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SAN MIGUEL BREWERY INC.
MESSAGE TO
STOCKHOLDERS
As we celebrate the 125th year of San Miguel Pale Pilsen and the
long history of our parent company, San Miguel Corporation (SMC),
we, San Miguel Brewery Inc. (SMB), renew our commitment to work
hard at creating a strong, dynamic company for our consumers,
customers, business partners, employees and stakeholders.
Our founder, Don Enrique Maria Barretto de Ycaza,
was a man of vision. His foresight enabled him
to put up La Fabrica de Cerveza de San Miguel
in 1890, then the pioneer beer brewery in the
Philippines and Southeast Asia. Visionary as he
was, Barretto had no way of knowing that his
single-product business would eventually grow to
become of one of the Philippines’ largest and most
respected companies and that San Miguel Beer
would become the beer of choice, selling nine out of
ten beers in the country.
Since then, the success of SMB has always been
its enduring relationship with the Filipino. Over
the years, our brand has become woven into the
national story—a legacy brand and the beer for
people who will go to great lengths for friendship—
Kahit Kailan Kaibigan.
turn in a performance that we can all celebrate
and be proud of as revenues amounted to P79
billion, while operating income rose to P22 billion.
We met our targets and achieved excellent results
while maintaining our discipline and following
our proven strategy of leveraging on our great
brands and distribution network, developing our
brand-building programs, and pursuing selected
growth opportunities.
As we move forward, we also acknowledge the
relationships that we have forged over the years
as these have been an integral contribution to the
success of the company. Conducting the business
in a way that every stakeholder benefits from our
success has enabled us to broaden the breadth of
our network.
Although more than a century has passed, we
have never lost sight of the principles that have
made our business a success. Despite the ever
competitive industry landscape, we exist to enrich
the lives of all our stakeholders through our
iconic brands.
The company’s aim to carry our products
beyond Asia and be a leading beer manufacturer
in the international market got a boost as
SMB linked up with Spain’s major brewer
Mahou San Miguel (MSM). This will allow both
companies to tap into strategic markets where our
brands can compete with other heritage brews.
And truly, it is the efforts of the men and women
of SMB that allowed our company to bounce
back from a very challenging 2013, and in 2014,
Towards the end of 2014, we grabbed the
opportunity to tap a market that has been
expanding at a faster pace in the last five years.
2014 ANNUAL REPORT
Ramon S. Ang
Chairman of the Board
We also acknowledge the
relationships that we have forged
over the years as these have been
an integral contribution to the
Roberto N. Huang
President
success of the company.
Our entry—or expansion, as history dictates—into
the non-alcoholic beverage market will help us
achieve the vision of expanding our company’s
reach in the Philippine market and tap new
consumers for our new brands and planned
product offerings.
We are taking the right actions to drive growth
in the years to come and are confident that our
passion for quality products and our extensive
distribution network will help us drive our
success in the non-alcoholic beverage market by
making sure that all our products are available
anytime, anywhere.
We take very great pride in our history, at
San Miguel Brewery Inc. We will never stop
growing and building on the legacy that made us
a leader in the beer industry. We will forge on,
remembering always what matters most to our
success: nurturing friendships, relationships, and
delighting our consumers with the very best beer
products we can offer. We hope you’ll join us in our
journey to our next 125 years.
Cheers!
Ramon S. Ang
Chairman of the Board
Roberto N. Huang
President
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2014 ANNUAL REPORT
A brew kettle at the Polo Brewery. Acquired by the corporation in 1947,
Polo became the main brewery after Aviles ceased operations in 1976.
Pale Pilsen: Truly A Great Beer advertisement
The very first San Miguel Beer print ad.
In this undated photo, a sales team strike a pose in front of an
office warehouse in Luzon.
125 Years of Unmatched Quality:
San Miguel Brewery brews and bottles
only the best quality beer.
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2014 ANNUAL REPORT
MANAGEMENT'S
DISCUSSION
& ANALYSIS
Forged by 125 years of brewing excellence, San Miguel Brewery Inc.
(SMB) showed strength of character in 2014 as it recovered from the
challenging business environment in 2013.
SMB delivered stronger results in 2014 with
improved financial performance attributed
to volume growth, pricing strategy, efficient
management of financial resources and prudent
spending. Consolidated sales revenue improved by
5.3% to P79 billion. Meanwhile, operating income
rose to P22.1 billion with a strong margin of 27.9%,
resulting in a higher net income of P13.5 billion.
DOMESTIC OPERATIONS
In its home market, SMB asserted dominance in
the beer industry while capturing a sizeable share
in the broader alcoholic beverage market. With the
objective of encouraging beer consumption, focus
was given on demand-generation at grassroots
level supported by intensified execution of
defense programs to counter competition. Growth
opportunities came from the country’s vibrant
economy and improving demographics while
reconstruction, rehabilitation and livelihood
projects provided additional boost.
To strengthen the San Miguel equity, SMB
conducted brand-building programs alongside
consumer promos and volume-generating
on‑ground activities nationwide. The annual
San Miguel Oktoberfest Beer and Music Festival
featured a kick-off party with the first ever
beer shower in the Philippines as well as the
participation of popular entertainment and sports
celebrities, complemented by over 70 barangay
street parties. Another signature event, the yearly
National Beer Drinking Contest, was conducted
by SMB with the aim of crowning the fastest beer
drinkers among beer enthusiasts from all over
the country.
The year 2014 highlighted the return of the
San Miguel Beermen to Philippine basketball
and this brought the San Miguel brand closer to
the hearts and minds of Filipino beer drinkers.
To reinforce San Miguel as a responsible brewer,
the company also sustained its responsible drinking
campaign and initiated its You Drink, We Drive
program in selected bar clusters in Metro Manila.
San Miguel Pale Pilsen as our flagship brand
launched a new Sarap na Nakakabilib thematic
campaign on its 125th year, to further establish
the brand as the standard of beer taste and a true
Filipino icon. Limited edition Bilib Ako Sa’yo cans
for personalized messages were made available to
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SAN MIGUEL BREWERY INC.
support the campaign along with barangay parties
for the Sarap Mag Babad summer program,
consumer promos in off-premise outlets as well as
beerhouse and bar tours.
a thematic campaign, Bucket Nights program
and Party All Night events. The new On All Night
app-based loyalty program was also introduced,
enabling online customer engagement for
the brand.
Red Horse Beer remained the country’s
undisputed #1 Extra Strong Beer as it bolstered
its Astig equity via its new Kaya Mo Na campaign.
The Pambansang Muziklaban, which culminated
with Muziklaban Rakollision judging night,
gathered Pinoy Rock music legends and enthusiasts
alike to recognize the country’s best amateur rock
band. Supporting these were Pasiklaban barangay
events and other below-the-line activities.
Gold Eagle Beer’s upbeat sales was fuelled
by Sama-Sama Mag-Jamming, Sama-Sama
Mag‑Gold Eagle Beer campaign involving
Unli Jamming radio jingle, Jamming sa Taboan
community events as well as Jamming sa
Tindahan consumer and trade promotions that
fortified the brand’s presence in Visayas and
Mindanao.
San Mig Light strengthened its consumer
relevance by harping on its Look Good and Feel
Good All Night communication executed through
San Miguel Flavored Beer continued its
buoyant sales mainly due to increased outlet
presence, offtake-generating programs as well
NO OTHER FIESTA LIKE
SAN MIGUEL OKTOBERFEST
In so many ways, the Philippine fiesta speaks volumes about
the Filipinos’ penchant for communal gathering. And in
these get-togethers, there will always be a bottle or two of
San Miguel Beer.
In 1982, San Miguel mounted the first San Miguel Oktoberfest
in Manila to celebrate the country’s best-loved beer.
Since then, the San Miguel Oktoberfest has been one of the
most‑anticipated parties in the country.
While the timing of the San Miguel Oktoberfest in the
Philippines hews closely to that of the Munich version, the
company distinguishes its party from other events through
a combination of fun, music and beer. No wonder the
San Miguel Oktoberfest carved its own niche in the events
scene that the Department of Tourism included it into the
country’s list of official fiestas.
