22
23
24
26
28
Highlights to Investors
Board of Directors
Senior Management Team
Sustainability and Social
Responsibility
Consolidated Financial
Statements
05
06
10
14
16
17
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
INDEX 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.
Bachoco owns and manages
more than a1000
farms
9
processing
plants
9
further
processing
plants
22
feed mills
23
hatcheries
more than 80
distribution centers
The Company employs more than
28,000 peOPLE.
4
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 equal to $18.89 pesos
In millions pesos
TOTAL ASSETS
Cash and cash equivalents
Inventories
TOTAL LIABILITIES
Notes payable to banks
Accounts payable
Long-term debt
OTAL STOCKHOLDERS´ EQUITY
Capital stock
Retained earnings
1 One dollar equal to $18.89 pesos
A
T
A
D
G
N
I
T
A
R
E
P
O
I
A
T
A
D
L
A
C
N
A
N
I
F
F
O
T
N
E
M
E
T
A
T
S
U.S. Dollar 1
2019
$ 3,263.9
534.6
210.5
278.6
$ 171.1
0.28
3.41
16.4%
6.4%
8.5%
5.2%
In U.S. Dollars1
2019
$ 2,948.8
1,015.5
249.3
$ 817.5
182.1
273.1
78.8
$ 2,131.3
62.2
1,928.2
December 31,
2019
2018
2017
61,655.2
10,097.9
3,976.5
5,263.0
3,232.8
5.37
64.40
16.4%
6.4%
8.5%
5.2%
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%
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,
2019
2018
2017
55,702.5
19,182.7
4,710.2
15,442.2
3,440.4
5,158.8
1,488.2
40,260.3
1,174.4
36,424.4
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
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
SALES BY GEOGRAPHY
•
mEXICO
73%•
United States 27%
NET SALES
85% 6% 5% 4%
E
M
P
L
O
Y
E
E
S
2019
28,218
2018
27,597
2017
27,397
•
•
•
5
MESSAGE TO
SHAREHOLDERS
Dear Shareholders of Industrias Bachoco:
2019 was a challenging year regarding macroeconomic and industry conditions.
Even though the inflation in Mexico was 2.83%, which is significantly lower than the
rate reported in 2018, GDP decreased 0.1%; which was the first time a reduction
has been reported in the last ten years. The negative effects of this deacceleration
was mainly observed at the end of 2019.
In the Mexican poultry industry, we observed a good balance between supply and
demand during most part of the year, with some oversupply conditions in the fourth
quarter.
In the U.S., during 2019, we observed some oversupply conditions in animal proteins,
mainly due to the expectancy of a higher demand from Asia caused by the African
Swine Fever. Although this effect hasn’t been materialized yet, the oversupply
conditions resulted in some pressure in the chicken prices, mostly on white meat.
Regarding prices of raw materials, these remained relatively stable during most parts
of the year. These conditions, in addition to our hedging strategy, allowed us to
capitalize the benefits in our cost of sales.
Under the conditions mentioned above, we achieved an increase in our total sales
of 1.0% when compared with 2018. Particularly in Balanced Feed, not only did we
see an increase in sales, but we also achieved a new record in volume sold for a
year. This reinforces our focus on attending our customers, productivity efforts and
financial discipline.
6
7
Annual Report Bachoco 2019 are also very proud to mention that our
CEO, Rodolfo Ramos Arvizu, has been
again placed as one of the most respected
CEO´s in the country, getting 26th place
on the list; improving 12 places from the
previous year.
The work of our team has been essential
in achieving our goals. Today there are
more than 28,000 employees who are
working constantly to achieve the best
results in the industry. Undoubtedly, the
invaluable effort that the Bachoco team
makes every day has been key to maintain
our level of competitiveness, with a solid
and trustworthy brand.
like to remind you of the
I would
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
In 2019, we continued working on our
growth plans while significantly increasing
our CAPEX. These
investments were
allocated to organic growth, as well as
in productivity projects in all our supply
chain. This will allow us to continue
getting closer to our customers and to
consolidate as their best alternative in the
industry.
Our financial structure continued strong
as we ended 2019 with a net cash of
$14,254 million, which will allow us to
continue supporting our short and long-
term growth plans and, at the same time,
to face the uncertainties and volatilities of
the industry in which we compete.
We continue generating and looking for
both efficiency and growth opportunities.
By the end of 2019, we shared with you
the agreement achieved to invest in
the company Sonora Agropecuaria S.A.
de C.V. “SASA” a swine processor and
distributor with operations in the states
of Sonora and Jalisco. This agreement
will have synergies with our current
live swine business, while allowing us
to accelerate our rhythm of growth and
continue to move forward in the process
of diversification in other animal proteins.
We are working in the compliance of the
requirements of Mexican authorities in
competition matters in order to proceed
in the integration process and capitalize
the identified benefits.
As a commitment to be present every day,
this year we worked on the construction
of our first public Sustainability Report,
where we align to the strategies of the
company, we reflect on our principle
actions and goals in sustainability topics
related to our business, products, work
team, planet and community.
Bachoco was placed
in the top 50
companies with the best reputation in
Mexico according to MERCO survey. We
8
9
Dear Shareholders:
All figures discussed below are information of 2019 with comparative
figures of 2018. It was prepared under IFRS accounting principles, and
is presented in millions of pesos unless otherwise indicated.
During 2019, we continued consolidating
our productivity and organic growth
the
projects which contributes
strengthening of our presence in each
geography.
to
Despite the challenges that the national
and global macroeconomic conditions
presented,
in Bachoco we reported
positive results. Our financial position
continued solid and allowed us to remain
close to our customers and deliver high
quality products.
2019 & 2018 RESULTS
Net sales in 2019 totaled $61,655.2
million, $603.1 million more or a 1.0%
increase in net sales, when compared to
$61,052.1 million reported in 2018. This
increase was mainly due to higher prices
in our main business lines and more
volume sold in our others business line,
where the participation of Balance Feed
was very prominent.
In 2019, sales of our US operations
represented 27.4% of our total sales,
compared with 28.7% reported in 2018.
This was a result of an increase in sales of
our Mexico operation.
The Company’s
total poultry sales
increased 0.6%, while our Others line
increased 4.5%. The increase in poultry
was a result of better prices when
compared to 2018, while the higher sales
in Others was mainly driven by higher
volume sold.
Cost of sales totaled $51,557.4 million,
0.3% higher than the $51,422.4 million
reported in 2018. The increase in cost
of sales was mainly attributed to more
volume sold that was highly offset by
efficiencies in our production processes
as well as an effective hedging strategy.
These numbers allowed us to reach a
gross profit of $10,097.9 million, which
represented 16.4% of gross margin;
higher than the $9,629.7 million of gross
profit and a margin of 15.8% reached in
2018.
Total SG&A expenses in 2019 were
$6,116.6 million, an increase of $92.2
million or 1.5% when compared to
$6,024.4 million in 2018. Total SG&A
expenses as a percentage of net sales
represented 9.9% in both 2019 and 2018.
These results were due to efficiencies in
our production processes, mainly in our
distribution network.
In 2019, we had other expenses of $4.7
million, compared with other income
of $102.7 million reported in 2018.
The decrease was mainly due to a one-
time charge that we recognized in 2019
caused by the write-off on intangible
assets in our Albertville operation.
CEO’s
Letter
10
11
Annual Report Bachoco 2019 Total debt as of December 31, 2019 was $4,928.6 million, compared to total debt of
$5,037.6 million reported as of December 31, 2018. As a result, our net cash as of
December 31, 2019 totaled $14.254.1 million, compared with a net cash of $13.420.9
million as of December 31, 2018.
Capex in 2019 totaled $2,069.3 million, an increase of 4.4% when compared to
$1,982.6 million reported in 2018. In 2019, the Company continued with the
implementation of new projects oriented toward organic growth and productivity
which reinforces our commitment to continue to be close to our consumers.
Rodolfo Ramos Arvizu
Chief Executive Officer
Net financial income
was $381.3 million,
a decrease when
compared to the net
financial income of
$808.6 million in
2018.
The operating income in 2019 totaled $3,976.5 million with a
margin of 6.4%, higher than the $3,708.0 million of operating
income and 6.1% margin as reported in 2018.
In 2019, we reached an EBITDA of $5,263.0 million,
representing an EBITDA margin of 8.5%, compared to an
EBITDA of $4,993.1 million in 2018, with a margin of 8.2%.
Net financial income was $381.3 million, a decrease when
compared to the net financial income of $808.6 million in
2018.
Total taxes were $1,125.0 million. This includes $1,064.3
million in income tax and $60.7 million in deferred taxes.
This figure compares to total taxes of $1,155.0 million, which
includes income tax of $1,246.8 and a favorable effect of
$91.9 million of deferred tax in 2018.
As a result, net income in 2019 was $3,232.8 million, a 5.2%
net margin, which represents earnings per share of $5.37
pesos; while in 2018, net income totaled $3,361.6 million with
an 5.5% net margin, and $5.58 pesos of earnings per share.
Cash and equivalents as of December 31, 2019 totaled
$19,182.7 million, an increase of $724.2 million or 3.9% more
than the $18,458.5 million of cash and equivalents reported as
of December 31, 2018.
12
13
Annual Report Bachoco 2019 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 2019, 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 2019, 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 2019.
Javier Bours Castelo
Chairman of the Board of Directors
REPORT FROM
THE BOARD OF
DIRECTORS
14
15
Annual Report Bachoco 2019 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 24, 2019.
AUDIT COMMITTEE AND CORPORATE PRACTIES MEMBERS
Guillermo Ochoa Maciel (President)
Humberto Schwarzbeck Noriega
Avelino Fernandez Salido
Ricardo Aguirre Borboa
ANNUAL REPORT OF THE PRESIDENT OF
THE AUDIT AND CORPORATE PRACTICES
COMMITTEE TO THE BOARD OF
DIRECTORS
AUDIT AND
CORPORATE
PRACTICES
COMMITTEE
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 2020.
in attention of
In the exercise of the Committee
functions, and
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.
that
concluded
Regarding Corporate Practices:
the Officers
We
the
performance was aligned with
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
2019, 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
16
17
Annual Report Bachoco 2019
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 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.
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.
Regarding Financial Information:
the
The Financial Statements of
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 2019
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.
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 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 2019 were duly revised
and approved. The Audited Financial
Statements as of December 31, 2019
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.
18
19
Annual Report Bachoco 2019 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, 2019, 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 2019.
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 2019, for its presentation to the Annual and General Ordinary
Shareholder´s Meeting of the Company.
Guillemo Ochoa Maciel
President of Bachoco´s Audit and Corporate Practices Committee
20
21
Annual Report Bachoco 2019 HIGHLIGHTS TO
INVESTORS
In 2019, the Company´s shares and ADRs reported a decrease in yield
of 26.2% on the BMV and of 31.4% on NYSE.
