2018
RECOGNIZED BY OUR QUALITY
ANNUALREPORT BACHOCO’S PROFILE
Industrias Bachoco is leader in the Mexican
poultry industry and one of the ten largest
poultry producers globally.
The Company was founded in 1952 and became
a public company in 1997, via a public offering of
shares on the Mexican and the New York stock
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.
Enrique Robinson Bours
Co-founder
Bachoco owns and
manages more than a
1000farms
10processing
plants
9further
processing
plants
23hatcheries
and more than
80distribution centers.
22feed
mills
Industrias Bachoco is leader in the Mexican poultry industry and one of the ten largest poultry producers globally.The Company was founded in 1952 and became a public company in 1997, via a public offering of shares on the Mexican and the New York stock 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. 22feedmills 23hatcheries 10processing plantsBachoco owns and manages more than a 1000farms 9further processing plantsand more than 80distribution centers.
INDEX
Highlights
Message to Shareholders
CEO’s Letter
Report from the Board of Directors
Audit and Corporate Practices Committee
Report from the Audit and Corporate Practices Committee
Highlights to Investors
Board of Directors
Senior Management Team
Recognized by our Quality
Social Responsibility
Consolidated Financial Statements
01
02
04
06
07
08
10
11
12
13
14
15
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 One dollar equals to $19.67 pesos
$
In U.S. Dollar ¹
2018
3,103.8
489.6
188.5
253.8
170.9
0.28
3.41
$
15.8%
6.1%
8.2%
5.5%
STATEMENT OF
FINANCIAL DATA
In U.S. Dollar ¹
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
$
$
2018
2,687.6
938.4
232.6
747.3
177.6
264.2
78.5
1,940.3
59.7
1,768.8
$
2018
61,052.1
9,629.7
3,708.0
4,993.1
3,361.6
5.58
67.00
15.8%
6.1%
8.2%
5.5%
2017
58,050.0
10,547.1
5,291.3
6,424.1
4,954.4
8.25
98.97
18.2%
9.1%
11.1%
8.5%
December 31,
2017
50,557.4
17,250.1
4,727.3
14,879.5
3,695.1
4,740.4
1,554.0
35,677.9
1,174.4
32,367.9
2018
52,865.6
18,458.5
4,575.6
14,699.9
3,492.8
5,196.3
1,544.8
38,165.7
1,174.4
34,792.3
2016
52,020.3
9,385.2
4,797.6
5,777.0
3,951.2
6.58
78.94
18.0%
9.2%
11.1%
7.6%
2016
45,090.5
15,659.8
3,970.7
13,374.3
3,097.5
4,545.2
950.4
31,716.2
1,174.4
28,245.0
EMPLOYEES
2018
27,597
2017
27,397
2016
25,725
NET SALES
5%
6%
5%
84% CHICKEN
6% EGG
5% BALANCES FED
5% OTHERS
84%
MEXICO
71%
EUA
29%
HIGHLIGHTS
SALES BY GEOGRAPHY
MESSAGE TO
SHAREHOLDERS
Dear Shareholders of Industrias Bachoco:
2018 was for the Mexican Poultry Industry, a year
with a better than expected first semester and a
challenging second half. GDP in Mexico grew 2.0%
and inflation rate was 4.8% which is significantly
lower than the inflation rate reported in 2017. We
observed high volatility on the Mexican peso
exchange rate during most of the year, due in
part to the election process held in Mexico at the
middle of the year, which offset relatively stable
raw material prices in USD terms.
In the Mexican poultry industry, we observed a
good balance between supply and demand in the
first semester of 2018, and over-supply conditions
in the second half. These conditions were mainly
driven by the evolution of the Mexican economy
through the year and by domestic industry
Javier Bours Castelo
Chairman of the Board of Director
production. It is worth mentioning that
poultry imports remained unchanged
year over year, which reinforces the
capacity and competitiveness of the
Mexican industry.
In June 2018, presidential elections
in Mexico were held. Even when we
observed a smooth transition between
governments, we observed a very
cautious consumer, particularly in our
traditional markets.
In the U.S., particularly in the second
half of 2018, we observed challenging
conditions mainly due to oversupply
in animal proteins, which put pressure
on chicken prices as well. However, the
integration of our Albertville operation
allowed us to capture some benefits from
the low-price commodity market, since
this facility is a meat net buyer.
Regarding our cost of sales, prices of
raw materials remained relatively stable
during most part of the year in U.S.
dollar terms. However, volatility in the
Mexican exchange rate did not allow us
to capitalize the benefit of stable raw
materials in our Mexico Operation.
Under the conditions mentioned above,
we continued focusing on attending
our customers, productivity efforts and
financial discipline, as those are the main
pillars of our performance.
In particular, we received from the
hands of the Mexican President, the
“Premio Nacional Agroalimentario”,
(National Agri Food Award),
granted by the National
Agricultural Council as the highest
recognition for companies and
agri-food organizations in Mexico.
This is an award for achieving the
highest quality in our production
processes and products. Also,
Reader´s Digest granted us the
recognition as the most reliable
company in the category of frozen
food in Mexico. Bachoco was placed
in the top 50 companies with the
best reputation in Mexico according
to MERCO survey; improving
compared to 2017.
Annual Report 2018 02
In our U.S. Operation, OK Foods was awarded vendor of the
year by Hooters and El Pollo Loco. This is a recognition that has
been given in the last years by different customers and is the
result of our commitment to be the best alternative for our
customers.
Likewise, our CEO Rodolfo Ramos Arvizu continue ranked, as
one of the most respected CEO’s in the country.
At the end, we finished the year with positive results; We
reached historically high total net sales, particularly, we
reached the largest volume sold for a year in chicken and
pet-food and an EBITDA margin of 8.2% for the whole year.
Our financial structure continued strong as we ended the
year with a net cash of $13,420.9 million, which will allow
us to continue supporting our short and long-term growth
plans. With these results, we continue strengthening our
Balance Sheet, as well as preparing us for capitalizing
future growth opportunities.
The support of our management team and staff, as
always, has been invaluable for us. With more than 27,000
people working day by day to always achieve better
results.
We know we still have opportunities to improve
our performance, as well as many challenges and
uncertainties to face, but we are confident in the
hard work and commitment of our staff to reach the
Company´s goals.
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.
Javier Bours Castelo
Chairman of the Board of Director
03 Annual Report 2018
CEO’S
LETTER
Dear Shareholders:
All figures discussed below are
information for 2018 with comparative
figures of 2017. It was prepared under IFRS
accounting principles, and is presented
in millions of pesos unless otherwise
indicated.
According to the Mexican National
Poultry Association estimates, in 2018
chicken volume produced in Mexico grew
approximately 2.6%, within its normalized
growth range, even when we observed
oversupply conditions for the second part
of the year.
Regarding the US poultry industry,
according to USDA sources, chicken
volume produced in the US grew 2.2%,
slightly above it’s normal rate of 1.0% to
1.5%, showing some oversupply conditions.
During 2018, we continued consolidating
our productivity and organic growth
projects as well as integrating our
Albertville Quality Foods and La
Perla acquisitions which contributes
to consolidate our presence in each
geography.
Despite the volatility and industry
challenges we observed during 2018,
our financial position remained strong
and allowed us to remain close to our
customers and delivering high quality
products.
2018 & 2017 RESULTS
Net sales in 2018 totaled $61,052.1 million,
$3,002.1 million more or a 5.2% increase
in net sales, when compared to $58,050.0
million reported in 2017. This increase
was mainly due to higher prices and
more volume sold in our poultry business
line, in part due to the integration of our
Albertville operation.
In 2018, sales of our US operation
represented 28.7% of our total sales,
compared with 28.4% reported in 2017.
Ro d o l fo R am o s A r v i zu
C h i e f E xe c u t i ve Offi ce r
The Company’s total poultry sales increased 5.4%, while
our Others line increased 3.1%; both as a result mainly
of higher prices when compared to 2017. Particularly in
poultry, we reached an increase of 1.7% in volume sold
and 3.7% increase in prices, this last one was mainly
due to a higher mix of value-added products in our U.S
operation as a result of the integration of our Albertville
operation for the full year.
Cost of sales totaled $51,422.4 million, 8.3% higher than
the $47,503.0 million reported in 2017. The increase in
cost of sales was mainly attributed to more volume sold
and higher percentage of value-added products in our
US operations.
These numbers allowed us to reach a gross profit
of $9,629.7 million, which represented 15.8% of gross
margin; lower than the $10,547.1 million of gross profit
and a margin of 18.2% reached in 2017.
Total SG&A expenses in 2018 were $6,024.4 million,
an increase of $601.0 million or 11.1% when compared
to $5,423.4 million in 2017. Total SG&A expenses as a
percentage of net sales represented 9.9% in 2017 and
9.3% in 2017. Particularly, we observed an increase
in SG&A due to higher fuel and energy prices in our
Mexico operation.
Annual Report 2018 04
In 2018, we had other income of $102.7 million, compared with other
expenses of $167.6 million reported in 2017. The decrease was mainly
due to a full year amortization and impairment of intangible assets of
our Albertville operation.
The operating income in 2018 totaled $3,708.0 million with a margin
of 6.1%, lower than the $5,291.3 million of operating income and 9.1%
margin as reported in 2017.
In 2018, we reached an EBITDA of $4,003.1 million, representing an
EBITDA margin of 8.2%, compared to an EBITDA of $6,424.1 million in
2017, with a margin of 11.1%.
Net financial income was $808.6 million, an increase when compared to
the net financial income of $747.6 million in 2017.
Total taxes were $1,155.0 million. This includes $1,246.8 million in income
tax and a favorable effect of $91.9 million on deferred taxes. This figure
compares to total taxes of $1,084.4 million which includes income tax
of $1,711.5 and a favorable effect of $627.1 million of deferred tax in 2017.
The effect in deferred taxes in 2017 was a result of the fiscal change
approved in the U.S. at the end of that year.
As a result, net income in 2018 was $3,361.6 million, a 5.5% net margin,
which represents earnings per share of $5.58 pesos, while in 2017, net
income totaled $4,954.4 million with an 8.5% net margin, and $8.25 pesos
of earnings per share.
Cash and equivalents as of December 31, 2018 totaled $18,458.5 million,
an increase of $1,218.4 million or 7.1% more than the $17,240.1 million of
cash and equivalents reported as of December 31, 2017.
Total debt as of December 31, 2018 was $5,037.6 million, compared to
total debt of $5,249.0 million reported as of December 31, 2017. As a
result, our net cash as of December 31, 2018 totaled $13,420.9 million,
compared with a net cash of $11,991.1 million as of December 31, 2017.
Capex in 2018 totaled $1,982.6 million, a decrease when compared to
$3,513.4 million reported in 2017, when we reported our acquisitions
of Albertville and La Perla. In 2018, the Company continued with the
implementation of new projects oriented toward organic growth and
productivity improvements.
Rodolfo Ramos Arvizu
Chief Executive Officer
05 Annual Report 2018
Net sales in
2018
totaled
$61,052.1
million
This increase was mainly
due to higher prices
and more volume sold
in our poultry business
line, in part due to
the integration of our
Albertville operation
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 2018, 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 2018, 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 2018.
•
Javier Bours Castelo
Chairman of the Board of Directors
Annual Report 2018 06
AUDIT AND CORPORATE
PRACTICES COMMITTEE
Bachoco has an Auditing and Corporate Practices
Committee to support the Board of Directors, which
is comprised of three Independent Directors and one
Property Shareholder Director. This Committee was
last ratified on the Annual and General Ordinary
Shareholders´ Meeting on April 25, 2018.
AUDIT COMMITTEE AND
CORPORATE PRACTIES MEMBERS
Guillermo Ochoa Maciel (President)
Humberto Schwarzbeck Noriega
Avelino Fernandez Salido
Ricardo Aguirre Borboa
07 Annual Report 2018
In accordance with the terms 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. (the “Society”).
This report has been submitted to the Audit and Corporate Practices
Committee of the Company, which validated content, scope and conclusions
for the Board of Directors approval and through the Board, its validation in the
Annual and General Ordinary Shareholders’ Meeting of the Company that will
take place in April 2019.
In the exercise of the Committee functions, and in attention of its
responsibilities, the Committee has counseled with the Chief Financial Officer,
the Internal Audit Manager and, the Chief Executive Officer of the Society.
The resolutions adopted by the Audit Committee have been informed timely
and submitted to the consideration of the Board of Directors by means of
the respective report submitted to this ultimate superior social entity in
the corresponding meetings. A file has been integrated from each meeting,
including the reports and other relevant documents.
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 verified that there
was no existence of any grant or exceptions to Directors, senior
officers, or other employees of the Company. In 2018, the total
transactions in connection to related parties represented less than
3.0% of the Company’s net sales. After an exhaustive review of the
transactions carried out with related parties, we concluded that
they were conducted in fair-market terms. We reviewed policies
and guidelines related to the use of goods that constitute the
equity of the Company and its subsidiaries, by any related parties,
as well as policies for granting of loans or any type of credit or
guarantees. We analyzed and assessed the services provided by the
independent experts, when it was required.
Regarding Internal Audit Function:
The Audit and Corporate Practices Committee has remained
involved with the needs of the internal audit area to make sure
they have the necessary human and material resources for the
suitable performance of its function. The evaluations carried
out by the Internal Audit, the external auditors, and the General
Director have been reviewed, and it is concluded that the internal
control processes provide reasonable security to prevent or detect errors or
material irregularities in the normal course of social operations, although
these processes are constantly improving and the corresponding revisions
continue.
ANNUAL REPORT OF
THE PRESIDENT OF THE
AUDIT AND CORPORATE
PRACTICES COMMITTEE
TO THE BOARD OF
DIRECTORS
Regarding Financial Information:
The Financial Statements of the Company were discussed quarterly with
the executives responsible for their preparation and review, there were no
significant observations to the information presented. Before being forwarded
to the Mexican Stock and Exchange, the Financial Statements were reviewed
by the Committee for its approval or ratification by the Board of Directors.
In each quarterly Committee´s meeting, reports to the Stock Exchange
were analyzed and approved, having made the observations or suggestions
of the case and recommending to the Board of Directors its approval (or
ratification) in each case regarding its public disclosure. During the period
in question, Financial Statements corresponding to 2018 fiscal year were
reviewed and discussed, and did not submit observations and/or qualifications,
in consequence, the Committee recommended its approval by the Board of
Directors for submission to the Shareholders´ Meeting.
Annual Report 2018 08
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.