Now on its 33rd year, San Miguel Oktoberfest continues to
find ways to generate interest in the annual event, which
draws crowds upon crowds of loyal beer patrons who have
contributed to the success and popularity of the different
San Miguel Beer brands.
In 2014, SMB kicked off the Oktoberfest season with 12 hours
of music coming from the best Filipino artists playing a diverse
selection of beats. Together with the never before seen
2014 ANNUAL REPORT
as the advertisements and Game Tayo digital
campaign which communicated San Miguel
Flavored Beer as the seriously fun beer.
Capitalizing on the brand’s growth momentum,
the company launched six-pack carriers, canned
variants and a new packaging design.
SMB garnered awards
San Miguel Lifestyle Brews focused on
establishing San Miguel Premium All-Malt,
San Miguel Super Dry and Cerveza Negra as a line
of specialty beers by highlighting their premium
ingredients and numerous awards for superior
quality. Visibility programs, consumer promotions,
bar tours and participation in various food events
supported San Miguel Lifestyle Brews as the
preferred set of brands in the upscale market.
government regulations
mash-ups, Oktoberfest 2014 was highlighted by the first
ever beer shower in the country. Indeed, the Oktoberfest
Beer and Music festival lives up to the innovations SMB has
offered in their annual event featuring their brands.
In the past, the San Miguel Oktoberfest parties introduced
different acts every year to keep the excitement and
interest among loyal followers of our brands.
To celebrate Oktoberfest in 2008, revelers were treated
to the longest beer and music party that was implemented
for 120 days.
SMB mounted the country’s first 3D lights and sound show
in 2010 as the best Filipino bands kept the music going
through the night. A fireworks display capped off the
successful run of the San Miguel Oktoberfest.
The following year, SMB built a giant pyramid that flowed
with the beer, as each San Miguel Beer brand mounted an
activity tent where drinkers enjoyed their beer and music
genre of choice.
In 2012, Oktoberfest brought back improved brand
tents and international recording artist apl.de.ap home
to headline the party and became Pale Pilsen’s latest
endorser.
To bring the Oktoberfest vibe closer to the people, we
brought the San Miguel Oktoberfest to the barangays in
2013, holding parties almost weekly nationwide. Different
bands played at different venues simultaneously.
from various local and
international bodies in
recognition for its quality
products, compliance to
and best labor practices.
San Mig Zero has been gaining ground as it
exceeded volume expectations in 2014 attributed to
its Zero Bitterness campaign backed by increased
product availability, trial-generating initiatives,
merchandising programs in targeted outlets and
consumer promos to tap the health conscious and
calorie-counting individuals.
Meanwhile, the company widened its reach to
consumers through the expansion of home delivery
service in key cities nationwide, draft beer party
pack promotions, online sales and non-traditional
events aimed to maximize growth opportunities in
new and emerging markets.
To further improve sourcing and distribution,
the company enhanced its sales network and
strengthened support to outlets and business
partners. Given the unpredictable weather
patterns, SMB implemented contingency plans
while rehabilitating and opening sales offices to
ensure the availability of its products.
On top of these, cost management initiatives
were intensified to strengthen bottomline results
while maintaining superior product quality.
Upgrades in manufacturing equipment and
processes, improvements in material sourcing and
enhancements in quality control were implemented
in order to increase operational efficiencies and
maintain high quality standards. As a result,
SMB garnered awards from various local and
international bodies in recognition for its quality
products, compliance to government regulations
and best labor practices.
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SAN MIGUEL BREWERY INC.
As SMB focused on driving up beer consumption,
2014 was another milestone year for the company
as it took the initial steps to expand its business in
the non-alcoholic beverage category in line with
its multi-beverage strategy. The move is expected
to further strengthen SMB’s growth potential as it
taps new sources of growth in the beverage industry
while fortifying leadership in the beer business,
thereby ensuring superior long-term value to the
company’s stakeholders.
INTERNATIONAL OPERATIONS
San Miguel Brewing International Limited
(SMBIL) continued to deliver strong financial
performance, primarily driven by the volume
growth of higher‑margin San Miguel brands, tight
cost management and enhancement of operational
efficiencies. Volume of San Miguel global brands
were up by 5% propelled by brand‑building
activities as well as trade and consumer
programs. Despite experiencing a slight decline in
consolidated volumes, SMBIL was able to sustain
its profit growth trend for a fourth straight year to
reach an 18% increase in operating income.
Thailand’s domestic volumes and profit rose
in 2014 on account of increased availability,
marketing campaigns and conduct of Fit & Firm
and San Miguel Beer Garden events that
improved awareness and higher consumption
for San Miguel Pale Pilsen and San Mig Light.
2014 marked the entry of Cerveza Negra Draught
in the market while San Miguel Thailand continued
to build presence of Kirin Ichiban in the premium
Japanese segment.
Operations in South China improved further as
domestic volumes moderately increased, driven by
growth of the San Miguel brands in retail chains,
Shenzhen, East Guangdong and West Guangdong.
Gains from increased production volumes for
exports likewise contributed to the improved
performance of South China.
EXPORTING BEER SINCE
THE TURN OF THE CENTURY
From its early days, San Miguel Beer had always been
destined to be shared with the world.
Just six years after its founding, San Miguel Beer’s
superior quality fended off imported beers which
competitors tried to introduce in the market. Proof of
this is that San Miguel sold more than five bottles for
every bottle of imported beer bought, grabbing a
foothold of the fledgling beer market before the turn of
the 20th century.
But a good beer is always best to be shared. As demand
for beer grew steadily in the Philippines, San Miguel Beer
was brought to other parts of Southeast Asia. In 1914,
Manila exported San Miguel Beer to Shanghai,
Hong Kong and Guam, embarking on a quest to
introduce arguably the best brew in this side of the
world. The international approach helped build the
San Miguel brand as an iconic drink.
Since then, the company focused on exporting its
brews through a network of importers and distributors.
Given its global footprint in terms of sourcing raw
materials and its expansive network, San Miguel Beer
easily found its way into different countries around
the world.
2014 ANNUAL REPORT
SAN MIGUEL TRAVELS TO EUROPE
San Miguel began its foray into the Spanish market in 1953
when top officials signed the Manila Agreement, which paved
the way for the creation of a new Spanish brewery, La Segarra,
S.A. The new entity was allowed to brew and sell beer under
the San Miguel brand.
Upon the completion of the Lerida brewery in 1957,
the company was renamed to San Miguel Fabricas de
Cerveza y Malta, which became a separate company that
had exclusive rights to use the San Miguel brand in Europe.
Although the new company was separately operated, it
remained an affiliate of SMC, with the Philippine company
holding a significant minority stake in the Spanish brewer.
San Miguel likewise entered into a technical and product
development assistance agreement to help the Spanish
brewer in setting up the company’s first brewery in Lerida,
Spain. By the 1960s, San Miguel S.A. had already begun to
distribute within Europe.
Both companies continued their collaboration until 1983
when San Miguel Corporation divested its shareholdings.
Two years later, the companies agreed on territories
with San Miguel Spain having trademark rights in
Europe and selected Mediterranean countries, and
San Miguel Corporation remaining the owner and authorized
user of the San Miguel trademark for the rest of the world,
particularly in Asia, the Americas, Africa and Australia.
San Miguel Brewery Inc. and Mahou San Miguel wrote
another chapter in their shared history. In May 2014, SMB’s
international arm San Miguel Brewing International Ltd.
and Mahou San Miguel signed a cooperation agreement
to promote their international business, working together
to position San Miguel as an iconic brand worldwide and
to further strengthen San Miguel’s global footprint in their
respective territories.
Courtesy call with Mr. Ramon S. Ang by Mahou San Miguel Spain shareholders on March 6, 2015.