BACHOCO IN THE STOCKS
600
million shares
One single class (Class B)
Full rights
An ADR equals 12 shares
26.75%
of float
An estimated $48,858 million pesos in market
capitalization
The founding family holds
73.25%
of total shares, by two
Trusts:
Control Trust with 52.00%
Underwriting Trust with 21.25%
SHARE PRICES
Bolsa Mexicana de Valores
In pesos per Share
The New York Stock Exchange
In dollars per ADR
Year High Low Average Close
2019
81.43
65.38
2018
64.52
63.50
2017
93.62
79.53
2016
84.75
62.51
2015
70.05
59.23
92.44
98.16
102.00
85.65
89.73
80.46
88.29
88.51
77.34
71.74
Year High Low Average Close
2019
52.00
40.07
2018
39.56
38.08
2017
57.30
46.20
2016
49.02
41.17
2015
49.23
45.64
56.34
63.84
67.61
55.65
63.49
50.10
55.23
56.39
46.68
54.09
BOARD OF
DIRECTORS
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 24, 2019. The
Board’s main duties include the following:
Determine policies, general strategies, and the
organization and management criteria that guide the
activities of the Company.
Prepare and develop programs to optimize resource
management and the operation of the business, such
as budgets and financial planning.
After considering the Auditing and Corporate
Practices Committee’s opinion, approve the internal
control and guidelines of the internal auditing of the
Company.
Authorize acquisitions or disposing, as well as the
granting of guarantees or the taking of liabilities
for a value equal to or higher than five per cent of
the consolidated assets of the Company, except for
investments in debt securities or bank instruments;
provided such are made in accordance with the
policies approved by the Board for such purposes.
Review and authorize operating results and
work plans, and the overall compensation of the
Company’s senior officers.
PROPRIETARY SHAREHOLDERS
DIRECTORS
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
Source: Yahoo Finance
22
23
Annual Report Bachoco 2019
SENIOR
MANAGEMENT
TEAM
Rodolfo Ramos Arvizu
Chief Executive Officer
R. Trent Goins
Director of U.S. Operations
Ernesto Salmon Castelo
Director of Mexico Operations
Andrés Morales Astiazaran
Director of Sales
Daniel Salazar Ferrer
Chief Financial Officer
Alejandro Elias Calles Gutierrez
Director of Purchasing
1
2
3
4
5
6
24
1
3
2
4
5
6
25
Annual Report Bachoco 2019 SUSTAINABILITY
In 2019 we developed our first public sustainability report, which will be available on
our website https://corporativo.bachoco.com.mx/inversionistas/
With this we reinforce our commitment to be a valuable alternative for our clients,
collaborators, community and environment.
Our sustainability strategy is focused on four pillars:
● Boosting our talent.
● Strengthen our business.
● Contribute to our community.
● Take care of our planet.
At Bachoco we are aware of the challenges and changes that our industry is going
through. So, for us, the focus on these four pillars are essential to be a competitive
company in order to capitalize the growth opportunities that will allow us to be close
to our consumers in a sustainable way every day.
SOCIAL RESPONSIBILITY
During 2019, we focused great efforts on our pillars of Social Responsibility, to ensure
that our impact covers a greater area and involves our various stakeholders.
We continue to
strengthen our culture
among all staff
through Code of Ethics
courses, where we
reinforce our values
and beliefs.
We boost our talent
We have a committed team, who help us day
by day to maintain our leadership and continue
innovating. Thanks to them, we continue to
grow, and as a proof of this, in the year we
hired 13,671 people.
We take care of our planet
The environment is of great importance to us and
an aspect of constant review, since from there we
obtain our resources; we seek ways to reduce our
environmental impact.
We chose to use natural gas instead of fuel oil to
mitigate the emission of gases in the environment.
Also, by implementing wastewater treatment in our
work centers, we were able to optimize the use of
this resource and in the same way we reduce energy
consumption by using biogas.
In 2019 we
inaugurated four
new capillary
leaching ditches or
infiltration ditches.
We are proud
to report that
MERCO recognized
us at number 33
in the top 100 of
companies with
the best corporate
reputation.
We strengthen our business
We strengthen our ethical actions with various tools,
such as the Code of Ethics, an Ethics Committee and
internal and external complaint mechanisms so that
our collaborators can express their disagreements
and thus improve labor relations, continuing to
always think of our people.
Annually, we develop communication and training
campaigns to reinforce the culture of integrity and
the knowledge of our collaborators about the Code
of Ethics.
We contribute to our community
We had the participation of 2,000 runners in our
half marathon ‘Bachoco Unidos por la Alimentación’,
whose objective is to raise funds to improve the
nutrition of our rural communities and our children
with fresh, nutritious and healthy food of the highest
quality.
This year’s proceeds were designated to the
construction of the DIF Dining Room CAFI
(Coordinación de Acciones a Favor de la Infancia),
which provides street children with a dining room
where they can receive healthy and balanced food.
All this with the aim that boys and girls have a decent
space to receive their food and encouraging them to
have a good diet.
Since 2015,
through this
initiative we have
rehabilitated 18
community dining
rooms and built 2
dining rooms.
26
27
Annual Report Bachoco 2019 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
Galaz, Yamazaki,
Ruiz Urquiza, S.C.
Paseo de la Reforma 505
Colonia Cuauhtémoc
06500 Ciudad de México
México
Tel: +52 (55) 5080 6000
www.deloitte.com/mx
Independent Auditors’ Report to the
Board of Directors and Stockholders of
Industrias Bachoco S.A.B. de C.V. and
Subsidiaries
(Figures in thousands of Mexican pesos)
Opinion
We have audited the consolidated financial statements of Industrias Bachoco, S. A. B. de
C. V. and its subsidiaries (“the Entity”), which comprise the consolidated statements of financial position
as of December 31, 2019, 2018 and 2017, and the consolidated statements of profit and loss and other
comprehensive income, consolidated statements of changes in stockholders’ equity and consolidated
statements of cash flows for the years then ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Entity as of December 31, 2019, 2018 and 2017, and
its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
Basis for Opinion
We conducted our audits in accordance with International Standards on Auditing (“ISAs”). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of the Entity in
accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (“IESBA Code”) together with the Code of Ethics issued by the Mexican Institute of Public
Accountants (“IMCP Code”), and we have fulfilled our other ethical responsibilities in accordance with the
IESBA Code and the IMCP Code. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Other Matter
The accompanying consolidated financial statements have been translated into English for the
convenience of readers.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in the forming our opinion
thereon, and we do not provide a separate opinion on these matters. We have determined that the
matters described below are the key audit issues which should be communicated in our report.
Deloitte se refiere a Deloitte Touche Tohmatsu Limited, sociedad privada de responsabilidad limitada en el Reino Unido, y a su red de firmas miembro, cada una
de ellas como una entidad legal única e independiente. Conozca en www.deloitte.com/mx/conozcanos la descripción detallada de la estructura legal de Deloitte
Touche Tohmatsu Limited y sus firmas miembro.
Goodwill valuation
As of December 31, 2019, the carrying amount of the Entity’s goodwill of $ 1,578,994, of which
$1,155,543 relates to the Ok Foods - Albertville Quality Foods, Inc. cash-generating unit (“CGU”), is a
material balance.
At least once a year, the Entity must analyze the recoverable amounts of each one of its CGUs. The
objective of this analysis is to determine whether the recognition of an impairment loss is necessary. For
purposes of this analysis, the Entity determines the fair value of the CGU, which involves using
judgments in estimating future results and the discount rates applied to the projected cash flows. The
audit team considers this to be a key audit matter mainly due to: i) the impairment indicators presented
in the aforementioned CGU during the fiscal year 2019, due to declines in the economic results of the
United States poultry industry resulting from trade disputes with China, which impacted the financial
performance of the CGU; ii) audit efforts necessary when evaluating the model, the data and the
significant assumptions considered on it such as revenue growth rates, discount rates, WACC and the
future growth rate considered when determining the terminal value, and iii) the audit effort related to
involving internal specialists to assist the audit team in reviewing the obtained audit evidence and to
challenge the assumptions used by the Entity.
Note 15 of the accompanying consolidated financial statements, present the amounts, movements, and
analysis of the recoverable amounts of the CGU.
Our audit procedures included, among others:
The audit team evaluated the design and implementation and tested the operational effectiveness of the
Entity's internal controls related to the goodwill impairment evaluation for the aforementioned CGU,
including also the Entity's Administration review, as well as the model, the data, the assumptions and
disclosures included in the accompanying consolidated financial statements related to the CGU’s goodwill.
The audit team was assisted by internal specialists from the Firm and, together with them, evaluated the
reasonableness of Entity’s conclusions regarding the key assumptions used to determine the UGE
projected cash flows, focusing mainly on revenue growth rates, and the future growth rate considered to
determine the terminal value, discount rates, and the WACC in relation to historical trends. Also, a
comparison of the assumptions used against an external market analysis, and the specific industry was
made, and an evaluation of the mathematical accuracy of the calculations made. We also compared the
actual financial results for the current year against the figures on the budgeted for the current year, and
the previous year, to consider whether any of the assumptions included in the projections could be
considered as overly optimistic, and we evaluated the consistency of the most important assumptions
considered by management when preparing other projections. We evaluated the possible sensitivity
scenarios prepared by the Entity, and we calculated the degree to which modifications to the main
assumptions could give rise to a possible impairment, and noted that a reasonably sufficient margin
exists such that there are no impairment indicators.
Finally, we evaluated whether the projected cash flows, the assumptions and the data used were
reviewed and approved in a timely manner and whether they are consistent with the plans approved by
the Board of Directors.