•
•
OPINION OF THE AUDIT COMMITTEE
TO THE BOARD OF DIRECTORS ON
THE ANNUAL REPORT OF THE CHIEF
EXECUTIVE OFFICER
•
After having listened and analyzed the CEO´s report
for the fiscal year ended on December, 31, 2018,
prepared in terms and for the purposes of the stated
of Article 44, section XI of the Security Market Law, in
relation to Article 172 of the General Law of Business
Corporations and based on the reports of the External
Audit presented to the Committee, the Audit and
Corporate Practices Committee has determined that:
(i) the accounting and information policies and criteria
followed by the Company are adequate and sufficient,
taking into account the Company´s particular
circumstances; (ii) these accounting policies and criteria
have been consistently applied in the information
presented by the CEO; (iii) as consequence of the
previous numerals (i) and (ii), the information presented
by the CEO reflects the Company´s financial situation
and results for the fiscal year 2018.
Based on the above, under the terms and for the
purpose of the provisions of the Article 42, paragraph II,
section e) of the LMV, the Audit and Corporate Practices
Committee recommend to the Board of Directors the
approval of the CEO`s annual report for fiscal 2018, for
its presentation to the Annual and General Ordinary
Shareholder´s Meeting of the Company.
•
•
•
•
•
•
Guillermo Ochoa Maciel
President of Bachoco´s Audit and Corporate Practices
Committee
Regarding External Audit
Performance:
The services of Galaz, Yamazaki, Ruiz
Urquiza, S.C. (Deloitte) continued to
be used as External Auditors of the
Company. We worked with Deloitte to
insure the compliance, from both Deloitte
and the Company, of the new regulation
issued by the Mexican Authorities
(Comision Nacional Bancaria y de
Valores), regarding the “Circular Unica
de Auditores Externos”, (External Audit
New Regulation). The fees corresponding
to 2018 were duly revised and approved.
The Audited Financial Statements as
of December 31, 2018 were received on
the part of the External Auditor. The
Audit Committee concludes that the
performance of Galaz, Yamazaki, Ruiz
Urquiza, S.C. (Deloitte) as External
Auditors of the Company and of its
partners in charge of the respective
audit, is appropriate and that the
communication between such Committee
and the auditors referred herein is
consistent. The External Auditors
confirmed their independence.
Regarding Accounting and Self-
Regulatory Policies
The main accounting policies followed
by the Company were reviewed and
approved in terms of the information
received by reason of new regulations.
During the period, the updates proposed
by the Administration to various self-
regulatory policies were reviewed, on
which were favorably expressed for
submission to the Board of Directors.
The accounting policies, criteria, and
information observed by the Company
are adequate and sufficient.
Conclusions
The recommendations of the Audit
and Corporate Practices Committee
have been, or are being addressed by
the Administration of the company.
During the reported 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 related 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
09 Annual Report 2018
HIGHLIGHTS
TO INVESTORS
In 2018, the Company´s shares and ADRs reported a decrease in yield of 31.1% on
the BMV and of 30.9% on NYSE.
The founding family holds
73.25% of total shares, by
two Trusts:
Control Trust with 52.00%
Underwriting Trust with
21.25%
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
$38,712 million
pesos in market
capitalization
SHARE PRICES
Bolsa Mexicana de Valores
In pesos per Share
The New York Stock Exchange
In dollars per ADR
Año MaxM in Promedio CierreA
ño MaxM in Promedio Cierre
2018
2017
2016
2015
2014
98.16 63.50 88.29 64.52
93.62
102.00 79.53 88.51
84.75 2
85.656 2.51
77.34
70.05
89.735 9.23 71.74
6.62 62.00
68.55 44.715
2018
2018
0175
2016
2015
Fuente: Yahoo Finanzas
63.843 8.08 55.23
6.20 56.39
67.614
49.68
63.494 5.64 54.09
61.24
39.56
57.30
49.02
49.23
40.37 50.84 49.88
5.65 41.17
Annual Report 2018 10
BOARD OF
DIRECTORS
PROPRIETARY SHAREHOLDERS DIRECTORS
Javier 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 and David Gastelum Cazares.
ALTERNATE SHAREHOLDERS DIRECTORS
Jose Eduardo Robinson Bours Castelo alternate of Javier
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.
SECRETARY OF THE BOARD
Eduardo Rojas Crespo
Bachoco’s Board of Directors is
comprised of eight Proprietary
Shareholder Directors, four Alternate
Shareholder Directors, and four
Independent Proprietary Directors. This
board was last ratified on April 25, 2018.
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.
11 Annual Report 2018
R. Trent Goins
Director of U.S. Operations
Daniel Salazar Ferrer
Chief Financial Officer
Rodolfo Ramos Arvizu
Chief Executive Officer
Ernesto Salmon Castelo
Director of Mexico Operations
Andres Morales Astiazaran
Director of Sales
Ismael Sanchez Moreno
Director of Human Resources
Alejandro Elias Calles Gutierrez
Director of Purchasing
SENIOR MANAGEMENT TEAM
Annual Report 2018 12
RECOGNIZED
BY OUR
QUALITY
In Bachoco, we are convinced that in order
to truly nourish and remain close to our
customers, we must to deliver high quality
products every day.
For us, quality consists in fulfilling our customers
and consumers’ needs.
In order to achieve that, we have in place a very strict Alimentary Quality and Safety Internal System which audit and
certifies each of our actions, throughout all our production and supply chain.
In our processing plants, in México and the US, not only we comply with all regulations, we are focused in surpassing
those requirements in order to warranty that our consumers will receive the best product in their tables.
Proof of that is the recognitions we received from the hands of the Mexican President, the “Premio Nacional
Agroalimentario”, (National Agri Food Award), granted by the National Agricultural Council as the highest recognition
for companies and agri-food organizations in Mexico.
13 Annual Report 2018
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.
RESPONSIBILITY
SOCIAL
Bachoco’s Social Responsibility program
is based on 5 essential cornerstones
seeking to achieve an integral
onboarding for the improvement of
collaborators, surrounding communities
and the environment. We work hard
every day to achieve these goals and
2018 was evidence of it.
TOGETHER FOR
OUR PLANET
TOGETHER FOR OUR
BUSINESS
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.
We define strategic lines in which we focus
our efforts. Following those strategic lines,
we updated our Code of Ethics and created
an Ethics Committee, we kept consolidating
existing programs such as the deployment of
Bachoco´s Cultural Model, the Corporative
University and Bachoco Welfare, thinking
always of our people.
TOGETHER FOR
OUR COMMUNITY
TOGETHER FOR
OUR PRODUCTS
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.
Our work in safety and food quality is
a continuous task and we consolidated
it through the certification in SQF (Safe
Quality Food).
CONSOLIDATED
FINANCIAL
STATEMENTS
Report of Independent Auditors
Consolidated statements of financial position
Consolidated statements of income and other
comprehensive income
Consolidated statements of changes in stockholders equity
Consolidated statements of cash flows
Notes to the consolidated financial statements
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Financial Position
December 31, 2018, 2017 and 2016
(Thousands of pesos)
Assets
Note
2018
2017
2016
Liabilities and equity
Note
2018
2017
2016
Current assets:
Cash and cash equivalents
Investment in securities at fair value through profit or loss
Derivative financial instruments
Accounts receivable, net
Due from related parties
Inventories
Current biological assets
Prepaid expenses and other current assets
Assets held for sale
Total currents assets
Non-current assets:
Property, plant and equipment, net
Non-current biological assets
Deferred income tax
Goodwill
Intangible assets
Other non-current assets
Total non-currents assets
7
8
8
9
20
10
11
12
13
14
11
21
15
16
17
$
17,901,845
550,068
6,570
3,486,354
99
4,575,596
2,073,526
1,131,870
49,068
29,774,996
16,112,268
1,127,841
-
3,626,878
326
4,727,333
1,942,193
638,671
49,523
28,225,033
14,681,204
970,292
8,308
3,629,144
148,855
3,970,688
1,961,191
1,503,945
56,728
26,930,355
18,018,176
1,721,728
103,826
1,631,771
949,355
665,742
23,090,598
17,320,041
1,617,503
80,670
1,631,094
1,040,042
643,006
22,332,356
15,081,105
1,668,543
60,132
484,877
-
865,454
18,160,111
Current liabilities:
Short-term debt
Current portion of long-term debt
Derivative financial instruments
Trade payable and other accounts payable
Income tax payable
Due to related parties
Total current liabilities
Long term liabilities:
Long-term debt, excluding current installments
Deferred income tax
Employee benefits
Total long term liabilities
Total liabilities
Equity:
Capital stock
Share premium
Reserve for repurchase of shares
Retained earnings
Accumulated other comprehensive income
Foreign currency translation reserve
Actuarial remeasurements, net
Equity attributable to controlling interest
Non-controlling interest
Total equity
Commitments
Contingencies
$
3,427,820
64,973
0
5,196,347
248,290
147,514
9,084,944
1,544,807
3,767,320
302,818
5,614,945
2,852,400
842,651
6,821
4,740,366
731,654
55,252
9,229,144
1,553,973
3,843,379
252,965
5,650,317
1,444,800
1,652,725
-
4,545,177
483,618
189,966
8,316,286
950,412
3,912,575
195,019
5,058,006
14,699,889
14,879,461
13,374,292
1,174,432
414,470
562,047
34,792,320
(307)
1,273,671
(120,378)
38,096,255
69,450
38,165,705
1,174,432
414,385
493,141
32,367,912
-
1,268,021
(98,938)
35,618,953
58,975
35,677,928
1,174,432
414,385
449,641
28,244,970
-
1,465,657
(86,774)
31,662,311
53,863
31,716,174
18
18
8
19
21
20
18
21
22
25
22
27
28
Total assets
$
52,865,594
50,557,389
45,090,466
Total liabilities and equity
$
52,865,594
50,557,389
45,090,466
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Profit and Loss and Other Comprehensive Income
Years ended December 31, 2018, 2017 and 2016
(Thousands of pesos, except share and per share amount)
Net revenues
Cost of sales
Gross profit
General, selling and administrative expenses
Other income (expenses), net
Operating income
Finance income
Finance costs
Net finance income
Profit before income taxes
Income taxes
Profit for the year
Other comprehensive income (loss) items:
Items that may be reclassified subsequently to profit or loss:
Currency translation effect
Hedge result
Items that will not be reclassified subsequently to profit or loss:
Actuarial remeasurements
Income taxes related to actuarial remeasurements
Other comprehensive 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
Note
23
23
30
29
29
21
22
2018
2017
2016
$
61,052,092
(51,422,376)
58,050,025
(47,502,959)
52,020,303
(42,635,071)
9,629,716
10,547,066
9,385,232
(6,024,406)
102,660
(5,423,379)
167,642
(4,847,858)
260,202
3,707,970
5,291,329
4,797,576
1,140,749
(332,168)
808,581
1,087,641
(340,091)
747,550
969,174
(172,154)
797,020
4,516,551
6,038,879
5,594,596
1,154,978
1,084,444
1,643,433
$
3,361,573
4,954,435
3,951,163
5,650
(307)
(30,629)
9,189
(16,097)
(197,636)
-
(17,377)
5,213
(209,800)
755,218
-
14,888
(4,466)
765,640
3,345,476
4,744,635
4,716,803
3,349,967
11,606
4,948,242
6,193
3,946,634
4,529
3,361,573
4,954,435
3,951,163
3,333,870
11,606
4,738,442
6,193
4,712,274
4,529
3,345,476
4,744,635
4,716,803
$
$
$
$
$
Weighted average outstanding shares
599,980,734
599,997,696
599,979,844
Basic and diluted earnings per share
26
$
5.58
8.25
6.58
See accompanying notes to consolidated financial statements.
CM /11/00
CM /11/00
CM /11/00
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2018, 2017 and 2016
(Thousands of pesos)
Attributable to controlling interest
Capital stock
Retained earnings
Accumulated other comprehensive income
Note
Capital
stock
Share
premium
Reserve for
repurchase of
shares
Retained
earnings
Hedge
result
Foreign
currency
translation reserve
Actuarial
remeasurements
net
Total
Non-controlling
interest
Total
equity
Balance at January 1, 2016
$
1,174,432
414,017
777,622
24,749,616
Dividends paid
Dividends paid to non-controlling interest
Reserve for repurchase of shares
Repurchase and sale of shares
Comprehensive income for the year:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Balance at December 31, 2016
Dividends paid
Dividends paid to non-controlling interest
Reserve for repurchase of shares
Repurchase and sale of shares
Comprehensive income for the year:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Balance at December 31, 2017
Dividends paid
Dividends paid to non-controlling interest
Reserve for repurchase of shares
Repurchase and sale of shares
Comprehensive income for the year:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Balance at December 31, 2018
25
25
25
25
25
25
-
-
-
-
-
-
-
-
-
-
368
-
-
-
-
-
(328,680)
699
-
-
-
(779,960)
-
328,680
-
3,946,634
-
3,946,634
1,174,432
414,385
449,641
28,244,970
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45,300
(1,800)
-
-
-
(780,000)
-
(45,300)
-
4,948,242
-
4,948,242
1,174,432
414,385
493,141
32,367,912
-
-
-
-
-
-
-
$
1,174,432
-
-
-
85
-
-
-
-
73,559
(4,653)
(852,000)
-
(73,559)
-
-
-
3,349,967
-
-
414,470
-
562,047
3,349,967
34,792,320
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(307)
(307)
(307)
See accompanying notes to consolidated financial statements.
