INDEX
Highlights
06
Highlights
to Investors
22
Message to
Shareholders
08
Board of Directors
24
CEO’s Letter
12
Senior
Management Team
26
Report from the
Board of Directors
15
Social
Responsibility
28
Audit and Corporate
Practices Committee
16
Growing
together everyday
32
Report from the Audit
and Corporate
Practices Committee
16
Consolidated
Financial
Statements
34
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, pork, and
further process products of beef and turkey.
Bachoco owns and manages more than a thousand
farms, 9 processing plants, 9 further processing plants,
22 feed mills, 22 hatcheries, and more than 80 distribution
centers. At the date of this report The Company employs
more than 29,000 people.
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.
4
5
________________Bachoco________________Annual Report 2020 NET SALES
Chicken
83%
Egg
6%
Balance feed
5%
Others
6%
SALES BY GEOGRAPHY
Mexico
72%
United States
28%
EMPLOYEES
OPERATING DATA
In millions pesos
!"#$%&&%'"(#)*('(
Net sales
Gross profit
Operating income
EBITDA Result
Net income
EPS in pesos
Earnings per ADR en pesos
Gross margin
Operating margin
EBITDA margin
Net margin
1 One dollar equal to $19.95 pesos
U.S. Dollar1
2020
$
3,448.2
555.6
215.6
302.6
$
199.1
0.33
3.95
16.1%
6.3%
8.8%
5.8%
2020
68,792.0
11,084.4
4,301.5
6,036.7
3,972.1
6.56
78.74
16.1%
6.3%
8.8%
5.8%
STATEMENT OF FINANCIAL DATA
In millions pesos
!"#$%&&%'"(#)*('(
TOTAL ASSETS
Cash and cash equivalents
Inventories
TOTAL LIABILITIES
Notes payable to banks
Accounts payable
Long-term debt
U.S. Dollar1
2020
$
2,931.1
964.5
285.1
$
729.2
53.0
288.4
73.2
2020
58,475.0
19,242.3
5,688.3
14,548.2
1,057.6
5,753.1
1,460.4
43,926.8
1,174.4
39,607.8
December 31
2019
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%
December 31
2019
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
2018
61,052.1
9,629.7
3,708.0
4,993.1
3,361.6
5.58
67.00
15.8%
6.1%
8.2%
5.5%
2018
52,865.6
18,458.5
4,575.6
14,699.9
3,492.8
5,196.3
1,544.8
38,165.7
1,174.4
34,792.3
2020
29,780
2019
28,218
2018
27,597
TOTAL STOCKHOLDERS´ EQUITY
$
2,201.8
Capital stock
Retained earnings
1 One dollar equal to $19.95 pesos
58.9
1,985.4
6
7
________________Annual Report 2020________________Bachoco
MESSAGE TO
SHAREHOLDERS
“
In an effort to support Mexican families, we developed
a program called “Apoyo de Corazón”, in which
we donated more than 858,000 kilos of chicken in
coordination with public and private institutions,
benefiting more than 3.5 million people across Mexico.
“
Also, through our program “Caldito de apoyo” we delivered
chicken soup to people outside main hospitals in Mexico
City, Morelos, Puebla, Nuevo Leon and Tabasco. With this
initiative we were able to deliver more than 93,000 chicken
soup plates for those who were struggling the most.
Our commitment and contribution to our society was
recognized by MERCO. In 2020, Bachoco was placed number
16 on the top 50 companies with the best reputation in
Mexico and ranked in the 21st place of MERCO’s top 100
companies with best Social Responsibility and Corporate
Governance.
Despite the challenges and uncertainty faced the last year,
we continued generating and looking for both efficiency
and growth opportunities. During 2020 we announced
the integration of Sonora Agropecuaria (SASA) to the
Bachoco family. This investment gives us the opportunity
to participate in the processed pork segment as well as
in the export market. We are certain that this will be an
additive integration to our portfolio.
By being focus on the things we can control and by
strengthening our relationship with our customers, we
managed to have a good reading of changes in demand
in our markets and to quickly adapt to it. As a result, for
the full year of 2020, our sales totaled $68,792.0 million
which is 11.6% higher than the total sales reported in the
equivalent period of 2019.
Dear Shareholders of Industrias Bachoco:
In 2020, with the outbreak of COVID-19 pandemic, the world faced an unprecedent
situation which resulted in major human losses and lockdown measures across the
globe. Affecting social and macroeconomic dynamics in matter of no time.
Global economies were negatively impacted and Mexico was no exemption. In 2020,
Mexico GDP decreased 8.2%, which historically was the second lowest level since 1932.
This required for industries to raise to the challenge and in Bachoco, as part of an
essential sector, we played our part by reinforcing our commitment and presence with
our consumers and society.
8
9
________________Annual Report 2020________________Bachoco At the same time, our financial structure continued strong
as we ended 2020 with a net cash of $16,724.3 million.
Keeping our financial discipline will allow us to continue
growing and delivering positive results even under
unpredictable and volatile conditions.
In 2020, our CAPEX had a significant increase that was
used on investments allocated to organic growth, as well
as in productivity projects in all our supply chain. This is
key for us to continue getting closer to our customers
and to consolidate ourselves as their best alternative
in the industry. As a result, Bachoco remains leader in
the poultry industry in Mexico and an important player
worldwide with a strong and trusting brand.
Our team always has been essential in achieving our goals
and in this atypical year, we couldn’t have done it without
their passion, effort and commitment. Today, Bachoco is
integrated by more than 29,000 employees that through
their hard work, were able to quickly adapt to a new reality
in a safely way looking for each other while performing
their top game. It is because of their great performance
that we were able to bring protein products to the table
of our consumers every day when they needed the most.
Once more, I would like to remind you of the commitment
that we have with all of you. Our goal is to keep our position
in Mexico as the leader of the poultry sector and to be one
of the main players worldwide, while continuing to grow
our business with profitability and in a sustainable way,
maintaining the solid financial structure that has always
characterized us.
Javier Bours Castelo
Chairman of the Board of Director
11
10
________________Annual Report 2020________________Bachoco CEO’S LETTER
We are constantly looking for opportunities to grow and strengthen our presence.
Despite the challenges that the national and global macroeconomic conditions
presented, we reinforced our commitment towards becoming a multiprotein company,
by consolidating a business agreement to invest in Sonora Agropecuaria (SASA).
“
In addition to our growth strategy, our
financial and operating discipline allowed
us to deliver positive results in a very
complicated year.
“
2020 & 2019 Results
Net sales in 2020 totaled $68,792.0 million,
$7,136.8 million more or a 11.6% increase
in net sales, when compared to $61,655.2
million reported in 2019. This increase was
due to higher prices in our main business
lines and more volume sold in our others
business line. The increase in others was
mainly as a result of the integration of
SASA in the second half of the year.
In 2020, sales of our US operations
represented 28.3% of our total sales,
compared with 27.4% reported in 2019.
The Company’s total poultry sales increased
10.2%, while our Others line increased
24.4%. The increase in poultry was a result
of better prices when compared to 2019,
while the higher sales in Others was mainly
driven by the integration of SASA.
Cost of sales totaled $57,707.6 million,
11.9% higher than the $51,557.4 million
reported
increase was
mainly due to impact of the Mexican peso
in 2019. The
depreciation during most part of 2020 and
the increase in raw material prices in dollar
and in peso terms, mainly towards the last
part of that year.
These numbers allowed us to reach a
gross profit of $11,084.4 million, which
represented 16.1% of gross margin; higher
than the $10,097.9 million of gross profit
and a margin of 16.4% reached in 2019.
Total SG&A expenses
in 2020 were
$6,420.4 million, an increase of $303.8
million or 5.0% when compared to $6,116.6
million in 2019. Total SG&A expenses as a
percentage of net sales represented 9.3%
in 2020 and 9.9% in 2019.
In 2020, we had other expenses of $362.5
million, compared with other expenses of
$4.7 million reported in 2019. The increase
was mainly related to COVID expenses
which allowed us to properly face the
operational challenges that came with the
pandemic.
Dear Shareholders:
All figures discussed below are information of 2020 with comparative figures of 2019.
It was prepared under IFRS accounting principles and is presented in millions of pesos
unless otherwise indicated.
2020 was a very challenging and uncertain year. The pandemic made us redraw our
plans and search for new ways to do business, for that, I want to express my gratitude
to all the team members of Bachoco Industries. Thanks to their commitment we
were able to serve our customers in a safe way according to the guidelines set by the
authorities.
12
13
________________Annual Report 2020________________Bachoco The operating income in 2020 totaled
$4,301.5 million with a margin of 6.3%,
higher
the $3,976.5 million of
operating income and 6.4% margin as
reported in 2019.
than
Cash and equivalents as of December 31,
2020 totaled $19,242.3 million, an increase
of $59.6 million or 0.3% more than the
$19,182.7 million of cash and equivalents
reported as of December 31, 2019.
Total debt as of December 31, 2020 was
$2,518.0 million, compared to total debt of
$4,928.6 million reported as of December
31, 2019. As a result, our net cash as of
December 31, 2020 totaled $16,724.3
million, compared with a net cash of
$14,254.1 million as of December 31, 2019.
Capex in 2020 totaled $2,752.3 million,
an increase of 33.0% when compared
to $2,069.3 million reported in 2019. In
2020, 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 customers.
In 2020, we reached an EBITDA of $6,036.7
million, representing an EBITDA margin of
8.8%, compared to an EBITDA of $5,263.0
million in 2019, with a margin of 8.5%.
Net financial income was $882.2 million,
an increase when compared to the net
financial income of $381.3 million in 2019.
This increase was a result of higher FX gains
due to the depreciation of the Mexican
peso vs the U.S. dollar.
Total taxes were $1,211.6 million. This
includes $1,321.0 million in income tax
and $109.4 million in favorable deferred
taxes. These figures compare to total
taxes of $1,125.0 million, which includes
income tax of $1,064.3 and $60.7 million
of deferred tax in 2019.
As a result, net income in 2020 was
$3,972.1 million, a 5.8% net margin, which
represents earnings per share of $6.56
pesos; while in 2019, net income totaled
$3,232.8 million with an 5.2% net margin,
and $5.37 pesos of earnings per share.
Rodolfo Ramos Arvizu
Chief Executive Officer
14
REPORT FROM THE
BOARD OF DIRECTORS
As Chairman of the Board of Directors of Industrias Bachoco, and pursuant to the
provisions of Section IV of Article 28 of the Securities Market Law, I hereby inform you
of the following:
This Board of Directors reviewed and
approved the Chief Executive Officer’s
report which supports the performance
of management for fiscal year 2020, 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 2020,
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 2020.
Javier Bours Castelo
Chairman of the Board of Directors
15
________________Bachoco________________Annual Report 2020 AUDIT AND CORPORATE
PRACTICES COMMITTEE
Bachoco has an Audit 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 22, 2020.
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
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”).
In the exercise of the Committee functions,
and in attention of its responsibilities,
the Committee has counseled with the
Chief Financial Officer, the Internal Audit
Manager and the Chief Executive Officer of
the Society.
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 2021.
The resolutions adopted by the Audit
Committee have been informed timely
and submitted to the consideration of
the Board of Directors by means of the
respective report submitted to this ultimate
superior social entity in the corresponding
meetings. A file has been integrated from
each meeting, including the reports and
other relevant documents.
Regarding
corporate practices:
We concluded that the Officers
performance was aligned with the
Company’s objectives. We reviewed the
CEO and senior officers and compensation
packages were granted. We verified that there
was no existence of any grant or exceptions to
Directors, senior officers, or other employees of the
Company. In 2020, the total transactions in connection
to related parties represented less than 2.0% of the
Company’s net sales. After an exhaustive review of the
transactions carried out with related parties, we concluded that
they were conducted in fair-market terms. We reviewed policies
and guidelines related to the use of goods that constitute the equity
of the Company and its subsidiaries, by any related parties, as well
as policies for granting of loans or any type of credit or guarantees. We
analyzed and assessed the services provided by the independent experts,
when it was required.
Regarding internal audit function:
The Audit and Corporate Practices Committee has remained involved with the needs
of the internal audit area to make sure they have the necessary human and material
resources for the suitable performance of its function. The evaluations carried out by
the Internal Audit, the external auditors, and the General Director have been reviewed,
and it is concluded that the internal control processes provide reasonable security
to prevent or detect errors or material irregularities in the normal course of social
operations, although these processes are constantly improving and the corresponding
revisions continue.
16
17
________________Annual Report 2020
Regarding Financial Information
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.