2
Information Other than the Consolidated Financial Statements and Auditor’s Report Thereon
Management is responsible for the information other than the consolidated financial statements (the
“other information”). The other information will comprise the information that will be incorporated in the
Annual Report that the Entity is obliged to prepare pursuant to Article 33 Fraction I, clause b) of Title
Four, First Chapter of the “General Provisions Applicable to Issuers and Other Stock Market Participants”
in Mexico, together with the Instructions Guide accompanying those provisions (collectively, the
“Provisions”). The Annual Report is expected to be made available to us after the date of this audit
report.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above when it becomes available and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. When we read the Annual Report,
we will issue the declaration surrounding the reading of the annual report required by Article 33 Fraction
I, clause b) number 1.2. of the Provisions. If, based on the work we have performed, we conclude that
there is a material misstatement therein, we are required to communicate the matter.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Entity’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the Entity or
to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s consolidated financial
reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
3
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
-
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Entity's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Entity’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Entity to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Entity to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
4
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
L.C.C. Alberto Del Castillo Velasco Vilchis
April 14, 2020
5
AssetsNote201920182017Liabilities and equityNote201920182017Current assets:Current liabilities:Cash and cash equivalents7$ 18,662,765 17,901,845 16,112,268 Short-term debt18$3,440,3993,427,8202,852,400Investment in securities at fair value through profit or loss8 186,284 550,068 1,127,841 Current portion of long-term debt18- 64,973842,651Investment in securities at fair value through other comprehensive income8 315,761 - - Derivative financial instruments8- - 6,821 Derivative financial instruments8 18,098 6,570 - Trade payable and other accounts payable195,158,8275,196,3474,740,366Accounts receivable, net9 3,867,110 3,486,354 3,626,878 Lease liabilities 24149,538- - Due from related parties20 13,674 99 326 Income tax payable2182,665248,290731,654Inventories10 4,710,207 4,575,596 4,727,333 Due to related parties2076,704147,51455,252Current biological assets11 2,043,237 2,073,526 1,942,193 Total current liabilities8,908,1339,084,9449,229,144Prepaid expenses and other current assets12 1,227,196 1,131,870 638,671 Assets held for sale13 52,916 49,068 49,523 Long term liabilities:Total currents assets31,097,24829,774,99628,225,033Long-term debt, excluding current installments181,488,2081,544,8071,553,973Lease liabilities 24653,512- - Non-current assets:Deferred income tax213,904,4933,767,3203,843,379Property, plant and equipment, net1418,556,64618,018,17617,320,041Employee benefits22487,810302,818252,965Right-of-use assets 24822,732- - Total long term liabilities6,534,0235,614,9455,650,317Non-current biological assets111,818,9111,721,7281,617,503Deferred income tax21245,272103,82680,670Total liabilities15,442,15614,699,88914,879,461Goodwill151,578,9941,631,7711,631,094Intangible assets16772,640949,3551,040,042Equity:25Other non-current assets17810,048665,742643,006Capital stock1,174,432 1,174,432 1,174,432 Total non-currents assets24,605,24323,090,59822,332,356Share premium414,516 414,470 414,385 Reserve for repurchase of shares1,308,367 562,047 493,141 Retained earnings36,424,411 34,792,320 32,367,912 Accumulated other comprehensive income(19,771) (307) - Foreign currency translation reserve1,073,925 1,273,671 1,268,021 Actuarial remeasurements, net22(195,905) (120,378) (98,938) Equity attributable to controlling interest40,179,97538,096,25535,618,953Non-controlling interest80,36069,45058,975Total equity40,260,33538,165,70535,677,928Commitments27Contingencies28Susequent events31Total assets$55,702,49152,865,59450,557,389Total liabilities and equity$55,702,49152,865,59450,557,389See accompanying notes to consolidated financial statements.INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIESConsolidated Statements of Financial Position December 31, 2019, 2018 and 2017(Thousands of pesos)
201820182017NoteNet revenues$61,655,245 61,052,092 58,050,025 Cost of sales23(51,557,351) (51,422,376) (47,502,959) Gross profit10,097,894 9,629,716 10,547,066 General, selling and administrative expenses23(6,116,620) (6,024,406) (5,423,379) Other (expenses) income, net30(4,734) 102,660 167,642 Operating income3,976,540 3,707,970 5,291,329 Finance income29991,632 1,140,749 1,087,641 Finance costs29(610,368) (332,168) (340,091) Net finance income381,264 808,581 747,550 Profit before income taxes4,357,804 4,516,551 6,038,879 Income taxes211,124,978 1,154,978 1,084,444 Profit for the year$3,232,826 3,361,573 4,954,435 Other comprehensive income (loss) items:Items that may be reclassified subsequently to profit or loss:Currency translation effect$(199,746) 5,650 (197,636) Hedge result (19,464) (307) - Items that will not be reclassified subsequently to profit or loss:Actuarial remeasurements22(107,897) (30,629) (17,377) Income taxes related to actuarial remeasurements32,370 9,189 5,213 Other comprehensive income(294,737) (16,097) (209,800) Comprehensive income for the year$2,938,089 3,345,476 4,744,635 Profit attributable to:Controlling interest$3,219,931 3,349,967 4,948,242 Non-controlling interest12,895 11,606 6,193 Profit for the year$3,232,8263,361,5734,954,435Comprehensive income attributable to:Controlling interest$2,925,194 3,333,870 4,738,442 Non-controlling interest12,895 11,606 6,193 Comprehensive income for the year$2,938,089 3,345,476 4,744,635 Weighted average outstanding shares599,971,832 599,980,734 599,997,696 Basic and diluted earnings per share26$5.37 5.58 8.25 See accompanying notes to consolidated financial statements.INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIESConsolidated Statements of Profit and Loss and Other Comprehensive IncomeYears ended December 31, 2019, 2018 and 2017(Thousands of pesos, except share and per share amount)
Reserve forForeignActuarial CapitalSharerepurchase ofRetainedHedge currencyremeasurementsNon-controllingTotalNotestockpremiumsharesearningsresulttranslation reservenetTotalinterestequityBalance at January 1, 2017$1,174,432 414,385 449,641 28,244,970 - 1,465,657 (86,774) 31,662,311 53,863 31,716,174 Dividends paid25- - - (780,000) - - - (780,000) - (780,000) Dividends paid to non-controlling interest- - - - - - - - (1,081) (1,081) Reserve for repurchase of shares- - 45,300 (45,300) - - - - - - Repurchase and sale of shares25- - (1,800) - - - - (1,800) - (1,800) Comprehensive income for the year:Profit for the year- - - 4,948,242 - - - 4,948,242 6,193 4,954,435 Other comprehensive income- - - - - (197,636) (12,164) (209,800) - (209,800) Total comprehensive income for the year- - - 4,948,242 - (197,636) (12,164) 4,738,442 6,193 4,744,635 Balance at December 31, 20171,174,432 414,385 493,141 32,367,912 - 1,268,021 (98,938) 35,618,953 58,975 35,677,928 Dividends paid25- - - (852,000) - - - (852,000) - (852,000) Dividends paid to non-controlling interest- - - - - - - - (1,131) (1,131) Reserve for repurchase of shares- - 73,559 (73,559) - - - - - - Repurchase and sale of shares25- 85 (4,653) - - - - (4,568) - (4,568) Comprehensive income for the year:Profit for the year- - - 3,349,967 - - - 3,349,967 11,606 3,361,573 Other comprehensive income- - - - (307) 5,650 (21,440) (16,097) - (16,097) Total comprehensive income for the year- - - 3,349,967 (307) 5,650 (21,440) 3,333,870 11,606 3,345,476 Balance at December 31, 20181,174,432 414,470 562,047 34,792,320 (307) 1,273,671 (120,378) 38,096,255 69,450 38,165,705 Dividends paid25- - - (840,000) - - - (840,000) - (840,000) Dividends paid to non-controlling interest- - - - - - - - (1,985) (1,985) Reserve for repurchase of shares- - 747,840 (747,840) - - - - - - Repurchase and sale of shares25- 46 (1,520) - - - - (1,474) - (1,474) Comprehensive income for the year:Profit for the year- - - 3,219,931 - - - 3,219,931 12,895 3,232,826 Other comprehensive income- - - - (19,464) (199,746) (75,527) (294,737) - (294,737) Total comprehensive income for the year- - - 3,219,931 (19,464) (199,746) (75,527) 2,925,194 12,895 2,938,089 Balance at December 31, 2019$1,174,432 414,516 1,308,367 36,424,411 (19,771) 1,073,925 (195,905) 40,179,975 80,360 40,260,335 See accompanying notes to consolidated financial statements.Capital stockRetained earningsAccumulated other comprehensive incomeAttributable to controlling interestINDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIESConsolidated Statements of Changes in Stockholders' EquityYears ended December 31, 2019, 2018 and 2017(Thousands of pesos)
Note201920182017Cash flows from operating activities:Profit for the year$3,232,826 3,361,573 4,954,435 Adjustments for:Deferred income tax recognized in profit or loss2160,677 (91,869) (627,090) Current income tax recognized in profit or loss211,064,301 1,246,847 1,711,534 Depreciation and amortization141,286,443 1,226,917 1,075,788 Depreciation of right-of-use assets 302,804 Intangible impairment loss1673,733 21,430 - (Gain) loss on disposal of plant and equipment(85,937) 23,227 41,890 Interest income earned29(991,632) (1,077,507) (857,109) Interest expense and financial expense29330,119 332,168 255,997 Unrealized foreign exchange loss on loans(139,830) 43,400 82,600 Subtotal5,133,5045,086,1866,638,045Derivative financial instruments(11,528) (13,391) 15,129 Accounts receivable, net(306,588) 200,145 162,906 Due from related parties(13,575) 227 3,967 Inventories(133,572) 149,738 (461,783) Current and non-current biological assets(66,582) (236,179) 70,941 Prepaid expenses and other current assets(95,201) (493,442) 875,307 Assets held for sale(3,848) 455 7,205 Trade payable and other accounts payable(38,542) 457,941 (350,299) Due to related parties(70,810) 92,262 (134,714) Income taxes paid(1,302,902) (1,787,959) (1,405,256) Employee benefits184,992 49,853 57,946 Net cash provided by operating activities3,275,348 3,505,836 5,479,394 Cash flows from investing activities:Payments for acquisition of property, plant and equipment(2,199,600) (1,977,567) (2,126,361) Proceeds from sale of plant and equipment197,059 32,455 35,175 Restricted cash- - (24,058) Investment in securities at fair value through profit or loss363,784 577,773 (157,549) Investment in securities at fair value through other comprehensive income(315,761) - - Other assets24,244 (27,983) 2,125 Interest collected991,632 1,077,507 857,109 Bussiness acquisition including advance payment- - (2,494,862) Collection of principal of loans granted to related parties- - 144,562 Net cash used in investing activities(938,642) (317,815) (3,763,859) Cash flows from financing activities:Payment for repurchase of shares25(10,729) (6,454) (1,800) Proceeds from issuance of repurchased shares259,255 1,887 - Dividends paid25(840,000) (852,000) (780,000) Dividends paid to non-controlling interest(1,985) (1,131) (1,081) Proceeds from borrowings184,839,000 3,370,400 5,378,915 Principal payment on loans18(4,808,163) (3,588,067) (4,246,100) Interest paid on lease24(37,797) - - Interest paid29(292,322) (332,168) (255,997) Payment of lease liability24(325,207) - - Net cash (used in) provided by financing activities(1,467,948) (1,407,533) 93,937 Net increase in cash and cash equivalents868,758 1,780,488 1,809,472 Cash and cash equivalents at January 117,901,84516,088,21014,661,968Effect of exchange rate fluctuations on cash and cash equivalents(107,838) 33,147 (383,230) Cash and cash equivalents at December 31$18,662,76517,901,84516,088,210See accompanying notes to consolidated financial statements.INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2019, 2018 and 2017(Thousands of pesos)
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2019, 2018 and 2017
(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 14, 2020, 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 and investment in securities at fair value through other
comprehensive income
• 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
$), the official currency of Mexico, which is the currency in which the Company’s accounting
records are maintained and functional currency for most of its subsidiaries, except for foreign
subsidiaries for which the U.S. dollar is the functional currency as well as the currency in
which accounting records are maintained.
For disclosure purposes, in the notes to the consolidated financial statements, “thousands of
pesos” or “$” 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 $18.89, $19.67 and $19.66 pesos to one U.S. dollar as of
December 31, 2019, 2018 and 2017, 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.
iv.Discount rate estimation to calculate the present value of future minimum rent payments
The Company estimates the discount rate to be used in determining the lease liability, based
on the incremental borrowing rate (“IBR”).