710,439
(97,196)
27,728,930
50,448
27,779,378
-
-
-
-
-
755,218
755,218
-
-
-
-
(779,960)
-
-
1,067
-
(1,114)
-
-
(779,960)
(1,114)
-
1,067
-
10,422
3,946,634
765,640
4,529
-
3,951,163
765,640
10,422
4,712,274
4,529
4,716,803
1,465,657
(86,774)
31,662,311
53,863
31,716,174
-
-
-
-
-
-
-
-
(780,000)
-
-
(1,800)
-
(1,081)
-
-
(780,000)
(1,081)
-
(1,800)
-
(197,636)
-
(12,164)
4,948,242
(209,800)
6,193
-
4,954,435
(209,800)
(197,636)
(12,164)
4,738,442
6,193
4,744,635
1,268,021
(98,938)
35,618,953
58,975
35,677,928
-
-
-
-
-
5,650
5,650
1,273,671
-
-
-
-
(852,000)
-
-
(4,568)
-
(21,440)
3,349,967
(16,097)
(21,440)
(120,378)
3,333,870
38,096,255
-
(1,131)
-
-
11,606
-
11,606
69,450
(852,000)
(1,131)
-
(4,568)
3,361,573
(16,097)
3,345,476
38,165,705
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2018, 2017 and 2016
(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
Intangible impairment loss
Loss (gain) on disposal of plant and equipment
Interest income
Interest expense
Unrealized foreign exchange loss on loans
Note
2018
2017
2016
$
3,361,573
4,954,435
3,951,163
21
21
14
16
29
29
(91,869)
1,246,847
1,226,917
21,430
23,227
(1,077,507)
332,168
43,400
(627,090)
1,711,534
1,075,788
-
41,890
(857,109)
255,997
82,600
382,904
1,260,529
925,748
-
(157,245)
(646,334)
172,154
270,850
Subtotal
5,086,186
6,638,045
6,159,769
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
(13,391)
200,145
227
149,738
(236,179)
(493,442)
455
457,941
92,262
(1,787,959)
49,853
15,129
162,906
3,967
(461,783)
70,941
875,307
7,205
(350,299)
(134,714)
(1,405,256)
57,946
(7,064)
(1,144,991)
1,154
(562,905)
(539,395)
82,324
3,320
(43,707)
24,338
(997,028)
34,801
Net cash provided by operating activities
3,505,836
5,479,394
3,010,616
Cash flows from investing activities:
Payments for acquisition of property, plant and equipment
Proceeds from sale of plant and equipment
Restricted cash
Investment in securities at fair value through profit or loss
Other assets
Interest collected
Bussiness acquisition including advance payment
Collection of principal of loans granted to related parties
(1,977,567)
32,455
-
577,773
(27,983)
1,077,507
-
-
(2,126,361)
35,175
(24,058)
(157,549)
2,125
857,109
(2,494,862)
144,562
(2,792,252)
278,340
(19,236)
272,322
4,583
646,334
-
44,513
Net cash used in investing activities
(317,815)
(3,763,859)
(1,565,396)
Cash flows from financing activities:
Payment for repurchase of shares
Proceeds from issuance of repurchased shares
Dividends paid
Dividends paid to non-controlling interest
Proceeds from borrowings
Principal payment on loans
Interest paid
(6,454)
1,887
(852,000)
(1,131)
3,370,400
(3,588,067)
(332,168)
(1,800)
-
(780,000)
(1,081)
5,378,915
(4,246,100)
(255,997)
(4,157)
5,224
(779,960)
(1,114)
2,320,500
(2,670,474)
(172,154)
Net cash (used in) provided by financing activities
(1,407,533)
93,937
(1,302,135)
Net increase in cash and cash equivalents
1,780,488
1,809,472
143,085
Cash and cash equivalents at January 1
16,088,210
14,661,968
14,020,491
Effect of exchange rate fluctuations on cash and cash equivalents
33,147
(383,230)
498,392
Cash and cash equivalents at December 31
$
17,901,845
16,088,210
14,661,968
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2018, 2017 and 2016
(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 ticker symbol “Bachoco,” and in the New York Stock Exchange (NYSE),
under the ticker 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 12, 2019, 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 defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date,
regardless of whether that price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the Company takes into
account the characteristics of the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at the measurement date.
In addition, for financial reporting purposes, fair value measurements are categorized into
Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value measurements in its entirety,
which are described as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 inputs are inputs, other than quoted prices included within Level 1, which are
observable either directly or indirectly.
Level 3 inputs are unobservable inputs.
c)
Functional and presentation currency
These consolidated financial statements are presented in thousands of Mexican pesos (pesos or
$), the official currency of Mexico, which is the currency in which the Company’s accounting
records are maintained and functional currency, except for the foreign subsidiaries for which
the U.S. dollar is the functional currency as well as the currency in which accounting records
are maintained.
For disclosure purposes, in the notes to the consolidated financial statements, “thousands of
pesos” or “$” 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 $19.67, $19.66 and $20.64 pesos to one U.S. dollar as of
December 31, 2018, 2017 and 2016, 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.
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 on the application of accounting policies
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 intangible assets and property, plant and equipment are
used to determine amortization and 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.
vi. Expected credit losses on accounts receivable
The expected credit losses on financial assets are estimated using a provision matrix based on
the Company's historical experience of credit losses, adjusted for factors that are specific to
each of the Company's customer and debtor groups, general economic conditions and an
assessment of both current and forecast conditions at each reporting date.
vii. 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. it is not probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; or
b. 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
In the current year, the Company adopted a series of new and amended IFRS issued by the
IASB which went into effect on January 1, 2018 as it relates to its consolidated financial
statements.
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments, includes requirements for recognition and measurement,
impairment, derecognition and general hedge accounting.
The details of these new requirements, and their impact on the consolidated statements of
financial position of the Company, are described below.
Classification and measurement of financial assets
All recognized financial assets that are within the scope of IFRS 9 are required to be measured
subsequently at amortized cost or fair value, based on the Company's management of financial
assets and the contractual cash flows characteristic of financial assets.
The Company has not made changes in the classification of financial assets based on the
application of IFRS 9; therefore, the adoption of such classification and measurement
provisions has not had an impact on its consolidated statements of financial position, results
and other comprehensive results.
Impairment of financial assets
IFRS 9 introduces a new model of impairment of expected loss and limited changes to the
requirements of classification and measurement of financial assets. Specifically, the new
impairment model is based on the expected credit losses rather than the losses incurred, and
will be applied to debt instruments valued at amortized cost or at fair value through other
comprehensive income, leases receivable, contract asset, certain written loan commitments
and financial guarantee contracts. Regarding the new fair value measurement category through
other comprehensive income, the impairment provisions will be applicable to debt instruments
that (i) are held within a business model whose objectives are achieved through the collection
of contractual cash flows and the sale of financial assets and (ii) have contractual terms that
give rise on specified dates to cash flows that are solely payments of principal and interest on
the principal amount outstanding.
The Company has not identified a material impact on its financial assets from the application
of the impairment provisions of IFRS 9, neither in its investment positions nor in its trade
accounts receivable.
General Hedge Accounting
The new general hedge accounting requirements retain the three types of hedge accounting
schemes 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.
IFRS 15, Revenue from Contracts with Customers
Under this standard, 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 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 of) the entity satisfies a performance obligation.
The Company conducted an analysis of revenues with customers and determined that the
adoption of this standard has no impact on its consolidated financial statements.
Amendments to IFRS 2, Share-based Payment
The amendments to IFRS 2, Share-based Payment, clarify the classification and measurement
of share-based payment transactions. The amendments contain clarifications and amendments
addressing the accounting for cash-settled share-based payment transactions; classification of
share-based payment
transactions with net settlement features; and accounting for
modifications of share-based payment transactions from cash-settled to equity-settled. The
adoption of these amendments had no impact on the consolidated financial statements of the
Company as it does not have share-based payment plans.
IFRIC 22, Foreign Currency Transactions and Advance Considerations
The interpretation clarifies that when the entity pays or receives consideration in advance in a
foreign currency, the date of transaction for the purpose of determining the exchange rate to
use on initial recognition of the related asset, expense or income, is the date when the
anticipated consideration has been paid or received in advance, i.e. when the advance payment
or the income received in advance was recognized. The adoption of this interpretation had no
impact on the Company’s consolidated financial statements because it already accounts for
transactions that involve the payment or receipt of advance consideration in a foreign currency
in a manner that is consistent with the modifications.
Amendments IFRS 4- The application of IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts
Amendments to IFRS 4, Insurance Contracts, provide two options for entities that issue
insurance contracts: i) an optional temporary exemption from applying IFRS 9 (referred to as
the "deferral approach"); and ii) an option that allows entities presenting the changes in the fair
value of the designated financial assets, in other comprehensive income (OCI), instead of in
profit or loss (referred to as the "overlay approach"). The overlay approach will be applicable
when IFRS 9 is applied for the first time. The deferral approach is effective for annual periods
beginning on or after January 1, 2018 and will only be available for three years after that date.
The modifications have had no impact on the Company’s consolidated financial statements.
ii. New IFRS issued but not yet effective
The Company has not applied the following new and revised IFRS that have been issued, but
are not yet effective for periods beginning on January 1, 2018.
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 January 1,
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
straight-line 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. The
Company has decided to use an incremental borrowing rate.
The Company has decided 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.
IFRS 16 establishes different transitional provisions, the Company has chosen the modified
retrospective application where the comparative period is not restated.
IFRS 16 will change the way in which the Company accounts for leases previously classified
as operating leases under IAS 17, which were accounted for off-balance sheet.
In the initial application of IFRS 16, as of January 1, 2019, for all leases (except those that the
Company has elected to account for as an expense), the Company:
• Recognizes right-of-use assets and lease liabilities in the consolidated statement of
financial position, initially measured at the present value of the future lease payments;
• Recognizes depreciation of right-of-use assets and interest on lease liabilities in the
consolidated statement of profit or loss;
• Separates the total amount of cash paid into a principal portion (presented within
financing activities) and interest (presented within financing activities) in the
consolidated cash flow statement.
Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36,
Impairment of Assets. This will replace the previous requirement to recognize a provision for
onerous lease contracts.
For the first time application of IFRS 16, the Company has carried out an implementation
project, which has shown that the new definition in the standard will not significantly change
the scope of contracts that meet the definition of a lease for the Company.
A preliminary assessment indicates that $ 18,290, monthly lease payments are related to leases
other than short-term leases and leases of low-value assets, and therefore the amount to be
recognized by the Company as a right-of-use asset and the corresponding liability as of
January 1, 2019 will range from $900,000 to $950,000, with respect to all such leases. The
effect of adoption arises from right-of-use assets and related liabilities related to leases of
buildings, machinery and equipment and transport equipment. The impact on the 2019
consolidated statement of profit or loss will be comprised of an increase in the annual
depreciation of approximately $193,129 and the annual interest expense of approximately
$33,572.
IFRIC - 23 Uncertainty about treatment in the income tax
This interpretation deals with the determination of taxable income (loss), tax bases, unused
fiscal losses, unused tax credits and tax rates, when there is uncertainty about their treatment
in accordance with IAS 12. Specifically, it considers:
If tax treatments should be considered collectively
•
• Assumptions about tax authorities’ examinations
• The determination of taxable income (loss), tax bases, unused tax losses, unused tax
credits and tax rates
• The effects of changes in the facts and circumstances
This interpretation will be effective on January 1, 2019. The Company's management
considers that the application of this interpretation will not have a significant impact on its
consolidated financial statements, since its current practices for determining the effects of
income taxes on its consolidated financial statements incorporate considerations similar to
those set forth in the interpretation.
Annual Improvements 2015-2017 Cycle
The annual improvements include amendments to IFRS 3 and IFRS 11, to IFRS 12 and to IAS
23, which are all effective for annual periods beginning on or after January 1, 2019.
The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a
joint operation, the entity must remeasure previously held interests in that business. The
amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a
joint operation, the entity does not remeasure previously held interests in that business.
The amendments to IFRS 12 clarify that the effects on income taxes for dividends (or
distributions of profit) should be recognized in results regardless of how the tax arises.
The amendments to IAS 23 clarify that if any specific borrowing remains outstanding after the
related asset is ready for its intended use or sale, that borrowing becomes part of the funds that
an entity borrows generally when calculating the capitalization rate on general borrowings.
The Company is in the process of determining the potential impacts on its consolidated
financial statements derived from the adoption of these amendments.
(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, the financial statements of subsidiaries 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 are measured at fair value at the acquisition date. If
the contingent consideration is classified as equity, then it is not re-measured and settlement is
accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent
consideration are recognized in profit and loss.
b) Foreign currency
i. Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the
Company at the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are translated to the functional currency at the
exchange rate at that date. The foreign currency gain and loss on monetary items is the
difference between amortized cost in the functional currency at the beginning of the period,
adjusted for interest and 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, 2018, 2017 and 2016 the
Company did not enter into such transactions.
c)
Financial instruments
i. Financial assets
Classification of financial assets
The Company classifies and measures its financial assets under the following criteria:
• The Company's debt instruments are subsequently measured at amortized cost if the
financial asset is maintained in a business model whose objective is to hold financial
assets with the objective of obtaining contractual cash flows; and the contractual terms of
the financial asset give rise on specific dates to cash flows that are only principal and
interest payments on the amount of the principal.
• Furthermore, debt instruments are subsequently measured at fair value through other
comprehensive income if the financial asset is maintained within a business model whose
objective is met by obtaining contractual cash flows and selling financial assets; and the
contractual terms of the financial asset give rise, on specific dates, to cash flows that are
only principal and interest payments on the outstanding amount of the principal.
• By default, all other financial assets are subsequently measured at fair value through profit
and loss.
Recognition and derecognition of financial assets
Assets are initially recognized on the date of the contract in which the Company becomes a
member of the contractual provisions of the instruments. And they are initially valued at their
fair value. Transaction costs that are directly attributable to the acquisition or issuance of
financial assets and liabilities (other than financial assets at fair value through profit or loss)
are added to or reduced from the fair value of the financial assets or liabilities, where
applicable, at initial recognition. Transaction costs directly attributable to the acquisition of
financial assets and liabilities at fair value through profit or loss are recognized immediately in
profit or loss.
All regular purchases or sales of financial assets are recognized and derecognised on a trade
date. Regular purchases or sales are purchases or sales of financial assets that require the
delivery of assets within the period established by the regulation or usual practices in the
market.
All recognized financial assets are subsequently measured in full, either at amortized cost or
fair value, according to the classification of financial assets.
Financial assets of the Company include cash and cash equivalents, investment in securities at
fair value through profit or loss, derivative financial instruments and trade 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 consolidated
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.
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, due from related parties and other receivables.
Impairment of financial assets
As of 2018, the Company evaluates whether its financial assets accounted for at amortized
cost and at fair value through other comprehensive income are impaired on the basis of losses
due to expected credit losses.
The amount of expected credit losses is updated on each reporting date to reflect changes in
credit risk since the initial recognition of the respective financial instrument.
The Company recognizes lifetime expected credit losses for commercial accounts receivable,
contract assets and accounts receivable for leases. The expected credit losses on these financial
assets are estimated using a provision matrix based on the Company's historical experience of
credit losses, adjusted for factors that are specific to the debtors, the general economic
conditions and management’s assessment of both the current and forecast conditions at the
reporting date, including the time value of money when appropriate.
The Company considers a significant increase in credit risk to have occurred when the asset’s
credit rating falls to the level of speculation, or when the rating has decreased by more than 2
levels with respect to the level at which it was acquired. Additionally, the Company considers
that default has occurred when a financial asset is more than 90 days past-due, unless there is
reasonable and reliable information demonstrating that a later default criterion is more
appropriate.
For all other financial instruments, the Company recognizes the lifetime expected credit loss
when there has been a significant increase in credit risk since the initial recognition. However,
if the credit risk in the financial instrument has not increased significantly since the initial
recognition, the Company measures the provision for losses for that financial instrument in an
amount equal to the 12-month expected credit losses.
