11,159,936 (56,637) 41,789,451 795,157 9,682,701 638,974 2,122,431 212,833 153,447 - - - 1,434,131 11,805,132 366,280 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 9,386,883 212,833 317,977 1,630,315 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 8,936,020 212,833 269,314 1,489,119 43,411 - - - 1,109,936 10,425,139 256,244 Net revenues Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets, and investments in insurance policies Non-current biological assets Property, plant and equipment, net Goodwill Net revenues Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets, and investments in insurance policies Non-current biological assets Property, plant and equipment, net Goodwill Net revenues Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets, and investments in insurance policies Non-current biological assets Property, plant and equipment, net Goodwill c) Major Customers In Mexico, the Company’s products are traded among a large number of customers, without significant concentration with any specific customer. Therefore, in 2015, 2014 and 2013, 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 19%, 24% and 14% of total sales outside of Mexico during the years ended December 31, 2015, 2014 and 2013, respectively. 43 (7) Cash and cash equivalents The consolidated balances of cash and cash equivalents as of December 31, 2015, 2014 and 2013 are as follows: Cash and banks Investments with maturities less than three months Cash and cash equivalents Restricted cash Total cash and cash equivalents and restricted cash 2015 December 31, 2014 2013 $ 4,774,420 3,282,730 594,183 9,246,071 14,020,491 25,771 7,745,324 11,028,054 8,008 6,121,330 6,715,513 1,381 $ 14,046,262 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 on commodities, in order to meet future commitments that may stem from adverse market movements affecting prices on the open positions as of December 31, 2015, 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 information on the Company’s exposure to each one of the aforementioned risks, as well as the Company’s objectives, policies and processes for the measurement and management of financial risks. Risk management framework The philosophy adopted by the Company seeks to minimize risks and, therefore maximize business stability, focusing decisions on creating an optimum combination of products and assets that produce a risk – return ratio more in agreement with the risk profile of its stockholders. In order to establish a clear and optimum organizational structure with respect to risk management, a Risk Committee has been established which is the specialized body in charge of defining, proposing, approving and implementing the objectives, policies, procedures, methodologies and strategies, as well as the determination of the maximum limits of exposure to risk and contingency plans. At December 31, 2015, 2014 and 2013, the Company has not identified embedded derivatives. The Company’s derivative financial instruments as of December 31, 2015, 2014 and 2013, do not meet the requirements to be treated as 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: 44 Financial assets Cash and cash equivalents Investments in securities at fair value through profit and loss Investments held to maturity Accounts receivable Due from related parties Long-term receivables Derivative financial instruments 2015 December 31, 2014 2013 $ 14,046,262 11,036,062 6,716,894 1, 242,614 52,572 1,862,250 194,522 128,169 1,244 910,519 56,252 1,952,039 1,929 104,495 6,669 972,641 67,219 1,652,484 3,678 87,927 11,735 Financial liabilities Financial debt Trade payables, sundry creditors and expenses payable Due to related parties $ (4,127,010) (4,088,989) (165,628) (2,450,452) (3,530,546) (127,033) (2,067,802) (3,068,249) (54,095) 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 investment in securities transactions are conducted. The risk management process contemplates the use of derivative 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 over the counter (OTC) derivative financial instruments and investments in securities, the Company currently measures its counterparty risk by identifying the Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA). For investments in securities denominated in Mexican pesos, the financial instruments valuation models used by price vendors incorporate market movements and credit quality of issuers, thereby implicitly including the counterparty risk of the transaction in the fair value determination; therefore, the position in investment in securities includes the counterparty risk and no additional adjustment is carried out. The price of the instruments obtained from the price vendor is the mid-point between the bid price and the ask price (the “mid-price”). As of December 31, 2015, 2014 and 2013, the balance of held to maturity investments is $52,572, $56,252 and $67,219, respectively. Investments in securities denominated in a foreign currency, not listed in Mexico, are recorded 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. 45 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 $103,057, $110,462 and $86,564 as of December 31, 2015, 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 credit enhancements on credit lines granted to its clients, which consist of real and personal property, such as land, buildings, houses, vehicles, letters of credit, cash deposits and others. As of December 31, 2015, 2014 and 2013, the fair value of such credit enhancements, determined by an appraisal at the time the credit lines were granted, is $563,012, $589,430 and $497,490 respectively. The fair value of trade accounts receivable is similar to the carrying amount, as the terms granted under credit lines are of a short term nature and do not include significant finance components. Investments The Company limits its exposure to credit risk investing solely with counterparties that have been rated on a well- recognized credit rating scale or are deemed to be investment grade. Management constantly monitors credit ratings, and as it invests solely in securities with high credit ratings, it is not expected that any counterparty will fail 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 $ 14,046,262 11,036,062 6,716,894 December 31, 2015 2014 2013 Investments designated at fair value through profit and loss Investments held to maturity Accounts receivable net of guarantees received Derivative financial instruments 1,242,614 52,572 910,519 56,252 972,641 67,219 1,621,929 1,469,033 1,246,599 1,244 6,669 11,735 $ 16,964,621 13,478,535 9,015,088 46 c) Liquidity risk Liquidity risk is defined as the potential loss stemming from the impossibility to renew liabilities or enter into