The Financial Statements of the Company
were discussed quarterly with the executives
responsible for their preparation and review, there
were no significant observations to the information
presented. Before being forwarded to the Mexican Stock
and Exchange, the Financial Statements were reviewed by
the Committee for its approval or ratification by the Board
of Directors. In each quarterly Committee´s meeting, reports to
the Stock Exchange were analyzed and approved, having made the
observations or suggestions of the case and recommending to the Board
of Directors its approval (or ratification) in each case regarding its public
disclosure. During the period in question, Financial Statements corresponding
to 2020 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 Regulation). The fees corresponding to 2020 were duly
revised and approved. The Audited Financial Statements as of December 31, 2020 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
________________Bachoco________________Annual Report 2020 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, 2020, 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 2020.
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 2020, for its presentation to
the Annual and General Ordinary Shareholder´s
Meeting of the Company.
Guillermo Ochoa Maciel
President of Bachoco´s Audit and Corporate Practices Committee
20
21
________________Bachoco________________Annual Report 2020 HIGHLIGHTS TO
INVESTORS
In 2020, the Company´s shares and ADRs reported a decrease in yield of
8.08% on the BMV and a decrease of 13.15% on NYSE.
BACHOCO IN THE STOCKS
• 600 million shares
• 26.75% of float
• One single class (Class B)
• Full rights
• An ADR equals 12 shares
• An estimated $44,910 million
pesos in market capitalization
The founding
family holds
73.25% of total
shares, by two
Trusts:
Underwriting Trust with
21.25%
73.25%
Control Trust with
52.00%
SHARE PRICES
Bolsa Mexicana de Valores
Ticker symbol: Bachoco
In pesos per-Share
Year
2020
2019
2018
2017
2016
High
82.40
92.44
98.16
102.00
85.65
Low
58.76
65.68
63.50
79.53
62.51
Average
Close
69.22
80.46
88.29
88.51
77.34
74.85
81.43
64.52
93.62
84.75
The New York Stock Exchange
Ticker symbol: IBA
In dollars per-ADR
Year
High
2020
2019
2018
2017
2016
52.70
56.34
63.84
67.61
55.65
Source: Yahoo Finance
Low
28.67
40.07
38.08
46.20
41.17
Average
Close
38.95
50.10
55.23
56.39
49.68
45.16
52.00
39.56
57.30
49.02
22
23
________________Annual Report 2020________________Bachoco 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 22, 2020. 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 (Deceased in August
2020), Mario Javier Robinson Bours Almada (Deceased in
November 2020).
SECRETARY OF THE BOARD
Eduardo Rojas Crespo
24
25
________________Bachoco________________Annual Report 2020 SENIOR
MANAGEMENT
TEAM
4
2
6
1
5
3
7
1
2
3
4
5
6
7
Rodolfo Ramos Arvizu
Chief Executive Officer
Drew McGee
Director of US Operations
Ernesto Salmon Castelo
Director of Mexico Operations
Andres Morales Astiazaran
Director of Sales and Marketing
Alejandro Elias Calles Gutierrez
Director of Purchasing
Arturo García Sánchez
Director of Human Resources
Daniel Salazar Ferrer
Chief Financial Officer
26
27
________________Bachoco________________Annual Report 2020 SOCIAL RESPONSIBILITY
AND SUSTAINABILITY
In 2020 we continued developing our sustainability actions, if you like to see more
details please go to our website where our 2020 Sustainability public report will be
available: https://corporativo.bachoco.com.mx/inversionistas/
Our sustainability strategy is focused on four pillars:
• Boosting our people.
• Strengthen our business.
• Contribute to our community.
• Take care of our planet.
The commitment we have made to sustainable development boosted
us to act on the challenges that were presented throughout 2020,
always seeking the well-being of the business, our team, communities
and the environment.
We strengthen our business
We are among the top poultry companies in the world and one of the most
beloved brands in Mexico, thanks to the dedication we put on each stage of our
production process with the purpose of bringing nutritious, healthy and delicious
food to the table of families.
Our company is governed by the highest standards of ethics and transparency, which
guides us towards compliance with industry regulations to ensure the quality and safety
of our products and, in this way, provide tranquility and trust to our customers.
We boost our people
We are proud to have a great team of collaborators who every day give us their energy
and talent to continue innovating and growing as an industry-leading company.
We know that they are a key factor in our business, therefore, we are constantly working
on implementing initiatives that positively impact their well-being and professional
development.
“
Thanks to our organizational culture we were
recognized in the 29th place of the ranking
Super Companies 2020 published by the
magazine Expansión, in México.
“
We take care of our planet
At Bachoco, we recognize the value of nature, it
is the main font of natural resources and it is our
responsibility to contribute to its preservation. As
a result, we promote and support the implementation
of initiatives that allow us to carry out the company’s
operations in balance with the environment.
Our commitment is reinforced with the integration of technologies
that allow us to generate a responsible consumption of water and
energy across our production processes. We have also focused great
efforts on the development of transportation and logistics projects to
mitigate the emission of polluting gases.
In 2020 we ranked 16th out of the top 100
companies with the best corporate
reputation of MERCO Mexico Edition
“
“
“
The company generated by solar energy,
120,988 kWh in our operations in Mexico,
avoiding the emission of 61 tons of CO2.
“
28
29
________________Annual Report 2020________________Bachoco
We contribute to our community
We provided well-being and nutrition
Our commitment to social responsibility has motivated us
to join efforts with different organizations and undertake
projects linking with the communities of the places where
we operate, and in this way we contribute to what we do
best: to provide healthy and delicious food.
One of our main initiatives is the Bachoco Half Marathon,
through which we encourage on doing physical activity
and raise funds to help address the problem of food
scarcity in rural communities. This year we did not allow
ourselves to be overcomed by the health contingency and
we continued doing this event, virtually.
The health crisis, resulted from COVID-19 pandemic,
was one of the biggest challenges we faced during 2020.
However, the responsibility we have as an essential sector
motivated us to generate strategies and take appropriate
safety measures to continue the operation of the company,
always prioritizing the well-being of our team.
In order to provide a message of encouragement to the
Mexican population, we launched the programs “Apoyo
de corazón” and “Caldito de Apoyo” through which we
delivered food to people in need to help mitigate some of
the negative effects of the contingency.
“
We reached the goal of the special edition of
the Bachoco 2020 Half Marathon thanks to the
participation of 2,045 runners.
“
Through our programs we contribute
a total of 858,956 kilos of chicken
and 93,000 chicken soups.
“
“
30
31
________________Annual Report 2020________________Bachoco
GROWING
TOGETHER
EVERYDAY
In Bachoco we believe in the value of growth even under
uncertain and volatile conditions like the ones globally
experienced in 2020.
Despite the challenges faced in 2020, we kept going with
our organic growth strategy at different stages of our
process as we increased our CAPEX by 33.0% year over year.
On the other hand, we proudly fulfilled the agreement
to invest in Sonora Agropecuaria a pork processing and
distributor in Mexico with operations in Sonora and Jalisco.
With this agreement we reinforce our footprint in Mexico
and our commitment to diversify our sales mix in order to
keep being the best value alternative for our customers,
consumers and shareholders.
We will continue to seek for opportunities that will make
synergies and add value to our business model while
maintaining our financial discipline which has been a key
for our growth and sustainability.
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
INDEPENDENT AUDITORS
Deloitte Touche Tohmatsu/ Galaz, Yamazaki,
Ruiz Urquiza, S.C.
T. (442) 238.29.34
CORPORATE HEADQUARTERS
Industrias Bachoco S.A de C.V.
Av. Tecnológico 401
Celaya, Guanajuato
38030, México
T. (461) 618.35.00
INVESTOR RELATIONS
María Guadalupe Jáquez
Andrea Guerrero
T. (461) 618.35.55 (México)
inversionistas@bachoco.net
Consult online our Annual Report 2020:
https://corporativo.bachoco.com.mx/en/investors/
32
33
________________Bachoco________________Annual Report 2020 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
34
________________Annual Report 2020 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, 2020, 2019 and 2018, 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, 2020, 2019 and 2018, 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.
Emphasis of Matter – Effects related to COVID
We draw attention to Note 2e) “Basis of presentation - COVID” to the consolidated financial statements,
where Management describes the effects of the pandemic COVID-19 on the consolidated financial
information from January 1, 2020 and, as of that date of this report. Furthermore, it describes the plans
that Management adopted to address the impacts of COVID-19 to its operations. Throughout the 2020
period and as of the date of this report, the Entity continues to work normally with uninterrupted
operations, and as a result, there is not a material uncertainty that may cause a significant doubt to
continue as a going concern and present its consolidated financial statements on a going concern basis.
Our opinion is not modified in respect of this matter.
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.
2
Other Matter
The accompanying consolidated financial statements have been translated into English for the
convenience of readers.
Key Audit Matter
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.
Valuation of goodwill and intangible assets of the Ok Foods - Albertville Quality Foods Inc. cash-
generating unit—Refer to Notes 3(j), 15 and 16 to the consolidated financial statement
As of December 31, 2020, the carrying amount of the Entity’s’ goodwill and intangible assets was
$2,403,940, of which $1,925,215 was allocated to the Ok Foods - Albertville Quality Foods, Inc. cash
generating unit (“AQF CGU”).
The recoverable amount of the AQF CGU was determined based on its value in use, which used
projections of estimated cash flows. A significant assumption used in projecting estimated cash flows was
the revenue growth rate. A change in the revenue growth rate could have a significant impact on the
recoverable amount of the AQF CGU. The recoverable amount of the AQF CGU exceeded its carrying
value, and therefore, no impairment was recognized for the year ended December 31, 2020.
We identified the valuation of the AQF CGU goodwill and intangibles as a critical audit matter due to the
significant judgment made by Management relating to the revenue growth rate used in projecting
estimated cash flows. This included considering the effects arising from the coronavirus pandemic
(COVID-19), the confinement measures and the slowdown in economic growth, which caused
contractions of the demand in the US market. This required a high degree of auditor judgment and
increased effort, including involvement of our valuation specialists, in performing audit procedures to
evaluate the reasonableness of the methodology used and the revenue growth rate.
Our audit procedures related to the revenue growth rate used to project estimated cash flows in
determining the recoverable amount of the AQF CGU included the following, among others:
We obtained an understanding and evaluated the Entity’s methodology for determining the
recoverable amount of the AQF CGU, including the process for developing revenue growth rates.
We tested the effectiveness of controls over Management’s evaluation of revenue growth rates
used in the projected estimated cash flows.
We compared the sales of the current year with sales from the previous year, and also compared
actual results obtained in previous years with the results historically budgeted.
We evaluated the reasonableness of the growth rate assumption by comparing it to (i) historical
information; and (ii) information obtained from external sources (expectation of analysts and
industry reports).
With the assistance of our valuation specialists, we evaluated the reasonableness of (1) the
valuation methodology and the current market data used by Management to determine the
revenue growth rate, and (2) developed an independent range of the recoverable amount of the
AQF CGU.
We evaluated whether the projected estimated cash flows were consistent with evidence obtained
in other areas of the audit.