The Company uses a two-level model, with which it determines the elements that make up the
discount rate: (i) reference rate, (ii) credit risk component. In such model, Management also
considers its policies and practices to obtain financing, distinguishing between borrowings
obtained at the corporate level (that is, by the holding company), or at the level of each
subsidiary. Finally, for real estate leases, or in which there is significant and observable
evidence of their residual value, the Company estimates and evaluates an adjustment for the
characteristics of the underlying asset, taking into account the possibility that such asset may
be granted as collateral or guarantee against the risk of default.
v.Estimate of the term of the lease contracts
The Company defines the term of the leases as the period for which there is a contractual
payment commitment, considering the non-cancellable period of the contract, as well as the
renewal and early termination options that are likely to be exercised. The Company
participates in lease agreements that do not have a defined mandatory term, a defined renewal
period (if it contains a renewal clause), or annual automatic renewals. Accordingly, to measure
the lease liability, the Company estimates the term of the contracts considering their
contractual rights and limitations, the business plan, as well as Management's intentions for
the use of the underlying asset.
Additionally, the Company considers the early termination clauses of its contracts and the
probability of exercising them, as part of its estimation of the lease term.
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.
viii. Uncertainties
Pandemics or disease outbreaks, such as the new coronavirus (COVID-19 virus – “COVID
19”), may alter consumption and trade patterns, supply chains, and production processes,
which could affect our operations and results of operations. In Note 31 to the consolidated
financial statements, we present an analysis regarding the possible impacts of COVID-19.
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, 2019 as it relates to its consolidated financial
statements.
IFRS 16, Leases
IFRS 16, Leases supersedes IAS 17, Leases and related interpretations. The new standard
incorporates most leases in the Company's consolidated statement of financial position, where
it acts as lessee.
Under this standard, the Entity as lessee, recognizes a right-of-use asset and a lease liability,
for each contract that is defined as a lease and for which the recognition exemptions that are
detailed below do not apply. The right-of-use asset depreciates according to the contractual
term or in some cases, over its economic useful life. For its part, the lease liability is measured
at initial recognition by discounting the present value of future minimum income payments
according to a term, using a discount rate that represents the cost of funding the lease;
subsequently, the liability will accrue interest until maturity.
The Company applied the aforementioned exemptions to not recognize an asset and a liability
for lease contracts with a lease term of less than 12 months (without purchase options or term
renewal) and leases where the underlying asset has a low value when new, such as personal
computers or small items of office furniture. Therefore, payments for such leases continue to
be recognized as expenses within operating income.
For the adoption of IFRS 16, the Company chose the modified retrospective application
through which all effects were recorded as of January 1, 2019, without adjusting the financial
statements of the comparative years.
Additionally, the Company adopted and applied the following practical expedients provided
by IFRS 16 for the transition date:
• The Company has chosen to combine the lease components and non lease components
representing services (for example, maintenance and insurance) for some asset classes;
however, for the rest of the asset classes, the Company measures the lease liability only
considering the payments of components that are rents, while the services implicit in the
payments are recognized directly in results as operating expenses.
• Created portfolios of contracts with similar terms, economic environments and asset
characteristics, and used a discount rate per portfolio to measure leases.
• Did not revisit the conclusions previously reached for service contracts that were
evaluated through December 31, 2018 under IFRIC 4, Determination of Whether a
Contract Contains a Lease, for which the Company had previously concluded that there
was no implicit lease.
• For operating leases that, as of December 31, 2018, contained direct costs to obtain a
lease, the Company maintained the recognition of these costs in prior year results without
adjustment to capitalize them in the initial value of the right of use assets as January 1,
2019.
Therefore, in the initial application of IFRS 16, as of January 1, 2019, for all leases (except for
those that the Company has elected to account for as an expense), the Company:
• Recognized 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
in the amount of $922,410.
• Recognized depreciation of right-of-use assets of $302,804 and interest on lease
liabilities of $37,797 in the consolidated statement of profit or loss.
• Presented separately the total amount of cash paid for liability principal of $325,207
(presented within financing activities) and interest of $37,797 (presented within
financing activities) in the consolidated statement of cash flow.
IFRIC - 23 Uncertainty over income tax treatments
This interpretation deals with the determination of taxable income (loss), tax bases, unused tax
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’ inspections
• The determination of taxable income (loss), tax basis, unused tax losses, unused tax
credits and tax rates
• The effects of changes in the facts and circumstances
This interpretation was effective on January 1, 2019. The adoption of this interpretation had no
impact on the Company's consolidated financial statements, since its current practices for
determining the effects of income taxes on its consolidated financial statements are similar to
those set forth in the interpretation.
Amendments to IAS 19 Plan amendment, curtailment or settlement
The amendments clarify that past service cost (or settlement gain or loss) is calculated by
measuring the defined benefit liability or asset, using current assumptions and comparing the
benefits offered and the plan assets before and after the amendment, curtailment or settlement
of the plan, but ignoring the effect of the asset ceiling (which can arise when the defined
benefit plan is in a surplus position). IAS 19 now clarifies that the change in the effect of the
asset ceiling that may result from the amendment, curtailment or settlement of the plan is
determined through a second step and is generally recognized in other comprehensive income.
The Company is required to use the updated assumptions of the re-measurement to determine
the current service cost and net interest after the plan amendment, curtailment or settlement
and for the remainder of the reporting period.
In the case of net interest, the modifications make it clear that for the period after the
amendment, curtailment or settlement, the net interest is calculated by multiplying the defined
benefit liability (asset) remeasured in accordance with IAS 19:99 with the discount rate used
in the new remeasurement (taking into account the effect of contributions and benefit
payments on the net defined benefit liability (asset).
The adoption of this amendment has had no material impact on the disclosures or amounts
reported in these consolidated financial statements.
Annual Improvements 2015-2017 Cycle
The annual improvements include amendments to IFRS 3, IFRS 11, IAS 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 IAS 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 adoption of these improvements 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.
Insurance Contracts
IFRS 17
IFRS 10 and IAS 28 (amendments) Sale or contribution of assets between an investor and its
associate or joint venture
Definition of a business
Amendments to IFRS 3
Amendments to IAS 1 and IAS 8 Definition of materiality
Management does not expect the adoption of the standards mentioned above have a significant
impact on the consolidated financial statements of the Company in future periods, except as
follows:
Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and
its associate or joint venture
The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or
contribution of assets between an investor and its associate or joint venture. Specifically, the
amendments establish that the gains or losses resulting from the loss of control of a subsidiary
that does not contain a business in a transaction with an associate or a joint venture that is
accounted for using the equity method, are recognized in profit or loss from the parent only to
the extent that the unrelated investor share in that associate or joint venture. Similarly, gains
and losses resulting from the remeasurement of investments held in any former subsidiary
(which has become an associate or a joint venture that is accounted for using the equity
method) at fair value are recognized in profit or loss of the previous parent, only to the extent
of the participation of unrelated investors in the new associate or joint venture.
The effective date of the modifications has not yet been set by the IASB; however, early
application is permitted. The Company's Management anticipates that the application of these
modifications may have an impact on the Company's consolidated financial statements in
future periods in the event that such transactions arise.
Amendments to IFRS 3 Definition of a business
The amendments clarify that, while businesses usually have outputs, outputs are not required
for a series of integrated activities and assets to qualify as a business. To be considered a
business, a series of activities and acquired assets must include, as a minimum, an input and a
substantial process that together contribute significantly to the ability to generate outputs.
Additional guidance is provided to help determine if a substantial process has been acquired.
The amendments introduce an optional test to identify fair value concentration, which allows a
simplified assessment of whether a series of activities and assets acquired is not a business if
substantially all of the fair value of gross assets acquired is concentrated in a unique
identifiable asset, or a group of similar assets.
The amendments apply prospectively to all business combinations and asset acquisitions
whose acquisition date is on or after the first reporting period beginning on or after January 1,
2020, with early adoption permitted.
Amendments to IAS 1 and IAS 8 Definition of materiality
The amendments are intended to simplify the definition of materiality in IAS 1, making it
easier to understand and are not intended to alter the underlying concept of materiality in IFRS
Standards. The concept of obscuring material information with immaterial information has
been included in the new definition.
The limit for influential materiality for users has been changed from "could influence" to
"could reasonably be expected to influence".
The definition of materiality in IAS 8 has been replaced by a reference to the definition of
materiality in IAS 1. In addition, the IASB amended other standards and the Conceptual
Framework that contained a definition of materiality or reference to the term materiality to
ensure consistency.
The amendment will be applied prospectively for reporting periods beginning on or after
January 1, 2020, with early application permitted.
(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, 2019, 2018 and 2017 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
During 2019 and 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.
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.
The Company considers a significant increase in credit risk to have occurred when the
financial investment assets’s credit rating falls to the level of speculation, or when the rating
provided by external ratings agencies 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.
During 2017, 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 over 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 2019, 2018 and 2017:
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, 2019, 2018 and
2017:
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 less
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
Until December 31, 2018 operating lease rentals paid by the Company were 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.
Beginning in 2019, the Company evaluates whether a contract is or contains a lease at the
beginning of the contract term. A lease is defined as a contract that grants the right to control
the use of an identified asset, for a specified period, in exchange for consideration. The
Company recognizes a right-of-use asset and a corresponding lease liability, with respect to all
the lease agreements in which it operates as lessee, except in the following cases: short-term
leases (defined as leases with a term of lease less than 12 months); low-value asset leases
(defined as asset leases with an individual market value of less than 5 thousand dollars); and,
the lease contracts whose payments are variable (without any fixed contractually defined
payment). For these contracts that exclude the recognition of a right-of-use asset and a lease
liability, the Company recognizes rental payments as a straight-line operating expense during
the lease term.
The right-of-use asset is made up of discounted lease payments at present value; direct costs of
obtaining a lease; advance lease payments; and the dismantling or asset removal obligations.
The Company depreciates the right-of-use asset over the shorter period of the lease term and
the useful life of the underlying asset; In this sense, when a purchase option in the lease is
likely to be exercised, the right-of-use asset depreciates over its useful life. Depreciation
begins on the start date of the lease.
The lease liability is measured at initial recognition by discounting future minimum income
payments at present value according to a term, using a discount rate that represents the cost of
obtaining financing in an amount equivalent to the value of the contract's income, for the
acquisition of the underlying asset, in the same currency and for a period similar to the
corresponding contract (incremental borrowing rate). When the contract payments contain
non-lease components (services), the Company has chosen, for some asset classes, not to
separate them and to measure all payments as a single lease component; however, for the rest
of the asset classes, the Company measures the lease liability only considering the payments
of components that are rents, while the services implicit in the payments are recognized
directly in results as operating expenses.
To determine the term of the lease, the Company considers the mandatory term, including the
probability of exercising any right to extend the term and / or an early termination.
Subsequently, the lease liability is measured by increasing the book value to reflect the interest
on the lease liability (using the effective interest method) and reducing the book value to
reflect the rental payments made.