other liabilities under normal terms, the early or forced sale of assets or the need to grant unusual discounts in order to meet obligations, or by the fact that a position cannot be disposed of, acquired or covered promptly through the establishment of an equivalent contrary position. Liquidity risk management process considers the management of the assets and liabilities included in the consolidated statements of financial position (Assets Liabilities Management - ALM) in order to anticipate funding difficulties because of extreme events. Monitoring The Company’s areas of risk management and financial planning measure, monitor and report to the Risk Committee liquidity risks associated with the ALM and prepare limits for the authorization, implementation and operation thereof, as well as contingent action measures in case of liquidity requirements. Liquidity risk caused by differences between current and projected cash flows at different dates are measured and monitored, considering all asset and liability positions of the Company denominated in local and foreign currency. Similarly, funding diversification and sources to which the Company has access are evaluated. The Company quantifies the potential loss arising from early or forced sale of assets or sale at unusual discounts to meet its obligations in a timely manner, as well as by the fact that a position cannot be disposed of, acquired or covered timely through the establishment of a contrary equivalent position. Liquidity risk monitoring considers a liquidity gap analysis, scenarios for lack of liquidity and use of alternative sources of financing. Below are the contractual maturities of the financial liabilities, including estimated interest payments. As of the date of the consolidated financial statements, there are no financial instruments which have been offset or recognized positions that are subject to offsetting rights. Maturity table Trade payables, sundry creditors and expenses payable Variable-rate maturities In U.S. dollars In pesos Interest Total financial liabilities Trade payables, sundry creditors and expenses payable Variable-rate maturities In U.S. dollars In pesos Interest Total financial liabilities $ $ $ $ Less than 1 year December 31, 2015 1 to 3 years 3 to 5 years 4,088,989 - 1,462,850 169,033 113,840 5,834,712 - 2,495,127 98,840 2,593,967 - - - - - Less than 1 year December 31, 2014 1 to 3 years 3 to 5 years 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 47 Trade payables, sundry creditors and expenses payable Variable-rate maturities In U.S. dollars In Mexican pesos Interest Total financial liabilities Less than 1 year December 31, 2013 1 to 3 years 3 to 5 years $ $ 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 At least on a monthly basis, management evaluates and advises the Board of Directors on its liquidity. As of December 31, 2015, 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 arising from the portfolio of derivative financial instruments and investment in securities 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 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 With respect to risks related to commodities designated in a formal hedging relationship, the Company seeks protection against downward variations in the agreed-upon price of corn and/or sorghum with the producer, which may represent an opportunity cost as there are lower prices in the current market upon receiving the inventory, and to hedge the risk of a decline in prices between the receipt date and that of inventory consumption. Purchases of corn and/or sorghum are formalized through an agreement denominated "Forward buy-sell agreement", which has the following characteristics: • Transaction date • Number of agreed-upon tons • Harvest, state and agricultural cycle from which the harvest comes • Price of product per ton, plus quality award or penalty Agricultural agreements that result in firm commitments are linked to two corn and/or sorghum agricultural cycles, and in contracting purchases: both contracting cycles and dates are itemized as follows: 48 • • 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 Agriculture Trust Funds (FIRA for its Spanish acronym), 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, 2015, 2014 and 2013, the Company has economic hedging positions comprised of corn long “puts” with ASERCA, maturing in March, July, September and December 2016 and 2015. The gain on valuation of these instruments is $5,601, $5,518 and $120,560, in 2015, 2014 and 2013, respectively, recorded within cost of sales. The Company maintains a contractual agreement with ASERCA in which the Company will pay 80% (2014 and 2013 was 55%) of the option premium and ASERCA will pay the remaining 20% (2014 and 2013 was 45%). In case the option is In the Money (Strike>Forward), the Company will recover the 80% portion paid (2014 and 2013 recovery rate was 55%) and an additional 10% (2014 and 2013 portion paid was 22.5%) which is equivalent to 50% of the portion paid by ASERCA. Due to its nature and in accordance with 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, 2015, 2014 and 2013 is $57,051 (3,315 thousand dollars), $280,058 (18,987 thousand dollars) and $193,981 (14,819 thousand dollars), respectively. As of December 31, 2015 and 2013, the Company has no outstanding long puts, which are used from time to time by the Company as economic hedges in connection with future purchases of sorghum with FIRA. As of December 31, 2014, the Company has economic hedging positions in the form of outstanding sorghum long puts entered into with FIRA with maturities in March 2015. Such instruments gave rise to a gain on valuation of $2,028, which was recorded to cost of sales for the year ended December 31, 2014. 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 for the years ended December 31, 2015, 2014 and 2013 was $0, $5,281 (358 thousand dollars) and $0, respectively. With respect to the risk in commodities that are not designated in a formal hedging relationship and to which the Company is exposed, sensitivity tests on corn and sorghum futures agreements are entered into, considering different (bullish and bearish) scenarios. These results can be seen in paragraph g) of this note. ii. Chicken price risk The Company is exposed to financial risks mainly related to changes in the price of chicken. The Company presently does not anticipate that the price of chicken decreased to a level that represents a risk to the Company in the future; therefore, as of December 31, 2015, 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. 