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 20, 2021
5
Assets
Current 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
Derivative financial instruments
Accounts receivable, net
Due from related parties
Inventories
Current biological assets
Prepaid expenses and other current assets
Assets held for sale
Total currents assets
Non-current assets:
Property, plant and equipment, net
Right-of-use assets
Non-current biological assets
Deferred income tax
Goodwill
Intangible assets
Other non-current assets
Total non-currents assets
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Financial Position
December 31, 2020, 2019 and 2018
(Thousands of pesos)
Note
2020
2019
2018
Liabilities and equity
Note
2020
2019
2018
7
8
8
8
9
20
10
11
12
13
14
24
11
21
15
16
17
$
17,286,374
1,018,322
937,715
-
4,366,019
686
5,688,338
2,012,668
1,221,255
54,630
32,586,007
18,662,765
186,284
315,761
18,098
3,867,110
13,674
4,710,207
2,043,237
1,227,196
52,916
31,097,248
17,901,845
550,068
-
6,570
3,486,354
99
4,575,596
2,073,526
1,131,870
49,068
29,774,996
19,733,822
678,845
1,991,530
261,934
1,650,716
753,224
818,922
25,888,993
18,556,646
822,732
1,818,911
245,272
1,578,994
772,640
810,048
24,605,243
18,018,176
-
1,721,728
103,826
1,631,771
949,355
665,742
23,090,598
Current liabilities:
Short-term debt
Current portion of long-term debt
Derivative financial instruments
Trade payable and other accounts payable
Lease liabilities
Income tax payable
Due to related parties
Total current liabilities
Long term liabilities:
Long-term debt, excluding current installments
Lease liabilities
Deferred income tax
Employee benefits
Total long term liabilities
Total liabilities
Equity:
Capital stock
Share premium
Reserve for repurchase of shares
Retained earnings
Effects of derivatives classified as hedging instruments
Foreign currency translation reserve
Actuarial remeasurements, net
Equity attributable to controlling interest
Non-controlling interest
Total equity
Commitments
Contingencies
Susequent events
848,061
209,499
194,181
5,753,137
278,981
815,082
80,842
8,179,783
1,460,405
440,730
3,874,980
592,294
6,368,409
3,440,399
-
-
5,158,827
149,538
82,665
76,704
8,908,133
1,488,208
653,512
3,904,493
487,810
6,534,023
3,427,820
64,973
-
5,196,347
-
248,290
147,514
9,084,944
1,544,807
-
3,767,320
302,818
5,614,945
14,548,192
15,442,156
14,699,889
1,174,432
413,423
1,266,469
39,607,821
(267,352)
1,391,534
(268,692)
43,317,635
609,173
43,926,808
1,174,432
414,516
1,308,367
36,424,411
(19,771)
1,073,925
(195,905)
40,179,975
1,174,432
414,470
562,047
34,792,320
(307)
1,273,671
(120,378)
38,096,255
80,360
40,260,335
69,450
38,165,705
$
18
18
8
19
24
21
20
18
24
21
22
25
22
27
28
31
Total assets
$
58,475,000
55,702,491
52,865,594
Total liabilities and equity
$
58,475,000
55,702,491
52,865,594
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Profit and Loss and Other Comprehensive Income
Years ended December 31, 2020, 2019 and 2018
(Thousands of pesos, except share and per share amount)
Net revenues
Cost of sales
Gross profit
General, selling and administrative expenses
Other (expenses) income, net
Operating income
Finance income
Finance costs
Net finance income
Profit before income taxes
Income taxes
Profit for the year
Other comprehensive income (loss) items:
Items that may be reclassified subsequently to profit or loss:
Currency translation effect
Net effects of derivatives classified as hedging instruments
Items that will not be reclassified subsequently to profit or loss:
Actuarial remeasurements
Income taxes related to actuarial remeasurements
Other comprehensive income
Comprehensive income for the year
Profit attributable to:
Controlling interest
Non-controlling interest
Profit for the year
Comprehensive income attributable to:
Controlling interest
Non-controlling interest
Comprehensive income for the year
Note
23
23
30
29
29
21
22
26
2020
2019
2018
$
68,792,002
(57,707,566)
61,655,245
(51,557,351)
61,052,092
(51,422,376)
11,084,436
10,097,894
9,629,716
(6,420,397)
(362,527)
(6,116,620)
(4,734)
(6,024,406)
102,660
4,301,512
3,976,540
3,707,970
1,173,520
(291,329)
882,191
991,632
(610,368)
381,264
1,140,749
(332,168)
808,581
5,183,703
4,357,804
4,516,551
1,211,611
1,124,978
1,154,978
3,972,092
3,232,826
3,361,573
317,609
(247,581)
(103,982)
31,195
(2,759)
(199,746)
(19,464)
(107,897)
32,370
(294,737)
5,650
(307)
(30,629)
9,189
(16,097)
3,969,333
2,938,089
3,345,476
3,935,672
36,420
3,219,931
12,895
3,349,967
11,606
3,972,092
3,232,826
3,361,573
3,932,913
36,420
2,925,194
12,895
3,333,870
11,606
3,969,333
2,938,089
3,345,476
$
$
$
$
$
$
$
Weighted average outstanding shares
26
599,818,022
599,971,832
599,980,734
Basic and diluted earnings per share
26
$
6.56
5.37
5.58
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2020, 2019 and 2018
(Thousands of pesos)
Attributable to controlling interest
Capital stock
Retained earnings
Accumulated other comprehensive income
Note
Capital
stock
Share
premium
Reserve for
repurchase of
shares
Retained
earnings
Effects of derivatives
classified as hedging instruments
Foreign
currency
translation reserve
Actuarial
remeasurements
net
Total
Non-controlling
interest
Total
equity
Balance at January 1, 2018
$
1,174,432
414,385
493,141
32,367,912
Dividends paid
Dividends paid to non-controlling interest
Reserve for repurchase of shares
Repurchase and sale of shares
Comprehensive income for the year:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Balance at December 31, 2018
Dividends paid
Dividends paid to non-controlling interest
Reserve for repurchase of shares
Repurchase and sale of shares
Comprehensive income for the year:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Balance at December 31, 2019
Dividends paid
Dividends paid to non-controlling interest
Reserve for repurchase of shares
Repurchase and sale of shares
Increase in non-controlling interest in acquired business
Comprehensive income for the year:
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Balance at December 31, 2020
See accompanying notes to consolidated financial statements.
25
25
25
25
25
25
25
-
-
-
-
-
-
-
85
-
-
-
-
-
-
-
-
73,559
(4,653)
-
-
-
(852,000)
-
(73,559)
-
3,349,967
-
3,349,967
1,174,432
414,470
562,047
34,792,320
-
-
-
-
-
-
-
46
-
-
-
-
-
-
-
-
747,840
(1,520)
-
-
-
(840,000)
-
(747,840)
-
3,219,931
-
3,219,931
1,174,432
414,516
1,308,367
36,424,411
-
-
-
-
-
-
-
-
$
1,174,432
-
-
-
(1,093)
-
-
-
-
413,423
-
-
(39,482)
(2,416)
-
-
-
-
1,266,469
(791,744)
-
39,482
-
-
3,935,672
-
3,935,672
39,607,821
-
-
-
-
-
-
(307)
(307)
(307)
-
-
-
-
-
(19,464)
(19,464)
(19,771)
-
-
-
-
-
-
(247,581)
(247,581)
(267,352)
1,268,021
(98,938)
35,618,953
58,975
35,677,928
-
-
-
-
-
5,650
5,650
-
-
-
-
(852,000)
-
-
(4,568)
-
(1,131)
-
-
(852,000)
(1,131)
-
(4,568)
-
(21,440)
3,349,967
(16,097)
11,606
-
3,361,573
(16,097)
(21,440)
3,333,870
11,606
3,345,476
1,273,671
(120,378)
38,096,255
69,450
38,165,705
-
-
-
-
-
-
-
-
(840,000)
-
-
(1,474)
-
(1,985)
-
-
(840,000)
(1,985)
-
(1,474)
-
(199,746)
-
(75,527)
3,219,931
(294,737)
12,895
-
3,232,826
(294,737)
(199,746)
(75,527)
2,925,194
12,895
2,938,089
1,073,925
(195,905)
40,179,975
80,360
40,260,335
-
-
-
-
-
-
317,609
317,609
1,391,534
-
-
-
-
-
-
(72,787)
(72,787)
(268,692)
(791,744)
-
-
(3,509)
-
3,935,672
(2,759)
3,932,913
43,317,635
-
(1,879)
-
-
494,272
36,420
-
36,420
609,173
(791,744)
(1,879)
-
(3,509)
494,272
3,972,092
(2,759)
3,969,333
43,926,808
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2020, 2019 and 2018
(Thousands of pesos)
Cash flows from operating activities:
Profit for the year
Adjustments for:
Deferred income tax recognized in profit or loss
Current income tax recognized in profit or loss
Bargain purchase gain of domestic business acquisition
Depreciation and amortization
Depreciation of right-of-use assets
Intangible impairment loss
Loss (gain) on disposal of plant and equipment
Interest income earned
Interest expense and financial expense
Unrealized foreign exchange loss on loans
Note
2020
2019
2018
$
3,972,092
3,232,826
3,361,573
21
21
4
14
16
29
29
(109,443)
1,321,054
(90,889)
1,735,146
307,757
-
12,987
(705,986)
291,038
320,880
60,677
1,064,301
1,286,443
302,804
73,733
(85,937)
(991,632)
330,119
(139,830)
(91,869)
1,246,847
1,226,917
21,430
23,227
(1,077,507)
332,168
43,400
Subtotal
7,054,636
5,133,504
5,086,186
Derivative financial instruments
Accounts receivable, net
Due from related parties
Inventories
Current and non-current biological assets
Prepaid expenses and other current assets
Assets held for sale
Trade payable and other accounts payable
Due to related parties
Income taxes paid
Employee benefits
212,279
(335,742)
12,988
(850,655)
(145,670)
32,866
(1,714)
320,821
4,138
(590,836)
104,484
(11,528)
(306,588)
(13,575)
(133,572)
(66,582)
(95,201)
(3,848)
(38,542)
(70,810)
(1,302,902)
184,992
(13,391)
200,145
227
149,738
(236,179)
(493,442)
455
457,941
92,262
(1,787,959)
49,853
Net cash provided by operating activities
5,817,595
3,275,348
3,505,836
Cash flows from investing activities:
Payments for acquisition of property, plant and equipment
Proceeds from sale of plant and equipment
Investment in securities at fair value through profit or loss
Investment in securities at fair value through other comprehensive income
Other assets
Interest collected
Net cash used in investing activities
Cash flows from financing activities:
Payment for repurchase of shares
Proceeds from issuance of repurchased shares
Dividends paid
Dividends paid to non-controlling interest
Proceeds from borrowings
Principal payment on loans
Interest paid on lease
Interest paid
Payment of lease liability
Net cash used in by financing activities
25
25
25
18
18
24
29
24
(2,346,415)
23,802
(832,038)
(621,954)
(26,569)
705,986
(2,199,600)
197,059
363,784
(315,761)
24,244
991,632
(1,977,567)
32,455
577,773
-
(27,983)
1,077,507
(3,097,188)
(938,642)
(317,815)
(15,594)
12,085
(791,744)
(1,879)
4,030,700
(6,762,222)
(53,639)
(237,399)
(386,710)
(10,729)
9,255
(840,000)
(1,985)
4,839,000
(4,808,163)
(37,797)
(292,322)
(325,207)
(6,454)
1,887
(852,000)
(1,131)
3,370,400
(3,588,067)
-
(332,168)
-
(4,206,402)
(1,467,948)
(1,407,533)
Net (decrease) increase in cash and cash equivalents
(1,485,995)
868,758
1,780,488
Cash and cash equivalents at January 1
18,662,765
17,901,845
16,088,210
Effect of exchange rate fluctuations on cash and cash equivalents
109,604
(107,838)
33,147
Cash and cash equivalents at December 31
$
17,286,374
18,662,765
17,901,845
See accompanying notes to consolidated financial statements.
INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years ended December 31, 2020, 2019 and 2018
(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 20, 2021, 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
2
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 $19.95, $18.89 and $19.67 pesos to one U.S. dollar as of
December 31, 2020, 2019 and 2018, 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.
3
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 or acquisition of assets in accordance with IFRS.
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
average 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, and (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.
4
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 financial 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.
5
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 novel coronavirus (“COVID-19”), may alter
consumption and trade patterns, supply chains, and production processes, which could affect
the Company’s business and results of operations.
6
e) COVID
In March 2020, the World Health Organization declared the COVID-19 a Global pandemic.
As a result, measures established by the federal, state and local authorities in Mexico and the
United, that required the forced closure of certain activities considered non-essential
(businesses, non-essential government agencies, educational sector, among others) which
negatively affected the operations of some of the Company's customers.
During 2020, Management performed an analysis to measure the financial impact on the
Company derived from the possible effects of COVID 19, which included the following:
• Review of potential impairment of non-financial assets (including goodwill) - Based on
medium and long-term projections, a possible impairment in goodwill and intangible assets
has not been identified.
•
Inventory valuation - The Company has not had a deterioration in the price of chicken and
eggs. Due to the mobility restriction and in some cases of the forced closure in certain
activities considered as non-essential, the Company had a negative impact in the demand
from restaurant and hotel customers, mainly in the area of the Yucatan Peninsula of
Mexico, which resulted in a change in the sales channels to home deliveries and sales by e-
commerce platforms. This effect was offset by an increase in customer demand in self-
service chains that has continued to date. As it relates to the acquisition of raw materials,
even when there was volatility in the dollar exchange rate, the prices of the Company’s
main raw materials such as corn and soybean paste were not affected in terms of cost and
supply. For other raw materials, although a lack of supply presented itself in certain cases,
it did not significantly affect the Company's production activities.
• Provision for expected losses - The estimate for expected credit losses was reviewed and
based on this analysis, Management considered that the allowance for doubtful accounts is
sufficient to support an increase in credit risk for certain clients. During certain months of
the year 2020, the level of the accounts receivable portfolio increased based on agreed
terms and continues to be recovered considering the payment plans.
• Measurement at fair value - investments recognized at fair value consider all relevant
market factors for their proper valuation.
• Breaches of agreements – The Company has fulfilled its commitments to suppliers and
customers due to the fact that, as an essential sector, it has maintained its operations
working normally, complying with the health protocols established by the competent
authorities and due to its solid financial position.
• Going concern - The Company qualified as an essential activity in the markets it operates
in and continues to operate normally with full operations in its farms, plants, distribution
centers, logistics, supply chain and offices, despite partially working remotely in some of
its corporate locations. Management has also implemented strict additional measures to
guarantee the well-being of clients, suppliers and workers, as well as the quality and safety
of its products, working in coordination with the health authorities and attending to all the
recommendations issued by them.