When there are modifications to the lease payments for inflation, the Company remits the
lease liability from the date the new payments are known, without reconsidering the discount
rate. However, if the modifications are related to the term of the contract or the exercise of a
purchase option, the Company re-evaluates the discount rate in the measurement of the
liability. Any increase or decrease in the value of the lease liability subsequent to this re-
measurement is recognized by increasing or decreasing to the same extent, as the case may be,
the value of the right-of-use asset.
Finally, the lease liability is derecognized at the time the Company pays all of the contract's
payments. When the Company determines that it is probable that it will exercise an early
termination from the contract that merits a cash outlay, said consideration is part of the re-
measurement of the liability mentioned in the preceding paragraph; however, in those cases in
which the early termination does not imply a cash outlay, the Company pays the lease liability
and the corresponding right of use asset, recognizing the difference between the two
immediately in the consolidated statement of income.
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 2019 and 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.
During 2017 revenues from the sale of goods in the course of ordinary activities were
measured at the fair value of the consideration received or receivable, net of returns, trade
discounts and volume rebates. Revenues were recognized when persuasive evidence existed,
usually in the form of an executed sales agreement, when the significant risks and rewards of
ownership were transferred to the customer, recovery of the consideration relating to the
transaction was deemed probable, the associated costs and possible return of goods could be
estimated reliably, there was no continuing management involvement with the goods, and the
amount of revenue could be measured reliably. If it was probable that discounts will be
granted and the amount can be measured reliably, the discount was recognized as a reduction
of revenue.
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, 2019, 2018 and 2017, 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 iii ).
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 considered deductible for tax purposes.
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 (expense) income (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, 2019, 2018 and 2017 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,
2019
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
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
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. 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.
- Wii kit RE LTD. in Bermuda, it is a Class I reinsurance company that provides insurance
coverage to its affiliates.
-Proveedora La Perla, S.A. of C.V., in Mexico, 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, 2019
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
$ 55,653,027
46,456,076
9,196,951
860,140
529,226
3,854,474
993,652
2,849,145
16,440,851
1,490,978
772,640
49,533,440
14,066,224
1,811,086
1,171,200
6,002,218
5,101,275
900,943
131,492
81,142
503,330
131,326
370,786
2,115,795
88,016
-
6,169,051
1,375,932
258,241
115,243
Total
61,655,245
51,557,351
10,097,894
991,632
610,368
4,357,804
1,124,978
3,219,931
18,556,646
1,578,994
772,640
55,702,491
15,442,156
2,069,327
1,286,443
Total revenues
Intersegments
Net revenues
Poultry
revenues
55,656,645
(3,618)
55,653,027
Other
revenues
6,037,772
(35,554)
6,002,218
Total
revenues
61,694,417
(39,172)
61,655,245
$
$
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
Poultry
revenues
55,312,273
(4,132)
55,308,141
Other
revenues
5,785,289
(41,338)
5,743,951
Total
revenues
61,097,562
(45,470)
61,052,092
$
$
Year ended December 31, 2017
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
$
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
Total revenues
Intersegments
Net revenues
b) Geographical information
Poultry
revenues
52,484,264
(4,871)
52,479,393
Other
revenues
5,616,254
(45,622)
5,570,632
Total
revenues
58,100,518
(50,493)
58,050,025
$
$
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, 2019
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$
38,778,025
16,931,735
(56,733)
55,653,027
1,058,126
760,785
13,799,774
212,833
-
2,641,077
1,278,145
772,640
-
-
-
-
Year ended December 31, 2018
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
1,818,911
16,440,851
1,490,978
772,640
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
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, 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
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 2019, 2018 and 2017, no
customer represented over 10% of the Company’s total revenues.
As of December 31, 2019, 2018 and 2017, the Company did not have operations with an
individual customer that represented a significant concentration in the United States of
America.
(7) Cash and cash equivalents
The consolidated balances of cash and cash equivalents as of December 31, 2019, 2018 and
2017 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
$
2019
13,106,862
5,513,276
18,620,138
December 31,
2018
13,566,098
4,331,423
17,897,521
2017
15,464,312
623,898
16,088,210
42,627
4,324
24,058
18,662,765
17,901,845
16,112,268
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, 2019, 2018 and 2017.
(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. The effects of COVID-19 on risk management are described in
note 31, Subsequent Events.
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, 2019, 2018 and 2017, the Company has not identified embedded derivatives.
The Company’s derivative financial instruments as of December 31, 2019 and 2018 meet the
requirements to be treated as hedges for accounting purposes (24,352 and 1,500 thousand
dollars of notional, other disclosures are considered non-material). During 2017 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
Investment in securities at fair value
through other comprehensive income
Investments in life insurance
Accounts receivable
Due from related parties
Other long-term receivables
Derivative financial instruments
Financial liabilities
Current and non-current financial debt
Trade payables, sundry creditors and
expenses payable
Current and non-current lease liabilities
Due to related parties
Derivative financial instruments
b)
Credit risk
2019
December 31,
2018
2017
$ 18,662,765 17,901,845 16,112,268
186,284
550,068
1,127,841
315,761
65,545
2,523,092
13,674
173,488
18,098
-
66,177
2,444,013
99
171,222
6,570
-
64,629
2,599,208
326
162,337
-
$ (4,928,607) (5,037,600) (5,249,024)
(4,491,171) (4,593,344) (4,163,443)
-
-
(803,050)
(76,704)
-
(147,514)
-
(55,252)
(6,821)
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 $140,304, $142,388 and $141,636 as of December 31, 2019,
2018 and 2017, 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, 2019, 2018 and 2017, the fair value of such credit
enhancements, determined by an appraisal at the time the credit lines were granted, is
$663,500, $572,085 and $618,481, 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
Investment in securities at fair value
through other comprehensive income
Investments in life insurance
Accounts receivable net of guarantees
December 31,
2019
2018
18,662,765 17,901,845 16,112,268
2017
186,284
550,068
1,127,841
315,761
65,545
--
66,177
64,629
received
Derivative financial instruments
2,046,754
18,098
1,986,102
6,570
2,143,390
-
$
21,295,207 20,510,762 19,448,128
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
Lease liabilities
Financial debt, maturities at
variable rates
In U.S. dollars
In pesos
Interest
Total financial liabilities
Trade payables, sundry creditors
and expenses payable
Due to related parties
Financial debt, maturities at
variable rates
In U.S. dollars
In pesos
Interest
Total financial liabilities
$
$
$
$
December 31, 2019
1 to 3 years
3 to 5 years
Less than 1
year
4,491,171
76,704
149,538
-
-
598,040
2,831,191
609,208
134,535
8,292,347
-
1,488,208
207,643
2,293,891
-
-
55,472
-
-
-
55,472
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
December 31, 2017
1 to 3 years
3 to 5 years
Less than 1
year
Trade payables, sundry creditors
and expenses payable
$
Due to related parties
Derivative financial instruments
Financial debt, maturities at
variable rates
In U.S. dollars
In pesos
Interest
Total financial liabilities
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
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, 2019, 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 2020 and 2019,
July, September and December 2019, 2018 and 2017, with companies listed on the Chicago
Mercantile Exchange. As of December 2019, and 2018, the gain on valuation is $574 (30
thousand dollars) and $217 (11 thousand dollars), respectively; during 2017, there is no gain
or loss from the valuation of these instruments.
As of December 31, 2019 there is a subsidy of $50,730 by ASERCA for the purchase of
hedging "puts" to the consumer, during 2018 and 2017 there is any subsidy; 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. The benefit under this scheme benefit as of
December 31, 2019 is $1,802, during 2018 and 2017, no benefits have been realized under this
scheme.
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, 2019, 2018 and
2017, 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, 2019, 2018 and 2017, 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, 2019, 2018
and 2017.
2019
December 31,
2018
2017
Dollars
Mexican
Pesos
Dollars
Mexican
Pesos
Dollars
Mexican
Pesos
569,569 10,759,165
384,119
7,555,616
325,493
6,399,186
4,576
86,447
19,447
382,519
29,212
574,312
16,716
2,160
315,761
40,809
593,021 11,202,182
-
252
403,818
-
4,950
7,943,085
-
1,915
356,619
-
37,640
7,011,138
(120,699) (2,280,003) (194,701)
(149,878) (2,831,191) (140,186)
(144,224)
(278,212) (5,255,418) (334,887)
68,931
5,946,764
314,809
(7,635)
-
(3,829,765) (154,858) (3,044,515)
(2,757,459) (140,000) (2,752,400)
-
(6,587,224) (294,858) (5,796,915)
1,214,223
1,355,861
61,761
-
-
Assets
Cash and cash equivalents $
Investment in securities at
fair value through profit
or loss
Investment in securities at
fair value through other
comprehensive income
Accounts receivable
Total assets
Liabilities
Trade accounts payable
Financial debt
Lease liabilities
Total Liabilities
Net asset position
$
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
$
2019
19.25
2018
19.23
2017
18.91
Spot exchange rate at
December 31,
2018
19.67
2017
19.66
2018
18.89
The exchange rate at the date of issuance of the consolidated financial statements is $23.70.
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 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
2018
$ 4,928,607 4,952,445 5,037,600 5,037,688 5,249,024 5,255,932
2019
2017
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:
Level 1
Level 2
Level 3
Total
As of December 31, 2019
Investment in securities at fair value through
profit or loss
$
186,284
-
Investment in securities at fair value through
other comprehensive income
Derivative financial instruments
As of December 31, 2018
Investment in securities at fair value through
profit or loss
Derivative financial instruments
As of December 31, 2017
Investment in securities at fair value through
profit or loss
Derivative financial instruments
$
$
$
$
$
315,761
-
502,045
-
18,098
18,098
-
-
-
-
186,284
315,761
18,098
520,143
Level 1
Level 2
Level 3
Total
550,068
-
550,068
-
6,570
6,570
-
-
-
550,068
6,570
556,638
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
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, 2019
Financial debt - bank institutions
Financial debt – debt securities
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
Level 1
Level 2
Level 3
Total
$
-
(1,496,635)
$ (1,496,635)
(3,455,810)
-
(3,455,810)
-
-
-
(3,455,810)
(1,496,635)
(4,952,445)
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)
g)
Quantitative sensitivity measurements
The following are sensitivity analyses for the most significant risks to which the Company is
exposed as of December 31, 2019, 2018 and 2017. 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, 2019 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 2019,
2018 and 2017 would have resulted in a valuation gain of $16,824, $28,767and $25,971 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 $31,133, $48,429 and $43,493.
The following table shows the Company’s sensitivity to an increase and decrease of 15% for
2019, 2018 and 2017 in the “bushell” price of corn and short ton price of soybeans.
Effect of Increase
Effect of Decrease
2019
2018
2017
2019
2018
2017
$ (121,762)
(2,665)
(16,094) $
100,490
105 21,229
(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 2019, 2018 and 2017, in the variable rates to which the Company is exposed.