49 iii. Exchange risk The Company is exposed to the effects of exchange rate volatility, mainly on in relation to Mexican pesos/dollars exchange rates, on the Company's assets and liabilities, including: investments in securities, 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 from exchange rate risk through economic hedging with derivative financial instruments, which cover a percentage of its estimated exposure to exchange rate volatility in relation to projected sale and purchases transactions. All instruments entered into as economic hedges of foreign exchange risk have maturities of less than one year from the contract date. As of December 31, 2015 the Company entered into derivative financial instrument positions as economic hedges to cover exchange rate risks. As of December 31, 2014 and 2013, the Company did not have any such positions. 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, 2015, 2014 and 2013. 2015 December 31, 2014 2013 Dollars Mexican Pesos Dollars Mexican Pesos Dollars Mexican Pesos $ 66,929 1,151,844 1,866 27,526 39,843 521,546 28,549 245 95,722 491,325 4,210 1,647,379 24,849 810 27,525 366,527 11,948 406,001 29,284 727 69,855 383,333 9,518 914,397 (141,819) (85,000) (226,819) (131,097) (2,440,708) (1,462,850) (3,903,558) (2,256,179) $ (126,655) (15,000) (141,655) (114,130) (1,868,163) (221,250) (2,089,413) (1,683,412) (106,626) (30,000) (136,626) (66,771) (1,395,730) (392,700) (1,788,430) (874,033) Assets Cash and cash equivalents Investment in securities at fair value through profit and loss Accounts receivable Total assets Liabilities Trade accounts payable Financial debt Total Liabilities Net liability position 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 of occurring. The following is a detail of exchange rates effective during the fiscal year: Average exchange rate Spot exchange rate at December 31, Dollars $ 2015 15.87 2014 13.30 2013 12.76 2015 17.21 2014 14.75 2013 13.09 The exchange rate at the date of issuance of the consolidated financial statements is $17.90. 50 v. Interest rate risk The Company is exposed to fluctuations in rates for certain financial instruments, such as investments, bank loans and debt securities. This risk is managed through derivative financial instruments such as interest rate swaps or others, taking into account market conditions and the criterion of its Risk Committee and Board of Directors. Interest rate fluctuations impacted mainly bank loans by changing either their fair value (fixed rate debt) or the 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 considering technical analyses and the market’s forecasts to decide whether fixed or variable rate instruments would be more favorable during the periods of such instruments. To monitor this risk, the Company performs sensitivity tests at least monthly to measure the effect of the change in interest rates in the instruments described in the preceding paragraph, which are summarized 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 table below summarizes the 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 Carrying amount Fair value Financial debt $ 4,127,010 4,141,473 2,450,452 2,501,299 2,067,802 2,086,843 2015 2014 2013 f) Fair value hierarchy The fair value of the assets (mainly equity, debt and corporate bonds) have standard terms and conditions and are traded in active liquid markets, which are determined by reference to quoted market prices. The following table summarizes financial instruments carried at fair value: Level 1 Level 2 Level 3 Total As of December 31, 2015 Investments in securities at fair value though profit and loss $ 1,242,614 - Interest rate derivative financial instruments Derivative financial instruments - - $ 1,242,614 195 1,244 1,439 - - - - 1,242,614 195 1,244 1,244,053 As of December 31, 2014 Investments in securities at fair value though profit and loss Derivative financial instruments Level 1 Level 2 Level 3 Total $ $ 910,519 - 910,519 - 6,669 6,669 - - - 910,519 6,669 917,188 51 As of December 31, 2013 Investments in securities at fair value though profit and loss Derivative financial instruments on commodities Level 1 Level 2 Level 3 Total $ $ 972,641 - 972,641 - 11,735 11,735 - - - 972,641 11,735 984,376 Information regarding the hierarchy of fair value measurements related to financial liabilities that are not carried at fair value, but for which disclosures are required, is summarized below: As of December 31, 2015 Financial debt - bank institutions Financial debt – debt securities As of December 31, 2014 Financial debt - bank institutions Financial debt – debt securities As of December 31, 2013 Financial debt - bank institutions Financial debt – debt securities Level 1 Level 2 Level 3 Total $ - (1,515,146) (2,626,327) - $ (1,515,146) (2,626,327) - - (2,626,327) (1,515,146) (4,141,473) Level 1 Level 2 Level 3 Total $ $ (1,514,205) (1,514,205) (987,094) - (987,094) - - - (987,094) (1,514,205) (2,501,299) Level 1 Level 2 Level 3 Total $ $ - (1,519,065) (1,519,065) (567,778) - (567,778) - - - (567,778) (1,519,065) (2,086,843) g) Quantitative sensitivity measurements Following are sensitivity analyses for the most significant risks to which the Company is exposed as of December 31, 2015, 2014 and 2013. These analyses represent the scenarios that management believes are reasonably possible of occuring in future periods and were performed in accordance with the policies of Risk Committee. i. Derivative Financial Instruments related to exchange rate and commodities risks As of December 31, 2015, the Company has taken positions on derivative financial instruments to hedge exchange rate risks and commodities. A 15% increase in the Mexican peso with respect to the U.S. dollar as of the end of 2015 would have had a net effect of $0 on the fair value of the Company’s exchange rate derivative financial instruments position. On the other hand, a decrease of 15% in the aforementioned rate would have resulted in an additional valuation loss during the period of $10,575. As of December 31, 2014 and 2013, the Company did not have any such positions The following table shows the Company’s sensitivity of an increase and decrease of 15% for 2015 and 7.5% for 2014 and 2013 in the “bushell” price of corn and short ton price of soybeans. Effect of Increase Effect of Decrease 2015 2014 2013 2015 2014 2013 Loss (profit) for the year $ (44,589) (4,966) 1,630 $ 56,753 12,377 (666) 52 ii. Interest rate risk As described in Note 17, the Company has financial debt denominated in pesos and dollars, which bear interest at variable rates based on TIIE and LIBOR, respectively. The following table shows the Company’s sensitivity of an increase and decrease of 50 basis points for 2015 and 2014 and 25 basis points for 2013, in the variable rates to which the Company is exposed. Effect of Increase