• Labor relations have not been affected and no changes were made to contractual
agreements with employees as the Company continues to operate normally.
• Liquidity risk management - The Company has sufficient liquidity to continue assuming its
current and long-term commitments.
7
•
•
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 normally as it is considered to be an essential activity.
Income tax considerations - So far, no adverse tax impact is anticipated as a result of the
pandemic.
During 2020, the approximate amount of expenses incurred as non-recurring derived from the
COVID-19 pandemic was $339,000.
As the products that the Company manufactures and its industry is considered essential, there
were no significant adverse effects on its consolidated position and financial performance
resulting from COVID-19.
As 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 in the future the financial situation could be affected if the
negative effects of the disruption to the national and global economy are significantly altered.
f)
Issuance 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, 2020 as it relates to its consolidated financial
statements.
Initial impact of the application of the of Interest Rate Benchmark Reform (Amendment to
IFRS 9, IAS 39, and IFRS 7).
In September 2019, the IASB issued the document amendments to IFRS 9, IAS 39 and IFRS
7. These amendments modify specific requirements of hedge accounting, to allow hedge
accounting to continue for the affected hedges during the period of uncertainty before the
coverage of items or instruments affected by the current interest rate benchmark is modified as
a result of the ongoing interest rate benchmark reforms.
These modifications affect for the Company since it applies hedge accounting to its exposure
to interest rate benchmark. The impacts of the modifications applied to the Company's
accounting are as follows:
• The Company has a variable rate of debt, indexed to IBOR, which hedges cash flows
using interest rate swaps.
• The Company will retain the accumulated gains or losses by reserving the hedge of cash
flows designated to cash flows that are subject to the Interest Rate Benchmark Reform,
even if there is some uncertainty about the Interest Rate Benchmark Reform regarding the
time and quantity of the cash flow hedged items. The Company should consider that
future cash flow hedges are not expected to occur due to reasons other than those of the
Interest Rate Benchmark Reform, accumulated gains or losses will be immediately
reclassified to results.
Its adoption has not had any material impact on the disclosures or the amounts reported in
these consolidated financial statements.
8
Initial impact of concessions applied to Income under IFRS 16 due to issues related to
COVID-19
In May 2020, the IASB issued the amendment to IFRS 16, COVID-19 Related Rent
Concessions that provides practical resources for tenant rental concessions that occurred as a
direct consequence of COVID-19, thus introducing a practical expedient. for IFRS 16. The
practical expedient allows a tenant the choice to assess whether a COVID-19 related rental
concession is a lease modification. The lessee making this choice must account for any change
in rent payments resulting from the COVID-19 rental concession applying IFRS 16 as if the
change were not a modification to the lease.
The practical expedient applies only to rental concessions that occur as a direct consequence
related to COVID-19 and only if the following conditions are met:
• The change in lease payments results in a consideration that is substantially the same as,
or less than, the lease consideration immediately prior to the change.
• Any reduction in lease payments only affects payments due on or before June 30, 2021 (a
rental concession meets this condition if it results in a reduction in payments before June
30, 2021 or increases payments of lease after June 30, 2021); and
• There is no substantive change in any other clause or condition of the lease.
The Company has not had any material impact for these amendments to IFRS 16 because it
did not have any applicable rental concessions.
Amendments to the Reference to the Conceptual Framework in IFRS
The Company has adopted the amendments included in Amendments to the Reference to the
Conceptual Framework in IFRS for the first time this year. The amendments include
derivative amendments to the affected standards that now refer to the new Conceptual
Framework. Not all amendments, however, update such pronouncements with respect to
Conceptual Framework references and phrases that refer to the revised Conceptual
Framework. Some pronouncements are only updated to indicate which version of the
Conceptual Framework they refer to (the IASC Conceptual Framework adopted by the IASB
in 2001, the IASB Conceptual Framework of 2010, or the new and revised Conceptual
Framework of 2018) or to indicate the definitions of the standards that have not been updated
with the new definitions developed in the revised Conceptual Framework.
The standards that have had modifications are IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS
8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32.
The adoption of these amendments had no impact on the Company's consolidated financial
statements.
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.
9
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.
Its adoption has not had any material impact on the disclosures, or the amounts reported in
these consolidated financial statements.
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.
The adoption of these improvements had no impact on the Company's consolidated financial
statements.
ii. New IFRS issued but not yet effective
As of the date of these financial statements, the Company has not applied the following new
and revised IFRS that have been issued but are not yet effective.
IAS 39, IFRS 7, IFRS 4 and
Phase 2 of the Interest Rate Benchmark Reform (IBOR)
IFRS 16
Insurance Contracts
IFRS 17
IFRS 10 and IAS 28 (amendments) Sale or contribution of assets between an investor and its
Amendments to IAS 1
Amendments to IFRS 3
Amendments to IAS 16
Amendments to IAS 37
associate or joint venture
Classification of liabilities as current or non-current.
Definition of a business
Property, Plant and Equipment - before being used
Onerous contracts - costs of fulfilling a contract
10
Annual improvements to
IFRS 2018-2020 cycle
Amendments to IFRS 1 First adoption of International
Financial Reporting Standards,
IFRS 9 Financial
Instruments, IFRS 16 Leases and IAS 41 Agriculture
Additionally, the Company is continuously monitoring the progress of the interest rate
benchmark reform project that modifies the regulations as mentioned below:
Phase 2 of the interest rate benchmark reform (IBOR- Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16)
Interbank rates benchmark such as LIBOR, EURIBOR, and TIBOR, which represent the cost
of obtaining unsecured funds, have been questioned about their viability as long-term funding
benchmarks. The changes in the reform of the interest rates benchmark in its phase 2, refer to
the modifications of financial assets, financial liabilities and lease liabilities, requirements for
hedge accounting and disclosure of financial instruments. These improvements are effective as
of January 1, 2021 with retrospective application, without it required to redo the comparative
periods.
With respect to modifying financial assets, financial liabilities and lease liabilities, the IASB
introduced a practical expedient that involves updating the effective interest rate.
On the other hand, with regard to hedge accounting, the hedge relationships and
documentation must reflect the modifications to the hedged item, the hedging instrument and
the risk to be hedged. Hedging relationships must meet all criteria for applying hedge
accounting, including effectiveness requirements.
Finally, with respect to disclosures, entities must disclose how they are managing the
transition to alternative benchmark rates and the risks that may arise from the transition; in
addition, they must include quantitative information on financial assets and non-derivative
financial liabilities, as well as non-derivative financial instruments, that continue under the
reference rates subject to the reform and the changes that have arisen to the risk management
strategy.
The Company is in the process of evaluating the impacts derived from the application of these
amendments.
IFRS 17 Insurance Contracts
IFRS 17 establishes the principles for the recognition, measurement, presentation and
disclosure of insurance contracts and replaces IFRS 4 - Insurance contracts.
IFRS 17 describes a general model, which is modified for insurance contracts with direct
participation features, which is described as the Variable Rate Approach. The general model is
simplified if certain criteria are met when measuring the liability for remaining coverage using
the premium allocation method.
The general model will use current assumptions to estimate the amount, timing and
uncertainty of future cash flows and will explicitly measure the cost of that uncertainty, taking
into account market interest rates and the impact of options and guarantees of the insured.
11
In June 2020, the IASB issued the amendments to IFRS 17 to address the concerns and
implementation of the changes that were identified after IFRS 17 was published. The
amendments defer the date of initial application of IFRS 17 (incorporating the amendments) to
the annual report beginning on or after January 1, 2023. At the same time, the IASB issued a
Temporary Extension of Exemption to Apply IFRS 9 (Amendments to IFRS 4) that extends
the expiration date of the temporary exception to apply IFRS 9 to IFRS 4 for annual periods
beginning on or after January 1, 2023.
IFRS 17 should be applied retrospectively unless it is not practical, in which case the
retrospective approach will be modified, or the fair value approach will be applied.
In accordance with the transition requirements, the date of initial application is the beginning
of the annual reporting period in which the entity first applies the Standard and, the transition
date is the beginning of the period immediately preceding the date of the initial application.
Amendments to IAS 1 Classification of Liabilities as Current and Non-Current
The amendments to IAS 1 affect only the presentation of liabilities as current and non-current
in the statement of financial position and not the amount or timing at which any asset, liability,
income or expense is recognized, or the information disclosed about those items.
The amendments clarify that the classification of liabilities as current and non-current is based
on the rights to exist at the end of the reporting period, specify that the classification is not
affected by expectations about whether the entity will exercise the right to defer settlement of
the liability, explain that rights exist if there are covenants to be met at the end of the reporting
period, and introduce a definition of ‘arrangement’ to make it clear that the arrangement refers
to the transfer of cash from the counterparty, equity instruments, other assets or services.
The amendments are applied retrospectively for annual periods beginning on or after January
1, 2023, with early application permitted.
Amendments to IFRS 3 - Reference to the Conceptual Framework
The amendments update IFRS 3 so that it can refer to the 2018 Conceptual Framework instead
of the 1989 Framework. They also added a requirement that, for obligations within the scope
of IAS 37, a buyer applies IAS 37 to determine whether the acquisition date is a present
obligation or exists as a result of a past event. For liens that are within the scope of IFRIC 21 -
Liens, the buyer applies IFRIC 21 to determine whether the obligation gives rise to a liability
to pay the lien that occurred at the acquisition date.
Finally, the amendments add an explicit statement that the buyer will not recognize a
contingent asset acquired from a business combination.
The amendments are effective for business combinations for which the acquisition date is on
or after the initial period of the first annual period beginning on or after January 1, 2022. With
an option for early application if the entity also applies all other updated references (published
together with the Conceptual Framework) at the same time or early.
12
Amendments to IAS 16 - Property, Plant and Equipment - before Intended Use.
The amendments prohibit the deduction from the cost of an asset of property, plant or
equipment of any revenue from selling the asset after it is ready for use, for example, revenue
while the asset is being brought to the location and the necessary refurbishment is being
carried out to make it operable in the manner intended by management. Accordingly, an entity
should recognize those sales revenues and costs in profit or loss. The entity measures the costs
of these items in accordance with IAS 2 Inventories.
The amendments clarify the meaning of ‘testing whether an asset is functioning properly’. IAS
16 now specifies this as an assessment in which the physical and technical performance of the
asset is capable of being used in the production or supply of goods or services, for rental or
other, or administrative purposes.
If not presented separately in the statement of comprehensive income, the financial statements
must disclose the amounts of revenues and costs in income related to items that are not an
outflow from the entity's ordinary activities in the line item(s) in the statement of
comprehensive income where revenues and costs are included.
The modifications are applied retrospectively, but only to items of property, plant and
equipment that are brought to the location and condition necessary for them to be able to
operate as management intends on or after the beginning of the period in which the entity's
financial statements in which the modifications are first applied.
The Company shall recognize the cumulative effect of the initial application of the
amendments as a balance sheet adjustment to retained earnings (or an appropriate component
of equity) at the beginning of the earliest period presented.
The amendments are effective for annual periods beginning on January 1, 2022 with an option
for earlier application.
Amendments to IAS 37 - Onerous Contracts - Costs of Fulfilling a Contract
The amendments specify that the ‘costs of fulfilling’ a contract comprise ‘costs directly related
to the contract’. Costs that relate directly to a contract consist of incremental costs and costs of
fulfilling a contract (e.g., labor or materials) and the allocation of other costs that relate
directly to fulfilling a contract (such as the allocation of depreciation to items of property,
plant and equipment to fulfill the contract).
The amendments apply to contracts in which the entity has not yet complied with all of its
obligations at the beginning of the annual reporting period in which the entity applies the
amendments for the first time. Comparatives should not be restated. Instead, an entity should
recognize the cumulative effect of the initial application of the amendments as a balance sheet
adjustment to retained earnings or such other component of equity, as appropriate, for the date
of initial application.
The amendments are effective for annual periods beginning on or after January 1, 2022, with
an option for earlier application.
13
Annual Amendments to IFRS standards 2018-2020
The Annual Amendments include amendments to four standards.
IFRS 1 First-time Adoption of International Financial Reporting Standards, the amendment
provides additional relief for a subsidiary that adopts for the first time after its parent with
respect to accounting for cumulative translation differences. As a result of the amendments, a
subsidiary using the IFRS 1: D16(a) exception may now elect to measure the cumulative
translation effects of foreign operations at the carrying amount that is included in the parent's
consolidated statements, based on the parent's date of transition to IFRS, if there were no
adjustments for consolidation procedures and for the effects of business combinations in
which the parent acquired the subsidiary. A similar election is available for an associate or
joint venture that uses the exception in IFRS 1: D16(a).
The amendment is effective for periods beginning on or after January 1, 2022, with an early
adoption option.