Effect of Increase
Effect of Decrease
2019
2018
2017
2019
2018
2017
$
24,465
30,192
43,485 $
(24,465)
(30,192)
(43,485)
Loss (profit) for the
year
iii. Exchange risk
As of December 31, 2019, 2018 and 2017, the Company's net monetary liability position in
foreign currency was $ 5,946,764, $1,355,861 and $1,214,223, respectively.
The following table shows the Company’s sensitivity of an increase and decrease of 30% for
2019 and 10% for 2018 and 2017, in exchange rate, which would have an effect in the result
from foreign currency position.
Effect of Increase
Effect of Decrease
2019
2018
2017
2019
2018
2017
Loss (profit) for
the year
$
(1,784,045)
(135,586)
(121,422) $
1,784,045
135,586 121,422
(9) Accounts receivable, net
As of December 31, 2019, 2018 and 2017, accounts receivable are as follows:
Trade receivables
Allowance for doubtful accounts
Other receivables
Income tax receivable
Recoverable value-added tax and
other recoverable taxes
$
$
Past-due but not impaired portfolio
2019
2,595,978
(72,886)
-
187,912
December 31,
2018
2,523,950
(79,937)
-
114,935
2017
2,673,705
(96,900)
22,403
57,186
1,156,106
3,867,110
927,406
3,486,354
970,484
3,626,878
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
2019
20,463
47,573
68,036
December 31,
2018
144,604
17,250
161,854
$
2017
200,413
6,190
206,603
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, $
2019
(79,937)
(57)
7,030
78
(72,886)
2018
(96,900)
(7,862)
24,826
(1)
(79,937)
2017
(97,400)
(14,800)
15,287
13
(96,900)
As of December 31, 2019, 2018 and 2017 the Company has receivables in legal proceedings
(receivables for which legal counsel is seeking recoverability) of $140,304, $142,388 and
$141,636, 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 the estimated credit losses were based on the incurred loss model.
The expected credit losses for 2019 and 2018 in trade accounts receivable under IFRS 9 were
estimated at $50,753 and $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 2019
and 2018.
(10) Inventories
As of December 31, 2019, 2018 and 2017, 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
$
$
2019
1,836,783
877,837
330,238
1,554,115
56,599
47,954
4,482
2,199
4,710,207
December 31,
2018
1,688,527
903,337
322,522
1,548,597
52,050
39,709
10,762
10,092
4,575,596
2017
1,861,092
820,417
296,538
1,561,912
46,185
58,563
64,918
17,708
4,727,333
Inventory consumption for the years ended December 31, 2019, 2018 and 2017 was
$39,823,395, $40,115,184 and $37,567,550, respectively (note 23).
(11) Biological assets
For the years ended December 31, 2019, 2018 and 2017, biological assets are as follows:
$
Balance as of January 1, 2019
Increase due to purchases
Sales
Net increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as of December 31, 2019
$
$
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
2,073,526
510,403
-
267,773
32,894,675
-
(33,651,137)
(52,003)
2,043,237
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
1,721,728
701,764
(73,409)
2,378,419
1,761,456
(2,262,245)
(2,378,419)
(30,383)
1,818,911
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
3,795,254
1,212,167
(73,409)
2,646,192
34,656,131
(2,262,245)
(36,029,556)
(82,386)
3,862,148
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
The “Other” category includes the change in fair value of biological assets that resulted in an
increase of $35,487 in 2019, decrease of $22,270 in 2018 and increase of $22,598 in 2017.
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, 2019, 2018 and 2017, 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
2019
628,286
280,950
128,178
189,782
1,227,196
December 31,
2018
704,563
217,074
129,582
80,651
1,131,870
$
$
2017
234,458
235,652
88,533
80,028
638,671
(13) Assets held for sale
As of December 31, 2019, 2018 and 2017, assets held for sale are as follows:
Buildings
Land
Other
Total
2019
22,394
29,563
959
52,916
$
$
December 31,
2018
18,920
27,310
2,839
49,068
2017
18,920
27,765
2,838
49,523
The Company recognized gains (losses) on sales of these assets of $2,311, (13) and $2,437
during 2019, 2018 and 2017, respectively.
(14) Property, plant and equipment
As of December 31, 2019, 2018 and 2017, property, plant and equipment are comprised as
follows:
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
$
$
$
$
$
$
$
$
Balance as of
January 1,
2019
1,378,090
11,943,476
15,182,044
1,792,273
136,183
178,455
4,350
1,501,697
32,116,568
Additions Disposals
209,752
472,095
891,008
474,960
3,828
17,684
2,069,327
(30,677)
(7,478)
(92,623)
(154,116)
(3,257)
(5,295)
(752)
(38,065)
(332,263)
Currency
translation
effect
(3,666)
(67,688)
(113,477)
(1,118)
(2,273)
(555)
-
(3,710)
(192,487)
Balance as of
December 31,
2019
1,553,499
12,340,405
15,866,952
2,111,999
134,481
190,289
3,598
1,459,922
33,661,145
Balance as of
January 1
2019
(5,536,825)
(7,505,222)
(829,664)
(98,034)
(128,647)
(14,098,392)
Depreciation
for the year
Disposals
(230,450)
(874,447)
(134,708)
(13,635)
(12,151)
(1,265,391)
2,199
65,136
106,955
3,145
4,109
181,544
Currency
translation
effect
14,105
60,761
988
1,508
378
77,740
Balance as
of December
31, 2019
(5,750,971)
(8,253,772)
(856,429)
(107,016)
(136,311)
(15,104,499)
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
$
$
$
$
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)
Carrying amounts, net
2019
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
$
$
1,553,499
6,589,434
7,613,180
1,255,570
27,465
53,978
3,598
1,459,922
18,556,646
December 31,
2018
1,378,090
6,406,651
7,676,822
962,609
38,149
49,808
4,350
1,501,697
18,018,176
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
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, 2019, 2018 and 2017 was
$1,265,391, $1,226,917 and $1,075,788, 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
2019
$ 1,631,771
-
(52,777)
$ 1,578,994
2018
1,631,094
-
677
1,631,771
2017
484,877
1,042,163
104,054
1,631,094
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.
2019
Final
balance of
the year
Projection
period
(years)
5
5
5
5
5
212,833
88,015
62,647
105,780
1,109,719
1,578,994
2018
Annual
discount
rate
(%)
12.84%
12.84%
5.22%
5.22%
5.22%
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
65,233
110,147
1,155,543
1,631,771
5
5
5
5
5
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%
$
$
$
$
Cash-generating unit
2017
Final
balance of
the year
Projection
period
(years)
Bachoco - Istmo and Peninsula regions
Campi
Ok Farms - Morris Hatchery, Inc. Arkansas
Ok Farms - Morris Hatchery Inc. Georgia
Ok Foods- Albertville Quality Foods, Inc.
$
$
212,833
88,015
65,200
110,091
1,154,955
1,631,094
5
5
5
5
5
(16) Intangible assets
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%
The balances as of December 31, 2019, 2018 and 2017 for $772,640, $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 2019 and 2018, the Company ended a relationship with clients for which an intangible
asset was recognized. The Company does not expect to do future business with those clients
resulting in an impairment of $73,733 and $ 6,139 in 2019 and 2018, respectively, which was
charged to the results of the fiscal year as other expenses.
During 2018 the Company decided 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
2019
2018
2017
$
$
891,553
(74,859)
(73,733)
742,961
29,679
-
772,640
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
2019
December 31,
2018
2017
$
$
495,015
65,545
21,545
173,488
2,841
51,614
810,048
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
(18) Financial debt
a)
Short-term financial debt is as follows:
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.
Loan denominated in pesos, maturing in January 2018, at
TIIE (1) FIRA (2) rate plus 0.60 percentage points
Loan denominated in pesos, maturing in January 2019, at
TIIE (1) FIRA (2) rate plus 1.25 percentage points.
Loan in the amount of 140,000 thousand dollars, maturing in
February 2019, at fixed rate 2.29 percentage points.
Loan denominated in pesos, maturing in February 2019, at
TIIE (1) rate plus 1.25 percentage points.
Loan denominated in pesos, maturing in March 2019, at
TIIE (1) rate plus 1.25 percentage points.
Loan denominated in pesos, maturing in May 2019, at TIIE
(1) rate plus 0.40 percentage points.
Loan in the amount of 70,000 thousand dollars, maturing in
January 2020, at LIBOR (3) rate plus 0.62 percentage points.
Loan denominated in pesos, maturing in January 2020, at
TIIE (1) rate plus 0.50 percentage points.
Loan in the amount of 80,000 thousand dollars, maturing in
February 2020, at LIBOR6 (4) rate plus 0.35 percentage
points.
Loan denominated in pesos, maturing in February 2020, at
TIIE (1) rate plus 1.05 percentage points.
Loan denominated in pesos, maturing in May 2020, at TIIE
(1) rate plus 1.05 percentage points.
Loan denominated in pesos, maturing in June 2020, at TIIE
(1) rate plus 0.50 percentage points.
2019
December 31,
2018
2017
-
-
-
1,376,200
1,376,200
100,000
-
-
-
-
-
-
-
-
100,306
2,757,460
300,028
250,023
20,003
1,322,176
50,000
1,509,015
449,572
99,678
9,958
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total short-term debt
$
3,440,399 3,427,820
-
2,852,400
The annual weighted average interest rate of short-term loans denominated in pesos for 2019,
2018 and 2017 was 9.24%, 9.14% and 8.06%, respectively. The average interest rate for loans
outstanding as of December 31, 2019, 2018 and 2017 was 8.77%, 9.15% and 8.06%,
respectively.
The annual weighted average interest rate of short-term loans denominated in dollars for the
years 2019, 2018 and 2017 was 2.36%, 2.26% and 1.22%, respectively. The average interest
rate for loans outstanding as of December 31, 2019, 2018 and 2017 was 2.37%, 2.29% and
1.57%, respectively.
(1)
(2)
(3)
(4)
TIIE (for its acronym in Spanish) = Interbank Equilibrium Rate
FIRA (for its acronym in Spanish) = Agriculture Trust Funds
LIBOR= London Interbank Offered Rate
LIBOR6= London InterBank Offered Rate (6 months)
b) Long-term debt consists of the following:
2019
December 31,
2018
Loan denominated in pesos, maturing in 2017 and 2018, at
TIIE (1) FIRA (2) rates less 0.25 percentage points.
Loan denominated in pesos, maturing in 2018, at TIIE (1)
$
FIRA (2) rates less 0.60 percentage points.
Loan denominated in pesos, maturing in 2019, at TIIE (1)
FIRA (2) rates plus 0.25 percentage points.
Loan denominated in pesos, maturing in 2023, at TIIE (1)
FIRA (2) plus 0 percentage points.