Effect of Decrease 2015 2014 2013 2015 2014 2013 $ 17,375 12,111 4,896 $ (17,375) (12,111) (4,896) Loss (profit) for the year iii. Exchange risk As of December 31, 2015, the Company's net monetary liability position in foreign currency was $2,256,179. The following table shows the Company’s sensitivity of an increase and decrease of 10% for 2015 and $0.50 for 2014 and 2013, in exchange rate, which would have an effect in the result from foreign currency position. Effect of Increase Effect of Decrease 2015 2014 2013 2015 2014 2013 Loss (profit) for the year $ 225,618 57,065 33,386 $ (225,618) (57,065) (33,386) (9) Accounts receivable, net As of December 31, 2015, 2014 and 2013, accounts receivable are as follows: Trade receivables Allowance for doubtful accounts Other receivables Government grant Income tax receivable Recoverable value-added tax and other recoverable taxes Past-due but not impaired portfolio 2015 1,867,104 (81,641) 76,787 40 143,517 527,620 2,533,427 December 31, 2014 1,688,308 (76,793) 340,524 - 56,512 966,027 2,974,578 $ $ 2013 1,700,905 (69,245) 20,824 - 73,146 592,463 2,318,093 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: December 31, 2015 2014 2013 129,315 3,443 132,758 185,291 9,438 194,729 120,258 27,467 147,725 $ Past due 0 to 60 days Past due by more than 60 days 53 The Company believes that non-impaired amounts that are past-due 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 2015 2014 2013 Balance as of January 1 Increase in allowance Applications Currency translation effect Balance as of December 31, $ $ (76,793) (17,179) 12,454 (123) (81,641) (69,245) (16,164) 9,529 (913) (46,681) (29,801) 7,416 (179) (76,793) (69,245) As of December 31, 2015, 2014 and 2013 the Company has receivables in a legal process (receivables for which legal counsel is seeking recoverability) of $103,057, 110,462 and $86,564, respectively. 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, 2015, 2014 and 2013, inventories are as follows: Raw materials and by-products Medicine, materials and spare parts Balanced feed Processed chicken Commercial eggs Processed beef Processed turkey Other processed products Total 2015 1,155,841 772,226 241,473 1,112,068 38,683 38,533 34,251 11,194 3,404,269 December 31, 2014 1,226,778 656,618 218,951 777,734 35,957 23,008 17,561 11,454 2,968,061 $ $ 2013 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, 2015, 2014 and 2013 was $28,877,468, $24,873,999 and $26,041,102 respectively. (11) Biological assets For the years ended December 31, 2015, 2014 and 2013, biological assets are as follows: $ Balance as at January 1, 2015 Increase due to purchases Sales Net increase due to births Production cost Depreciation Transfers to inventories Other Balance as at December 31, 2015 $ Current biological assets 1,501,428 337,632 - 225,000 26,283,885 - (26,746,796) 50,645 1,651,794 Non-current biological assets 1,109,233 603,081 3,032 1,422,535 1,120,359 (1,475,470) (1,422,535) 73,896 1,434,131 Total 2,610,661 940,713 3,032 1,647,535 27,404,244 (1,475,470) (28,169,331) 124,541 3,085,925 54 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 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 1,420,174 301,516 - 227,892 24,324,638 - (24,789,388) 16,596 1,501,428 Current biological assets 1,496,964 227,864 - 283,175 24,683,964 - (25,270,795) (998) 1,420,174 $ $ $ $ Non-current biological assets 1,109,936 296,846 (222,283) 1,426,359 1,088,254 (1,194,779) (1,426,359) 31,259 1,109,233 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 2,530,110 598,362 (222,283) 1,654,251 25,412,892 (1,194,779) (26,215,747) 47,855 2,610,661 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 an increase of $13,020 in 2015, and decreases of $23,096 and $7,857 in 2014 and 2013, respectively. The Company is exposed to different risks relating to its biological assets: • • • • • Future excesses in the offer of poultry products and a decline in the demand growth of the chicken industry may negatively affect the Company’s results. Increases in raw material prices and price volatility may negatively affect the Company’s margins and results. In addition, in the case of the Company’s operations in the United States of America, the cost of corn and grain may be affected by an increase in the demand for ethanol, which may reduce the market’s available corn inventory. Operations in Mexico and the United States of America are based on animal breeding and meat processing, which are subject to sanitary risks and natural disasters. Hurricanes and other adverse climate conditions may result in additional inventory losses and damage to the Company’s facilities and equipment. (12) Prepaid expenses and other current assets As of December 31, 2015, 2014 and 2013, prepaid expenses and other current assets are as follows: 55 Advances to suppliers of inventories Prepaid expenses of services Option agreement on potential acquisition Advances for purchase of property, plant and equipment to related parties Prepaid expenses of insurance and bonds Other current assets Total $ $ 2015 1,224,454 130,086 - - 82,238 151,030 1,587,808 December 31, 2014 866,119 145,849 154,875 12,500 64,979 134,755 1,379,077 2013 801,390 184,001 - - 58,764 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 $154,875 (10,500 thousand dollars) which was credited against the total purchase price of $371,300 (23,500 thousand dollars) on the closing of the transaction on July 10, 2015. (13) Assets held for sale As of December 31, 2015, 2014 and 2013, assets held for sale are as follows: Buildings Land Other Total 2015 December 31, 2014 24,430 32,779 2,839 60,048 22,965 32,779 2,839 58,583 $ $ 2013 18,242 28,168 2,643 49,053 The Company recognized a loss from the sale of these assets in 2015 of $24, a gain of $5 during 2014 and a loss of $24 in 2013. (14) Property, plant and equipment As of December 31, 2015, 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 $ $ Balance as at January 1, 2015 Additions Disposals 1,094,182 9,669,990 9,816,722 1,171,030 67,780 153,015 21,442 991,866 22,986,027 57,901 204,254 991,378 247,232 22,081 6,372 - 295,291 1,824,509 (661) (17,191) (262,222) (135,257) (6,163) (5,351) (12,700) (18,612) (458,157) Currency translation effect 9,387 160,127 160,343 3,207 2,144 1,959 - - 337,167 Balance as at December 31, 2015 1,160,809 10,017,180 10,706,221 1,286,212 85,842 155,995 8,742 1,268,545 24,689,546 56 Balance as at January 1 2015 (4,754,662) (5,210,886) (795,625) (56,462) (113,638) (10,931,273) Depreciation for the year Disposals (179,402) (512,786) (59,655) (7,946) (9,481) (769,270) 9,199 150,685 107,333 6,411 4,210 277,838 Currency translation effect (17,979) (54,294) (3,592) (2,201) (644) (78,710) Balance as at