IFRS 9 Financial Instruments, the amendment clarifies that when applying the ‘10%’ test to
assess whether a financial liability should be derecognized, an entity includes only the paid
fees or received between the entity (the borrower) and the lender, including paid fees or
received by the entity or the lender. The amendments are applied prospectively to
modifications or changes that occur on or after the date the entity first applies the amendment.
The amendment is effective for annual periods beginning on or after January 1, 2022, with an
option for earlier application.
IFRS 16 Leases, the amendments eliminate the figure of reimbursement for leasehold
improvements. As the amendments to IFRS 16 are only in respect of an illustrative example,
no commencement date has been established.
IAS 41 Agriculture, the amendments remove the requirement in IAS 41 for entities to exclude
cash flows for tax purposes when measuring fair value. This aligns the fair value measurement
in IAS 41 with the requirements of IFRS 13 Fair Value Measurement to be consistent with
cash flows and discount rates and allows preparers to determine whether cash flows and
discount rates are used on a pre-tax or after-tax basis as is more appropriate to estimate fair
value. The amendments are applied prospectively, i.e., the fair value measurement on or after
the initial date of application of the amendments applied to the entity.
The amendments are effective for annual periods beginning on or after January 1, 2022, with
an option for initial adoption.
The Company does not expect the adoption of the standards to have a material impact on the
consolidated financial statements in future periods.
(3) Significant accounting policies
The significant accounting policies set out below have been applied consistently to all periods
presented in these consolidated financial statements.
14
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. Non-controlling interest
Non-controlling interests in subsidiaries are identified separately from the Company's capital
in them. Non-controlling shareholders' interests that are current ownership interests that entitle
their holders to a proportionate share of the net assets at liquidation may be initially measured
at fair value or the non-controlling share of fair value. the identifiable network of the acquiree.
The choice of measure is made acquisition by acquisition. Other non-controlling interests are
initially measured at fair value. Post-acquisition, the carrying amount of non-controlling
interests is the amount of those interests at initial recognition plus the participation of non-
controlling interests in subsequent changes in capital. Total comprehensive income is
attributed to non-controlling interests even if this results in non-controlling interests having a
negative balance.
iv. 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.
15
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, 2020, 2019 and 2018 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.
16
• 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.
17
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
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 asset’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.
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.
18
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 profit or loss 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.
19
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.
20
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 2020, 2019 and 2018:
Buildings
Machinery and Equipment
Vehicles
Computers
Furniture
Average
useful Life
46
19
11
8
11
21
The Company has estimated the following residual values as of December 31, 2020, 2019 and
2018:
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.
22
Expected average
useful life
(weeks)
40-47
156
Poultry in its different production stages
Breeder pigs
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 were 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.
During 2020 and 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.
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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.
24
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.
25
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 their 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.
26
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.
27
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.
28
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
Revenues from the sale of goods in the course of ordinary activities are measured at the fair
value of the consideration received or receivable, net of returns, trade discounts and volume
rebates. Revenues are recognized when persuasive evidence exists, usually in the form of an
executed sales agreement, that control over the product has been transferred to the customer. If
it is probable that discounts will be granted and the amount can be measured reliably, the
discount is recognized as a reduction of revenue.
The Company generally does not accept sales returns. No asset is recognized for product
returns, due to the fact that such products are not expected to be sold or recovered in another
manner given that they are perishable. To the extent sales returns occur, the product returns
are made simultaneously with the delivery and acceptance of the product (same day).
The Company has concluded that all performance obligations are satisfied at the time of
delivery of the product to the customer.
The Company has a variety of credit terms for its various distribution channels, all of which
have short terms, consistent with market and industry practices. Accordingly, there are no
financing components. A significant portion of sales in Mexico are collected in cash on
delivery.
q) Financial income and costs and dividend income
Financial income comprises interest income from funds invested, fair value changes on
financial assets at fair value through profit or loss and foreign currency exchange gains.
Interest income is recognized in profit and loss, using the effective interest method. Dividend
income is recognized in profit and loss on the date that the Company´s right to receive the
payment is established.
Financial costs comprise interest expense for borrowings, foreign currency exchange losses
and fair value changes on financial assets at fair value through profit and loss.
Borrowing costs that are not directly attributable to the acquisition, construction or production
of a qualifying asset are recognized in profit and loss using the effective interest method.
Borrowing costs directly attributable to the acquisition, construction or production of
qualifying assets, which are assets that necessarily take a substantial period of time to get
ready for their intended use or sale, are added to the costs of those assets, until such time as
the assets are substantially ready for their intended use or sale. Investment income earned on
the temporary investment of specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for capitalization.
Exchange gains and losses are reported on a net basis.
29
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.
30
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, 2020, 2019 and 2018, 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
Acquisition of Sonora Agropecuaria, S.A. de C.V.
On June 26, 2020, the Company acquired 54.80% of voting stock of Sonora Agropecuaria,
S.A. de C.V. The operating results are included in the consolidated financial statements as of
that date. Sonora Agropecuaria, S.A. de C.V. is dedicated to the processing and distribution of
pigs, and has operations in the states of Sonora, Jalisco, Guanajuato, Mexico City and
Yucatan, Mexico. The purchase price paid as a capital contribution amounted to $215,000.
31
The purchase of Sonora Agropecuaria, S.A. de C.V. benefits the “Other” segment as it will
allow it to accelerate the pace of growth and continue advancing in the process of diversifying
other animal proteins.
The assets acquired and the assumed liabilities of Sonora Agropecuaria, S.A. de C.V. 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
Sonora Agropecuaria, S.A. de C.V.’s pre-acquisition carrying amounts for cash equivalents,
accounts receivable, inventories, other current assets, accounts payable and other current
liabilities approximate their fair value at the acquisition date.
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
Controlling interest
Non-controlling interest
Consideration paid
Bargain purchase gain (note 30)
$
$
Acquisition value
349,834
123,959
383,680
857,473
(263,365)
(35,916)
558,192
305,889
252,303
215,000
90,889
At the acquisition date, the non-controlling interest is measured on the basis of the
proportional participation of the acquiree's identifiable net assets.
32
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, 2020, management estimates that consolidated
revenues and consolidated profits for the year ended December 31, 2020 would have totaled
$70,337,002 and $3,991,092, 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, 2020.
Costs related to acquisition.
During 2020, the Company incurred costs related to the acquisition of Sonora Agropecuaria,
S.A. de C.V. of $1,704 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, 2020, 2019 and 2018 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.
Sonora Agropecuaria, S.A. de C.V.
Country
México
U.S.
México
México
México
México
México
México
México
México
México
Bermuda
México
México
December 31,
2020
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
54.80
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
-
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).
33
- 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 and pet treats, 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. and Proveedora La Perla, S.A. of 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.
- Sonora Agropecuaria, S.A. DE C.V., in Mexico, it is dedicated to the pig processing and
distribution.
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 product line 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.
34
$
a) Operating segment information
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
Year ended December 31, 2020
Poultry
61,323,853
51,165,650
10,158,203
998,654
260,570
4,626,582
1,060,876
3,532,589
17,146,405
1,562,404
753,224
51,081,829
13,144,941
1,978,818
1,542,031
Other
7,468,149
6,541,916
926,233
174,866
30,759
557,121
150,735
403,083
2,587,417
88,312
-
7,393,171
1,403,251
773,463
193,115
Total
68,792,002
57,707,566
11,084,436
1,173,520
291,329
5,183,703
1,211,611
3,935,672
19,733,822
1,650,716
753,224
58,475,000
14,548,192
2,752,281
1,735,146
Total revenues
Intersegments
Net revenues
Poultry
revenues
Other
revenues
$
$
61,332,013
(8,160)
61,323,853
7,506,962
(38,813)
7,468,149
Total
revenues
68,838,975
(46,973)
68,792,002
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
35
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
b) Geographical information
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
$
$
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.
36
Year ended December 31, 2020
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$
41,835,033
19,573,023
(84,203)
61,323,853
1,185,308
806,222
14,659,461
212,536
-
2,486,944
1,349,868
753,224
-
-
-
-
Year ended December 31, 2019
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
1,991,530
17,146,405
1,562,404
753,224
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
-
-
-
-
1,818,911
16,440,851
1,490,978
772,640
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
37
Year ended December 31, 2018
Domestic
poultry
Foreign
poultry
Operations
between
geographical
segments
Total
$
37,766,974
17,599,239
(58,072)
55,308,141
979,034
742,694
13,002,755
212,833
-
3,057,835
1,330,922
962,738
-
-
-
1,721,728
16,060,590
1,543,755
962,738
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 2020, 2019 and 2018, no
customer represented over 10% of the Company’s total revenues.
As of December 31, 2020, 2019 and 2018, 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, 2020, 2019 and
2018 are as follows:
Cash and banks
Investments with maturities less
$
than three months
Restricted cash
Total cash and cash equivalents
$
2020
12,941,334
4,305,998
17,247,332
39,042
17,286,374
December 31,
2019
13,106,862
5,513,276
18,620,138
42,627
18,662,765
2018
13,566,098
4,331,423
17,897,521
4,324
17,901,845
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, 2020, 2019 and 2018.
38
(8) Financial instruments and risk management
The Company is exposed to market risks, liquidity risks and credit risks for the use of
financial instruments, for which reason it exercises its risk management.
This note presents information on the Company’s exposure to each one of the aforementioned
risks, as well as the Company’s objectives, policies and processes for the measurement and
management of financial risks.
Risk management framework
The philosophy adopted by the Company seeks to minimize risks and, therefore maximize
business stability, focusing decisions on creating an optimum combination of products and
assets that produce a risk – return ratio more in agreement with the risk profile of its
stockholders.
In order to establish a clear and optimal 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, 2020, 2019 and 2018, the Company has not identified the existence of
embedded derivatives.
Some of the Company’s derivative financial instruments as of December 31, 2020, 2019 and
2018 meet the requirements to be treated as hedging instruments for accounting purposes
(319,506, 24,352 and 1,500 thousand U.S. dollars of notional amounts).
Some of the Company’s derivative financial instruments as of December 31, 2020 are
recognized in earnings through profit or loss for accounting purposes (60,000 thousand U.S.
dollars of notional amounts). During 2019 and 2018 certain derivative financial instruments
held by the Company do not meet the requirements to be treated hedging instruments 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:
39
2020
December 31,
2019
2018
$ 17,286,374 18,662,765 17,901,845
1,018,322
186,284
550,068
937,715
71,431
2,704,058
686
193,689
-
315,761
65,545
2,523,092
13,674
173,488
18,098
-
66,177
2,444,013
99
171,222
6,570
$
(2,517,965) (4,928,607) (5,037,600)
(5,049,103) (4,491,171) (4,593,344)
(803,050)
(76,704)
-
(147,514)
-
(719,711)
(80,842)
(194,181)
-
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
Trade receivables
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
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.
40
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 $143,278, $140,304 and $142,388 as of December 31, 2020,
2019 and 2018, 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, 2020, 2019 and 2018, the fair value of such credit
enhancements, determined by an appraisal at the time the credit lines were granted, is
$180,513, $663,500 and $572,085, 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.
41
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,
2020
2019
17,286,374 18,662,765 17,901,845
2018
1,018,322
186,284
550,068
937,715
71,431
315,761
65,545
-
66,177
received
Derivative financial instruments
2,717,920
-
2,046,754
18,098
1,986,102
6,570
$
22,031,762 21,295,207 20,510,762
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.
42
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
Derivative financial instruments
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
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, 2020
1 to 3 years
3 to 5 years
Less than 1
year
5,049,103
80,842
194,181
278,981
-
-
-
379,926
778,050
279,510
85,340
6,746,007
-
1,460,405
44,613
1,884,944
-
-
-
60,804
-
-
-
60,804
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
43
At least on a monthly basis, management evaluates and advises the Board of Directors on its
liquidity. As of December 31, 2020, 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:
44
• 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.
During 2020 the Company did not participate in any program. As of December 31, 2019 and
2018, the Company participated in the ASERCA program as buyer of the corn and / or
sorghum crops, for which the Company had to prove that a risk management instrument was
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
2020, 2019 and 2018, 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.
As of December 31, 2020 and 2018, the Company did not receive any subsidy. During 2019
there is a subsidy of $50,730 by ASERCA for the purchase of hedging "puts" to the consumer.
The Company participated in the "Agriculture by Contract" program with ASERCA, where
contracts for the purchase of "put" options are registered with companies listed on the Chicago
Mercantile 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 2020 and 2018, 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 will decrease to a level
that represents a risk to the Company in the future; therefore, as of December 31, 2020, 2019
and 2018, it has not entered into any derivative financial instrument or other agreement for
managing the risk related to a decrease in the chicken price.