During 2017 and 2016, the method used to determine the impairment of financial assets was
based on an incurred loss model.
ii. Financial liabilities
Debt and/or equity instruments are classified as financial liabilities or as equity according to
the substance of the contractual agreement and the definitions of liability and equity.
All financial 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 using the effective interest method or at fair value through results during their
contractual term.
iii. Derivative financial instruments
The Company participates in a variety of derivative financial instruments to manage its
exposure to exchange rate risks, including currency forward contracts.
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.
A derivative with a positive fair value is recognized as a financial asset, while a derivative
with a negative fair value is recognized as a financial liability. Derivatives are not offset in the
financial statements unless the Company has both the legal right and the intention to offset. A
derivative is presented as a non-current asset or a non-current liability if the remaining
maturity of the instrument is more than 12 months and it is not expected to be realized or
settled within 12 months. Other derivatives are presented as current assets or current liabilities.
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.
iv.Hedge Accounting
The Company designates certain derivatives as hedging instruments with respect to foreign
currency risk with fair value hedges, cash flow hedges or hedges of net investments in foreign
operations. Firm commitments that hedge foreign currency risk are accounted for as cash flow
hedges.
At the beginning of the hedge relationship, the Company documents the relationship between
the hedging instrument and the hedged item, together with its risk management objectives and
its strategy to carry out various hedging transactions. In addition, at the beginning of the hedge
and on an ongoing basis, the Company documents whether the instrument is effective to offset
changes in the fair values or cash flows of the hedged item attributable to the hedged risk,
which is when the hedging relationships comply with all of the following coverage
effectiveness requirements:
• There is an economic relationship between the hedging instrument and the hedged
item;
• The effect of credit risk does not dominate the value of the changes resulting from the
economic relationship; and
• The coverage ratio of the coverage ratio is the same as that resulting from the amount
of the hedged item that the Company actually covers and the amount of the hedging
instrument that the Company actually uses to cover that amount of the hedged item.
If the hedging instrument no longer meets the effectiveness requirement related to the hedging
relationship, but the risk management objective for that designated hedging relationship
remains the same, the Company adjusts the hedging relationship (that is, rebalances) so that it
meets the qualification criteria again.
The Company designates the entire change in the fair value of a forward contract (that is, it
includes the forward elements) as the hedging instrument for all its hedging relationships that
involve forward contracts.
The Company designates only the intrinsic value of option contracts as a hedged item, that is,
excluding the time value of the option. Changes in the fair value of the option are recognized
in other comprehensive income and are accumulated in the cost of the hedge reserve. If the
hedged item is related to the transaction, the fair value is reclassified to profit or loss when the
hedged item affects the profit or loss. If the hedged item is related to the period of time, then
the accumulated amount in the cost of the hedge reserve is reclassified to profit or loss in a
rational manner: the Company amortizes the accumulated hedge reserve to profit or loss using
the straight-line method. These reclassified amounts are recognized in profit or loss on the
same line as the hedged item. If the hedged item is a non-financial item, the accumulated
amount in the cost of the hedge reserve is eliminated directly from equity and is included in
the initial carrying amount of the recognized non-financial item. In addition, if the Company
expects that part or all of the accumulated loss in the cost of the hedge reserve will not be
recovered in the future, that amount will be reclassified immediately to results.
v. 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, except for land, are recorded at acquisition cost less
accumulated depreciation 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.
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.
Below are the estimated useful lives for 2018, 2017 and 2016:
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, 2018, 2017 and
2016:
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)
Intangible assets
They are mainly comprised of trade names and customer relationships derived from the
acquisition of businesses in the United States of America. The cost of intangible assets
acquired through a business combination represents their fair value at the acquisition date and
they are recognized separately from goodwill. Subsequently, they are valued at cost minus
amortization and accumulated impairment losses.
Intangible assets are classified as having a definite or indefinite life. Those with a defined life
are amortized under the straight-line method during their estimated life and when there are
impairment indicators, they are tested for impairment. The amortization methods and the
useful life of the assets are reviewed and adjusted, if necessary, at the date of each statement of
financial position. Amortization is charged to income in the general expenses category. Those
with an indefinite life are not amortized, but are subject to impairment tests at least annually.
g) 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.
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.
h) 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, 2018, 2017 and 2016, the Company has not entered
into any significant finance lease agreements.
i)
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.
j)
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) both individually and collectively. All individually significant
receivables and other financial assets are assessed for specific impairment. Assets that are not
individually significant are collectively assessed for impairment by grouping together assets
with similar risk characteristics.
In assessing collective impairment, the Company follows an expected loss model and the
calculation is applicable to all receivables regardless of whether or not they have objective
evidence of impairment. For these estimates, management 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 implied 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.
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.
k) 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 with 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
initial classification of held-for-sale assets and subsequent
remeasurement gains and losses are recognized in profit and loss. Recognized gains shall not
exceed cumulative impairment losses previously recognized.
losses on
l) 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 17).
m) Employee benefits
The Company grants to its employees in Mexico and abroad, different types of benefits as
described below and as detailed in note 22.
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.
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.
n) 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.
o)
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 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.
p) Revenues
During 2017 and 2016 revenues from the sale of goods in the course of ordinary activities are
measured at the fair value of the consideration received or receivable, net of returns, trade
discounts and volume rebates. Revenues are recognized when persuasive evidence exists,
usually in the form of an executed sales agreement, that the significant risks and rewards of
ownership have been transferred to the customer, recovery of the consideration relating to the
transaction is probable, the associated costs and possible return of goods can be estimated
reliably, there is no continuing management involvement with the goods, and the amount of
revenue can be measured reliably. If it is probable that discounts will be granted and the
amount can be measured reliably, the discount is recognized as a reduction of revenue.
Beginning in 2018, revenues from the sale of goods in the course of ordinary activities are
measured at the fair value of the consideration received or receivable, net of returns, trade
discounts and volume rebates. Revenues are recognized when persuasive evidence exists,
usually in the form of an executed sales agreement, that control over the product has been
transferred to the customer. 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. The Company
generally does not accept sales returns. No asset is recognized for product returns, due to the
fact that such products are not expected to be sold or recovered in another manner given that
they are perishable. To the extent sales returns occur, the product returns are made
simultaneously with the delivery and acceptance of the product (same day).
The Company has concluded that all performance obligations are satisfied at the time of
delivery of the product to the customer.
The Company has a variety of credit terms for its various distribution channels, all of which
have short terms, consistent with market and industry practices. Accordingly, there are no
financing components. A significant portion of sales in Mexico are collected in cash on
delivery.
q) 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.
r)
Income taxes
Income tax expense is comprised of 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 appropriate 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.
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.
s)
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, 2018, 2017 and 2016, the Company
has no potentially dilutive shares, for which reason basic and diluted EPS are the same.
t)
Segment information
An operating segment is a component of the Company: i) that 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) whose
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 that share similar economic characteristics and
meet the aggregation criteria under IFRS (note 2 d).
u) 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
23.
v)
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
a)
Acquisition of Albertville Quality Foods, Inc.
On July 14, 2017, the Company, through its subsidiary OK Foods, Inc., acquired 100% of the
outstanding voting shares of Albertville Quality Foods, Inc. (Acquired Co. I). Acquired Co. I's
operating results are included in the consolidated financial statements as of the date of
acquisition. Acquired Co. I is dedicated to the production and sale of processed and value-
added products based on animal protein, and is located in the state of Alabama, in the United
States of America. The aggregate purchase price paid in cash amounted to $2,449,862 (138.10
million dollars). Acquired Co. I was merged with OK Foods, Inc. at the end of 2017.
The purchase of Acquired Co. I benefits the Company’s Poultry segment because it
significantly increases OK Foods, Inc.’s product portfolio, significantly increases the client
base in the United States of America and opens the opportunity for cross-sales between the
clients of Acquired Co. I and OK Foods, Inc., significantly strengthening the presence of OK
Foods, Inc. in the self-service channel. Regarding production activities, the acquisition
increases the manual cutting process capacity, thereby reducing OK Foods, Inc.’s current
cutting costs with external suppliers, and will optimize the production processes by adopting
the best practices of both companies for the benefit of the operation as a whole. These benefits
are not recognized separately from Goodwill because they do not meet the recognition criteria
for identifiable intangible assets.
The assets acquired and the assumed liabilities of Acquired Co. I were recognized based on
the best estimate of their fair value at the acquisition date.
The Company used various valuation techniques to determine fair value. Cost and market
approaches were used to determine the value of the property, plant and equipment. Customer
relationships and trademarks are valued based on discounted cash flow analysis, relief from
royalty and multi-period excess earnings valuation approaches, which use significant
unobservable inputs, or level 3 inputs, as defined by the fair value hierarchy. Under these
valuation approaches, management made estimates and assumptions about sales, operating
margins, growth rates, royalty rates and discount rates based on budgets, business plans,
economic projections, anticipated future cash flows and marketplace data.
Due to their liquidity or short-term maturities, as appropriate, the Company concluded that
Acquired Co. I´s pre-acquisition carrying amounts for cash equivalents, accounts receivable,
other current assets, accounts payable and other current liabilities approximate their fair value
at the acquisition date, while inventories are recorded at their net realizable value.
Identifiable assets acquired and liabilities assumed
The following is a summary of the recognized amounts of assets acquired and liabilities
assumed at the acquisition date, compared to the consideration paid:
Current assets, other than inventories
Inventories
Property, plant and equipment
Other current assets
Intangible assets
Total assets
Current liabilities
Deferred income tax
Acquired net identifiable assets, net
Consideration paid
Goodwill at acquisition date
$
$
Acquisition value
202,873
304,594
547,987
10,189
969,942
2,035,585
(155,798)
(472,088)
1,407,699
2,449,862
1,042,163
Goodwill arises because the transferred consideration exceeds the identifiable assets acquired
net of liabilities assumed on the acquisition date.
The goodwill that arose from the acquisitions is not expected to be deductible for tax purposes.
Certain estimated values in the acquisition, including goodwill, intangible assets and deferred
taxes, have not yet been definitively determined and are subject to revision as new information
emerges and the analyses are completed. The purchase price was allocated based on the
information available on the date of acquisition.
Had the acquisition occurred on January 1, 2017, management estimates that consolidated
revenues and consolidated profits for the year ended December 31, 2017 would have totaled
$61,093,104 and $5,202,397, respectively. In determining these amounts, management has
assumed that the provisional adjustments to fair value recognized at the date of acquisition
would have been similar if the acquisition had occurred on January 1, 2017.
Costs related to acquisition.
During 2017, the Company incurred costs related to the acquisition of Acquired Co. I of
$16,145 corresponding to external legal fees and due diligence costs, which are included in
other expenses in the Company’s consolidated statement of profit and loss and other
comprehensive income for the year ended December 31, 2017 (see note 30).
b) Acquisition of Proveedora La Perla, S.A. de C.V.
On July 11, 2017, the Company acquired 100% of voting stock of Proveedora La Perla S.A. de
C.V. (Acquired Co. II). Acquired Co. II's operating results are included in the consolidated
financial statements as of that date. Acquired Co. II is dedicated to the production and sale of
pet food and treats, and is located in the state of Queretaro, Mexico. The purchase price in
cash amounted to $45,000.
The purchase of Acquired Co. II benefits the Other segment due to the fact that it expands its
current production capacity for dry pet food. In addition, Acquired Co. II has equipment for
the production of wet pet food and pet treats, which will allow the Company to enter this
market where it currently does not participate. The production facilities of Acquired Co. II will
allow for a reduction of logistics cost since they are within close proximity of the Company´s
clients located in the central region of the country, and it will contribute improved customer
service. This acquisition will allow for accelerated growth in the pet food business.
The assets acquired and the assumed liabilities of Acquired Co. II were recognized based on
the best estimate of their fair value at the acquisition date.
The fair value of the assets was determined using cost and market approaches. The cost
approach, which estimates the value based on the current replacement cost of an asset by
another asset of equal usefulness, was used mainly for plant and equipment. The market
approach, in which the value of an asset is based on available market prices for comparable
assets, was used mainly for real estate.
Due to their liquidity or short-term maturities, as appropriate, the Company concluded that
Acquired Co. II’s pre-acquisition carrying amounts for cash equivalents, accounts receivable,
other current assets, accounts payable and other current liabilities approximate their fair value
at the acquisition date, while inventories are recorded at their net realizable value.
Identifiable assets acquired and liabilities assumed
The following is a summary of the recognized amounts of acquired assets and assumed
liabilities at the date, compared to the consideration paid:
Current assets, other than inventories
Inventories
Property, plant and equipment
Total assets
Current liabilities
Deferred income tax
Acquired net identifiable assets
Consideration paid
Bargain purchase gain (note 30)
$
$
Acquisition value
13,835
5,846
584,884
604,565
(392,646)
(79,423)
132,496
45,000
87,496
The bargain purchase gain arises because the net of fair value of the assets at the acquisition
date exceeds the amount of the consideration transferred. The business strategies followed by
the acquiree in the past resulted in a high cost structure and limited opportunity for improving
profitability, resulting in a fair value of the business below that of its component parts. For this
reason, a gain was recognized in other income (expense) (see note 30) in the consolidated
statement of profit or loss and other comprehensive income.
Had the acquisition occurred on January 1, 2017, management estimates that consolidated
revenues and consolidated profits for the year ended December 31, 2017 would have totaled
$58,182,059 and $5,086,470, respectively. In determining these amounts, management has
assumed that the provisional adjustments to fair value recognized at the date of acquisition
would have been similar if the acquisition had occurred on January 1, 2017.
Costs related to acquisition.
During 2017, the Company incurred costs related to the acquisition of Acquired Co. II of
$15,465 corresponding to external legal fees and due diligence costs, which are included in
other expenses in the Company’s consolidated statement of profit and loss and other
comprehensive income.
(5) Subsidiaries of the Company
A list of subsidiaries and the Company’s shareholding percentage in such subsidiaries as of
December 31, 2018, 2017 and 2016 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.
Wii kit RE LTD.
Proveedora La Perla S.A. de C.V.
Country
México
U.S.
México
México
México
México
México
México
México
México
México
Bermuda
México
December 31,
2018
99.99
100.00
99.99
99.99
99.99
64.00
99.99
99.99
99.99
99.99
99.99
100.00
100.00
2017
99.99
100.00
99.99
99.99
99.99
64.00
99.99
99.99
99.99
99.99
99.99
100.00
100.00
2016
99.99
100.00
99.99
99.99
99.99
64.00
99.99
99.99
99.99
99.99
99.99
100.00
-
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 Foods, Inc. and, therefore, all operations
controlled by the Company in the United States of America. 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. The primary activities of
Bachoco USA, LLC and its subsidiary are comprised of 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 sales to third parties.