December 31, 2015 (4,942,844) (5,627,281) (751,539) (60,198) (119,553) (11,501,415) Balance as at January 1, 2014 Additions Disposals 1,057,182 9,548,846 9,524,495 1,204,326 141,252 149,741 26,852 356,447 22,009,141 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 Additions Disposals Currency translation effect Balance as at December 31, 2013 1,056,145 9,397,122 9,081,660 1,170,321 138,172 145,669 38,841 562,750 21,590,680 770 153,685 462,988 167,324 3,151 5,778 - (206,303) 587,393 (59) (19,482) (25,267) (133,483) (130) (1,760) (11,989) - (192,170) 326 17,521 5,114 164 59 54 - - 23,238 1,057,182 9,548,846 9,524,495 1,204,326 141,252 149,741 26,852 356,447 22,009,141 $ $ $ $ $ $ $ $ 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 Cost Land Buildings and construction Machinery and equipment Transportation equipment Computer equipment Furniture Leasehold improvements Construction in progress Total 57 Accumulated depreciation Buildings and construction Machinery and equipment Transportation equipment Computer equipment Furniture Total 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) Carrying amounts, net 2015 December 31, 2014 2013 Land Buildings and construction Machinery and equipment Transportation equipment Computer equipment Furniture Leasehold improvements Construction in progress Total $ $ 1,160,809 5,074,336 5,078,940 534,673 25,644 36,442 8,742 1,268,545 13,188,131 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. Additions of property, plant and equipment in 2015 include assets acquired through business combinations of $11,581 that consist of machinery and equipment for $126, furniture for $16 and transportation equipment for $11,439. Depreciation expense during the years ended December 31, 2015, 2014 and 2013 was $769,270, $805,650 and $816,673, respectively, which were charged to cost of sales and operating expenses. (15) Goodwill Balances at beginning of the year Business combinations (Note 4) Goodwill impairment loss Foreign currency effects Balances at end of year 2015 2014 2013 $ $ 349,764 123,933 (38,619) 19,217 454,295 344,259 - - 5,505 349,764 300,848 42,780 - 631 344,259 Based on market conditions in which the reporting unit operates, the Company’s estimates of fair value indicated an impairment in Ok Farms – Morris Hatchery, Inc. Georgia, resulting in the recognition of a goodwill impairment loss of $38,619 (2,244 thousand dollars) for the year ended December 31, 2015. 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 management 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. 58 The assumptions and balances of each cash-generating unit are as follows: Cash-generating unit Bachoco - Istmo and Peninsula regions Campi Ok Farms - Morris Hatchery, Inc. Arkansas Ok Farms- Morris Hatchery Inc. Georgia Cash-generating unit Bachoco - Istmo and Peninsula regions Campi Ok Farms- Morris Hatchery Inc. Arkansas Cash-generating unit Bachoco - Istmo and Peninsula regions Campi Ok Farms- Morris Hatchery Inc. Arkansas 2015 Final balance of the year Projection period (years) 5 5 5 5 212,833 88,015 57,075 96,372 454,295 2014 Final balance of the year Projection period (years) 5 5 5 212,833 88,015 48,916 349,764 2013 Annual discount rate (%) 9.67% 9.67% 9.32% 9.32% Annual growth rate (%) 2.70% 2.10% 0.00% 0.00% Annual discount rate (%) 9.93% 9.93% 8.24% Annual growth rate (%) 2.70% 2.10% 0.00% Final balance of the year Projection period (years) 212,833 88,015 43,411 344,259 5 5 5 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: Advances for purchase of property, plant and equipment Investments in life insurance (note 3 (k)) Security deposits Other long-term receivable Intangible assets in process Other Total non-current assets 2015 December 31, 2014 2013 $ $ 277,277 52,572 13,574 128,169 73,125 49,189 593,906 167,935 41,187 17,341 104,495 54,512 42,558 428,028 133,214 35,754 15,956 87,927 37,955 39,793 350,599 59 (17) Financial debt 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 percentage points. Loan of USD$85,000 thousand dollars denominated in USD, maturing in June 2016, at LIBOR (3) rate plus 0.48 percentage 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 Denominated in pesos, maturing in January 2016, at TIIE (1) FIRA (2) rate plus 0.85 percentage points Total short-term debt December 31, 2015 2014 2013 $ - 1,462,850 - - - - $ 160,000 1,622,850 - - - 392,700 - 148,500 221,250 193,000 250,000 - - - - - 664,250 541,200 Annual weighted average interest rate of short-term loans denominated in pesos for 2015, 2015 and 2013 was 3.13%, 2.78% and 3.72%, respectively. Average interest rate for short-term loans existing as of December 31, 2015, 2014 and 2013, was 4.17%, 3.68% and 3.10%, respectively. Annual weighted average interest rate of short-term loans denominated in dollars for the years 2015, 2014 and 2013 was 1.05%, 1.10% and 1.49%, respectively. Average interest rate for loans existing as of December 31, 2015, 2014 and 2013 was 0.83%, 1.24% and 1.37%, respectively. (1) (2) (3) TIIE (for its acronym in Spanish) = Interbank Equilibrium Rate FIRA (for its acronym in Spanish) = Agriculture Trust Funds LIBOR= London Interbank Offered Rate 60 b) Long-term debt consists of the following: 2015 December 31, 2014 2013 Denominated in pesos, maturing in 2015 and 2016, at TIIE (1) plus 1.00 percentage points. $ 2,489 10,209 22,329 Denominated in pesos, maturing in January 2014, at TIIE (1) FIRA (2) rates less 0.55 percentage points. - - 4,273 Denominated in pesos, maturing in September 2017, at TIIE (1) rates plus 0.63 percentage points. 100,000 102,000 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. Denominated in pesos, maturing in 2018, at TIIE (1) FIRA (2) rates less 0.25 percentage points. Denominated in pesos, maturing in 2018, at TIIE (1) FIRA (2) rates less 0.60 percentage points. Debt securities (subsection (d)) Total Less current maturities Long-term debt, excluding current maturities $ 603,871 297,800 1,500,000 2,504,160 (9,033) 2,495,127 124,000 49,993 - - 1,500,000 1,786,202 (133,732) 1,652,470 - - - - - 1,500,000 1,526,602 (16,392) 1,510,210 Long-term annual weighted average interest rate for 2015, 2014 and 2013 was 3.07%, 3.72% and 4.93%, respectively. Average rate for current loans as of December 31, 2015, 2014 and 2013 was 3.56%, 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 2015 the Company did not make early payments on its long-term debt, in 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, 2015, 2014 and 2013, total unused lines of credit, totaled $6,156,229, $5,282,600 and $5,418,099, respectively. In both years, the Company did not pay any fee for undrawn balances. c) Maturities of long-term debt, excluding current maturities, as of December 31, 2015, are as follows: Year 2017 2018 $ $ Amount 1,652,500 842,627 2,495,127 Interest expense on total loans during the years ended December 31, 2015, 2014 and 2013, amounted to $93,964, $87,624 and $97,025, 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, 2015, among which are: 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. 