L-R: Cecile Caroline de Ocampo (VP for SMC Mergers & Acquisitions), Roberto Huang (SMB President),
Eduardo Petrossi (MSM Shareholder), Francisco Javier Lopez del Hierro (MSM Shareholder),
Ramon Ang (SMC President and COO), Jose Antonio Herraiz (MSM Shareholder),
Carlos Berba (SMBIL Managing Director), Alberto Toquero (MSM General Manager),
Carmela Ortiz (SMBIL Business Planning Manager), Mariano Navarro (MSM CFO)
San Miguel Brewing International Limited (SMBIL) continued
to deliver strong financial performance, primarily driven by the
volume growth of higher-margin San Miguel brands, tight cost
management and enhancement of operational efficiencies.
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SAN MIGUEL BREWERY INC.
For most part of 2014, Hong Kong’s operating
profit was significantly going up. The pullout
of premium partner brands in the last
quarter, however, affected full-year results.
In order to strengthen its portfolio and to
create excitement in the market, SMBHK
launched Cerveza Negra Draught and
Red Horse Draught as well as a new selection
of premium draught brands from the US,
Spain, New Zealand and UK. These product
introductions were met with positive consumer
and trade feedback, which should provide
further opportunities in 2015.
Indonesia sustained its operating profit growth
in 2014 as a result of better margins and
prudent spending on fixed costs. Sales volume,
on the other hand, was adversely affected by
price increase implemented in early-2014 and
further aggravated by market uncertainties
brought about by the country’s evolving
anti‑alcohol regulations.
Domestic volumes in Vietnam posted
double‑digit growth, with higher sales
of San Mig Light driven by market-wide
promotions while W1nBia expansion was
supported by trade incentives. However, total
production volume and operating income
were pulled down due to lower exports as a
result of the on-going political crisis in some of
its markets.
Total export volume of San Miguel brands
rose in 2014 driven by double-digit expansion
in UAE, Taiwan, South Korea, Qatar, Bahrain
and the US as well as increases in the new
markets of Australia and Africa. The launch of
Cerveza Negra Draught in Korea and Taiwan
also boosted volumes for the year. However,
the phasing out of a private label brand
pulled total export volumes down. Despite the
shortfall in total export volumes, operating
income grew double-digit due to improved
margins as well as lower cost-to-produce as a
result of its regional sourcing strategy.
AGGRESSIVE EXPANSION
IN THE 1990s
Quick to realize the worldwide potential of its products,
San Miguel expanded its beer business from a single market in
the Philippines and began exporting beer to different parts of
Asia, particularly China and Hong Kong, even before San Miguel
turned 20 years old.
San Miguel’s bold and pioneering efforts in 1948 saw the rise of
its first offshore brewery in Hong Kong as the British territory
reeled from the ravages of World War II. In a matter of years,
San Miguel managed to endear Pale Pilsen to locals that they
considered it as their local brew.
Exports would soon expand to areas as diverse as Japan,
Australia, Malaysia, Singapore and Saudi Arabia. Later on,
San Miguel realized it could better service the demand for its
beers by putting up international facilities at certain locations.
In 1987, San Miguel began brewing in Nepal through a licensing
agreement with a major local brewer there. Three years later,
San Miguel embarked on an aggressive internalization strategy
just as the company turned 100.
San Miguel Brewing International Ltd. was established in 1991
to capitalize on the rapidly improving economies and thriving
beer markets in Asia. Joint ventures were forged and breweries
set up in China, Indonesia, and Vietnam, while a sales office in
Taiwan was established to tap its growing draught beer market.
San Miguel sealed its dominant footprint in the Southeast Asian
market with the acquisition of a brewery in Thailand in 2004
and creation of a dedicated sales organization in Cambodia.
Meanwhile, Exports operation increasingly became a major
growth driver of SMB’s international business. The company’s
various beer products are now made available in over
40 countries and territories worldwide, having Malaysia, Korea,
Singapore, Japan, US, UAE and selected African countries as
some of its major export destinations.
2014 ANNUAL REPORT
The bold and authentic taste of
San Miguel Pale Pilsen found a place
in the hearts and minds of Filipinos.
Its unique heritage is representative
of a friendship between the Filipino
drinker and his beer that has lasted
over a hundred years.
The Filipinos’ love affair with
Pale Pilsen began in 1890 when
the beer was first brewed in
Manila. After years of improving
the formula, the brew’s distinct
pale golden lager earned the
reputation of being the “Pride of the Pacific” in the 1895
regional exposition in Manila. Since then, Pale Pilsen
garnered various accolades, including the prestigious
Monde Selection International.
Pale Pilsen was not an overnight success, as it gained
competition throughout its formative years. Some produced
packaging similar to the Pale Pilsen, while others tried to
imitate the brew’s formula.
Pale Pilsen’s stature as the flagship brand is the amber-colored
steinie bottle which makes Pale Pilsen one of the most
recognizable brands in the Philippines. Though the exact
date when the steinie was introduced to the market is still
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being ascertained, advertisements in
1938‑1939 showed that the new bottle
was first sold in the market during
those years.
No matter how other beers tried to
put up a fight, Pale Pilsen’s taste and
high quality prevailed over rival beers.
One by one, competition folded up
as the brand’s strength continued to
grow through the years.
One of the aspects where
San Miguel Pale Pilsen made its mark
into society’s consciousness is its advertisements. Screen icons
Paraluman and Ric Rodrigo are among the first stars to grace
the ads of San Miguel Brewery Inc.
San Miguel Pale Pilsen bottles can also be seen in movies and
television shows from time to time, especially when the scene
calls for a bar or a neighborhood tagayan. While some shows
tend to wrap a piece of tissue around the label, the neck of
Pale Pilsen’s bottle gives away the brand of the beer the actors
are holding.
Indeed, Pale Pilsen is truly a satisfying beer that has a distinct
aroma and full flavor. Its smooth and rich taste reminds
drinkers why this classic brew is the standard of beers.
2014 ANNUAL REPORT
CORPORATE
SOCIAL
RESPONSIBILITY
As communities move forward, long-standing
partnerships with SMB shows value of building
trust among people.
The strength of San Miguel Brewery Inc. comes
from the people who make the company.
Collaborating with our stakeholders in making our
partner communities a better place has been the
guiding principle of our various corporate social
responsibility initiatives.
More than improving the lives and livelihood of our
stakeholders, SMB always seeks to be a responsible
pillar of the community. In many ways, the
company is an anchor which keeps the ship where
it is regardless of how strong the tides are.
We recognize that our products touch the lives of
people from different walks of life. As such, our
CSR programs are crafted to have the most impact
on our stakeholders so they are able to flourish in
their communities.
Of all the programs we support and implement,
we prioritize our resources into initiatives involving
the environment. SMB’s Buhayin ang Kalikasan
flagship program is making headway into
rejuvenating key areas where forest cover is fast
thinning and water supply is slowly dwindling.
We credit the continuing success of the program
with our partners from the government and the
communities. The government assists SMB by
identifying critical areas where our support can
help make the most impact. The communities
on the other hand ensure that the trees live to its
fullest potential by keeping and maintaining the
target areas.
Apart from our environmental thrust, SMB uplifts
the lives of our partner communities through
a combination of projects that forms part of
the company’s social development framework.
Implementing simultaneous projects in the sectors
of education, livelihood, and health, the entire
program equips beneficiaries with the necessary
knowledge and skills to improve their way of life.
Our support comes in different forms depending
on the needs of our partner communities. As we
respond during calamities by providing immediate
relief assistance, we also strive to go beyond the
goods by assessing and implementing projects in
the long-term to ensure that the beneficiaries are
able to sustain their lives on their own.
It is through our partnership forged by trust and
time that SMB and its stakeholders work together
harmoniously moving forward in the next years.
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SAN MIGUEL BREWERY INC.
Daughter of the Sea
She was silent as she struggled
to tie the outrigger of her banca,
a small fishing boat that would
soon be hers.
Remedios Enero, or Nang Remy,
was the only woman in the group
of fisher folk that arrived in
San Remegio, Cebu to receive
the fishing boats donated by
SMB. The program, anchored
on stewardship, entrusted boats
to families affected by Super
Typhoon Yolanda so that they
can start again providing for
their families.