- The main activity of Bachoco Comercial, S.A. de C.V. is the distribution of chicken, turkey
and beef value-added products.
- The main activity of Induba Pavos, S.A. de C.V. is the leasing of property, plant and
equipment to its related parties.
- 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.
- On December 2016 Wii kit RE LTD. was constituted in Bermuda as a subsidiary of the
Company with 100% of the shareholding. It is a Class I reinsurance company that provides
insurance coverage to its affiliates.
- In July 2017, the Company acquired Proveedora La Perla, S.A. of C.V., in Mexico, as a
subsidiary of the Company with 100% participation, it is dedicated to the elaboration and
commercialization of balanced animal feed and pet treats.
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
swine, 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 comparable to those which
would be used with or between independent parties in comparable transactions. The
accounting policies of operating segments are as those described in note 3 t).
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 Board of Directors.
a) Operating segment information
Year ended December 31, 2018
Poultry
Other
Net revenues
Cost of sales
Gross profit
Finance income
Finance costs
Income before taxes
Income taxes
Net income attributable to controlling
interest
Property, plant and equipment, net
Goodwill
Intangible assets
Total assets
Total liabilities
Purchases of property, plant and equipment
Depreciation and amortization
$ 55,308,141
46,562,214
8,745,927
1,094,377
288,703
4,025,050
1,028,335
2,986,328
16,060,590
1,543,755
962,738
47,205,252
13,364,922
1,747,286
1,121,751
5,743,951
4,860,162
883,789
46,372
43,465
491,501
126,643
363,639
1,957,586
88,016
(13,383)
5,660,342
1,334,967
235,297
105,166
Total
61,052,092
51,422,376
9,629,716
1,140,749
332,168
4,516,551
1,154,978
3,349,967
18,018,176
1,631,771
949,355
52,865,594
14,699,889
1,982,583
1,226,917
Total revenues
Intersegments
Net revenues
Net revenues
Cost of sales
Gross profit
Finance income
Finance costs
Income before taxes
Income taxes
Net income attributable to controlling
interest
Property, plant and equipment, net
Goodwill
Intangible assets
Total assets
Total liabilities
Purchases of property, plant and equipment
Depreciation and amortization
Total revenues
Intersegments
Net revenues
Poultry
revenues
55,312,273
(4,132)
55,308,141
Other
revenues
5,785,289
(41,338)
5,743,951
Year ended December 31, 2017
Other
$
$
$
Poultry
52,479,393
42,767,202
9,712,191
943,477
295,011
5,522,187
958,201
4,558,370
15,464,404
1,543,078
1,040,042
45,165,551
13,525,194
3,154,390
982,019
5,570,632
4,735,757
834,875
144,164
45,080
516,692
126,243
389,872
1,855,637
88,016
-
5,391,838
1,354,267
358,988
93,769
Total
58,050,025
47,502,959
10,547,066
1,087,641
340,091
6,038,879
1,084,444
4,948,242
17,320,041
1,631,094
1,040,042
50,557,389
14,879,461
3,513,378
1,075,788
Poultry
revenues
52,484,264
(4,871)
52,479,393
$
$
Other
revenues
5,616,254
(45,622)
5,570,632
Year ended December 31, 2016
Poultry
Other
Net revenues
Cost of sales
Gross profit
Finance income
Finance costs
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
$ 46,852,482
38,285,367
8,567,116
840,640
149,319
5,077,042
1,494,918
3,578,049
13,478,294
396,861
40,035,990
11,909,391
2,226,493
840,624
5,167,821
4,349,704
818,116
128,534
22,835
517,554
148,515
368,585
1,602,811
88,016
5,054,476
1,464,901
233,251
85,124
Total
52,020,303
42,635,071
9,385,232
969,174
172,154
5,594,596
1,643,433
3,946,634
15,081,105
484,877
45,090,466
13,374,292
2,459,744
925,748
Total revenues
Intersegments
Net revenues
b) Geographical information
Poultry
revenues
46,856,888
(4,406)
46,852,482
$
$
Other
revenues
5,214,481
(46,660)
5,167,821
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.
Year ended December 31, 2018
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$
37,766,974
17,599,239
(58,072)
55,308,141
979,034
742,694
13,002,755
212,833
-
3,057,835
1,330,922
962,738
-
-
-
1,721,728
16,060,590
1,543,755
962,738
Year ended December 31, 2017
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$
36,013,268
16,533,664
(67,539)
52,479,393
899,691
717,812
12,143,632
212,833
-
3,320,772
1,330,245
1,040,042
-
-
-
-
1,617,503
15,464,404
1,543,078
1,040,042
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
Intangible assets
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
Intangible assets
Year ended December 31, 2016
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$
33,414,262
13,496,189
(57,969)
46,852,482
902,662
765,881
10,481,074
212,833
2,997,221
184,028
-
-
-
1,668,543
13,478,294
396,861
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 2018, 2017 and 2016, no
customer represented over 10% of the Company’s total revenues.
As of December 31, 2018 and 2017, the Company did not have operations with an individual
customer that represented a significant concentration in the United States of America. As of
December 31, 2016 the Company had transactions with The Sygma Network, Inc.
representing 9% of total sales outside of Mexico.
(7) Cash and cash equivalents
The consolidated balances of cash and cash equivalents as of December 31, 2018, 2017 and
2016 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
$
2018
13,566,098
4,331,423
17,897,521
December 31,
2017
15,464,312
623,898
16,088,210
2016
9,890,007
4,771,961
14,661,968
4,324
24,058
19,236
17,901,845
16,112,268
14,681,204
Restricted cash corresponds to the minimum margin required by the intermediary for 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, 2018, 2017 and 2016.
(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, 2018, 2017 and 2016, the Company has not identified embedded derivatives.
The Company’s derivative financial instruments as of December 31, 2018 meet the
requirements to be treated as hedges for accounting purposes (1,500 thousand dollars of
notional, other disclosures are considered non-material). During 2017 and 2016 the derivative
instruments held by the Company 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:
Financial assets
Cash and cash equivalents
Investment in securities at fair value
through profit or loss
Other financial assets
Accounts receivable
Due from related parties
Long-term receivables
Derivative financial instruments
Financial liabilities
Financial debt
Trade payables, sundry creditors and
expenses payable
Due to related parties
2018
December 31,
2017
2016
$ 17,901,845 16,112,268 14,681,204
550,068
66,177
2,444,013
99
171,222
6,570
1,127,841
64,629
2,599,208
326
162,337
-
970,292
65,509
2,524,942
148,855
161,690
8,308
$ (5,037,600) (5,249,024) (4,047,937)
(4,593,344) (4,163,443) (4,095,089)
(189,966)
(147,514)
(55,252)
Derivative financial instruments
-
(6,821)
-
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, as well as 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
measurement; 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”).
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.
The impairment assessment of accounts receivable is performed on a collective basis, as there
are no accounts with individually significant balances. 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 in process of
legal recovery, which amount to $142,388, $141,636 and $130,290 as of December 31, 2018,
2017 and 2016, 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, 2018, 2017 and 2016, the fair value of such credit
enhancements, determined by an appraisal at the time the credit lines were granted, is
$572,085, $618,481 and $570,546, 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
Investments in securities at fair value
$
through profit or loss
Other financial assets
Accounts receivable net of guarantees
received
Derivative financial instruments
$
December 31,
2018
2017
17,901,845 16,112,268 14,681,204
2016
550,068
66,177
1,127,841
64,629
970,292
65,509
2,143,390
1,986,102
6,570
2,264,941
8,308
-
20,510,762 19,448,128 17,990,254
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
Due to related parties
Variable-rate maturities
In U.S. dollars
In pesos
Interest
Total financial liabilities
$
$
December 31, 2018
1 to 3 years
3 to 5 years
Less than 1
year
4,593,344
147,514
-
-
2,757,459
735,334
145,860
8,379,511
-
44,014
270,977
314,991
-
-
-
1,500,793
79,719
1,580,512
Trade payables, sundry creditors
and expenses payable
$
Due to related parties
Derivative financial instruments
Variable-rate maturities
In U.S. dollars
In pesos
Interest
Total financial liabilities
Trade payables, sundry creditors
and expenses payable
Due to related parties
Variable-rate maturities
In U.S. dollars
In pesos
Interest
Total financial liabilities
$
$
$
December 31, 2017
1 to 3 years
3 to 5 years
Less than 1
year
4,163,443
55,252
6,821
2,752,400
942,651
162,785
8,083,352
-
-
-
-
53,973
244,484
298,457
-
-
-
1,500,000
203,840
1,703,840
December 31, 2016
1 to 3 years
3 to 5 years
Less than 1
year
4,095,089
189,966
1,444,800
1,652,725
142,100
7,524,680
-
-
-
950,412
136,859
1,087,271
-
-
-
-
-
-
At least on a monthly basis, management evaluates and advises the Board of Directors on its
liquidity. As of December 31, 2018, 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 originates
• Price of product per ton, plus quality award or penalty
Agricultural agreements that result in firm commitments are linked to two corn and/or
sorghum agricultural cycles, and in contracting purchases, both contracting cycles and dates
are itemized as follows:
• Fall-winter Cycle - The registration window period is at the discretion of the Agency of
Services for Distribution and Development of Agricultural Markets (ASERCA, for its
Spanish acronym), which is usually between December and March, while the fall-winter
cycle harvest period takes place during May, June and July. However, corn and/or
sorghum 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 highly variable.
As of December 31, 2018 and 2017, the Company participates in the ASERCA program as
buyer of the corn and / or sorghum crops, for which the Company must prove that a risk
management instrument is maintained against market price fluctuations. Based on the
foregoing, the Company entered into “put” options with maturities in March 2019 and 2018,
July, September and December 2018 and 2017, with companies listed on the Chicago
Mercantile Exchange. As of December 2018, the gain on valuation is $217 (11 thousand
dollars), during 2017, there is no gain or loss from the valuation of these instruments.
As of December 31, 2016, the Company has economic hedging positions comprised of corn
long “puts” with ASERCA, maturing in March 2017, July, September and December 2017 and
2016. The gain on valuation of these instruments is $3,189 during 2016, recorded within cost
of sales.
As of December 31, 2018 and 2017, there is no subsidy by ASERCA for the purchase of
hedging "puts" to the consumer; however, the Company participates in the "Agriculture by
Contract" program with ASERCA, where contracts for the purchase of "put" options are
registered with companies listed on the Chicago market exchange and the benefit of this
program is the recovery of the breach of Call hedge purchased, in turn, by the producer with
ASERCA. Accordingly, as of December 31, 2018 and 2017, no benefits have been realized
under this scheme.
As of December 31, 2016 the Company maintains a contractual agreement with ASERCA in
which the Company will pay 80% of the option premium and ASERCA will pay the
remaining 20%. In case the option is “In the Money” (Strike>Forward), the Company will
recover the 80% portion paid and an additional 10% 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 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, 2016 is $67,080 (3,250 thousand dollars).
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 performed, considering different (bullish and bearish) scenarios. The
results of these sensitivity analyses are presented 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, 2018, 2017 and
2016, it has not entered into any derivative financial instrument or other agreement for
managing the risk related to a decrease in chicken price.
The Company reviews chicken prices frequently in order to evaluate the need of having a
financial instrument to manage the risk.
iii. Exchange risk
The Company is exposed to the effects of exchange rate volatility, mainly in relation to
Mexican pesos/dollars exchange rates on the Company’s assets and liabilities, including:
investments in securities and 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 purchase 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, 2018, 2017 and 2016, the Company entered into derivative financial
instrument positions as economic hedges to cover exchange rate risks.
iv. Foreign currency position
The Company has financial instrument assets and liabilities denominated in foreign currency
on which there is an exposure to currency risk.
Below is the foreign currency position that the Company has as of December 31, 2018, 2017
and 2016.
2018
December 31,
2017
2016
Dollars
Mexican
Pesos
Dollars
Mexican
Pesos
Dollars
Mexican
Pesos
384,119
7,555,616
325,493
6,399,186
126,395
2,608,800
19,447
252
403,818
382,519
4,950
7,943,085
29,212
1,915
356,619
574,312
37,640
7,011,138
27,863
2,488
156,746
575,085
51,350
3,235,235
Assets
Cash and cash equivalents $
Investment in securities at
fair value through profit
or loss
Accounts receivable
Total assets
Liabilities
Trade accounts payable
Financial debt
Total Liabilities
Net asset position
Net liability position
(194,701) (3,829,765) (154,858)
(140,186) (2,757,459) (140,000)
(334,887) (6,587,224) (294,858)
61,761
1,355,861
68,931
$
-
-
-
(3,044,515) (103,854) (2,143,547)
(70,000) (1,444,800)
(2,752,400)
(5,796,915) (173,854) (3,588,347)
-
(17,108)
-
(353,112)
1,214,223
-
The Company carries out a sensitivity analysis related to the potential effects of changes in
exchange rates 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
Dollars
$
2018
19.23
2017
18.91
2016
18.68
Spot exchange rate at
December 31,
2017
19.66
2018
19.67
2016
20.64
The exchange rate at the date of issuance of the consolidated financial statements is $18.86.
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 taking into account market
conditions and the criteria 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 market 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 and accounts receivable 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
Financial debt
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Carrying
amount
Fair
value
2017
$ 5,037,600 5,037,688 5,249,024 5,255,932 4,047,937 4,062,999
2016
2018
f)
Fair value hierarchy
The fair value of financial assets and liabilities is determined as follows:
• The fair value of the financial assets and liabilities that have standard terms and
conditions and are traded in active liquid markets, which are determined by reference
to quoted market prices (market approach), therefore, these instruments are considered
Level 1 hierarchy according to the classification of fair value hierarchy described in
note 2 b).
• The fair value of derivative financial instruments of the Company (Commodities) is
determined based on the futures prices of the Chicago Stock Exchange, so these
instruments are considered Level 2 hierarchy.