The Company reviews chicken prices frequently in order to evaluate the need of having a
financial instrument to manage the risk of price increases.
45
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, 2020, 2019 and 2018, the Company entered into derivative financial
instrument positions as economic hedges to mitigate 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, 2020, 2019
and 2018.
2020
December 31,
2019
2018
Dollars
Mexican
Pesos
Dollars
Mexican
Pesos
Dollars
Mexican
Pesos
479,325
9,562,534
569,569
10,759,165
384,119
7,555,616
40,424
806,459
4,576
86,447
19,447
382,519
47,003
2,683
937,715 16,716
53,517
569,435 11,360,225
2,160
593,021
315,761
40,809
11,202,182
-
252
403,818
-
4,950
7,943,085
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
(107,224) (2,139,115) (120,699)
(778,050) (149,878)
(39,000)
(7,635)
(130,828)
(6,558)
(152,782) (3,047,993) (278,212)
314,809
8,312,232
416,653
$
(2,280,003) (194,701) (3,829,765)
(2,831,191) (140,186) (2,757,459)
(144,224)
-
(5,255,418) (334,887) (6,587,224)
1,355,861
5,946,764
68,931
-
The Company performs 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. This analysis represent the scenarios that Management considers reasonably possible of
occurring.
46
The following is a detail of exchange rates effective during the fiscal year:
Average exchange rate
Dollars
$
2020
21.49
2019
19.25
2018
19.23
Spot exchange rate at
December 31,
2019
18.89
2020
19.95
2018
19.67
The exchange rate at the date of issuance of the consolidated financial statements is $19.84.
v. Interest rate risk
The Company is exposed to fluctuations in interest rates for certain financial instruments, such
as its investments in financial instruments, 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 to interest rates should be at fixed
or variable. 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 terms 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 statements of
financial position:
Liabilities
recorded at
amortized cost
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Financial debt
$ 2,517,965
2,550,758 4,928,607
4,952,445 5,037,600
5,037,688
2020
2019
2018
f)
Fair value hierarchy
The fair value of financial assets and liabilities is determined as follows:
• The fair value of the financial assets and liabilities that have standard terms and
conditions and are traded in active liquid markets, which are determined by reference
to quoted market prices (market approach), therefore, these instruments are considered
Level 1 hierarchy according to the classification of fair value hierarchy described in
note 2 b).
47
• The fair value of derivative financial instruments of the Company (commodities) is
determined based on the future prices of the Chicago Stock Exchange, so these
instruments are considered Level 2 hierarchy.
The following table summarizes financial instruments carried at fair value:
As of December 31, 2020
Investment in securities at fair value through
profit or loss
Investment in securities at fair value through
other comprehensive income
Derivative financial instruments
Level 1
Level 2
Level 3
Total
$ 1,018,322
937,715
-
$ 1,956,037
-
-
(194,181)
(194,181)
-
-
-
-
1,018,322
937,715
(194,181)
1,761,856
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
315,761
-
502,045
$
-
18,098
18,098
-
-
-
-
186,284
315,761
18,098
520,143
As of December 31, 2018
Investment in securities at fair value through
profit or loss
Derivative financial instruments
Level 1
Level 2
Level 3
Total
$
$
550,068
-
550,068
-
6,570
6,570
-
-
-
550,068
6,570
556,638
Information regarding the hierarchy of fair value measurements related to financial liabilities
that are not recognized at fair value, but for which disclosures are required, is summarized
below:
As of December 31, 2020
Financial debt - bank institutions
Financial debt – debt securities
As of December 31, 2019
Financial debt - bank institutions
Financial debt – debt securities
Level 1
Level 2
Level 3
Total
$
-
(1,491,458)
$ (1,491,458)
(1,059,300)
-
(1,059,300)
-
-
-
(1,059,300)
(1,491,458)
(2,550,758)
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)
48
As of December 31, 2018
Financial debt - bank institutions
Financial debt – debt securities
Level 1
Level 2
Level 3
Total
$
-
(1,500,793)
$ (1,500,793)
(3,536,895)
-
(3,536,895)
-
-
-
(3,536,895)
(1,500,793)
(5,037,688)
g) Quantitative sensitivity measurements
The following are sensitivity analysis for the most significant risks to which the Company is
exposed as of December 31, 2020, 2019 and 2018. These analysis represent the scenarios that
management believes are reasonably possible of occurring in future periods and were
evaluated in accordance with the policies of the Company’s Risk Committee.
i. Derivative Financial Instruments related to exchange rate and commodities risks
As of December 31, 2020, 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 2020,
2019 and 2018 would have resulted in a valuation gain of $506,705, $16,824 and $28,767 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 $1,405,538, $31,133 and $48,429.
The following table shows the Company’s sensitivity to an increase and decrease of 15% for
2020, 2019 and 2018 in the “bushell” price of corn and short ton price of soybeans.
Effect of Increase
Effect of Decrease
2020
2019
2018
2020
2019
2018
Loss (profit) for
the year
$
(87,711)
(121,762)
(2,665) $
(12,530)
100,490
105
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 2020, 2019 and 2018, in the variable rates to which the Company is exposed.
Effect of Increase
Effect of Decrease
2020
2019
2018
2020
2019
2018
$
13,390
24,465
30,192 $
(13,390)
(24,465)
(30,192)
Loss (profit) for the
year
iii. Exchange risk
As of December 31, 2020, 2019 and 2018, the Company's net monetary liability position in
foreign currency was $8,312,232, $5,946,764 and $1,355,861, respectively.
49
The following table shows the Company’s sensitivity of an increase and decrease of 30% for
2020 and 2019 and 10% for 2018, in exchange rate, which would have an effect in the result
from foreign currency position.
Effect of Increase
Effect of Decrease
2020
2019
2018
2020
2019
2018
Loss (profit)
for the year $
(2,493,673)
(1,784,045)
(135,586) $
2,493,673
1,784,045 135,586
(9) Accounts receivable, net
As of December 31, 2020, 2019 and 2018, accounts receivable are as follows:
Trade receivables
Allowance for doubtful accounts
Income tax receivable
Recoverable value-added tax and
other recoverable taxes
$
$
Past-due but not impaired portfolio
2020
2,772,418
(68,360)
190,110
December 31,
2019
2,595,978
(72,886)
187,912
2018
2,523,950
(79,937)
114,935
1,471,851
4,366,019
1,156,106
3,867,110
927,406
3,486,354
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 at 60 days
Past due by more than 60 days
2020
18,811
98,054
116,865
December 31,
2019
20,463
47,573
68,036
$
2018
144,604
17,250
161,854
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, $
2020
(72,886)
(1,826)
6,458
(106)
(68,360)
2019
(79,937)
(57)
7,030
78
(72,886)
2018
(96,900)
(7,862)
24,826
(1)
(79,937)
As of December 31, 2020, 2019 and 2018 the Company has receivables in legal proceedings
(receivables for which legal counsel is seeking recoverability) of $143,278, $140,304, and
$142,388, respectively.
50
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 2020, 2019 and 2018 in trade accounts receivable under IFRS 9
were estimated at $25,962, $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 2020,
2019 and 2018.
(10) Inventories
As of December 31, 2020, 2019 and 2018, 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
$
$
2020
2,410,275
1,110,559
380,121
1,575,985
55,364
151,402
2,472
2,160
5,688,338
December 31,
2019
1,836,783
877,837
330,238
1,554,115
56,599
47,954
4,482
2,199
4,710,207
2018
1,688,527
903,337
322,522
1,548,597
52,050
39,709
10,762
10,092
4,575,596
Inventory consumption for the years ended December 31, 2020, 2019 and 2018 was
$44,747,933, $39,823,395 and $40,115,184, respectively (note 23).
The adjustment to the net realizable value of certain inventories during 2020, 2019 and 2018
was for $ 57,074, $ 35,328 and $ 30,242, respectively.
51
(11) Biological assets
For the years ended December 31, 2020, 2019 and 2018, biological assets are as follows:
$
Balance as of January 1, 2020
Increase due to purchases
Sales
Net increase due to births
Production cost
Depreciation
Transfers to inventories
Other
Balance as of December 31, 2020
$
$
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
$
Current
biological
assets
2,043,234
686,756
-
264,386
35,585,551
-
(36,786,599)
219,340
2,012,668
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
Non-current
biological
assets
1,818,910
797,039
20,966
2,507,769
1,877,418
(2,565,283)
(2,507,769)
42,480
1,991,530
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
Total
3,862,144
1,483,795
20,966
2,772,155
37,462,969
(2,565,283)
(39,294,368)
261,820
4,000,198
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
The “Other” category includes the change in fair value of biological assets that resulted in a
decrease of $31,701 in 2020, increase of $35,487 in 2019 and decrease of $22,270 in 2018.
52
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, 2020, 2019 and 2018, prepaid expenses and other current assets are as
follows:
Advances to suppliers of inventories
Prepaid expenses for services
Prepaid expenses for insurance and
sureties
Other current assets
Total
2020
613,188
303,345
December 31,
2019
628,286
280,950
2018
704,563
217,074
74,565
230,157
1,221,255
128,178
189,782
1,227,196
129,582
80,651
1,131,870
$
$
(13) Assets held for sale
As of December 31, 2020, 2019 and 2018, assets held for sale are as follows:
Buildings
Land
Other
Total
2020
24,208
29,563
859
54,630
$
$
December 31,
2019
22,394
29,563
959
52,916
2018
18,920
27,310
2,839
49,068
The Company recognized gains (losses) on sales of these assets of $510, $2,311 and ($13)
during 2020, 2019 and 2018, respectively.
53
(14) Property, plant and equipment
As of December 31, 2020, 2019 and 2018, 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,
2020
1,553,499
12,340,405
15,866,952
2,111,999
134,481
190,289
3,598
1,459,922
33,661,145
Additions Disposals
102,847
686,270
1,240,779
462,344
13,784
21,325
4,439
220,493
2,752,281
(5,900)
(297,490)
(145,320)
(130,089)
(244)
(6,463)
-
-
(585,506)
Currency
translation
effect
4,982
92,008
154,497
1,380
3,096
782
-
(4,521)
252,224
Balance as of
December 31,
2020
1,655,428
12,821,193
17,116,908
2,445,634
151,117
205,933
8,037
1,675,894
36,080,144
Balance as of
January 1
2020
(5,750,971)
(8,253,772)
(856,429)
(107,016)
(136,311)
(15,104,499)
Depreciation
for the year
Disposals
(299,865)
(1,048,758)
(204,384)
(21,721)
(15,575)
(1,590,303)
229,718
96,589
96,553
160
5,863
428,883
Currency
translation
effect
(15,632)
(61,396)
(1,275)
(1,610)
(490)
(80,403)
Balance as
of December
31, 2020
(5,836,750)
(9,267,337)
(965,535)
(130,187)
(146,513)
(16,346,322)
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)
$
$
$
$
$
$
$
$
54
Cost
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
Accumulated depreciation
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Total
$
$
$
$
Balance as of
January 1,
2018
1,353,643
11,440,284
14,021,881
1,773,153
125,991
169,752
2,661
1,435,147
30,322,512
Additions Disposals
24,400
513,033
1,255,026
101,645
10,441
12,985
1,689
63,364
1,982,583
-
(11,546)
(96,727)
(82,543)
(318)
(4,258)
-
-
(195,392)
Currency
translation
effect
47
1,705
1,864
18
69
(24)
-
3,186
6,865
Balance as of
December 31,
2018
1,378,090
11,943,476
15,182,044
1,792,273
136,183
178,455
4,350
1,501,697
32,116,568
Balance as of
January 1
2018
(5,323,314)
(6,706,824)
(771,406)
(81,504)
(119,423)
(13,002,471)
Depreciation
for the year
Disposals
(221,565)
(857,930)
(118,439)
(16,598)
(12,385)
(1,226,917)
9,315
66,578
60,276
305
3,218
139,692
Currency
translation
effect
(1,261)
(7,046)
(95)
(237)
(57)
(8,696)
Balance as
of December
31, 2018
(5,536,825)
(7,505,222)
(829,664)
(98,034)
(128,647)
(14,098,392)
Carrying amounts, net
2020
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Leasehold improvements
Construction in progress
Total
$
$
1,655,428
6,984,443
7,849,571
1,480,099
20,930
59,420
8,037
1,675,894
19,733,822
December 31,
2019
1,553,499
6,589,434
7,613,180
1,255,570
27,465
53,978
3,598
1,459,922
18,556,646
2018
1,378,090
6,406,651
7,676,822
962,609
38,149
49,808
4,350
1,501,697
18,018,176
Additions of property, plant and equipment in 2020 include assets acquired through business
combinations of $383,680 that consist of the following:
Land
Buildings and construction
Machinery and equipment
Transportation equipment
Computer equipment
Furniture
Construction in progress
Total
$
$
62,050
231,264
73,332
4,825
1,761
1,115
9,333
383,680
Depreciation expense during the years ended December 31, 2020, 2019 and 2018 was
$1,590,303, $1,265,391 and $1,226,917, respectively, which was charged to cost of sales and
operating expenses.