After Yolanda’s fury,
Nang Remy’s house had been
badly damaged and her family’s
fishing boat was shattered by the
strong waves. Left nothing but hope, she walked along
the shore to pick up debris that could still be sold. She
would often look out to the sea—an undeniable longing
to go back to her livelihood.
At 58, Nang Remy displays the strength of a
20-year‑old. At dawn, she goes out to dive for shells
when the sea is nothing but a black rolling mass. She
can hold her breath long enough to dig the shells on
the seabed, sometimes staying underwater even longer
when she has to.
“I would swim to the sea at three until six in the
morning. I would dive to get some shellfish. Sometimes,
I get a lot and able to take home P500. On other days,
I earn only P100. The buyers would always ask for a
bargain and I would just agree just to get money for
food,” Nang Remy shared.
Asked why she chose this livelihood, she said: “The sea
is my friend. Since I was a child, this has already been
our livelihood. My father would bring me to our small
fishpond to help him. When I got married, my husband
and I also bought a fishpond but it got destroyed by a
strong storm.”
Nang Remy has always believed in rising above the tide.
“We should not allow ourselves to weaken. We have to
strive as much as we can,” she said.
Just celebrated her birthday that month, Nang Remy
said the new banca from SMB is now her most prized
gift. “It is a good program. Aside from giving us
livelihood, we are also given a chance to take care of
the sea.”
With her new fishing boat and tools, Nang Remy can go back to
what she does best: fishing in the deep sea. SMB donated boats
to a community in northern Cebu, which had been battered by
Super Typhoon Yolanda in 2013.
Nang Remy got even more surprised when she
discovered that her banca goes with a generator set
to power her boat, and some fishing implements she
could use.
Complete wellness of
communities
Carmen Cahegas looked at her toes. She cuts her nails
straight now, following doctor’s orders to be careful
with nail-clipping as she may wound her feet. Nang
Carmen, a diabetic, is one of the 68 patients now
enjoying the services of SMB’s community clinic in
Mandaue City, which opened in 2013.
When she first learned of the services being offered by
the clinic, she thought it was just one of those medical
missions—a temporary, day-long initiative by big
companies that they never see again.
“I worked as a seamstress,” she said in Cebuano, “but
because I could hardly see my work, I had to stop.
I thought it was only because I was aging,” she said.
“Then in 2008 I had a mild stroke. I was walking and
I suddenly got weak. I was rushed to the hospital and
it was after that episode I learned I had diabetes,”
she recalled.
2014 ANNUAL REPORT
The community clinic caters to indigent patients of
SMB’s host community Barangay Tipolo in Cebu, and
other nearby villages where Nang Carmen is from.
SMB has three other community clinics in Valenzuela
City, San Fernando City in Pampanga, and Sta. Cruz
in Davao del Sur. A fifth clinic in Bacolod City is in the
pipeline. Identified beneficiaries get free consultations
and medicines for diabetes and hypertension, among
other illnesses.
In February 2014, the community clinic marked its first
year anniversary with a lecture on diabetes by resident
physicians and representatives from the National
Nutrition Council. They talked about proper nutrition
for people with diabetes.
“I am glad to note that my patients have shown
improved health. My greatest reward is seeing
them improve every day,” resident physician
Dr. Joselito Te said.
Leonora Saplad, a diabetic for almost 20 years, used to
struggle with her medication and periodic visits to the
doctor. She and her husband rely on odd jobs to support
their family. Sometimes, she has to forgo buying her
medicines so she could buy food for the family.
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“Before, I thought it was additional expense for us,”
Leonora said of laboratory tests which Dr. Te strictly
requires of his patients. “I am very happy with our
doctor because he is very concerned. We have seen how
we have progressed.”
Like Leonora, Lydia Tanguan said her family’s needs
also come first over the medicines of her husband
Mario, a stroke survivor. As the breadwinner, Mario
drives a cab to support Lydia and their four children.
She helps her husband by taking side jobs, doing
manicures and pedicures to augment family income.
“We cannot regularly buy his medications,” said Lydia,
who came to the clinic’s anniversary lecture. “So when
SMB gave a clinic to our barangay to support indigent
families like us, it was an answered prayer.”
“We are so happy with this program of San Miguel,”
Nang Carmen said. “We cannot support regularly our
medication on our own. But because of this program,
our health is cared for.”
In February 2014, Mandaue Brewery celebrated the first year anniversary of the community clinic by holding a lecture
on diabetes management. Resident physician Dr. Joselito Te discussed on how to take care of a diabetic patient at home.
Patients and SMB employees shared stories on how the community clinic made an impact in their lives.
18
SAN MIGUEL BREWERY INC.
HONG KONG
Advocating against hunger
Taiwanese rock legend Wu Bai and China Blue
headlined the BeerFest, and they were joined by
the biggest names in the Hong Kong rock scene like
Sugar Club, Kolor and Red Noon.
When all of the shouting and thumping were over,
employees gathered HK$11,100 from the event.
They picked Food Angel as their charity—a food
rescue and food assistance program launched by
Bo Charity Foundation.
With hunger a growing issue in Hong Kong, the
Food Angel program tries to address the problem by
“rescuing edible surplus food from different sectors of
the food industry that would otherwise be eventually
disposed of.”
Employees of SMB Hong Kong (SMBHK) took on
the challenge of working as beer ambassadors at the
much‑awaited San Miguel BeerFest and donated
HK$100 to charity for each of the staff member’s shift.
The recovered food would undergo strict food safety
protocols before it is being prepared into nutritious
hot meals, which are served to underprivileged
communities in the territory.
Each year, crowds of tourists, locals, and athletes party
at the Victoria Harbor and celebrate with overflowing
San Miguel Beer, food, dragon boat-themed activities,
and the best music lineup.
As of March last year, Food Angel recovered
nearly 500 tons of food, which they turned
into over 800,000 hot meal boxes and nearly
150,000 nonperishable food packs.
INDONESIA
Taking care of host communities
Three villages near the facilities are among the
communities who benefit from the annual medical
mission. These villages are in need of medical attention
as about three-fourths of the population is mired in
poverty.
Last year, some 600 residents underwent health
screening to assess their wellness and were provided
medicines to address minor concerns such as colds,
cough, hypertension, or skin diseases.
PT Delta (PTD), our subsidiary in Indonesia,
commits itself to the improvement of the well-being
of its neighboring communities surrounding its
manufacturing facility. To do so, it conducts an annual
medical mission, designed to assess and address
pressing medical problems of people in the different
communities.
For serious ailments discovered during the medical
mission, patients are immediately asked to seek
consultation with specialists to better assess their
condition and provide treatment.
Milk is also provided to over 320 children during the
medical mission.
2014 ANNUAL REPORT
BOARD OF
DIRECTORS
Ramon S. Ang
Chairman
Roberto N. Huang
President
Ferdinand K. Constantino
Keisuke Nishimura
Alonzo Q. Ancheta
Independent Director
Carmelo L. Santiago
Independent Director
Carlos Antonio M. Berba
Virgilio S. Jacinto
Teruyuki Daino
Takashi Hayashi
Toshiya Miyoshi*
* replaced Hajime Nakajima on March 27, 2015
19
20
SAN MIGUEL BREWERY INC.
Ramon S. Ang, 61, Filipino, has served as Chairman
of the Company since July 26, 2007 and is the
Chairman of the Company’s Executive Committee. He
also holds, among others, the following positions: Vice
Chairman, President and Chief Operating Officer of
San Miguel Corporation (“SMC”); Director, President
and Chief Executive Officer of Petron Corporation
(“Petron”) and Top Frontier Investment Holdings,
Inc. (“Top Frontier”); Chairman and Chief Executive
Officer of SMC Global Power Holdings Corp. (“SMC
Power”); Chairman of Sea Refinery Corporation, Petron
Malaysia Refining & Marketing Berhad (Malaysia), San
Miguel Foods, Inc. (“SMFI”), San Miguel Yamamura
Packaging Corporation (“SMYPC”), Anchor Insurance
Brokerage Corporation (“AIBC”), San Miguel Brewery
Hong Kong Limited (“SMBHK”) (Hong Kong) and San
Miguel Properties, Inc.; and Vice Chairman of Ginebra
San Miguel, Inc. (“GSMI”) and San Miguel Pure Foods
Company, Inc. (“SMPFC”). He is also Chairman of
Liberty Telecoms Holdings Inc., Philippine Diamond
Hotel & Resort, Inc., Philippine Oriental Realty
Development, Inc., and Atea Tierra Corporation. Mr.