The following table summarizes financial instruments carried at fair value:
As of December 31, 2018
Investment in securities at fair value through
profit or loss
Derivative financial instruments
Level 1
Level 2
Level 3
Total
$
$
550,068
-
550,068
-
6,570
6,570
-
-
-
550,068
6,570
556,638
As of December 31, 2017
Investment in securities at fair value through
profit or loss
Derivative financial instruments
As of December 31, 2016
Investment in securities at fair value through
profit or loss
Derivative financial instruments
Level 1
Level 2
Level 3
Total
$
$
$
$
969,309
-
969,309
158,532
(6,821)
151,711
-
-
-
1,127,841
(6,821)
1,121,020
Level 1
Level 2
Level 3
Total
970,292
-
970,292
-
8,308
8,308
-
-
-
970,292
8,308
978,600
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, 2018
Financial debt - bank institutions
Financial debt – debt securities
As of December 31, 2017
Financial debt - bank institutions
Financial debt – debt securities
As of December 31, 2016
Financial debt - bank institutions
Financial debt – debt securities
Level 1
Level 2
Level 3
Total
-
$
(1,500,793)
$ (1,500,793)
(3,536,895)
-
(3,536,895)
-
-
-
(3,536,895)
(1,500,793)
(5,037,688)
Level 1
Level 2
Level 3
Total
$
-
(1,506,908)
$ (1,506,908)
(3,749,024)
-
(3,749,024)
-
-
-
(3,749,024)
(1,506,908)
(5,255,932)
Level 1
Level 2
Level 3
Total
-
$
(1,512,530)
$ (1,512,530)
(2,550,469)
-
(2,550,469)
-
-
-
(2,550,469)
(1,512,530)
(4,062,999)
g)
Quantitative sensitivity measurements
The following are sensitivity analyses for the most significant risks to which the Company is
exposed as of December 31, 2018, 2017 and 2016. These analyses represent the scenarios that
management believes are reasonably possible of occurring 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, 2018 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 2018,
2017 and 2016 would have resulted in a valuation gain of $28,767, $25,971 and $41,235 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 respective periods of $48,429, $43,493 and $47,639.
The following table shows the Company’s sensitivity to an increase and decrease of 15% for
2018, 2017 and 2016 in the “bushell” price of corn and short ton price of soybeans.
Effect of Increase
Effect of Decrease
2018
2017
2016
2018
2017
2016
$
(2,665)
(16,094)
(9,085) $
105
21,229
8,785
Loss (profit) for the
year
ii. Interest rate risk
As described in Note 18, 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 to an increase and decrease of 50 basis
points for 2018, 2017 and 2016, in the variable rates to which the Company is exposed.
Effect of Increase
Effect of Decrease
2018
2017
2016
2018
2017
2016
$
30,192
43,485
15,385 $
(30,192)
(43,485)
(15,385)
Loss (profit) for the
year
iii. Exchange risk
As of December 31, 2018, the Company's net monetary liability position in foreign currency
was $1,355,861.
The following table shows the Company’s sensitivity of an increase and decrease of 10% for
2018, 2017 and 2016, in exchange rate, which would have an effect in the result from foreign
currency position.
Effect of Increase
Effect of Decrease
2017
2017
2016
2018
2017
2016
Loss (profit) for
the year
$ (135,586)
(121,422)
35,311 $
135,586
121,422
(35,311)
(9) Accounts receivable, net
As of December 31, 2018, 2017 and 2016, accounts receivable are as follows:
Trade receivables
Allowance for doubtful accounts
Other receivables
Income tax receivable
Recoverable value-added tax and
other recoverable taxes
$
$
2018
2,523,950
(79,937)
-
114,935
December 31,
2017
2,673,705
(96,900)
22,403
57,186
2016
2,482,077
(97,400)
140,265
115,428
927,406
3,486,354
970,484
3,626,878
988,774
3,629,144
Past-due but not impaired portfolio
Below is a classification of trade accounts receivable according to their aging as of the
reporting date, which has not been subject to impairment:
Past due 0 to 60 days
Past due by more than 60 days
2018
144,604
17,250
161,854
December 31,
2017
200,413
6,190
206,603
$
2016
164,458
3,395
167,853
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
Balance as of January 1
Increase in allowance
Amounts written off
Currency translation effect
$
Balance as of December 31, $
2018
(96,900)
(7,862)
24,826
(1)
(79,937)
2017
(97,400)
(14,800)
15,287
13
(96,900)
2016
(81,641)
(18,405)
2,818
(172)
(97,400)
As of December 31, 2018, 2017 and 2016 the Company has receivables in legal proceedings
(receivables for which legal counsel is seeking recoverability) of $142,388, $141,636 and
$130,290, 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.
Expected credit losses
Beginning in 2018, the Company recognizes expected credit losses for life for trade accounts
receivable, which are estimated using a provision matrix based on the Company's historical
experience of credit losses, adjusted for factors that are specific each of the Company’s
customer and debtor groups, general economic conditions and an assessment of both the
current and forecast conditions at the reporting date, including the time value of money when
appropriate. During 2017 and 2016, the estimated credit losses were based on the incurred loss
model.
The expected credit losses for 2018 in trade accounts receivable under IFRS 9 were estimated
at $45,823, considering the balances of the portfolio and the different customer groups of the
Company.
As part of the implementation analysis and once planned activities were executed, the
Company decided to maintain its previously recorded estimated reserve for doubtful accounts
for its subsidiaries, although such amounts were higher than the expected credit losses in 2018.
(10) Inventories
As of December 31, 2018, 2017 and 2016, 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
$
$
2018
1,688,527
903,337
322,522
1,548,597
52,050
39,709
10,762
10,092
4,575,596
December 31,
2017
1,861,092
820,417
296,538
1,561,912
46,185
58,563
64,918
17,708
4,727,333
2016
1,515,824
808,492
275,845
1,154,207
37,242
36,599
122,722
19,757
3,970,688
Inventory consumption for the years ended December 31, 2018, 2017 and 2016 was
$40,115,184, $37,567,550 and $34,018,493, respectively.
(11) Biological assets
For the years ended December 31, 2018, 2017 and 2016, biological assets are as follows:
$
Balance as of January 1, 2018
Increase due to purchases
Sales
Net increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as of December 31, 2018
$
$
Balance as of January 1, 2017
Increase due to purchases
Sales
Net increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as of December 31, 2017
$
Current
biological
assets
1,942,193
334,710
-
274,286
33,189,920
-
(33,690,071)
22,488
2,073,526
Current
biological
assets
1,961,191
291,361
-
277,621
30,892,045
-
(31,435,017)
(45,008)
1,942,193
Non-current
biological
assets
1,617,503
629,902
(119,297)
2,292,178
1,729,478
(2,136,224)
(2,292,178)
366
1,721,728
Non-current
biological
assets
1,668,543
599,273
(87,230)
2,112,110
1,532,189
(2,058,461)
(2,112,110)
(36,811)
1,617,503
Total
3,559,696
964,612
(119,297)
2,566,464
34,919,398
(2,136,224)
(35,982,249)
22,854
3,795,254
Total
3,629,734
890,634
(87,230)
2,389,731
32,424,234
(2,058,461)
(33,547,127)
(81,819)
3,559,696
$
Balance as of January 1, 2016
Increase due to purchases
Sales
Net increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as of December 31, 2016
$
Current
biological
assets
1,651,794
237,525
-
240,085
29,620,380
-
(29,886,985)
98,392
1,961,191
Non-current
biological
assets
1,434,131
604,527
(109,776)
2,034,670
1,515,440
(1,903,086)
(2,034,670)
127,307
1,668,543
Total
3,085,925
842,052
(109,776)
2,274,755
31,135,820
(1,903,086)
(31,921,655)
225,699
3,629,734
The “Other” category includes the change in fair value of biological assets that resulted in a
decrease of $22,270 in 2018, increase of $22,598 in 2017 and decrease of $18,276 in 2016,
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, 2018, 2017 and 2016, prepaid expenses and other current assets are as
follows:
Advances to suppliers of inventories
Prepaid expenses of services
Prepaid expenses of insurance and bonds
Other current assets
Total
2018
704,563
217,074
129,582
80,651
1,131,870
December 31,
2017
234,458
235,652
88,533
80,028
638,671
$
$
2016
929,815
217,244
185,678
171,208
1,503,945
(13) Assets held for sale
As of December 31, 2018, 2017 and 2016, assets held for sale are as follows:
Buildings
Land
Other
Total
2018
December 31,
2017
18,920
27,310
2,839
49,068
18,920
27,765
2,838
49,523
$
$
2016
21,551
32,338
2,839
56,728
The Company recognized gains (losses) on sales of these assets of (13), $2,437 and $0 during
2018, 2017 and 2016, respectively.
(14) Property, plant and equipment
As of December 31, 2018, 2017 and 2016, property, plant and equipment are comprised as
follows:
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
$
$
$
$
Balance as of
January 1,
2018
1,353,643
11,440,284
14,021,881
1,773,153
125,991
169,752
2,661
1,435,147
30,322,512
Additions Disposals
24,400
513,033
1,255,026
101,645
10,441
12,985
1,689
63,364
1,982,583
-
(11,546)
(96,727)
(82,543)
(318)
(4,258)
-
-
(195,392)
Currency
translation
effect
47
1,705
1,864
18
69
(24)
-
3,186
6,865
Balance as of
December 31,
2018
1,378,090
11,943,476
15,182,044
1,792,273
136,183
178,455
4,350
1,501,697
32,116,568
Balance as of
January 1
2018
(5,323,314)
(6,706,824)
(771,406)
(81,504)
(119,423)
(13,002,471)
Depreciation
for the year
Disposals
(221,565)
(857,930)
(118,439)
(16,598)
(12,385)
(1,226,917)
9,315
66,578
60,276
305
3,218
139,692
Currency
translation
effect
(1,261)
(7,046)
(95)
(237)
(57)
(8,696)
Balance as
of December
31, 2018
(5,536,825)
(7,505,222)
(829,664)
(98,034)
(128,647)
(14,098,392)
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
Balance as of
January 1,
2017
1,210,052
10,603,293
12,035,769
1,611,153
118,759
174,183
5,186
1,459,682
27,218,077
Additions Disposals
156,000
896,020
2,158,477
269,462
13,210
19,515
-
694
3,513,378
(8,851)
(3,200)
(106,310)
(105,982)
(3,173)
(23,505)
(2,525)
(33,419)
(286,965)
Currency
translation
effect
(3,558)
(55,829)
(66,055)
(1,480)
(2,805)
(441)
-
8,190
(121,978)
Balance as of
December 31,
2017
1,353,643
11,440,284
14,021,881
1,773,153
125,991
169,752
2,661
1,435,147
30,322,512
Balance as of
January 1
2017
(5,131,723)
(6,064,744)
(741,253)
(70,293)
(128,959)
(12,136,972)
Depreciation
for the year
Disposals
(202,513)
(735,461)
(111,073)
(15,069)
(11,672)
(1,075,788)
2,074
69,960
80,177
3,160
20,779
176,150
Currency
translation
effect
8,848
23,421
743
698
429
34,139
Balance as
of December
31, 2017
(5,323,314)
(6,706,824)
(771,406)
(81,504)
(119,423)
(13,002,471)
Balance as of
January 1,
2016
1,160,809
10,017,180
10,706,221
1,286,212
85,842
155,995
8,742
1,268,545
24,689,546
Additions Disposals
40,398
423,357
1,408,298
433,746
29,702
20,548
-
103,695
2,459,744
(6,257)
(69,520)
(355,957)
(114,222)
(2,134)
(5,183)
(3,556)
-
(556,829)
Currency
translation
effect
15,102
232,276
277,207
5,417
5,349
2,823
-
87,442
625,616
Balance as of
December 31,
2016
1,210,052
10,603,293
12,035,769
1,611,153
118,759
174,183
5,186
1,459,682
27,218,077
Balance as of
January 1
2016
(4,942,844)
(5,627,281)
(751,539)
(60,198)
(119,553)
(11,501,415)
Depreciation
for the year
Disposals
(192,810)
(630,370)
(81,783)
(10,544)
(10,241)
(925,748)
38,726
297,180
94,872
2,918
2,038
435,734
Currency
translation
effect
(34,795)
(104,273)
(2,803)
(2,469)
(1,203)
(145,543)
Balance as
of December
31, 2016
(5,131,723)
(6,064,744)
(741,253)
(70,293)
(128,959)
(12,136,972)
$
$
$
$
$
$
$
$
Carrying amounts, net
2018
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
$
$
1,378,090
6,406,651
7,676,822
962,609
38,149
49,808
4,350
1,501,697
18,018,176
December 31,
2017
1,353,643
6,116,970
7,315,057
1,001,747
44,487
50,329
2,661
1,435,147
17,320,041
2016
1,210,052
5,471,570
5,971,025
869,900
48,466
45,224
5,186
1,459,682
15,081,105
Additions of property, plant and equipment in 2017 include assets acquired through business
combinations of $1,132,871 that consist of the following:
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Furniture
Total
$
$
133,347
500,608
491,101
2,137
5,679
1,132,871
Depreciation expense during the years ended December 31, 2018, 2017 and 2016 was
$1,226,917, $1,075,788 and $925,748, respectively, which was charged to cost of sales and
operating expenses.
(15) Goodwill
Balances at beginning of the year
Business combinations (Note 4)
Foreign currency effects
Balances at end of year
2018
$ 1,631,094
-
677
$ 1,631,771
2017
484,877
1,042,163
104,054
1,631,094
2016
454,295
-
30,582
484,877
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.
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
Ok Foods- Albertville Quality Foods, Inc.
Cash-generating unit
Bachoco - Istmo and Peninsula regions
Campi
Ok Farms - Morris Hatchery, Inc. Arkansas
Ok Farms - Morris Hatchery Inc. Georgia
Ok Foods- Albertville Quality Foods, Inc.
Cash-generating unit
Bachoco - Istmo and Peninsula regions
Campi
Ok Farms - Morris Hatchery, Inc. Arkansas
Ok Farms- Morris Hatchery Inc. Georgia
2018
Final
balance of
the year
Projection
period
(years)
5
5
5
5
5
212,833
88,015
65,233
110,147
1,155,543
1,631,771
2017
Final
balance of
the year
Projection
period
(years)
5
5
5
5
5
212,833
88,015
65,200
110,091
1,154,955
1,631,094
2016
Annual
discount
rate
(%)
13.17%
13.17%
5.87%
5.87%
5.87%
Annual
growth
rate
(%)
3.00%
3.00%
0.00%
0.00%
0.00%
Annual
discount
rate
(%)
12.52%
12.52%
6.14%
6.14%
6.14%
Annual
growth
rate
(%)
3.00%
3.00%
0.00%
0.00%
0.00%
Final
balance of
the year
Projection
period
(years)
212,833
88,015
68,449
115,580
484,877
5
5
5
5
Annual
discount
rate
(%)
12.91%
12.91%
8.62%
8.62%
Annual
growth
rate
(%)
2.70%
2.10%
0.00%
0.00%
$
$
$
$
$
$
(16) Intangible assets
The balances as of December 31, 2018 and 2017 for $949,355 and $1,040,042 are mainly
comprised of trade names and customer relationships derived from the purchase transaction of
the Acquired Co. I (note 4). Customer relationships are generally amortized over 15 years
based on the pattern of revenue expected to be generated from the use of the asset.