61 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, 2015. (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 2015 3,800,407 288,582 202,303 31,730 197,806 72,898 3,306 - 71 4,597,103 December 31, 2014 3,257,291 273,255 215,003 19,939 167,205 33,894 1,920 1,947 61 3,970,515 $ $ 2013 2,764,766 303,483 133,103 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. 62 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, 2015, 2014 and 2013, the Company has recorded provisions of $51,630 (3,000 thousand dollars), $22,125 (1,500 thousand dollars) and $19,635 (1,500 thousand dollars) 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, 2015, 2014 and 2014: December 31, 2015 2014 2013 Compensation $ 42,295 39,538 52,805 (b) Transactions with other related parties Below is a summary of the Company’s transactions and balances with other related parties, which are comprised of affiliates that are under common control: i.Revenues Sales of products to: Vimifos, S.A. de C.V. Maquinaria Agrícola, 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, 2014 2015 Balance as of December 31, 2013 2015 2014 2013 $ 32,827 32,202 42,719 $ - 419 - - 1,302 - - - 13 5,447 - - - 135 33,381 $ 19 33,523 18 42,750 $ 189,075 194,522 109 19 - 1,801 - 1,929 3,665 - - 13 - 3,678 The balance of Taxis Aéreos del Noroeste, S.A. de C.V., as of December 31, 2015 for $189,075 corresponds to a loan that bears interest and is due in the short term. 63 ii.Expenses and balances payable to related parties 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. Cajeme Motors S.A. de C.V. Airplane leasing expenses Taxis Aéreos del Noroeste, S.A. de C.V. Transaction value December 31, 2014 2013 2015 Balance as of December 31, 2014 2015 2013 $ 477,920 181,802 42,263 237 359,258 153,891 21,283 925 361,497 $ 147,192 13,766 753 91,982 37,827 16,181 158 76,482 23,267 6,858 97 21,813 18,151 - 242 $ 41,947 29,269 29,510 55,166 31,423 21,397 57,100 29,421 22,525 4,074 2,732 3,364 4,315 4,688 6,454 54,853 19,140 21,967 3,100 1,971 69,779 1 526 6,632 33,227 2 452 - 23,649 2,294 590 - 5,815 - 93 2 2,384 2 63 - 8,415 4,458 253 610 5 1 147 - $ 7,874 1,964 7,375 300 $ 165,628 452 127,033 - 54,095 As of December 31, 2015, 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, 2015, entities are subject to pay Income Tax (ISR, by its Spanish acronym). During 2013, certain reforms to the Mexican tax law were enacted that entered into effect beginning January 1, 2014, which include, among others, the cancelation of scheduled reductions in the income tax rate and the elimination of the business flat tax (“IETU” for its Spanish acronym). 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, 2015, 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, 2015 and 2014 BSACV, the Company’s primary operating subsidiary is subject to the agriculture, cattle-raising, forestry and fishing regime of the ISR law, which is applicable to entities exclusively dedicated to such activities. The new ISR Law establishes that such activities are exclusive when no more than 10% of an entity’s total revenues are generated from something other than those activities or from industrialized products. Up to December 31, 2013, BSACV was subject to the simplified tax regime applicable to entities with agriculture, cattle-raising, forestry and fishing operations. Under such simplified regime, BSCAV calculated income taxes on a cash basis measure of net profit and a rate of 21%. 64 b) Tax charged to profit and loss For the years ended December 31, 2015, 2014 and 2013, the income tax (benefit) expense included in profit and loss is as follows: Operation in Mexico: Current ISR Current IETU Deferred ISR Deferred ISR from tax rate change Foreign operation: Current ISR Deferred ISR Total ISR expense Total income tax expense 2015 December 31 2014 2013 $ $ 1,291,536 - 146,595 - 1,438,131 196,954 45,475 1,680,560 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 The income tax expense attributable to income before income taxes, was different from the amount computed by applying the ISR rate of 30% in 2015 and 2014, and 21% in 2013 as a result of the items listed below: 2015 December 31, 2014 2013 ISR Percentage ISR Percentag e ISR $ 1,650,025 30% $ 1,676,633 30% $ 712,371 Percentage 21% (87,322) (2%) (112,388) (2%) (64,401) (2%) (4,882) (0%) (7,101) (0%) - - - - 57,103 74,173 - (8,537) 1% 1% - 0% 26,712 73,038 - (784) (9,213) 33,384 (10,196) 13,872 1% 1% - (0%) 674,810 (188) (0%) 1% 0% 0% 20% 0% 39% $ 1,680,560 30% $ 1,656,110 30% $ 1,350,439 Expected expense Increase (decrease) resulting from: Net effects of inflation (Non-taxable income) Non- deductible expenses Effect of rate of the general regime Effect of rate difference of foreign subsidiary Effect from non- deductible employee benefits Effect from change on tax rate in the new ISR Law Other Income tax expense c) Deferred income tax The Company and each one of its subsidiaries determine the deferred taxes that are reflected at a consolidated level, on stand-alone 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. 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, 2015, 2014 and 2013 are detailed below: 65 $ $ Deferred tax assets Accounts payable Employee benefits PTU payable Accounts receivable Tax loss carryforwards Property, plant and equipment Prepaid expenses Other provisions Total deferred tax assets Deferred tax liabilities Prepaid expenses Total deferred tax liabilities Net deferred tax assets Deferred tax assets Accounts payable Employee benefits PTU payable Tax loss carryforwards Goodwill Other provisions Derivative financial instruments 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 $ 2015 December 31, 2014 2013 - 764 32,572 9,516 404 10,236 490 239 54,221 94 94 54,127 5,019 14,071 6,376 6,376 21,383 6,376 245 2,284 49,378 - - 49,378 2015 December 31, 2014 1,093,145 - - 1,081 22,326 6,606 859 1,124,017 1,400,793 - 382,585 2,356,509 353,166 - 4,493,053 3,369,036 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 2,218 17,121 8,595 8,595 3,858 8,595 3,148 - 34,940 - - 34,940 2013 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: December 31, 2015 2014 2013 Recoverable tax on assets Total $ 1,774 1,774 2,586 2,586 3,324 3,324 66 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, 2015 Recognized in profit and loss Acquired or/ Recognized directly in equity $ Accounts payable Employee