Ang has held directorships in various subsidiaries of
SMC during the last five (5) years and was previously
the Company’s President (2007- 2009). He was also
a director/officer in other publicly listed companies
outside of the San Miguel Group in the last three (3)
years. Mr. Ang holds a Bachelor’s Degree in Mechanical
Engineering from Far Eastern University.
Roberto N. Huang, 66, Filipino, has served as
Director since October 8, 2007 and President of the
Company since April 30, 2009. He is also a Member
of the Company’s Executive Committee; Director of
San Miguel Brewing International Limited (“SMBIL”)
and SMBHK; and Chairman and President of Iconic
Beverages, Inc. (“IBI”), Brewery Properties Inc. (“BPI”)
and Brewery Landholdings, Inc. (“BLI”). He also served
as General Manager of the Company (2007-2009).
Mr. Huang holds a Bachelor’s Degree in Mechanical
Engineering from Mapua Institute of Technology
and completed academic requirements for a Master’s
Degree in Business Administration from De La
Salle University.
Ferdinand K. Constantino, 63, Filipino, has
served as Director of the Company since July 26,
2007 and is the Chairman of the Company’s Executive
Compensation Committee and a Member of its Audit
Committee. He also holds, among others, the following
positions: Director, Senior Vice President, Chief
Finance Officer and Treasurer of SMC; President of
AIBC; Director and Vice Chairman of SMC Power; and
Director of SMYPC, Top Frontier, GSMI and SMFI. He
is also a former Chief Finance Officer and Treasurer of
the Company (2007-2009). Mr. Constantino has held
directorships in various subsidiaries of SMC during
the last five (5) years and was also a director in other
publicly listed companies outside of the San Miguel
Group in the last three (3) years. Mr. Constantino
holds a Bachelor’s Degree in Economics from the
University of the Philippines and completed academic
requirements for a Master’s Degree in Economics from
the University of the Philippines.
Keisuke Nishimura, 58, Japanese, has served as
Director of the Company since April 30, 2009. He is
the Representative Director of the Board and Senior
Executive Officer of Kirin Holdings Company, Limited
(“Kirin”). He was previously the Director of China
Resources Kirin Beverages (Greater China) Company,
Limited; Executive Officer and General Manager,
Strategy Planning Department of Kirin; the Company’s
Executive Vice President (2009-2011); and Director
of SMBHK (2010-2011) and SMBIL (2010-2011). Mr.
Nishimura holds a Bachelor’s Degree in Business from
Yokohoma National University and a Master’s Degree
in Business from the University of Washington.
Carmelo L. Santiago, 72, Filipino, has served as
Independent Director of the Company since February
25, 2010. He was also an Independent Director of the
Company from October 8, 2007 to April 30, 2009. He
is the Chairman of the Company’s Audit Committee
and a Member of its Executive Committee, Executive
Compensation Committee and Governance and
Nomination Committee. He is currently an Independent
Director of SMPFC and Liberty Telecoms Holdings Inc.;
an Independent Non-executive Director of SMBHK;
and Director of Terbo Concept, Inc. He was a former
independent director of SMC (2008-2013), GSMI
(2010-2012), and AIBC. Mr. Santiago is the founder
and owner of several branches of Melo’s Restaurant
and founder of Wagyu Restaurant. Mr. Santiago holds
a Bachelor’s Degree in Business Administration from
University of the East.
2014 ANNUAL REPORT
Alonzo Q. Ancheta, 82, Filipino, has served as an
Independent Director of the Company since April
30, 2009 and is the Chairman of the Company’s
Governance and Nomination Committee and a Member
of its Audit Committee. Atty. Ancheta is a Director
of Philippine Tobacco Flue-Curing and Redrying
Corporation; President of Zobella & Co. (A.Q. Ancheta
and Partners), Ogilvy & Mather (Philippines), Inc.
and Growe Investments Ltd.; Member of the Board of
Trustees and Corporate Secretary of St. Luke’s Medical
Center; Council Adviser of the Intellectual Property
Association of the Philippines; and Philippine National
Committee member and Vice Chair of the ASEAN Law
Association. He was the Senior Vice President (20002006) and President (2006-2009) of the Asian Patent
Attorneys Association. Atty. Ancheta holds a Bachelor
of Arts Degree and Bachelor of Laws Degree from the
University of Manila.
Carlos Antonio M. Berba, 50, Filipino, has served
as Director of the Company since August 10, 2010.
He is the Managing Director of SMBIL since January
1, 2008. He is also currently Deputy Chairman of
SMBHK, a Commissioner of PT Delta Djarkarta Tbk
(Indonesia) (“PTD”); and Chairman/Director of other
subsidiaries of SMBIL. Mr. Berba holds a Bachelor’s
Degree in Electrical Engineering from the University
of the Philippines, a Master’s Degree in Japanese
Business Studies from the Japan America Institute
of Management Science & Chaminade University
of Honolulu, and a Master’s Degree in Business
Administration from the Wharton School, University of
Pennsylvania.
Virgilio S. Jacinto, 58, Filipino, has served as
Director of the Company since October 14, 2010 and is
a Member of the Audit Committee and the Governance
and Nomination Committee. He is the Corporate
Secretary, Compliance Officer, Senior Vice-President
and General Counsel of SMC; Director of Petron;
Corporate Secretary and Compliance Officer of Top
Frontier and GSMI. He was formerly the Vice President
and First Deputy General Counsel of SMC (2006-2010).
He was Director and Corporate Secretary of United
Coconut Planters Bank; Partner at Villareal Law Offices
and Associate at SyCip Salazar Feliciano & Hernandez
Law Office. Atty. Jacinto is an associate professor at
the University of the Philippines College of Law. He
has held various directorships in various subsidiaries
of SMC in the last five (5) years. Atty. Jacinto holds a
Bachelor’s Degree in Philosophy and Bachelor of Laws
Degree from the University of the Philippines and a
Master’s Degree in Law from Harvard University.
21
Teruyuki Daino, 55, Japanese, has served as
Director of the Company since April 12, 2011 and as
Executive Vice President since October 11, 2011. He is
a member of the Executive Committee and Executive
Compensation Committee; and a Director of SMBHK,
SMBIL, IBI, BPI, BLI, San Miguel Beer (Thailand)
Limited (“SMBTL”) and San Miguel Holdings
(Thailand) Ltd. He was previously the Executive
Financial Advisor of the Company (April-October
2011) and served in the Kirin group of companies in
various capacities. Mr. Daino holds a Bachelor’s Degree
in Economics from Hitotsubashi University and a
Master’s Degree in Business Administration from the
Massachusetts Institute of Technology.
Takashi Hayashi, 48, Japanese, has served as
Director of the Company and Executive Financial
Advisor since May 27, 2014. He is a member of the
Executive Committee and Audit Committee; and a
Director of SMBHK, SMBIL and SMBTL. He also served
in the Kirin group of companies in various capacities.
Mr. Hayashi graduated from Keio University with a
Bachelor’s Degree in Economics and is a Chartered
Member of the Securities Analysts Association of Japan.
Toshiya Miyoshi*, 56, Japanese, has served as
Director of the Company since March 27, 2015. He is
currently the Director and Senior Executive Officer of
Kirin, and Senior Executive Officer of Kirin Company,
Ltd. He was the Senior Executive Officer, Director of
Group Personnel and General Affairs Department of
Kirin and Senior Executive Officer, General Manager
of Personnel Department of Kirin Company, Ltd.