Indefinite life intangible assets are initially recorded at their fair value and are not amortized,
but they are reviewed for impairment at least annually or more frequently if impairment
indicators arise.
During 2018, the Company decide to discontinue a product line that it was no longer
producing and did not have any success in selling the trademarks associated with that line.
Accordingly, an impairment charge of $11,756 in trade names was recognized. The remaining
intangible assets were evaluated internally and an independent external impairment study was
performed to determine the fair value. This study resulted in impairment charges of $3,535 in
the trade names in addition to the amounts listed above. The total impairment charges
recognized during 2018 for intangible assets were $21,430.
Intangible assets consist of the following:
Amortizable intangible assets
Customer relationships
Accumulated amortization
Impairment loss
Total net amortizable intangible assets
Trade names not subject to amortization
Impairment loss
Total intangible assets
2018
2017
2016
$
$
1,020,500
(95,911)
(6,139)
918,450
46,196
(15,291)
949,355
1,028,747
(34,876)
-
993,871
46,171
-
1,040,042
-
-
-
-
-
-
-
(17) 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 (l))
Security deposits
Other long-term receivable
Intangible assets in process
Other
Total non-current assets
$
$
2018
December 31,
2017
326,676
66,177
20,745
171,222
26,898
54,024
665,742
331,691
64,629
16,796
162,337
11,506
56,047
643,006
2016
552,417
65,509
15,132
161,690
12,200
58,506
865,454
(18) Financial debt
a)
Short-term financial debt is as follows:
December 31,
2018
2017
2016
Loan in the amount of 70,000 thousand dollars,
maturing in June 2017, at LIBOR (3) rate plus 0.44
percentage points.
$
Loan in the amount of 70,000 thousand dollars,
maturing in July 2017, at LIBOR (3) rate plus
0.425 percentage points.
Denominated in pesos, maturing in January 2018, at
TIIE (1) FIRA (2) rate plus 0.60 percentage points
Loan in the amount of 70,000 thousand dollars,
maturing in June 2017, at LIBOR (3) rate plus 0.50
percentage points.
Denominated in pesos, maturing in January 2019, at
-
-
-
-
TIIE (1) FIRA (2) rate plus 1.25 percentage points.
100,306
Loan in the amount of 140,000 thousand dollars,
maturing in February 2019, at fixed rate 2.29
percentage points.
Denominated in pesos, maturing in February 2019, at
TIIE (1) rate plus 1.25 percentage points.
Denominated in pesos, maturing in March 2019, at
TIIE (1) rate plus 1.25 percentage points.
Denominated in pesos, maturing in May 2019, at TIIE
(1) rate plus 0.40 percentage points.
Total short-term debt
2,757,460
300,028
250,023
20,003
1,376,200
1,376,200
100,000
-
-
-
-
-
-
-
-
-
1,444,800
-
-
-
-
-
1,444,800
$
3,427,820 2,852,400
The annual weighted average interest rate of short-term loans denominated in pesos for 2018
and 2017 was 9.14% and 8.06%, respectively, and during 2016, no short-term debt
denominated in pesos was contracted. The average interest rate for loans outstanding as of
December 31, 2018 and 2017 was 9.15% and 8.06%, respectively.
The annual weighted average interest rate of short-term loans denominated in dollars for the
years 2018, 2017 and 2016 was 2.26%, 1.22% and 1.04%, respectively. The average interest
rate for loans outstanding as of December 31, 2018, 2017 and 2016 was 2.29%, 1.57% and
1.05%, 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
b) Long-term debt consists of the following:
Denominated in pesos, maturing in September 2017, at
TIIE (1) rates plus 0.63 percentage points.
$
Denominated in pesos, maturing in 2017 and 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.
Denominated in pesos, maturing in 2019, at TIIE (1) FIRA
(2) rates plus 0.25 percentage points.
Denominated in pesos, maturing in 2019, at TIIE (1) FIRA
2018
December 31,
2017
2016
-
-
-
-
98,000
553,651
603,739
289,000
293,400
53,980
53,973
53,978
(2) rates plus 0.50 percentage points.
-
-
54,000
Denominated in pesos, maturing in 2023, at TIIE (1) FIRA
(2) plus 0 percentage points.
Debt securities (subsection (d))
Debt securities (subsection (d))
Total
Less current maturities
Long-term debt, excluding current maturities
$
55,007
-
1,500,793
1,609,780
(64,973)
1,544,807
-
-
-
1,500,000
-
1,500,000
2,396,624
2,603,137
(842,651) (1,652,725)
950,412
1,553,973
The annual weighted average interest rate on long-term debt for 2018, 2017 and 2016 was
8.42%, 7.72% and 4.04%, respectively. The average rate for outstanding loans as of December
31, 2018, 2017 and 2016 was 8.46%, 7.48% and 5.63%, 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 2018 and 2017 the Company did not make early payments on its long-term debt,
during 2017 the Company made early payments on its long-term debt of $53,900, the
Company did not make early payments on its long-term debt.
As of December 31, 2018, 2017 and 2016, unused lines of credit amounted to $5,723,011,
$7,031,813 and $5,551,263, respectively. In all such years, the Company did not pay any fee
for undrawn balances.
c) Maturities of long-term debt, excluding current maturities, as of December 31,
2017, are as follows:
Year
Amount
2019 $
2020
2021
2022
2023
1,807
12,000
12,000
1,512,000
7,000
1,544,807
Interest expense on total loans during the years ended December 31, 2018, 2017 and 2016,
amounted to $185,913, $188,597 and $129,769, 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,
2018, among which are:
a) Provide financial information at the request of the bank.
b) Not to contract liabilities with financial cost or grant loans that may affect payment
obligations.
c) Notify the bank regarding the existence of legal issues that could substantially affect
the financial situation of the Company.
d) Not to perform substantial changes to the nature of the business, or the administrative
structure.
e) Not to merge, consolidate, separate, settle or dissolve except for those mergers in
which the Company or surety are the merging company and do not constitute a
change in 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 and Securities
Commission. The initial issuance dated August 31, 2012 was for $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.
On August 25, 2017, the debt securities issued with ticker "BACHOCO 12" expired, and were
paid according to the contractual terms of the issuance.
On August 25, 2017, a second issuance of debt securities was carried out for a total amount of
$1,500,000 with ticker symbol: “BACHOCO 17” 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 face amount, at an annual interest rate, which is calculated by
adding 0.31 percentage points at the 28-day TIIE, and in the event the 28-day TIIE is not
published, at the nearest term published by the Bank of Mexico. The debt issue that expired in
2017 accrued a gross interest on its nominal value, at an annual interest rate, which was
calculated by adding 0.60 percentage points to the 28-day TIIE.
The amortization of the debt securities is carried out at the expiration of the contractual term
of each issuance. 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,
2017.
e) Reconciliation of liabilities arising from financing activities
Balance as of January 1
Changes that represent cash flows
Proceeds from borrowings
Principal payment on loans
Changes that do not represent cash flows
Others
Balance as of December 31
(19) 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
Others
$
$
December 31,
2018
$ 5,249,024
2017
4,047,937
3,370,400
5,378,915
(3,588,067) (4,246,100)
6,243
$ 5,037,600
68,272
5,249,024
December 31,
2017
2018
3,996,014
597,330
103,494
68,432
259,828
160,431
10,728
90
5,196,347
3,684,220
479,223
103,474
42,940
241,739
171,784
16,904
82
4,740,366
2016
3,646,410
448,679
105,434
42,134
214,558
76,721
11,160
81
4,545,177
Note 8 discloses the Company’s exposure to the exchange and liquidity risks related to trade
accounts payable and other accounts payable.
In 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 considered that the
interposed legal processes were well sustained and attended, a provision that was considered
adequate was recognized. During 2016 these judgments were concluded in favor of the
Company's interests, for which reason the provision recorded for this purpose was canceled.
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, 2018, 2017 and 2016, the Company has recorded provisions of $39,340 (2,000
thousand dollars), $39,320 (2,000 thousand dollars) and $41,280 (2,000 thousand dollars) for
estimated probable payments.
(20) 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, 2018, 2017 and 2016:
Compensation
December 31,
2018
61,189
2017
56,201
$
2016
53,531
(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
Transaction value
December 31,
2017
2018
2016
Sales of products to:
Vimifos, S.A. de C.V.
Frescopack, S.A. de C.V.
Taxis Aéreos del Noroeste,
S.A. de C.V.
$
$
8,812
-
28
8,840
47,344
41,715 $
10
66
1,013
48,367
1,927
43,708 $
Balance as of
December 31,
2017
2018
2016
-
-
99
99
326
-
4,261
32
-
326
144,562
148,855
The balance of Taxis Aéreos del Noroeste, S.A. de C.V. as of December 31, 2016 for
$144,562 corresponds to a loan that bears interest and is due in the short term.
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,
2017
2018
2016
2018
Balance as of
December 31,
2017
2016
$ 557,490 392,226
193,396 179,357
26,700
37,794
95
230
554,282 $ 103,371
28,951
137,752
5,227
41,122
41
193
12,830
29,537
8,138
-
126,396
35,931
7,528
64
$
-
38,581
18,776
793
35,225
24,645
34,446
29,457
40,575
64
3,374
4,712
64
4,207
57
17,671
14,037
39,504
1,486
19,490
47
307
30
85,448
15
428
29
153,802
25
394
7,974
216
7
40
5
79
172
4
95
1
1,898
3,449
1,985
5,298
6,137
2
94
710
$
8,368
7,854
7,739
20
$ 147,514
68
55,252
474
189,966
As of December 31, 2018, 2017 and 2016, balances payable to related parties correspond to
current accounts denominated in pesos that bear no interest and are payable on a short-term
basis.
(21) Income Tax
Under the tax legislation in Mexico and the United States of America in effect through
December 31, 2018, entities are subject to pay Income Tax (ISR, by 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, 2018, 2017 and
2016, 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 during 2017 and 2016 for the
Company’s US subsidiary is 35% (plus state and federal taxes) and as of January 1, 2018 the
rate is 21% (plus state and federal taxes).
As of December 31, 2018, 2017 and 2016, 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 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.
b) Tax charged to profit and loss
For the years ended December 31, 2018, 2017 and 2016, the income tax (benefit) expense
included in profit and loss is as follows:
Operation in Mexico:
Current ISR
Deferred ISR
Foreign operation:
Current ISR
Deferred ISR
Total ISR expense
Total income tax expense
2018
1,242,553
(33,718)
1,208,835
4,294
(58,151)
1,154,978
December 31
2017
1,512,721
(157,646)
1,355,075
198,813
(469,444)
1,084,444
$
$
2016
1,215,171
264,086
1,479,257
45,358
118,818
1,643,433
The income tax expense attributable to income before income taxes differed from the amount
computed by applying the ISR rate of 30% in 2018, 2017 and 2016 due to the items listed
below:
December 31,
Expected expense
Increase (decrease)
resulting from:
Net effects of inflation
(Non-taxable income)
Non-deductible
expenses
Effect of rate difference
of foreign subsidiary
Effect from non-
deductible employee
benefits
Effect of change of
income tax rate in the
United States of
America
Cancellation of loss by
acquisition
Other
Income tax expense
2017
ISR
1,811,667
Percentage
ISR
30% $
1,678,379
2016
Percentage
30%
(329,516)
(5%)
(144,611)
(2%)
2018
Percentage
ISR
$ 1,354,965
30% $
(276,758)
16,648
(16,572)
-
(6%)
0%
(0%)
88,330
702
1%
0%
1%
14,550
21,979
71,868
90,820
2%
83,953
-
-
(14,126)
$ 1,154,978
-
-
(443,104)
(7%)
-
(0%)
26% $
(129,036)
1,448
1,084,444
(2%)
0%
18% $
-
1,268
1,643,433
0%
0%
1%
-
-
0%
29%
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 agriculture, cattle-raising, forestry and fishing
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 of December 31, 2018, 2017 and 2016 are
detailed below:
Deferred tax assets
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Other provisions
Total deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Prepaid expenses
Total deferred tax liabilities
Net deferred tax assets
Deferred tax assets
Accounts payable
Tax loss carryforwards
Goodwill
Other provisions
Total deferred tax assets
Deferred tax liabilities
Inventories
Accounts receivable
Property, plant and equipment
Prepaid expenses
Intangible assets
Derivative financial instruments
Total deferred tax liabilities
Net deferred tax liability
$
$
$
2018
December 31,
2017
2016
27,738
53,398
20,536
-
2,205
103,877
51
-
51
103,826
16,404
45,519
12,917
7,025
81,865
-
59
1,136
1,195
80,670
831
42,221
12,700
2,760
1,754
60,266
82
52
134
60,132
December 31,
2018
2017
2016
1,483,275
59,883
3,879
76,025
1,623,062
1,639,156
366,825
2,503,172
647,480
233,749
-
5,390,382
3,767,320
1,170,771
22,013
7,562
54,020
1,254,366
964,676
676
19,846
24,049
1,009,247
1,601,498
421,191
2,428,358
392,800
253,898
-
5,097,745
3,843,379
1,612,890
438,146
2,566,002
302,958
-
1,826
4,921,822
3,912,575
d) 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. Deferred income tax on
investments in subsidiaries not recognized as of December 31, 2018, 2017 and 2016 amounts
to $2,049,327, $2,587,954 and $1,962,545, respectively. The Company's policy has been to
distribute accounting profits when the respective taxes have been paid and in the case of
foreign profits, such tax may be duly credited in Mexico.
e) Movement in temporary differences during the fiscal year
January 1,
2018
(1,187,175)
(45,519)
(12,917)
(22,013)
(61,045)
(7,562)
253,898
1,601,498
421,191
2,428,417
393,936
3,762,709
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
(323,784)
(1,317)
(7,619)
(37,004)
(17,240)
3,604
(19,825)
37,319
(54,366)
74,819
253,544
(91,869)
(54)
(6,562)
-
(866)
55
79
(324)
339
-
(13)
-
(7,346)
January 1,
2017
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
(965,507)
(42,221)
(12,700)
(3,436)
(25,803)
(19,846)
-
1,612,890
438,146
2,566,084
303,010
1,826
3,852,443
(223,640)
1,915
(217)
(18,577)
(35,577)
10,895
-
(82,523)
(16,955)
(351,511)
90,926
(1,826)
(627,090)
1,972
(5,213)
-
-
335
1,389
253,898
71,131
-
213,844
-
-
537,356
$
$
$
$
December
31, 2018
(1,511,013)
(53,398)
(20,536)
(59,883)
(78,230)
(3,879)
233,749
1,639,156
366,825
2,503,223
647,480
3,663,494
December
31, 2017
(1,187,175)
(45,519)
(12,917)
(22,013)
(61,045)
(7,562)
253,898
1,601,498
421,191
2,428,417
393,936
-
3,762,709
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Other provisions
Goodwill
Intangible assets
Inventories
Accounts receivable
Property, plant and equipment
Prepaid expenses
Net deferred tax liability
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Other provisions
Goodwill
Intangible assets
Inventories
Accounts receivable
Property, plant and equipment
Prepaid expenses
Derivative financial instruments
Net deferred tax liability
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
$
$
January 1,
2016
(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
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
134,658
(14,115)
(3,184)
7,881
(18,200)
6,272
167,441
55,964
93,752
(50,250)
2,685
382,904
(6,256)
4,466
-
-
(757)
(3,792)
44,656
-
116,313
-
-
154,630
December
31, 2016
(965,507)
(42,221)
(12,700)
(3,436)
(25,803)
(19,846)
1,612,890
438,146
2,566,084
303,010
1,826
3,852,443
f)
Tax on assets and tax loss carryforwards
As of December 31, 2018, tax loss carryforwards expire as shown below. Amounts are
indexed for inflation as permitted by Mexican income tax law:
Amount as of December 31, 2018
Year
2017
2018
Tax loss
carryforwards
$
$
58,710
196,197
254,907
Year of expiration /
maturity
2027
2028
(22) 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 from 2016, the Company is obligated to make contributions as follows: i) 20% of
employee contributions for employees with 1 - 4.99 years of service, ii) 40% of employee
contributions for employees with 5 – 9.99 years of service, and iii) 100% matching
contributions for employees with 10 or more years of service or when the employee reaches
40 years of age, regardless of the years of service.
