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
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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
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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
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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
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(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
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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