He also served the Kirin group in various capacities.
Mr. Miyoshi holds a Bachelor’s degree in Commerce
from Waseda University, Japan.
* replaced Hajime Nakajima on March 27, 2015
22
SAN MIGUEL BREWERY INC.
CORPORATE
GOVERNANCE
San Miguel Brewery Inc. recognizes the importance
of good governance in generating and sustaining
shareholder value and safeguarding shareholders’
rights and interests. It remains committed to
conducting its business affairs in a fair and
transparent manner and in maintaining the highest
ethical standards in all its business dealings.
The corporate governance practices observed by the
Company are described in this section.
SHAREHOLDER AND
STAKEHOLDER RELATIONS
The Company adheres to corporate governance
practices which promote shareholder and
stakeholder rights in order to establish long-term
and mutually-beneficial relationships.
Voting and Shareholder Meeting
Each share in the name of the shareholder entitles
such shareholder to one vote which may be exercised
in person or by proxy at shareholders’ meetings,
including the Annual Stockholders’ Meeting (ASM).
The agenda, date, time and place of the ASM
meeting, and the deadlines for the submission and
validation of proxies are disclosed more than one
month prior to the ASM. In 2014, the Definitive
Information Statement and Notices of the 2014 ASM
were sent to the stockholders on April 28, 2014.
Shareholders have the right to elect, remove and
replace directors as well as vote on certain corporate
acts in accordance with the Corporation Code.
Shareholders vote viva voce, unless a motion to
cast votes by ballot is made and duly seconded, and
approved by the majority of the shareholders present
or represented at the meeting as the method of
voting.
Information and Investor Relations
The Company keeps the investing community
and its stakeholders informed of its financials and
performance, as well as leadership and governance,
through timely disclosures, announcements and
periodic reports filed with the Securities and
Exchange Commission (SEC) and Philippine
Dealing & Exchange Corp. (PDEx), regular quarterly
briefings, ASMs, investor conferences, website,
emails and telephone calls. The Company, through
the Investor Relations of the San Miguel Group
of Companies, also holds regular briefings and
meetings with investment and financial analysts.
Dividends
Under the dividend policy of the Company, common
shareholders will receive annual cash dividends
based on prior period’s recurring net income at such
amount to be determined by the Board of Directors
after taking into consideration the implementation of
business plans, debt service requirements, operating
expenses, budgets, funding for new investments,
acquisitions, appropriate reserves and working
capital. The Company paid out cash dividends of
P0.56 per share in 2014.
Pre-emptive rights
Under the Company’s amended articles of
incorporation, shareholders may not subscribe to all
issues of shares of the Company.
Suppliers, Creditors and Customers
The Company recognizes the importance of its
suppliers, creditors and customers in the creation
and growth of value, stability and long-term
competitiveness of its business. The Company
honors its obligations to its suppliers and creditors,
including timely payment in accordance with
2014 ANNUAL REPORT
agreements. The Company is committed to
delivering products and services which delight and
inspire loyalty in its customers.
DISCLOSURE AND TRANSPARENCY
San Miguel Brewery Inc. observes a high level of
corporate disclosure and transparency regarding the
Company’s financial condition and state of corporate
governance on a regular basis.
Ownership Structure
The top 20 common shareholders of the Company,
including the shareholdings of certain record and
beneficial owners who own more than 5% of its
capital stock, its directors and key officers, are
disclosed annually in its Definitive Information
Statement distributed to shareholders prior to the
ASM.
Financial Reporting
Regular updates on operating and financial
information are provided to the investing community
and stakeholders through adequate and timely
disclosures filed with the SEC and the PDEx.
Full-year audited and quarterly interim financial
statements are disclosed and submitted to the SEC
and PDEx in accordance with prescribed rules.
These financial statements conform to the Philippine
Accounting Standards and Philippine Financial
Reporting Standards, which are all in compliance
with the International Accounting Standards. The
financial results are presented to financial and
investment analysts through a quarterly analysts’
briefing. The full year results are also distributed to
the shareholders prior to the ASM.
In addition to compliance with structural
reportorial requirements, the Company discloses,
in a timely manner, market-sensitive information,
such as dividend declarations, joint ventures and
acquisitions, sale and divestment of significant
assets that affect the share price performance.
These disclosures and other up-to-date and relevant
information on the Company may be found at its
website, www.sanmiguelbrewery.com.ph.
23
Annual Corporate Governance Report
The Company’s Annual Corporate Governance
Report (ACGR) contains comprehensive
information, among others, on the Company’s board
composition, disclosure policies, policies on code of
conduct and ethics, related party transactions, risk
management system, remuneration process, policies
relating to shareholder and stakeholder rights, and
investor relations programs. It is posted on the
Company’s website and is updated in accordance
with the structured reports and letters of advice
submitted to the SEC from time to time.
The SEC has considered the Company to be a listed
company for purposes of compliance with the SEC
ACGR rules, as the Company’s bonds are listed on
the PDEx. The SEC required the Company to comply
with ACGR guidelines for as long as its bond issues
are listed in the PDEx.
ACCOUNTABILITY AND AUDIT
The Audit Committee provides oversight to external
and internal auditors.
External Auditor
The accounting firm of R.G. Manabat & Co. served
as the Company’s external auditors for the fiscal
years 2014 and 2013. The external auditor is
selected and appointed by the shareholders upon the
recommendation of the Board after consultations
with the Audit Committee, and rotated every five
years or earlier in accordance with SEC regulations.
Audit Fees amounting to P6.68 million in 2014 and
2013 and Other Fees amounting to P3.0 million
in 2014 were paid by the Company to the external
auditor. Other Fees were for services rendered in
connection with the Company’s issuance of its P15
billion fixed rate bonds.
The external auditor facilitates an environment
of good corporate governance as reflected in the
Company’s financial records and reports, through
the conduct of an independent annual audit on the
Company’s business and rendition of an objective
opinion on the reasonableness of such records and
24
SAN MIGUEL BREWERY INC.
reports. They also attend the ASM and respond to
appropriate questions during the meeting. They also
have the opportunity to make a statement if they
so desire. In instances when the external auditor
suspects fraud or error during its conduct of audit,
they are required to disclose and express their
findings on the matter.
Internal Audit
Internal audit is carried out by an independent
internal audit group which helps the organization
accomplish its objectives by bringing a systematic,
disciplined approach to evaluate and improve the
effectiveness of risk management, control and
governance processes. The internal audit group of
the Company functionally reports directly to the
Audit Committee.
The internal audit group of the Company is
responsible for identifying and evaluating
significant risk exposures and contributes to
the improvement of risk management and
control systems by assessing the adequacy and
effectiveness of controls covering the organization’s
governance, operations and information systems.
By evaluating their effectiveness and efficiency, and
by promoting continuous improvement, the group
maintains effective controls of their responsibilities
and functions.
BOARD OF DIRECTORS
The Company’s Board of Directors is at the core of
the Company’s corporate governance framework and
practice. It is the Board’s responsibility to foster the
long-term success of the Company and secure its
sustained competitiveness in a manner consistent
with its fiduciary responsibility, exercised in the best
interest of the Company, its shareholders, and other
stakeholders. It exercises oversight of the business,
affairs and integrity of the Company; and determines
the Company’s mission, long-term strategy and
objectives.
The Board is likewise responsible for the review and
approval of the Company’s financial statements.
The directors consider that the Company’s financial
statements have been prepared in conformity with
the Philippine Financial Reporting Standards and
reflect amounts that are based on the best estimates
and reasonable, informed and prudent judgment
of management and the Board with an appropriate
consideration to materiality.
Composition
The Board consists of eleven members, each elected
by the stockholders with voting rights during the
ASM. The Board members hold office for one year
until successors are duly elected and qualified
in accordance with the amended by-laws of the
Company, its Amended Manual on Corporate
Governance (Manual) and applicable rules and
regulations. The broad range of skills, expertise and
experience of the directors in the fields of business,
finance, accounting and law ensure comprehensive
evaluation of, and sound judgment on, matters
relevant to the Company’s businesses and related
interests.