Debt securities (subsection (d) of this note)
Total
Less current maturities
-
-
-
-
1,488,208
1,488,208
-
Long-term debt, excluding current maturities
$
1,488,208
2017
553,651
289,000
-
-
53,980
53,973
55,007
1,500,793
1,609,780
(64,973)
1,544,807
-
1,500,000
2,396,624
(842,651)
1,553,973
The annual weighted average interest rate on long-term debt for 2019, 2018 and 2017 was
8.53%, 8.42% and 7.72%, respectively. The average rate for outstanding loans as of December
31, 2019, 2018 and 2017 was 8.26%, 8.46% and 7.48%, 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 2019 and 2017 the Company made early payments on its long-term debt of $51,000
and $53,900, during 2018 the Company did not make early payments on its long-term debt.
As of December 31, 2019, 2018 and 2017, unused lines of credit amounted to $3,325,981,
$5,723,011 and $7,031,813, 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,
2019, are as follows:
Year
Amount
2022 $
1,488,208
Interest expense on total loans during the years ended December 31, 2019, 2018 and 2017,
amounted to $250,820, $185,913 and $188,597, respectively, (note 29).
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,
2019, 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 $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,
2019.
e) Reconciliation of liabilities arising from financing debt
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
2019
$ 5,037,600
December 31,
2018
5,249,024
2017
4,047,937
4,839,000
(4,808,163)
3,370,400
(3,588,067)
5,378,915
(4,246,100)
(139,830)
$ 4,928,607
6,243
5,037,600
68,272
5,249,024
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
2019
3,972,460
518,711
64,154
86,710
275,214
213,345
28,060
173
5,158,827
3,996,014
597,330
103,494
68,432
259,828
160,431
10,728
90
5,196,347
2017
3,684,220
479,223
103,474
42,940
241,739
171,784
16,904
82
4,740,366
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 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, 2019 the Company has not recorded any provisions, during 2018 and 2017, the
Company has recorded provisions of $39,340 (2,000 thousand dollars) and $39,320 (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, 2019, 2018 and 2017:
Compensation
December 31,
2019
52,635
2018
61,189
$
2017
56,201
(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,
2018
2019
2017
Balance as of
December 31,
2018
2019
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.
Alimentos Kowi, S.A. de
C.V.
Sonora Agropecuaria, S.A.
DE C.V.
$
9,323
58
42
934
8,812
-
47,344 $
10
785
58
28
1,013
-
-
-
337
178,624
$ 188,981
-
8,840
-
48,367 $
12,494
13,674
-
-
-
-
99
99
2017
326
-
-
-
-
326
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.
Alimentos Kowi, S.A. de C.V.
Sonora Agropecuaria, 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,
2018
2019
2017
2019
Balance as of
December 31,
2018
2017
$ 582,458 557,490
148,210 193,396
37,794
20,667
230
244
-
907
-
3,374
392,226 $
179,357
26,700
95
-
-
41,399
26,233
3,976
-
2
-
103,371
28,951
5,227
41
-
-
$
-
-
38,947
10,776
38,581
18,776
793
35,225
24,645
5
4,213
124
11,519
17,671
14,037
270,968
904
187
183
19,490
47
307
30
85,448
15
428
29
149
149
9
49
89
64
3,374
4,712
1,486
216
7
40
5
12,830
29,537
8,138
-
-
-
64
4,207
57
79
172
4
95
1
$
24,971
8,368
7,854
$
307
76,704
20
147,514
68
55,252
As of December 31, 2019, 2018 and 2017, 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, 2019, 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, 2019, 2018 and
2017, 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 2019 and 2018 for the
Company’s US subsidiary is 21% (plus state and federal taxes), during 2017 the rate was 35%
(plus state and federal taxes).
As of December 31, 2019, 2018 and 2017, 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, 2019, 2018 and 2017, 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
2019
1,066,160
324,415
1,390,575
(1,859)
(263,738)
1,124,978
December 31
2018
1,242,553
(33,718)
1,208,835
4,294
(58,151)
1,154,978
$
$
2017
1,512,721
(157,646)
1,355,075
198,813
(469,444)
1,084,444
The income tax expense attributable to income before income taxes differed from the amount
computed by applying the ISR rate of 30% in 2019, 2018 and 2017 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 tax incentive
Effect of change of
income tax rate in the
United States of
America
Cancellation of loss by
acquisition
Other
Income tax expense
2019
Percentage
ISR
$ 1,292,925
30% $
(168,822)
11,027
48,658
70,202
(60,861)
-
(4%)
0%
1%
2%
(1%)
ISR
1,354,965
(276,758)
16,648
(16,572)
90,820
-
2018
Percentage
ISR
30% $
1,811,667
2017
Percentage
30%
-
(6%)
0%
(0%)
2%
-
-
-
(329,516)
(5%)
88,330
702
83,953
-
(443,104)
(129,036)
1,448
1,084,444
1%
0%
1%
-
(7%)
(2%)
0%
18%
-
-
-
-
-
-
(68,151)
$ 1,124,978
(2%)
26% $
(14,126)
1,154,978
(0%)
26% $
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, 2019, 2018 and 2017 are
detailed below:
Deferred tax assets
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Inventories
Property, plant and equipment
Other provisions
Total deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Prepaid expenses
Other provisions
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
Goodwill
Intangible assets
Derivative financial instruments
Total deferred tax liabilities
Net deferred tax liability
$
$
$
$
2019
December 31,
2018
2017
2,481
164,019
26,020
56,163
616
1,113
-
250,412
-
4,593
547
5,140
245,272
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
December 31,
2019
2018
2017
1,097,422
271,772
-
63,314
1,432,508
1,696,300
445,198
2,667,824
332,392
584
190,900
3,803
5,337,001
3,904,493
1,483,275
59,883
3,879
76,025
1,623,062
1,170,771
22,013
7,562
54,020
1,254,366
1,639,156
366,825
2,503,172
647,480
-
233,749
-
5,390,382
3,767,320
1,601,498
421,191
2,428,358
392,800
253,898
-
5,097,745
3,843,379
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, 2019, 2018 and 2017 amounts
to $1,919,720, $2,049,327 and $2,587,954, 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
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
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
$
January 1,
2019
(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
-
Net deferred tax liability
$
3,663,494
410,152
(197,728)
(5,484)
(273,479)
15,436
4,391
(34,220)
64,120
78,373
184,454
(310,495)
3,803
(60,677)
December
31, 2019
(1,099,903)
(164,060)
(26,020)
(327,935)
(62,767)
584
190,900
1,695,684
445,198
2,666,752
336,985
958
87,107
-
5,427
27
72
(8,629)
(7,592)
-
(20,966)
-
-
56,404
3,803
3,659,221
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)
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
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
January 1,
2017
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
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
$
$
(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, 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
f)
Tax on assets and tax loss carryforwards
As of December 31, 2019, tax loss carryforwards expire as shown below. Amounts are
indexed for inflation as permitted by Mexican income tax law:
Amount as of December 31, 2019
Year
2017
2018
2019
Tax loss
carryforwards
$
$
64,729
11,877
1,184,933
1,438,549
Year of expiration /
maturity
2027
2028
2029
(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 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, 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. During
2019, 2018 and 2017 there were not the expenses for paid contributions to defined
contribution plans, other than those mandated by Mexican law.
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 $66,134, $62,028 and $56,063, in 2019, 2018 and 2017,
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.
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
2019
487,810
148,392
December 31,
2018
302,818
197,254
$
2017
252,965
259,245
636,202
(148,392)
487,810
$
500,072
512,210
(197,254) (259,245)
252,965
302,818
Actual return of the plan assets
2019
2018
2017
Composition of the plan
assets
2018
2017
2019
Fixed income
securities
Variable income
securities
Total
12.67%
5.10%
7.18%
62%
67%
61%
15.65%
(10.95%)
12.78%
38%
100%
33%
100%
39%
100%
ii. Movements in the present value of 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
2019
500,072
(54,932)
30,108
50,421
110,533
-
PBO as of December 31
$
636,202
iii. Movements in the fair value of plan assets
2018
462,986
(38,393)
28,084
41,410
494
5,491
500,072
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
$
2019
197,247
2018
259,245
$
(39,079)
(32,027)
19,615
(38,327)
(16,772)
23,244
2,636
148,392
(30,136)
197,254
2017
462,554
(32,940)
28,968
40,170
13,458
-
512,210
2017
267,535
(10,664)
(17,049)
23,342
(3,919)
259,245
iv. Expense recognized in profit and loss
Current service cost
Interest cost, net
2019
2018
2017
$
$
30,108
30,806
60,914
28,084
18,166
46,250
28,968
16,828
45,796
v. Actuarial gains and (losses)
Amount accumulated as of January, 1
Recognized during the year
Amount accumulated as of December,
31
$
$
2019
(171,247)
(107,897)
2018
(140,617)
(30,630)
2017
(123,240)
(17,377)
(279,144)
(171,247)
(140,617)
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
2019
8.75%
4.50%
3.50%
2018
10.50%
4.50%
3.50%
2017
9.25%
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
$
2019
636,202
(148,392)
487,810
(110,533)
2,636
December 31,
2018
500,072
(197,254)
302,818
(494)
(30,136)
2017
512,210
(259,245)
252,965
(13,458)
(3,919)
viii.Sensitivity analysis of the defined benefits obligations as of December 31, 2019, 2018 and
2017
2019
Discount rate 8.75%
Rate increase (+ 1%)
Rate decrease (- 1%)
Pension
plan
Seniority
premium
Constructive
obligation
Total
PBO
$ (442,133)
$ (434,134)
$ (450,391)
(173,401)
(170,812)
(176,067)
(20,668)
(20,490)
(20,852)
(636,202)
(625,436)
(647,310)
2018
Discount rate 10.50%
Rate increase (+ 1%)
Rate decrease (- 1%)
Pension
plan
Seniority
premium
Constructive
obligation
Total
PBO
$ (358,635)
$ (313,585)
$ (364,699)
(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%)
ix. Expected cash flows
Pension
plan
Seniority
premium
Constructive
obligation
Total
PBO
$ (343,485)
$ (314,460)
$ (377,114)
(99,735)
(94,308)
(105,810)
(68,990)
(65,113)
(73,338)
(512,210)
(473,881)
(556,262)
Total
2020-2030 $
608,911
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
$14,919, $12,999 and $11,497 for the year ended December 31, 2019, 2018 and 2017,
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, 2019, 2018 and 2017, all of which were fully vested. The total
liability under this plan totaled $32,874, $20,922 and $3,378 as of December 31, 2019, 2018
and 2017, respectively. No expense was recognized for this plan for the year ended December
31, 2019, 2018 and 2017.
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, 2019, 2018 and 2017 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
Depreciation of right-of-use assets
Leases (1)
Other
Total
$
$
$
$
2019
51,557,351
2018
51,422,376
2017
47,502,959
6,116,620
57,673,971
6,024,406
57,446,782
5,423,379
52,926,338
39,823,395
7,561,229
5,047,007
1,715,820
1,595,993
1,265,391
302,804
96,825
265,507
57,673,971
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
(1)
Leasing expense in 2019 includes contracts classified as low value or those with terms less than twelve
months. For its part, the expense corresponding to the 2018 and 2017 annual periods includes everything
previously classified as operating leases under IAS 17 Leases, which was replaced by IFRS 16 Leases.