When an employee retires from the Company he/she has the right to receive the contribution
he/she has made to the plan, and i) if the employee retires between the first and the 4.99 year
of services (4 year of services during 2015), 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 $0, $0 and $1,597, in 2018, 2017 and 2016,
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 $62,028, $56,063 and $50,047, in 2018, 2017 and 2016,
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 of 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 constructive obligations from past practices. Such constructive
obligations are associated with service time the employee has worked for the Company. The
payment of this benefit is disbursed in a single installment at the time the employee
voluntarily stops working for the Company. As of 2018 this obligation is only recognized for
directors and executives.
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
i. Composition and return of plan assets
2018
302,818
197,254
December 31,
2017
252,965
259,245
$
2016
195,019
267,535
500,072
(197,254)
302,818
$
512,210
462,554
(259,245) (267,535)
195,019
252,965
Actual return of the plan assets
2018
2017
2016
Composition of the plan
assets
2017
2016
2018
Fixed income
securities
Variable income
securities
Total
5.10%
7.18%
7.16%
67%
61%
64%
(10.95%)
12.78%
10.07%
33%
100%
39%
100%
36%
100%
ii. Movements in the present value of defined benefit obligations (PBO)
PBO as of January 1
Benefits paid by the plan
Service cost
Interest cost
Actuarial (gains) losses recognized in
other comprehensive income
Past service cost – plan amendments
PBO as of December 31
2018
462,986
(38,393)
28,084
41,410
2017
462,554
(32,940)
28,968
40,170
494
5,491
500,072
13,458
-
512,210
$
$
iii. Movements in the fair value of plan assets
Plan assets at fair value as of January 1
Transfer of assets to fund defined
contribution benefit plan
Benefits paid by the plan
Expected return on plan assets
Actuarial losses in other comprehensive
income
Fair value of plan assets as of December 31
$
2018
259,245
2017
267,535
$
(38,327)
(16,772)
23,244
(10,664)
(17,049)
23,342
(30,136)
197,254
(3,919)
259,245
2016
447,099
(26,031)
29,604
34,857
(24,827)
1,852
462,554
2016
286,881
(25,600)
(9,457)
25,650
(9,939)
267,535
iv. Expense recognized in profit and loss
Current service cost
Interest cost, net
v. Actuarial gains and (losses)
2018
2017
2016
$
$
28,084
18,166
46,250
28,968
16,828
45,796
29,604
9,207
38,811
Amount accumulated as of January, 1
Recognized during the year
Amount accumulated as of December,
31
$
$
2018
(140,617)
(30,630)
2017
(123,240)
(17,377)
2016
(138,128)
14,888
(171,247)
(140,617)
(123,240)
vi. Actuarial assumptions
Primary actuarial assumptions at the consolidated financial statements date (expressed as
weighted averages) are as follows.
Discount rate as of December, 31
Rate for future salary increases
Social security wage increase rate
2018
10.50%
4.50%
3.50%
2017
9.25%
4.50%
3.50%
2016
9.00%
4.50%
3.50%
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
$
2018
500,072
(197,254)
302,818
494
(30,136)
December 31,
2017
512,210
(259,245)
252,965
13,458
(3,919)
2016
462,554
(267,535)
195,019
(24,827)
(9,939)
viii.Sensitivity analysis of the defined benefits obligations as of December 31, 2018, 2017 and
2016
2018
Discount rate 10.50%
Rate increase (+ 1%)
Rate decrease (- 1%)
Pension
plan
(358,635)
(313,585)
(364,699)
Seniority
premium
Constructive
obligation
Total
PBO
(119,973)
(109,872)
(121,572)
(21,464)
(20,258)
(21,649)
(500,072)
(443,715)
(507,920)
2017
Discount rate 9.25%
Rate increase (+ 1%)
Rate decrease (- 1%)
2016
Discount rate 9.00%
Rate increase (+ 1%)
Rate decrease (- 1%)
Pension
plan
(343,485)
(314,460)
(377,114)
Pension
plan
(308,885)
(280,316)
(312,017)
Seniority
premium
Constructive
obligation
Total
PBO
(99,735)
(94,308)
(105,810)
(68,990)
(65,113)
(73,338)
(512,210)
(473,881)
(556,262)
Seniority
premium
Constructive
obligation
Total
PBO
(93,877)
(88,657)
(99,733)
(59,792)
(56,237)
(63,796)
(462,554)
(425,210)
(475,546)
ix. Expected cash flows
Total
2019-2029 $
482,775
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
$12,999, $11,497 and $10,909 for the year ended December 31, 2018, 2017 and 2016,
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, 26,000 units were
outstanding as of December 31, 2018, 2017 and 2016, all of which were fully vested. The total
liability under this plan totaled $20,922, $3,378 and $3,337 as of December 31, 2018, 2017
and 2016, respectively. No expense was recognized for this plan for the year ended December
31, 2018, 2017 and 2016.
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, 2018, 2017 and 2016 is shown in note 19, Trade payable and other accounts
payable.
(23) 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
(24) Operating leases
Company as lessee
2018
51,422,376
2017
47,502,959
2016
42,635,071
6,024,406
57,446,782
5,423,379
52,926,338
4,847,858
47,482,929
40,115,184
7,348,795
4,809,678
1,719,907
1,591,920
1,226,917
453,162
181,219
57,446,782
37,567,550
6,605,584
4,176,508
1,471,392
1,334,339
1,075,788
416,437
278,740
52,926,338
34,018,493
5,971,382
3,712,349
1,292,763
1,005,570
925,748
403,116
153,508
47,482,929
$
$
$
$
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
2018
453,162
2017
416,437
2016
403,116
$
The amount of annual rentals payable, arising from lease agreements for the following five
years is as follows:
2019
2020
2021
2022
2023
$
117,496
103,347
97,548
70,956
50,751
(25) 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 2018, 2017 and 2016 these ratios were below the thresholds established by the
Company’s Risk Committee.
b) Common stock and premiums
As of December 31, 2018, 2017 and 2016, the Company’s capital stock is represented by
600,000,000 Series “B” registered shares with a par value of $1 peso per share.
The Robinson Bours family owned 496,500,000 shares through two family trusts: the
placement trust and the control trust, which collectively represented 82.75% of the Company’s
total shares.
On December 9, 2013, the members of the placement trust decided to sell 57,000,000 shares
that represent 9.5% of the total shares of the Company. The transaction was conducted through
the BMV at market price.
After the sale of the shares, the Company’s capital stock was as follows:
Familiar Trusts
- Control Trust
- Placement Trust
Floating Position (2)
Before the Transaction
Shares (1)
Position
496,500,000 82.75%
312,000,000 52.00%
184,500,000 30.75%
103,500,000 17.25%
After the Transaction
Shares (1)
Position
439,500,000 73.25%
312,000,000 52.00%
127,500,000 21.25%
160,500,000 26.75%
(1) All Series B shares with voting power.
(2) Operating at the BMV and the NYSE.
Based on the information provided to the Company, as of December 31, 2018, stockholders
with 1% or more interest in the Company, in addition to the family trusts, are as follows:
Renaissance Technologies LLC
Shares
Position
7,559,952
1.26%
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, the amount of these actuarial remeasurements net of taxes as of December 31, 2018,
2017 and 2016 amounts to $120,378, $98,938 and $86,774, which includes a deferred tax
effect of $50,867, $41,679 and $36,466, respectively.
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 25, 2018, pursuant to a resolution at the General Ordinary Stockholders’ Meeting, an
amount of $568,500 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, 2018, 2017 and 2016:
Balance as of January 1
(+) Total shares purchased
(-) Total shares sold
Balance as of December 31
2018
20,000
86,928
(20,000)
86,928
2017
-
20,000
-
20,000
2016
10,000
100,157
(110,157)
-
The net amount of repurchase and treasury share sale transactions gave rise to additional paid
in capital of $85, loss of ($1,800), and gave rise to additional paid in capital of $368 during the
years ended December 31, 2018, 2017 and 2016, respectively, recognized within equity.
As of December 31, 2018, the Company has 86,928 treasury shares.
e) Dividends
During the years ended December 31, 2018, 2017 and 2016, the Company has declared and
paid the following dividends:
On April 25, 2018, the Company declared a payment of dividends in cash at nominal value of
$852,000 or $1.42 pesos per outstanding share. The payment was made in two equal
installments, on May 11 and July 6, 2018.
On April 26, 2017, the Company declared a payment of dividends in cash at nominal value of
$780,000 or $1.30 pesos per outstanding share. The payment was made in two equal
installments, on May 11 and July 6, 2017.
On April 27, 2016, the Company declared a payment of dividends in cash at nominal value of
$780,000 or $1.30 pesos per outstanding share, from which there is a reduction of $40 for the
dividend corresponding to repurchased shares. The payment was made in two equal
installments, on May 12 and July 7, 2016.
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
2018, 2017 and 2016, net income of BSACV, accounted for 63%, 63% and 65%, 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)
Tax balances of stockholders’ equity
CUFIN
IBSA individual
IBSA Consolidated
$
Balance as
2013
7,221,441
7,595,797
Balance
from2014
Total
7,732,775
15,170,021
14,954,216
22,765,818
The restated amount as of December 31, 2018 on tax bases of the contributions made by
stockholders (CUCA), totaling $2,971,796, may be refunded to them tax-free, to the extent
that such amount is the same or higher than equity.
(26) Earnings per share
The basic and diluted earnings per share for the years ended December 31, 2018, 2017 and
2016 are $5.58, $8.25 and $6.58, respectively. The calculation of earnings per share was based
on income attributable to ordinary stockholders of $3,349,967, $4,948,242 and $3,946,634 for
the years ended December 31, 2018, 2017 and 2016, respectively.
The average weighted number of common outstanding in 2018, 2017 and 2016 was
599,980,734, 599,997,696 and 599,979,844 shares, respectively.
The Company has no ordinary shares with potential dilutive effects.
(27) 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 $6,885 (350 thousand
dollars) each year per plan participant and workers’ payments claims up to $19,670 (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 $74,766 (3,801 thousand dollars),
$98,221 (4,996 thousand dollars) and $75,873 (3,676 thousand dollars) as of December 31,
2018, 2017 and 2016, respectively. Likewise, the consolidated statement of comprehensive
income includes expenses relating to self-insurance plans of $139,783, (7,269 thousand
dollars), $221,644, (11,721 thousand dollars) and $120,729 (6,463 thousand dollars) for the
years ended December 31, 2018, 2017 and 2016, respectively. The Company is required to
maintain letters of credit on behalf of the subsidiary of $57,043, (2,900 thousand dollars)
during 2018, $57,014, (2,900 thousand dollars) during 2017 and $70,176 and $58,514
(3,400 thousand dollars) as of December 31, 2016, 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.
(28) Contingencies
a)
Insurance
The Company has established a risk management program under a best practices methodology
that assures the main risks of the business with the objective of reducing losses due to relevant
claims. At the end of 2016 the Company set up a captive reinsurance company to complement
its risk management strategy. Notwithstanding the foregoing, since all the exposures are not
covered, 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. The Company has not identified factors that may indicate the existence of a
contingency.
(29) 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
2018
1,072,991
2017
848,148
2016
637,977
$
4,516
39,323
8,961
230,532
8,357
297,463
23,919
-
1,140,749 1,087,641
25,377
969,174
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
$
(30) Other income (expenses)
-
(84,094)
-
(185,913) (188,597) (129,769)
(146,255)
(42,385)
(332,168) (340,091) (172,154)
808,581
797,020
747,550
(67,400)
Other income
Sale of scrap of biological assets, raw
materials, by-products and other
Bargain purchase gain of domestic
business acquisition (note 4b)
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
$
2018
2017
2016
$ 1,041,677
896,840
1,076,902
-
1,041,677
87,496
984,336
-
1,076,902
(737,077)
(201,940)
(939,017)
102,660
(731,110)
(85,584)
(816,694)
167,642
(704,152)
(112,548)
(816,700)
260,202
DEPOSITARY BANK
BNY MELLON
BNY Mellon Shareowner Services
T. US: 1-888-269-2377
T. 201-680-6825
E-mail: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
Proxy Services
shareowner@bankofny.com
Toll Free: 1.888.269.2377
T. (212)815.374.00
INDEPENDENT AUDITORS
Deloitte Touche Tohmatsu/ Galaz, Yamazaki, Ruiz Urquiza, S.C.
T. +52 (442) 238.29.34
CORPORATE HEADQUARTERS
Industrias Bachoco S.A.B de C.V.
Av. Tecnológico 401
Celaya, Guanajuato
38030, México
T. +52 (461) 618.35.00
INVESTOR RELATIONS
María Guadalupe Jáquez
Andrea Guerrero
T. +52 (461) 618.35.55 (México)
inversionistas@bachoco.net
Consult online our Annual Report 2018:
https://bit.ly/2UgGK1m
www.bachoco.com.mx