Two of the directors, Atty. Alonzo Q. Ancheta and
Mr. Carmelo L. Santiago sit as independent and
non-executive directors. The Company defines
an independent director as a director who, apart
from his fees and shareholdings, has no business
or relationship with the Company which could, or
could reasonably be perceived to, materially interfere
with the exercise of his independent judgment in
carrying out his responsibilities as a director. The
independent directors are nominated and elected
in accordance with the rules of the SEC. Pursuant
to such rules, the independent directors issue a
certification confirming their independence at the
time of their election and/or re-election.
The Chairman and the President
The Chairman of the Board is Mr. Ramon S. Ang, a
non-executive director, while Mr. Roberto N. Huang
holds the position of President. These positions are
held by separate individuals with their respective
roles clearly defined to ensure independence,
accountability and responsibility in the discharge of
their duties.
26
SAN MIGUEL BREWERY INC.
and such other powers as may be specifically limited
by the Board or by law.
The Executive Committee held one meeting
in 2014 to approve the alignment of certain
negative covenants of its outstanding bonds to
allow the Company to engage in the business of
manufacture, distribution, and sale of all kinds of
beverage products.
Governance and Nomination Committee
The Governance and Nomination Committee is
currently composed of three voting directors – Atty.
Alonzo Q. Ancheta, an independent director and the
Chairman of the Committee, Atty. Virgilio S. Jacinto
and Mr. Carmelo L. Santiago (also an independent
director), and two non-voting members – Ms.
Mercy Marie J. L. Amador, the Company’s Chief
Finance Officer and Treasurer, and Ms. Lynn B.
Santos, the Company’s Assistant Vice President,
Business Planning and Quality and Productivity
Management.
The Governance and Nomination Committee
is responsible for making recommendations to
the Board of Directors on matters relating to the
directors’ appointment, election and succession,
with the view of appointing individuals to the
Board of Directors with the relevant experience
and capabilities to maintain and improve the
competitiveness of the Company and increase
its value. The Committee screens and shortlists
candidates for Board directorship in accordance with
the qualifications and disqualifications for directors
set out in the Company’s Manual, the amended
articles of incorporation and amended by-laws of the
Company and applicable laws, rules and regulations.
The Governance and Nomination Committee also
assists the Board in its oversight responsibilities
in the development and implementation of the
corporate governance principles, policies and
systems of the Company, and in the establishment
and implementation of mechanisms for the
assessment and improvement of the performance
of the Board of Directors, its members and the
Board Committees, and evaluation of the Company’s
compliance with the Manual.
The Committee held three meetings in 2014 in which
the Committee discussed and deliberated on, among
others, the qualification of the nominees for election
to the Board both to replace existing directors and
for election at the 2014 ASM. The Committee also
approved amendments to the Manual to update the
same with new SEC requirements.
Executive Compensation Committee
Three directors currently comprise the Executive
Compensation Committee: Mr. Ferdinand K.
Constantino, Mr. Teruyuki Daino and Mr. Carmelo
L. Santiago, an independent director. Mr. Ferdinand
K. Constantino is Chairman of the Committee. The
Executive Compensation Committee advises and
assists the Board in the establishment of formal
and transparent policies and practices on directors
and executive remuneration, succession planning,
promotion and career advancement, and provides
oversight over remuneration of directors, senior
management and other key personnel to ensure that
the Company’s compensation scheme fairly and
responsibly reward directors and executives based
on their performance and the performance of the
Company, and remain competitive to attract and
retain directors and officers who are needed to run
the Company successfully.
The Committee held two meetings in 2014 to
review, discuss and endorse for Board approval
Management’s proposed promotions to officership.
Audit Committee
The Audit Committee is currently composed of
five members with two independent directors
as members, Mr. Carmelo L. Santiago, who also
sits as Committee Chairman, and Atty. Alonzo Q.
Ancheta. The other members are Mr. Ferdinand
K. Constantino, Atty. Virgilio S. Jacinto, and Mr.
Takashi Hayashi.
28
SAN MIGUEL BREWERY INC.
MANAGEMENT
Management is primarily responsible for the dayto-day operations and business of the Company.
The annual compensation of the President and the
senior key executives of the Company are set out in
the Definitive Information Statement distributed to
shareholders.
HUMAN RESOURCES
The Company continues to support and dedicate
resources for the training and development of its
human resources. As such, career advancement
and development opportunities are provided by the
Company through numerous training programs and
seminars.
The Company ensures that it provides its employees
with a safe and healthy work environment. The
Company has an in-house clinic at its main office
to take care of the employees’ medical needs. Each
brewery also has its own clinic. It is mandatory
for employees to undergo an annual medical
examination. Further, the Company has also
initiated activities centered on the safety, health and
welfare of its employees.
The Company’s permanent employees also enjoy a
funded, noncontributory retirement plan.
Benefits and privileges accruing to all regular
employees are similarly discussed in the Employee
Handbook. The Employee Handbook, which is
provided to each employee, also contains the policies
and guidelines for the duties and responsibilities of
an employee of San Miguel Brewery Inc.
Through internal newsletters and Company e-mails
all facilitated by the Human Resources and the
Business Affairs and Communications Department
of the Company, employees are updated on material
developments within the organization.
POLICIES
Securities Dealing
The Company has adopted a policy which regulates
the acquisition and disposal of Company shares by
its directors, officers and employees, and the use
and disclosure of material non-public information
by persons who have knowledge or are in possession
thereof.
Whistleblowing Policy
Procedures were also established for the
communication and investigation of concerns
regarding the Company’s accounting, internal
accounting controls, auditing, and financial
reporting matters to the Audit Committee under its
whistleblowing policy.
These policies are available at the Company’s
website.
Code of Conduct
The Company also adopted a Code of Ethics that sets
out the fundamental standards of conduct and values
consistent with the principles of good governance
and business practices that shall guide and define the
actions and decisions of the directors, officers and
employees of the Company.
COMPLIANCE MONITORING
Atty. Rosabel Socorro T. Balan is the Company’s
Compliance Officer. The Compliance Officer is
responsible for monitoring compliance by the
Company with the provisions and requirements of
its Manual and ensuring adherence to corporate
principles and best practices. The Compliance
Officer holds the position of Vice President and has
direct reporting responsibilities to the Chairman of
the Board.
2014 ANNUAL REPORT
OPERATIONS
COMMITTEE
DOMESTIC OPERATIONS
INTERNATIONAL OPERATIONS
Roberto N. Huang
Carlos Antonio M. Berba
Teruyuki Daino
Takeshi Wada
Mercy Marie Jacqueline L. Amador
Hercila M. Reyes
Takashi Hayashi*
Jesus J. Bitanga, Jr.
Minerva Lourdes B. Bibonia
Frederick Gerard S. Martelino
Atty. Rosabel Socorro T. Balan
Ernest John F. Estrera
President
Executive Vice President
VP and Chief Finance Officer and Treasurer
Executive Financial Advisor
SVP and Marketing Manager
VP, General Counsel, Corporate Secretary and
Compliance Officer
Debbie D. Namalata
VP and National Sales Manager
Josefino C. Cruz
Manufacturing Manager
Rebecca S. Flores
AVP and Brewing Technical Group Manager
Rene T. Ceniza
AVP and National Logistics Manager
Enrico E. Reyes
AVP and Human Resources and Business
Affairs and Communications Head
Feliciano M. Madlansacay
AVP and Finance Manager for
Philippine Operations
Rodney Ralph D. Holmes
AVP and Financial Planning and
Analysis Manager
Lynn B. Santos
AVP and Business Planning and Quality and
Productivity Management Manager
Alma Leonora C. Javenia
AVP and Information Systems
Management Manager
Charity Anne A. Chiong
AVP and Business Procurement Group Manager
* replaced Shobu Nishitani in May, 2014
SMBIL Managing Director
SMBIL Executive Vice President
VP and SMBIL Chief Finance Officer
VP and SMBIL International Sales Manager
VP and SMBIL Export Development Manager
VP and SMBIL Marketing Manager
Daniel B. Trajano
AVP and SMBIL Logistics Manager
Daniel T. de Castro
AVP and SMBIL Human Resources Manager
Carmela R. Ortiz
AVP and SMBIL Business Planning Manager
Clifford T. Que
AVP and SMBIL Information Systems
Management Manager
29
30
SAN MIGUEL BREWERY INC.