55
(15) Goodwill
Balances at beginning of the year
Foreign currency effects
Balances at end of year
2020
$ 1,578,994
71,722
$ 1,650,716
2019
1,631,771
(52,777)
1,578,994
2018
1,631,094
677
1,631,771
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.
2020
Final
balance of
the year
Projection
period
(years)
5
5
5
5
5
212,833
88,015
66,162
111,715
1,171,991
1,650,716
2019
Annual
discount
rate
(%)
12.95%
12.95%
3.43%
3.43%
3.43%
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
62,647
105,780
1,109,719
1,578,994
5
5
5
5
5
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%
$
$
$
$
56
2018
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
Bachoco - Istmo and Peninsula regions
Campi
Ok Farms - Morris Hatchery, Inc. Arkansas
Ok Farms - Morris Hatchery Inc. Georgia
Ok Foods- Albertville Quality Foods, Inc.
(16) Intangible assets
The balances as of December 31, 2020, 2019 and 2018 for $753,224, $772,640 and $949,355
are mainly comprised of trade names and customer relationships derived from the purchase
through its subsidiary OK Foods, Inc. 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 in intangible assets from customer relationships 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. Therefore, total impairment charges
recognized during 2018 for intangible assets were $21,430.
a)
Intangible assets consist of the following:
2020
2019
2018
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
$
$
941,582
(219,702)
-
721,880
31,344
-
753,224
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
b) Reconciliation between the carrying amounts at the beginning and at the end of the
intangible assets
57
Carrying amounts
Balance as of January 1, 2020 $
Additions
Currency translation effect
Balance as of December 31,
2020
Accumulated amortization
Balance as of January 1, 2020
Additions
Amortization expense
Balance as of December 31,
2020
Total intangible assets
$
Carrying amounts
Balance as of January 1, 2019 $
Additions
Impairment loss
Currency translation effect
Balance as of December 31,
2019
Accumulated amortization
Balance as of January 1, 2019
Additions
Amortization expense
Balance as of December 31,
2019
Total intangible assets
$
Customer
relationships
Trade names
not subject to
amortization
Total
817,820
-
123,762
29,679
-
1,665
847,499
-
125,427
941,582
31,344
972,926
(74,859)
-
(144,843)
(219,702)
721,880
-
-
-
-
31,344
Customer
relationships
Trade names
not subject to
amortization
(74,859)
-
(144,843)
(219,702)
753,224
Total
1,014,361
-
(73,733)
(122,808)
30,905
-
-
(1,226)
1,045,266
-
(73,733)
(124,034)
817,820
29,679
847,499
(95,911)
-
21,052
(74,859)
742,961
-
-
-
-
29,679
(95,911)
-
21,052
(74,859)
772,640
58
(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
2020
December 31,
2019
2018
$
$
472,828
71,431
23,476
193,689
2,996
54,502
818,922
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
(18) Financial debt
a)
Short-term financial debt is as follows:
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.
Loan in the amount of 39,000 thousand dollars, maturing in
January 2021, at LIBOR (3) rate plus 0.60 percentage points.
Loan denominated in pesos, maturing in February 2021, at
TIIE (1) rate plus 0.90 percentage points.
Total short-term debt
2020
December 31,
2019
2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
-
-
-
-
-
-
-
778,050
-
70,011
848,061 3,440,399
-
-
3,427,820
$
59
The annual weighted average interest rate of short-term loans denominated in pesos for 2020,
2019 and 2018 was 6.71%, 9.24% and 9.14%, respectively. The average interest rate for loans
outstanding as of December 31, 2020, 2019 and 2018 was 5.50%, 8.77% and 9.15%,
respectively.
The annual weighted average interest rate of short-term loans denominated in dollars for the
years 2020, 2019 and 2018 was 1.61%, 2.36% and 2.26%, respectively. The average interest
rate for loans outstanding as of December 31, 2020, 2019 and 2018 was 0.75%, 2.37% and
2.29%, 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:
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.
Loan denominated in pesos, maturing in May 2021, at
TIIE (1) plus 1.05 percentage points.
Debt securities (subsection (d) of this note)
Total
Less current maturities
Long-term debt, excluding current maturities
$
2020
December 31,
2019
2018
-
-
209,499
1,460,405
1,669,904
(209,499)
1,460,405
-
-
-
1,488,208
1,488,208
-
1,488,208
53,980
55,007
-
1,500,793
1,609,780
(64,973)
1,544,807
The annual weighted average interest rate on long-term debt for 2020, 2019 and 2018 was
6.49%, 8.53% and 8.42%, respectively. The average rate for outstanding loans as of December
31, 2020, 2019 and 2018 was 4.91%, 8.26% and 8.46%, 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 2020 and 2019 the Company made early payments on its long-term debt of $17,877
and $51,000, during 2018 the Company did not make early payments on its long-term debt.
As of December 31, 2020, 2019 and 2018, unused lines of credit amounted to $6,919,625,
$3,325,981 and $5,723,011, respectively. In all such years, the Company did not pay any fee
for undrawn balances.
60
c) Maturities of long-term debt, excluding current maturities, as of December 31,
2020, are as follows:
Year
Amount
2022 $
1,460,405
The amount of future unearned interest is $ 122,722.
Interest expense on total loans during the years ended December 31, 2020, 2019 and 2018,
amounted to $159,169, $250,820 and $185,913, 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,
2020, 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 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.
61
The payment 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 paid as part
of financial expense using the effective interest rate through the term of each transaction. Such
costs include commissions and professional fees.
(1) UDIS = Investment units
Derived from the issuance of debt securities, the Company is subject to certain requirements,
affirmative and negative covenants, with which they comply as of December 31, 2020.
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
Other
Balance as of December 31
(19) Trade accounts and other accounts payable
2020
$ 4,928,607
December 31,
2019
5,037,600
2018
5,249,024
4,030,700
(6,762,222)
4,839,000
(4,808,163)
3,370,400
(3,588,067)
320,880
$ 2,517,965
(139,830)
4,928,607
6,243
5,037,600
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,
2019
2020
4,516,424
532,679
24,099
62,075
375,086
232,083
10,575
116
5,753,137
3,972,460
518,711
64,154
86,710
275,214
213,345
28,060
173
5,158,827
2018
3,996,014
597,330
103,494
68,432
259,828
160,431
10,728
90
5,196,347
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.
62
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, 2020 and 2019 the Company has not recorded any provision. During 2018 the
Company recorded provisions of $39,340 (2,000 thousand dollars) for estimated probable
payments, which were reversed in 2019 based on Management’s estimate of risk of loss.
(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, 2020, 2019 and 2018:
Compensation
2020
57,429
$
December 31,
2019
52,635
2018
61,189
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 and balances receivable to related parties
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.
Transaction value
December 31,
2019
2020
2018
Balance as of
December 31,
2019
2020
$
4,055
9,323
8,812 $
400
53
31
832
58
42
934
123,756
$ 128,727
178,624
188,981
785
58
-
28
-
-
-
-
-
-
286
337
8,840 $
686
12,494
13,674
2018
99
-
-
-
-
99
63
ii.Expenses and balances payable to related parties
Transaction value
December 31,
2019
2020
2018
2020
Balance as of
December 31,
2019
2018
$ 411,129 582,458
143,849 148,210
20,667
21,414
1,184
244
-
4,425
907
3,374
557,490 $
193,396
37,794
230
-
-
58,836
9,554
2,407
251
-
-
41,399
26,233
3,976
-
2
-
103,371
28,951
5,227
41
-
-
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.
-
-
42,554
48,129
38,947
10,776
-
38,581
18,776
5
6,378
339
5
4,213
124
42,857
11,519
17,671
336
91,098 270,968
904
187
183
63
2,651
287
19,490
47
307
30
2,636
6
50
44
149
149
9
49
89
64
3,374
4,712
1,486
216
7
40
5
$
-
24,971
8,368
$
-
80,842
307
76,704
20
147,514
As of December 31, 2020, 2019 and 2018, 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, 2020, 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, 2020, 2019 and
2018, 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 2020, 2019 and 2018 for the
Company’s US subsidiary is 21% (plus state taxes).
As of December 31, 2020, 2019 and 2018, 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.
64
b) Tax charged to profit and loss
For the years ended December 31, 2020, 2019 and 2018, the income tax (benefit) expense
included in profit and loss is as follows:
Operation in Mexico:
Current ISR
Deferred ISR
Foreign operations:
Current ISR
Deferred ISR
Total ISR expense
Total income tax expense
2020
1,321,021
341,131
1,662,152
33
(450,574)
1,211,611
December 31
2019
1,066,160
324,415
1,390,575
(1,859)
(263,738)
1,124,978
$
$
2018
1,242,553
(33,718)
1,208,835
4,294
(58,151)
1,154,978
The income tax expense attributable to income before income taxes differed from the amount
computed by applying the ISR rate of 30% in 2020, 2019 and 2018 due to the items listed
below:
|
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 carryback tax
losses in the United
States of America (1)
Bargain purchase gain
of domestic business
acquisition
Other
Income tax expense
2020
Percentage
ISR
$ 1,555,111
30% $
ISR
1,292,925
Percentage
ISR
30% $ 1,354,965
2018
Percentage
30%
December 31,
2019
(196,379)
(4%)
(168,822)
(4%)
(276,758)
(6%)
7,641
20,907
0%
0%
11,027
48,658
0%
1%
16,648
(16,572)
115,496
(69,920)
2%
(1%)
70,202
(60,861)
2%
(1%)
90,820
-
(190,144)
(4%)
(27,267)
(3,834)
$ 1,211,611
(0%)
(0%)
23% $
-
-
(68,151)
1,124,978
-
-
-
-
(14,126)
(2%)
26% $ 1,154,978
0%
(0%)
2%
(0%)
26%
-
-
-
(1)
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted.
The most significant provisions of the CARES Act that will materially affect the Company’s accounting
for income taxes includes a five-year carryback allowance for taxable net operating losses generated in
tax year 2018 through 2020 and a technical correction to the Tax Cuts and Jobs Act, enacted on
December 22, 2017, that disallowed the carrying back of taxable net operating losses to offset prior
years’ taxable income.
65
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, 2020, 2019 and 2018 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
Derivative financial instruments
Total deferred tax liabilities
Net deferred tax assets
Deferred tax assets
Accounts payable
PTU 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
$
$
$
$
2020
December 31,
2019
2018
27,738
53,398
20,536
-
-
-
2,205
103,877
51
-
-
-
2,481
164,019
26,020
56,163
616
1,113
-
250,412
-
-
4,593
547
2,207
199,087
16,690
60,354
-
1,696
648
280,682
-
2,872
7,655
8,221
18,748
261,934
5,140
245,272
51
103,826
December 31,
2020
2019
2018
1,090,676
1,037
606,935
-
144,861
1,843,509
1,820,929
497,655
2,915,222
286,844
5,147
188,919
3,773
5,718,489
3,874,980
1,097,422
1,483,275
271,772
-
63,314
1,432,508
59,883
3,879
76,025
1,623,062
1,696,300
445,198
2,667,824
332,392
584
190,900
3,803
5,337,001
3,904,493
1,639,156
366,825
2,503,172
647,480
-
233,749
-
5,390,382
3,767,320
66
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, 2020, 2019 and 2018 amounts
to $1,802,451, $1,919,720 and $2,049,327, respectively. The Company's policy has been to
distribute accounting profits when the respective taxes have been paid and in the case of
foreign profits, such tax may be duly credited in Mexico.
e) Movement in temporary differences during the fiscal year
January 1,
2020
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
Accounts payable
Employee benefits
PTU payable
Tax loss carryforwards
Interest carryforwards
Other provisions
Goodwill
Intangible assets
Inventories
Accounts receivable
Property, plant and equipment
Prepaid expenses
Derivative financial
instruments
$
(1,099,903)
(164,060)
(26,020)
(327,935)
-
(62,767)
584
190,900
1,695,684
445,198
2,666,752
336,985
8,163
(35,027)
8,293
(314,628)
1,551
(74,804)
4,371
(12,248)
114,135
52,457
177,372
(47,269)
Net deferred tax liability
$
3,803
3,659,221
8,191
(109,443)
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)
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
December
31, 2020
(1,092,883)
(199,087)
(17,727)
(667,289)
-
(137,854)
5,147
188,919
1,820,929
497,655
2,913,526
289,716
11,994
3,613,046
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
(1,143)
-
-
(24,726)
(1,551)
(283)
192
10,267
11,110
-
69,402
-
-
63,268
958
87,107
-
5,427
27
72
(8,629)
(7,592)
-
(20,966)
-
-
56,404
3,803
3,659,221
67
Recognized
in profit
and loss
Acquired or/
Recognized
directly in
equity
(323,784)
(1,317)
(7,619)
(37,004)
(17,240)
3,604
(19,825)
37,319
(54,366)
74,819
253,544
(91,869)
(54)
(6,562)
-
(866)
55
79
(324)
339
-
(13)
-
(7,346)
January 1,
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
$
$
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
f)
Tax on assets and tax loss carryforwards
As of December 31, 2020, tax loss carryforwards expire as shown below. Amounts are
indexed for inflation as permitted by Mexican income tax law:
Amount as of December 31, 2020
Year
2017
2018
2019
2020
Tax loss
carryforwards
$
$
59,033
199,632
1,250,964
1,535,909
3,045,538
Year of expiration /
maturity
2027
2028
2029
2030
(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.