benefits PTU payable Tax loss carryforwards Other provisions Goodwill Inventories Accounts receivable Property, plant and equipment Prepaid expenses Derivative financial instruments Net deferred tax liability $ (1,125,260) (21,515) (6,800) (25,455) (16,101) - 1,188,259 410,870 2,365,620 257,329 5,872 3,032,819 35,489 (3,274) (2,716) 14,389 9,379 (20,588) 187,852 (28,688) (88,973) 95,931 (6,731) 192,070 (4,138) (7,783) (251) (124) (1,738) 24,682 79,372 90,020 - - - - January 1, 2014 Recognized in profit and loss Acquired or/ Recognized directly in equity 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 - Net deferred tax liability $ 2,701,191 229,510 (8,661) 2,057 66,899 (16,249) (59,061) 94,496 (75,567) 40,774 5,872 280,070 (2,179) (7,744) (1,717) 148 11,472 51,578 51,558 - - - - December 31, 2015 (1,093,909) (32,572) (9,516) (11,317) (6,846) (22,326) 1,400,793 382,182 2,356,019 353,260 (859) 3,314,909 December 31, 2014 (1,125,260) (21,515) (6,800) (25,455) (16,101) 1,188,259 410,870 2,365,620 257,329 5,872 3,032,819 67 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 Prepaid expenses Net deferred tax liability (754,765) (40,401) (9,254) (858) (10,043) 1,284,699 221,133 1,871,086 36,343 2,597,940 $ (597,826) 60,696 397 858 (80,594) (48,851) 95,241 512,889 180,212 123,022 Acquired or/ Recognized directly in equity - (25,405) - - - - - 5,634 - (19,771) December 31, 2013 (1,352,591) (5,110) (8,857) - (90,637) 1,235,848 316,374 2,389,609 216,555 2,701,191 g) Tax on assets and tax loss carryforwards As at December 31, 2015, 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 Mexican income tax law: Year 2006 2013 2014 2015 Tax loss carryforwards Amount as of December 31, 2015 Recoverable IMPAC $ $ - - 36,370 2,101 38,471 - - - 1,774 1,774 Year of expiration / maturity 2016 2023 2024 2025 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 (beginning 2014 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%), 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 68 retires between the first and the fourth year of services, he/she does not have the right to receive the contribution made by the Company, ii) if he/she retires on the fifth year of services he/she has the right to receive 50% of the contributions made by the Company and, for each additional service year, the employee has the right to receive an additional 10% of the contributions made by the Company. The expenses for paid contributions to defined contribution plans, other than those mandated by Mexican law, were $1,481, $7,973 and $11,708, in 2015, 2014 and 2013, 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 Mexican law. The expense for this concept was $46,670, $42,742 and $40,023, in 2015, 2014 and 2013, 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. 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 2015 160,218 286,881 447,099 (286,881) 160,218 $ $ December 31, 2014 90,899 314,804 405,703 (314,804) 90,899 2013 48,245 312,170 360,415 (312,170) 48,245 69 i. Composition and return of plan assets Fixed income securities Variable income securities Total 2015 Actual return of the plan’s assets 2014 5.99% 7.69% 1.25% 4.87% 3.83% 9.81% 2013 Composition of the plan’s assets 2013 2014 2015 60% 40% 100% 63% 37% 100% 68% 32% 100% ii. Movements in the present value of defined benefit obligations (PBO) 2015 2014 2013 PBO as at January 1 Benefits paid by the plan Service cost Interest cost Actuarial (gains) losses recognized in other comprehensive income PBO as at December 31 $ $ 405,703 (25,244) 26,836 31,603 8,201 447,099 360,415 (31,091) 24,438 29,768 22,173 405,703 iii. Movements in the fair value of plan assets Plan assets at fair value as at January 1 Plan contributions Transfer of assets to fund defined contribution benefit plan Benefits paid by the plan Expected return on plan assets Actuarial losses (gains) in other comprehensive income Fair value of plan assets as at December 31 2015 314,804 - (24,187) (10,894) 24,901 (17,743) 286,881 $ $ 2014 312,170 - - (20,011) 26,283 (3,638) 314,804 385,178 (19,213) 26,680 28,138 (60,368) 360,415 2013 263,250 36,626 - (8,482) 20,087 689 312,170 iv. Expense recognized in profit and loss Current service cost Interest cost, net v. Actuarial gains and losses 2015 2014 2013 $ $ 26,836 6,702 33,538 24,438 3,485 27,923 26,680 8,051 34,731 Amount accumulated as at January, 1 Recognized during the year Amount accumulated as at December, 31 $ $ 2015 (112,184) (25,944) (138,128) 2014 (86,372) (25,812) (112,184) 2013 (25,315) (61,057) (86,372) 70 vi. Actuarial assumptions Primary actuarial assumptions at the consolidated financial statements date (expressed as weighted averages) are as follows. Discount rate as at December, 31 Rate for future salary increases Social security wage increase rate 2015 8.00% 4.50% 3.50% 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 $ $ $ $ 2015 447,099 (286,881) 160,218 8,201 (17,743) December 31, 2014 405,703 (314,804) 90,899 22,173 (3,638) 2013 360,415 (312,170) 48,245 (60,368) (689) viii.Sensitivity analysis of the defined benefits obligations as of December 31, 2015, 2014 and 2013 Pension plan Seniority premium Constructive obligation Total PBO (293,443) (248,925) (338,238) (93,037) (87,540) (99,240) (60,619) (56,784) (64,961) (447,099) (393,249) (502,439) Pension plan Seniority premium Constructive obligation Total PBO (266,298) (216,605) (334,923) (84,908) (79,874) (90,594) (54,497) (51,033) (58,423) (405,703) (347,512) (483,940) Pension plan Seniority premium Constructive obligation Total PBO (225,650) (186,196) (277,487) (86,880) (79,508) (92,373) (47,885) (44,936) (51,223) (360,415) (310,640) (421,083) 2015 Discount rate 8.00% Rate increase (+ 1%) Rate decrease (- 1%) 2014 Discount rate 8.00% Rate increase (+ 1%) Rate decrease (- 1%) 2013 Discount rate 8.00% Rate increase (+ 1%) Rate decrease (- 1%) 71 ix. Expected cash flows Total 2016-2026 $ 404,558 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 $8,014, $6,597 and $5,681 for the year ended December 31, 2015, 2014 and 2013, 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, 38,000 and 38,500 units were outstanding as of December 31, 2015, 2014 and 2013, respectively, all of which were fully vested. The total liability under this plan totaled $4,195, $3,516 and $3,503 as at December 31, 2015, 2014 and 2013, respectively. No expense was recognized for this plan for the year ended December 31, 2015, 2014, and 2013. 