(24) Leases
Operating leases as lessee
During 2018 and 2017 the Company has entered 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
$
a) As of December 31, 2019, the leased assets with recognized right of use are comprised
as follows:
Right-of-use assets
Balance as of
January 1
Additions
Balance as of
December 31,
2019
Buildings and construction $
Machinery and equipment
Transportation equipment
Computer equipment
Total
$
320,528
370,410
219,132
12,340
922,410
59,483
76,769
64,200
2,674
203,126
380,011
447,179
283,332
15,014
1,125,536
Depreciation of right-of-use assets
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Total
Total right-of-use assets
Balance as of
December 31,
2019
(97,736)
(116,391)
(84,120)
(4,557)
(302,804)
822,732
$
$
$
b)
The movements in liabilities for these lease contracts were as follows:
Lease liabilities
Buildings and
construction
Machinery and equipment
Transportation equipment
Computer equipment
Total
$
$
Balance as of
January 1,
2019
Additions Payment
Interest
paid
Currency
translation
effect
Balance as
of December
31, 2019
320,528
370,410
219,132
12,340
59,297 (113,097)
63,662 (124,435)
64,129
(82,381)
2,674
(5,294)
17,423
11,933
8,070
371
(3,874)
(12,860)
(4,692)
(286)
922,410
189,762 (325,207)
37,797
(21,712)
280,277
308,710
204,258
9,805
803,050
(149,538)
653,512
Current Lease liabilities
Long term lease liabilities $
-
-
-
-
-
-
-
-
-
-
c)
The analysis of the maturity of the long-term lease liabilities is shown below:
2020
2021
2022
Subsequent
$
$
263,160
190,613
144,267
55,472
653,512
d) During 2019, an amount of $19,116 was charged as expense for rental contracts with a
term of less than one year and $77,709 for rental contracts with insignificant amounts, a total
of $96,825 (note 23).
(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 does not exceed 2.75 times and that the interest
coverage ratio is at least 3 to 1.
During 2019, 2018 and 2017 these ratios were below the thresholds established by the
Company’s Risk Committee.
b) Common stock and premiums
As of December 31, 2019, 2018 and 2017, 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 439,500,000 shares through two family trusts: the
placement trust and the control trust, which collectively represented 73.25% of the Company’s
total shares. The remaining 26.75% represents the floating position:
Shareholding integration
as of December 31, 2019,
2018 and 2017
Shares (1)
Position
439,500,000 73.25%
312,000,000 52.00%
127,500,000 21.25%
160,500,000 26.75%
Familiar Trusts
- Control Trust
- Placement Trust
Floating Position (2)
(1) All Series B shares with voting power.
(2) Operating at the BMV and the NYSE.
Based on the information provided to the Company, as of December 31, 2019, stockholders
with 1% or more interest in the Company, in addition to the family trusts, are as follows:
Renaissance Technologies LLC
GBM Fondo de Inversión Total, S.A. de C.V.
Shares
Position
7,657,200
7,097,646
1.28%
1.18%
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, 2019,
2018 and 2017 amounts to $195,905, $120,378 and $98,938, which includes a deferred tax
effect of $83,236, $50,867 and $41,679, 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 24, 2019, pursuant to a resolution at the General Ordinary Stockholders’ Meeting, an
amount of $1,316,340 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, 2019, 2018 and 2017:
Balance as of January 1
(+) Total shares purchased
(-) Total shares sold
Balance as of December 31
2019
86,928
133,488
(120,020)
100,396
2018
20,000
86,928
(20,000)
86,928
2017
-
20,000
-
20,000
The net amount of repurchase and treasury share sale transactions was of ($1,474), ($4,568)
and ($1,800), during the years ended December 31, 2019, 2018 and 2017, respectively.
As of December 31, 2019, the Company has 100,396 treasury shares.
e) Dividends
During the years ended December 31, 2019, 2018 and 2017, the Company has declared and
paid the following dividends:
On April 25, 2019, the Company declared a payment of dividends in cash at nominal value of
$840,000 or $1.40 pesos per outstanding share. The payment was made in two equal
installments, on May 14 and July 9, 2019.
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.
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
2019, 2018 and 2017, net income of BSACV, accounted for 63%, 63% and 63%, 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
6,851,739
7,176,816
Balance
from2014
Total
8,731,894
17,954,497
15,583,633
25,131,313
The restated amount as of December 31, 2019 on tax bases of the contributions made by
stockholders (CUCA), totaling $3,055,601, 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, 2019, 2018 and
2017 are 5.37, $5.58 and $8.25, respectively. The calculation of earnings per share was based
on income attributable to ordinary stockholders of $3,219,931, $3,349,967 and $4,948,242 for
the years ended December 31, 2019, 2018 and 2017, respectively.
The average weighted number of common outstanding in 2019, 2018 and 2017 was
599,971,832, 599,980,734 and 599,997,696 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 $6,612 (350 thousand
dollars) each year per plan participant and workers’ payments claims up to $18,890 (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 $81,737 (4,327 thousand dollars),
$74,766 (3,801 thousand dollars) and $98,221 (4,996 thousand dollars) as of December 31,
2019, 2018 and 2017, respectively. Likewise, the consolidated statement of comprehensive
income includes expenses relating to self-insurance plans of $126,376 (6,565 thousand
dollars), $139,783 (7,269 thousand dollars) and $221,644 (11,721 thousand dollars) for the
years ended December 31, 2019, 2018 and 2017, respectively. The Company is required to
maintain letters of credit on behalf of the subsidiary of $54,781 (2,900 thousand dollars)
during 2019, $57,043 (2,900 thousand dollars) during 2018 and $57,014 (2,900 thousand
dollars) during 2017, 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
Effects of valuation of derivative financial
instruments
Foreign exchange loss, net
Interest expense and financial expenses on
financial debt
Interest paid on lease
Commissions and other financial expenses
Financial costs
Financial income, net
2019
988,005 1,072,991
2018
2017
848,148
$
3,627
-
4,516
39,323
8,961
230,532
-
991,632 1,140,749 1,087,641
23,919
-
(8,029)
(272,220)
-
-
(84,094)
-
(250,820) (185,913) (188,597)
-
(37,797)
-
(67,400)
(41,502) (146,255)
(610,368) (332,168) (340,091)
381,264
747,550
808,581
$
(30) Other (expenses) income
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 (expenses) income, net
2019
2018
2017
$
1,203,836
1,041,677
896,840
-
1,203,836
-
1,041,677
87,496
984,336
(944,848)
(263,722)
(1,208,570)
(4,734)
$
(737,077)
(201,940)
(939,017)
102,660
(731,110)
(85,584)
(816,694)
167,642
(31) Subsequent events
a) Business acquisition agreement
In 2019, the Company announced that an agreement was reached to invest in the company
Sonora Agropecuaria S.A. de C.V. "SASA", a pig processing and distribution company with
operations in the states of Sonora and Jalisco. This agreement is expected to create synergies
with the Company's real live pig business, to accelerate the growth rate and continue
advancing in the process of diversifying other animal proteins. We hope to complete the
process during 2020 and capture the opportunities that we have identified.
b) COVID-19
c) During the first quarter of 2020, an outbreak of a new coronavirus strain (COVID-19)
emerged worldwide. As of the date of issuance of the consolidated financial statements,
measures have been established by the federal, state and local authorities (Mexican and
United States) that require the forced closure of certain activities considered non-essential
(businesses, non-essential government agencies, educational sector, among others) which
could negatively affect the Company's business. Although it is not possible to reliably
estimate the duration or severity of the outbreak and, therefore, its financial impact on the
Company, we have carried out an analysis of the possible effects of COVID 19 on the
Company's operation in the following areas:
•
•
Impairment of non-financial assets (including goodwill) - The long-term projections
have been reviewed, the basis of the calculations for a possible impairment in goodwill
and intangible assets and no change in the projections has been identified that has a
significant impact.
Inventory valuation - We have not had a deterioration in the price of chicken and eggs,
and although raw material prices are estimated to increase due to the depreciation of
the peso against the dollar, there will be no significant impact.
• Provision for expected losses - The estimate for expected credit losses was reviewed
and we consider that it is sufficient to support an increase in credit risk.
• Measurement at fair value - It is estimated that there will be no losses on investments
at fair value.
• Breaches of agreements - The Company plans to fulfill its commitments to its suppliers
and customers due to its solid financial position.
• Going concern - The Company qualifies as an essential activity in the contingency
period, so it continues to operate normally with full operation in its farms, plants,
distribution centers, logistics, supply chain and offices, despite partially working
remotely in some of its corporate locations. We have also implemented strict additional
measures to guarantee the well-being of clients, suppliers and workers; as well as the
quality and safety of our products.
• Liquidity risk management - The Company has sufficient liquidity to assume its long-
•
term commitments.
Insurance recoveries related to business interruptions - The Company has insurance
policies to cover business continuity, however, it is not expected that they will be used
because it will continue to operate during the contingency period, considering its
corporate purpose as an essential activity.
• Benefits for termination of employment relationship and contingency considerations
for contractual agreements - There is no technical stoppage in operations, so labor
relations will not be affected.
• Modifications of contractual agreements - No change is anticipated as the Company
continues to operate normally.
Income tax considerations - So far, no fiscal impact is anticipated.
•
In order to guarantee the safety of collaborators and business partners, controls and
measures have been established in accordance with the recommendations of the World
Health Organization and federal authorities. These include: the control of access to work
centers by means of temperature taking checkpoints, sanitation and the compulsory use of
face masks, a large part of our administrative process personnel are carrying out home
office to decrease population density, restrictions applied to travel and interoperation
movement to mitigate the risk of contagion, the most vulnerable personnel (pregnant,
breastfeeding or people with diseases that compromise the immune system) have been sent
home with full pay, and finally, our staff of occupational physicians has been increased to
attend to this contingency.
At the date of issuance of the consolidated financial statements, the Company does not
consider that it should substantially modify its budgets and/or financial projections or
recognize significant losses in the valuation of its monetary and non-monetary assets.
However, there is no guarantee that the crisis will not have an adverse effect on the
Company’s financial position, results of operations or cash flows if the significant
disruptions to the national and global economy continue in future periods.
Depositary Bank
Bank of New York Mellon
Shareholder Correspondence Address:
BNY Mellon Shareowner Services
P.O. Box 505000
Louisville, KY 40233-5000
Overnight correspondence Address:
BNY Mellon Shareowner Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
T. US and Canada: 1-888-269-2377
T. 201-680-6825
E-mail: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
Deloitte Touche Tohmatsu/ Galaz,
Yamazaki, Ruiz Urquiza, S.C.
T. +52 (442) 238.29.34
Independent auditors
Industrias Bachoco S.A de C.V.
Av. Tecnologico 401
Celaya, Guanajuato
38030, Mexico
T. +52 (461) 618.35.00
Corporate
Headquarters
Maria Guadalupe Jaquez
Andrea Guerrero
T. +52 (461) 618.35.55 (México)
inversionistas@bachoco.net
Investor Relations
Consult online our Annual Report 2019
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CONTACTINFORMATION