68
During 2020, 2019 and 2018 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 $72,121, $66,134 and $62,028, in 2020, 2019 and 2018,
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 and in future periods, 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:
69
2020
592,294
163,651
December 31,
2019
487,810
148,392
$
2018
302,818
197,254
755,945
(163,651)
592,294
$
636,202
500,072
(148,392) (197,254)
302,818
487,810
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
Actual return of the plan assets
2020
2019
2018
Composition of the plan
assets
2019
2018
2020
Fixed income
securities
Variable income
securities
Total
11.28%
12.67%
5.10%
63%
62%
67%
9.47%
15.65%
(10.95%)
37%
100%
38%
100%
33%
100%
ii. Movements in the present value of PBO
PBO as of January 1
$
Benefits paid by the plan
Service cost
Interest cost
Actuarial losses recognized in other
comprehensive income
Past service cost – plan amendments
PBO as of December 31
2020
636,202
(78,149)
38,987
53,343
2019
500,072
(54,932)
30,108
50,421
105,562
110,533
-
-
$
755,945
636,202
2018
462,986
(38,393)
28,084
41,410
494
5,491
500,072
iii. Movements in the fair value of plan assets
Plan assets at fair value as of January 1
Transfer of assets to fund defined
contribution benefit plan
Benefits paid by the plan
Expected return on plan assets
Actuarial losses in other comprehensive
income
Fair value of plan assets as of December 31
$
2020
148,392
2019
197,247
$
2018
259,245
-
-
13,678
(39,079)
(32,027)
19,615
(38,327)
(16,772)
23,244
1,581
163,651
2,636
148,392
(30,136)
197,254
70
iv. Expense recognized in profit and loss
Current service cost
Interest cost, net
2020
2019
2018
$
$
38,987
39,665
78,652
30,108
30,806
60,914
28,084
18,166
46,250
v. Actuarial gains and (losses)
Amount accumulated as of January, 1
Recognized during the year
Amount accumulated as of December,
31
$
$
2020
(279,144)
(103,982)
2019
(171,247)
(107,897)
2018
(140,617)
(30,630)
(383,126)
(279,144)
(171,247)
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
2020
7.75%
4.50%
3.50%
2019
8.75%
4.50%
3.50%
2018
10.50%
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
$
2020
755,945
(163,651)
592,294
(105,562)
1,581
December 31,
2019
636,202
(148,392)
487,810
(110,533)
2,636
2018
500,072
(197,254)
302,818
(494)
(30,136)
viii.Sensitivity analysis of the defined benefits obligations as of December 31, 2020, 2019 and
2018
2020
Discount rate 7.75%
Rate increase (+ 1%)
Rate decrease (- 1%)
Pension
plan
Seniority
premium
Constructive
obligation
Total
PBO
$ (531,251)
$ (511,884)
$ (554,180)
(203,282)
(200,058)
(206,605)
(21,412)
(21,209)
(21,619)
(755,945)
(733,151)
(782,404)
71
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)
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)
2019
Discount rate 8.75%
Rate increase (+ 1%)
Rate decrease (- 1%)
2018
Discount rate 10.50%
Rate increase (+ 1%)
Rate decrease (- 1%)
ix. Expected cash flows
Total
2021-2031 $
640,387
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
$16,418, $14,919 and $12,999 for the year ended December 31, 2020, 2019 and 2018,
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, 2020, 2019 and 2018, all of which were fully vested. The total
liability under this plan totaled $44,994, $32,874 and $20,922 as of December 31, 2020, 2019
and 2018, respectively. The expense recognized for this plan for the year ended December 31,
2020 and 2019 was $4,678 and $1,772, respectively. During 2018 no expense was recognized
for this concept.
72
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, 2020, 2019 and 2018 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
$
$
$
$
2020
57,707,566
2019
51,557,351
2018
51,422,376
6,420,397
64,127,963
6,116,620
57,673,971
6,024,406
57,446,782
44,747,933
8,507,124
5,037,768
2,006,848
1,402,459
1,590,303
307,757
119,592
408,179
64,127,963
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
(1)
Leasing expense in 2020 and 2019 includes contracts classified as low value or those with terms less than
twelve months. The expense corresponding to the 2018 annual period 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 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
$
73
a) As of December 31, 2020 and 2019, the leased assets with recognized right of use are
comprised as follows:
Right-of-use assets
Balance as
of January
1, 2020
Additions
Modifications
and disposal
Balance as of
December 31,
2020
Buildings and
construction
Machinery and equipment
Transportation equipment
Computer equipment
Total
$
$
380,011
447,179
283,332
15,014
1,125,536
101,272
39,020
4,767
2,572
147,631
(11,896)
(38,775)
61,109
1,806
12,244
469,387
447,424
349,208
19,392
1,285,411
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 January
1, 2020
Depreciation
for the year
Currency
translation
effect
Balance as of
December 31,
2019
(97,736)
(116,391)
(84,120)
(4,557)
(302,804)
822,732
(58,148)
(119,740)
(126,211)
(3,658)
(307,757)
1,897
(199)
3,704
(1,407)
3,995
(153,987)
(236,330)
(206,627)
(9,622)
(606,566)
678,845
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
$
$
$
74
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
Current Lease
liabilities
Long term lease
liabilities
Balance as
of January
1, 2020
Additions
Modifications
and disposals
Payment
Interest
paid
Currency
translation
effect
Balance as of
December 31,
2020
$
280,277
101,272
31,213
(121,909)
17,903
1,258
310,014
308,710
39,020
(19,990)
(143,240)
26,143
28,007
238,650
204,258
9,805
803,050
4,767
2,572
147,631
$
57,473
1,560
70,256
(115,851)
(5,710)
(386,710)
9,228
365
53,639
2,517
63
31,845
162,392
8,655
719,711
(149,538)
(123,276)
-
-
-
(6,167)
(278,981)
$
653,512
24,355
70,256
(386,710)
53,639
25,678
440,730
Lease liabilities
Buildings and
construction
Machinery and equipment
Transportation equipment
Computer equipment
Total
$
$
Current Lease liabilities
Long term lease liabilities $
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
922,410
-
-
59,297 (113,097)
63,662 (124,435)
(82,381)
64,129
(5,294)
2,674
189,762 (325,207)
-
-
-
-
17,423
11,933
8,070
371
37,797
-
-
(3,874)
(12,860)
(4,692)
(286)
(21,712)
-
-
280,277
308,710
204,258
9,805
803,050
(149,538)
653,512
c)
The detail of the maturity of the long-term lease liabilities is shown below:
2022
2023
2024
Subsequent
$
$
184,407
137,727
57,792
60,804
440,730
d) During 2020 and 2019, an amount of $36,153 and $19,116 was charged as expense for
rental contracts with a term of less than one year and $83,439 and $77,709 for rental contracts
with insignificant amounts, a total of $119,592 and $96,825, respectively (note 23).
75
(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 2020, 2019 and 2018 these ratios were below the thresholds established by the
Company’s Risk Committee.
b) Common stock and premiums
As of December 31, 2020, 2019 and 2018, 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, 2020,
2019 and 2018
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, 2020, 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
8,058,540
7,336,703
1.34%
1.22%
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.
76
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, 2020,
2019 and 2018 amounts to $268,692, $195,905 and $120,378, which includes a deferred tax
effect of $114,430, $83,236 and $50,867, respectively.
iii. Derivatives classified as hedging instruments
Derivatives classified as hedging instruments, are a hedge of the exposure to the variability of
cash flows that is attributable to a particular risk associated with a recognized asset or liability
or a forecasted transaction that may affect the income statement.
A cash flow hedge, which meets all the hedging criteria, is accounted for as follows:
• A portion of the gain or loss of the hedging instrument that is determined to be effective is
recognized in other comprehensive income; and
• The ineffective portion of the gain or loss of the hedging instrument is recognized
immediately in the income statement.
The amount of cash flow hedges as of December 31, 2020, 2019 and 2018 amounts to
$267,352, $ 19,771 and $ 307, 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 22, 2020, pursuant to a resolution at the General Ordinary Stockholders’ Meeting, an
amount of $1,260,000 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, 2020, 2019 and 2018:
Balance as of January 1
(+) Total shares purchased
(-) Total shares sold
Balance as of December 31
2020
100,396
212,860
(160,488)
152,768
2019
86,928
133,488
(120,020)
100,396
2018
20,000
86,928
(20,000)
86,928
The net amount of repurchase and treasury share sale transactions was of ($3,509), ($1,474)
and ($4,568), during the years ended December 31, 2020, 2019 and 2018, respectively.
As of December 31, 2019, the Company has 152,768 treasury shares.
77
e) Dividends
During the years ended December 31, 2020, 2019 and 2018, the Company has declared and
paid the following dividends:
On April 22, 2020, the Company declared a payment of dividends in cash at nominal value of
$791,744 or $1.32 pesos per outstanding share. The payment was made in two equal
installments, on May 12 and July 7, 2020.
On April 24, 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.
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 2020,
2019 and 2018, net income of BSACV, accounted for 61%, 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
6,257,362
6,587,262
Balance
from2014
Total
9,007,377
21,437,186
15,264,739
28,024,448
The restated amount as of December 31, 2020 on tax bases of the contributions made by
stockholders (“CUCA”), totaling $3,151,852, may be refunded to them tax-free, to the extent
that such amount is the same or higher than equity.
78
(26) Earnings per share
The basic and diluted earnings per share for the years ended December 31, 2020, 2019 and
2018 are $6.56, $5.37 and $5.58, respectively. The calculation of earnings per share was based
on income attributable to ordinary stockholders of the Company (net income attributable to
controlling interest) $3,935,672, $3,219,931 and $3,349,967 for the years ended December 31,
2020, 2019 and 2018, respectively.
The average weighted number of common outstanding in 2020, 2019 and 2018 was
599,818,022, 599,971,832 and 599,980,734 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 $6,983 (350 thousand
dollars) each year per plan participant and workers’ payments claims up to $19,950 (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 $89,576 (4,327 thousand dollars),
$81,737 (4,327 thousand dollars) and $74,766 (3,801 thousand dollars) as of December 31,
the consolidated statement of
2020, 2019 and 2018, respectively. Additionally,
comprehensive income includes expenses relating to self-insurance plans of $164,356
(6,565 thousand dollars), $126,376 (6,565 thousand dollars) and $139,783 (7,269 thousand
dollars) for the years ended December 31, 2020, 2019 and 2018, respectively. The
Company is required to maintain letters of credit on behalf of the subsidiary of $57,855
(2,900 thousand dollars) during 2020, $54,781 (2,900 thousand dollars) during 2019 and
$57,043 (2,900 thousand dollars) during 2018, 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. 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.
79
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
2020
698,962
2019
988,005 1,072,991
2018
$
7,024
467,534
3,627
-
4,516
39,323
-
1,173,520
-
23,919
991,632 1,140,749
(291)
(8,029)
(272,220)
-
-
-
(159,169) (250,820) (185,913)
(53,639)
(37,797)
(41,502) (146,255)
(78,230)
(291,329) (610,368) (332,168)
381,264
882,191
808,581
-
$
80
(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 4)
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
2020
2019
2018
$
866,027
1,203,836
1,041,677
90,889
956,916
-
1,203,836
-
1,041,677
(825,415)
(494,028)
(1,319,443)
(362,527)
$
(944,848)
(263,722)
(1,208,570)
(4,734)
(737,077)
(201,940)
(939,017)
102,660
(31) Subsequent events
The Company announced in December 2020 that an agreement was reached to invest in the
company RYC Alimentos (“RYC”), a multiprotein processing and marketing company with
production centers in the state of Puebla, Mexico. This agreement will allow the Company to
continue taking solid steps towards consolidation in other proteins, as well as in value-added
products. At the date of issuance of the consolidated financial statements, the acquisition is
currently under review by the Federal Economic Competition Commission (COFECE, for its
Spanish acronym). Management expects to complete the process associated with the
acquisition during 2021.