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, 2015, 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 2015 36,847,508 4,323,374 41,170,882 28,877,468 5,127,750 3,394,780 1,166,326 1,020,610 769,270 359,749 454,929 41,170,882 $ $ $ $ 2014 32,494,974 3,781,326 36,276,300 24,873,999 4,451,457 2,948,439 1,077,940 1,193,449 805,650 311,585 613,781 36,276,300 2013 33,176,599 3,291,006 36,467,605 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 72 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. Lease expenses 2015 $ 359,749 2014 311,585 2013 328,656 The amount of annual rentals payable, arising from lease agreements for the following five years is as follows: $ 2016 2017 2018 2019 2020 91,812 78,481 46,835 57,234 34,417 (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 2015, 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, 2015, 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: Before the Transaction Shares (1) Position After the Transaction Shares (1) Position 496,500,000 312,000,000 184,500,000 103,500,000 82.75% 52.00% 30.75% 17.25% 439,500,000 312,000,000 127,500,000 160,500,000 73.25% 52.00% 21.25% 26.75% Familiar Trusts - Control Trust - Placement Trust Floating Position (2) 73 (1) (2) All Series B shares with voting power. Operating at the BMV and the NYSE. Based on the information provided to the Company, as of December 31, 2015, there are no stockholders with 1% or more interest in the Company, in addition to the family trusts. 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. On April 22, 2015, pursuant to a resolution at the General Ordinary Stockholders’ Meeting, an amount of $778,321 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, 2015, 2014 and 2013: Balance as at January 1 (+) Total shares purchased (-) Total shares sold Balance as at December 31 2015 - 677,013 (667,013) 10,000 2014 - 149,475 (149,475) - 2013 - 100,000 (100,000) - The net amount of repurchase and treasury share sale transactions gave rise to additional paid in capital of $14,376, $1,504 and $127 during the years ended December 31, 2015, 2014 and 2013, respectively, recognized within equity. As at December 31, 2015, the Company has 10,000 treasury shares. e) Dividends During the years ended December 31, 2015, 2014 and 2013, the Company has declared and paid the following dividends: On April 22, 2015, the Company declared a payment of dividends in cash at nominal value of $900,000 or $1.50 pesos per outstanding share, from which there is a reduction of $838 for the dividend corresponding to repurchased shares. The payment was made in two equal installments, in May and July, 2015. In 2014, the Company didn’t declare dividends or pay any dividends. 74 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. 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 2015, 2014 and 2013, net income of BSACV, accounted for 67%, 72% and 71% 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 be incurred when such amounts are distributed as dividends to the stockholders. f) Capital stock CUFIN) Balance as 2013 Balance from2014 Total IBSA individual $ IBSA Consolidado 8,175,229 8,871,825 2,441,137 5,399,598 10,616,366 14,271,423 The restated amount as of December 31, 2015 on tax bases of the contributions made by stockholders (CUCA), totaling $2,568,809, may be refunded to them tax-free, to the extent that such amount is the same or higher than equity. (25) Earnings per share The basic and diluted earnings per share for the years ended December 31, 2015, 2014 and 2013 are $6.36, $6.55 and $3.40, respectively. The calculation of earnings per share was based on income attributable to ordinary stockholders of $3,812,840, $3,926,926 and $2,038,422 for the years ended December 31, 2015, 2014 and 2013, respectively. The average weighted number of common outstanding in 2015, 2014 and 2013 was 599,631,383, 599,955,240 and 599,992,952 shares, respectively. 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 $6,024 (350 thousand dollars) each year per plan participant and workers’ payments claims up to $17,210 (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 $69,718 (4,051 thousand dollars), $50,342 (3,413 thousand dollars) and $48,472 (3,703 thousand dollars) as at December 31, 2015, 2014 and 2013, respectively. Likewise, the 75 consolidated statement of comprehensive income includes expenses relating to self-insurance plans of $108,360 (6,828 thousand dollars), $101,293 (7,616 thousand dollars) and $85,006 (6,494 thousand dollars) for the years ended December 31, 2015, 2014 and 2013, respectively. The Company is required to maintain letters of credit on behalf of the subsidiary of $58,514, $50,150 and $44,506 (3,400 thousand dollars) as at December 31, 2015, 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. The Company has entered into certain contracts with suppliers under which advanced payments are rendered in order to assure the supply of materials and services. (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. (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 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 2015 2014 2013 482,442 7,492 95,447 8,464 593,845 337,769 9,595 19,863 - 367,227 298,141 16,104 28,085 2,455 344,785 - (2,229) - (93,964) (53,328) (147,292) 446,553 (87,624) (30,466) (120,319) 246,908 (97,025) (129,341) (226,366) 118,419 $ 76 (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 $ $ 2015 2014 2013 636,386 636,386 722,653 722,653 332,623 332,623 (507,196) (133,830) (641,026) (4,640) (623,148) (260,424) (883,572) (160,919) (244,054) (57,865) (301,919) 30,704 (30) Subsequent events Merger of subsidiaries - Effective January 1, 2016, the Company merged O.K. Industries, Inc., O.K. Farms, Inc., O.K. Foods, Inc. and Ecology Management, Inc. into one surviving entity, O.K. Foods, Inc., which is wholly-owned by Bachoco USA, LLC. Acquisition of assets - On February 22, 2016, the Company reached an agreement to acquire a plant that produces fully cooked chicken products for 7.9 thousand US dollars, located in Oklahoma City, OK. The objective of the Company is to use these facilities for value-added chicken products. Additional investments for that purpose will be made. 77 CORPORATE HEADQUARTERS Industrias Bachoco S.A. de C.V. Av. Tecnológico 401 Celaya, Guanajuato 38030, México T.+52 (461) 618.35.00 F. +52 (461) 611.65.02 DEPOSITARY BANK BNY MELLON BNY MELLON SHAREOWNER SERVICES shrrelations@cpushareownerservices.com T.US: 888 BNY ADRS T. 201 680 68 25 PROXY SERVICES shareowner@bankofny.com Toll Free: 1.888.269.2377 T. (212)815.37.00 INVESTOR RELATIONS María Guadalupe Jaquez Kathy Chaurand T. +52 (461) 618.35.55 (México) inversionistas@bachoco.net INDEPENDENT AUDITORS Deloitte Touche Tohmatsu / Galaz, Yamazaki, Ruiz Urquiza, S.C. T. +52 (442) 238.29.34 STOCK INFORMATION Share in the BMV: BACHOCO Bonds in the BMV: BACHOCO12 ADR in the NYSE: IBA Present every day in the consumer’s nourishment www.bachoco.com.mx 

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