STATEMENT OF MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
The management of San Miguel Brewery Inc. is responsible for the preparation and fair presentation of the consolidated financial
statements as at December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012, including the
additional components attached therein, in accordance with the prescribed financial reporting framework indicated therein.
This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of the
consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying
appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.
The Board of Directors reviews and approves the consolidated financial statements and submits the same to the stockholders.
R. G. Manabat & Co., the independent auditors appointed by the stockholders, has audited the consolidated financial statements
of the company in accordance with Philippine Standards on Auditing, and in its report to the stockholders has expressed its
opinion on the fairness of presentation upon completion of such audit.
Dated as of March 11, 2015.
Ramon S. Ang
Chairman of the Board
Roberto N. Huang
President
Mercy Marie J. L. Amador
Chief Finance Officer and Treasurer
SMBI FS 2014 C5 6.indd 30
5/15/15 1:51 PM
2014 ANNUAL REPORT
31
REPORT OF THE AUDIT COMMITTEE
The Audit Committee assists the Board of Directors in its corporate governance and oversight responsibilities in relation to financial
reporting, risk management, internal controls and internal and external audit processes and methodologies. In fulfillment of
these responsibilities, the Audit Committee performed the following in 2014:
•
recommended to the Board of Directors the re-appointment of R.G. Manabat & Co. as external auditors of the Company for
2014;
•
reviewed and approved the terms of engagement of the external auditors, including the audit, audit-related and any nonaudit services provided by the external auditors to the Company and the fees for such services, and ensured that the same
did not impair the external auditors’ independence and objectivity;
•
reviewed and approved the scope of the audit and audit programs of the internal and external auditors, and have discussed
the results of their audit processes and their findings and assessment of the Company’s internal controls and financial
reporting systems;
•
reviewed, discussed and recommended for approval of the Board of Directors the Company’s annual and quarterly
consolidated financial statements, and the reports required to be submitted to regulatory agencies in connection with such
consolidated financial statements, to ensure that the information contained in such statements and reports presents a true
and balanced assessment of the Company’s position and condition, and comply with the regulatory requirements of the
Securities and Exchange Commission; and
•
reviewed the effectiveness and sufficiency of the Company’s financial and internal controls, risk management systems,
and control and governance processes, and ensured that, where applicable, necessary measures are taken to address any
concern or issue arising therefrom.
Carmelo L. Santiago
Chairman
SMBI FS 2014 C5 6.indd 31
Ferdinand K. Constantino
Member
Alonzo Q. Ancheta
Member
Virgilio S. Jacinto
Member
Takashi Hayashi
Member
5/15/15 1:51 PM
32
SAN MIGUEL BREWERY INC.
REPORT OF INDEPENDENT AUDITOR
R.G. Manabat & Co.
The KPMG Center, 9/F
6787 Ayala Avenue
Makati City 1226, Metro Manila, Philippines
Telephone +63 (2) 885 7000
Fax
+63 (2) 894 1985
Internet www.kpmg.com.ph
E-Mailph-inquiry@kpmg.com.ph
Branches • Subic • Cebu • Bacolod • Iloilo
The Stockholders and Board of Directors
San Miguel Brewery Inc.
We have audited the accompanying consolidated financial statements of San Miguel Brewery Inc. and Subsidiaries (a subsidiary
of San Miguel Corporation), which comprise the consolidated statements of financial position as at December 31, 2014 and 2013,
and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of
changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2014,
and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with Philippine Financial Reporting Standards, 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
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. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of San Miguel Brewery Inc. and Subsidiaries (a subsidiary of San Miguel Corporation) as at December 31, 2014 and 2013, and its
consolidated financial performance and its consolidated cash flows for each of the three years in the period ended December 31,
2014, in accordance with Philippine Financial Reporting Standards.
R.G. MANABAT & CO.,
ENRICO E. BALUYUT
Partner
CPA License No. 065537
SEC Accreditation No. 1177-A, Group A, valid until April 30, 2015
Tax Identification No. 131-029-752
BIR Accreditation No. 08-001987-26-2014
Issued September 26, 2014; valid until September 25, 2017
PTR No. 4748099MC
Issued January 5, 2015 at Makati City
March 11, 2015
Makati City, Metro Manila
SMBI FS 2014 C5 6.indd 32
5/15/15 1:51 PM
2014 ANNUAL REPORT
33
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
(A Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2014 AND 2013
(In Millions)
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables - net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Investments - net
Property, plant and equipment - net
Investment property - net
Intangible assets - net
Deferred tax assets
Other noncurrent assets - net
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses
Income and other taxes payable
Current maturities of long-term debt
- net of debt issue costs
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current
maturities and debt issue costs
Deferred tax liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
Equity
Equity Attributable to Equity Holders of the Company
Capital stock
Additional paid-in capital
Cumulative translation adjustments
Reserve for retirement plan
Retained earnings
Treasury stock
Non-controlling Interests
Total Equity
Note
2014
2013
6, 31, 32
4, 7, 26, 31, 32
4, 8
9, 31, 32
P9,886
6,005
3,460
1,062
20,413
P14,198
6,352
3,254
938
24,742
10, 31, 32
4, 11
4, 12
4, 13
4, 17
4, 14, 26, 27, 28, 31, 32
60
20,120
1,416
35,998
1,610
8,931
68,135
P88,548
62
20,544
733
36,009
1,909
8,911
68,168
P92,910
15, 26, 31, 32
17
P6,455
2,650
P7,861
2,869
16, 31, 32
9,105
22,386
33,116
16, 31, 32
17
4, 28
37,518
383
3,288
41,189
22,627
17
4,115
26,759
18
15,410
515
(774)
(2,498)
24,164
(1,029)
35,788
2,466
38,254
P88,548
15,410
515
(847)
(2,870)
19,740
(1,029)
30,919
2,116
33,035
P92,910
33
18
2
See Notes to the Consolidated Financial Statements.
SMBI FS 2014 C5 6.indd 33
5/15/15 1:51 PM
34
SAN MIGUEL BREWERY INC.
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
(A Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(In Millions, Except Per Share Data)
SALES
COST OF SALES
Note
2014
2013
2012
26
P79,005
P75,053
P75,580
19, 26
42,794
39,405
38,030
36,211
35,648
37,550
GROSS PROFIT
SELLING AND ADMINISTRATIVE EXPENSES
20
(14,132)
(14,094)
(15,217)
INTEREST EXPENSE AND OTHER FINANCING CHARGES
16, 23
(2,722)
(3,872)
(4,072)
INTEREST INCOME
188
463
-
REVERSALS ON IMPAIRMENT OF NONCURRENT ASSETS - Net
25
-
OTHER INCOME (CHARGES) - Net
24
50
INCOME BEFORE INCOME TAX
(294)
724
1,367
586
19,595
17,851
20,938
6,080
5,330
5,840
NET INCOME
P13,515
P12,521
P15,098
Attributable to:
Equity holders of the Company
Non-controlling interests
P13,029
486
P12,051
470
P14,360
738
P13,515
P12,521
P15,098
P0.85
P0.78
P0.93
INCOME TAX EXPENSE
Basic and Diluted Earnings Per Share
17
29
See Notes to the Consolidated Financial Statements.
SMBI FS 2014 C5 6.indd 34
5/15/15 1:51 PM
2014 ANNUAL REPORT
35
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
(A Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(In Millions)
Note
NET INCOME
2014
2013
2012
P13,515
P12,521
P15,098
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit
or loss
Equity reserve for retirement plan - net of tax
28
Items that will be reclassified to profit or
loss
Gain (loss) on exchange differences on translation of foreign operations
Net loss on available-for-sale financial assets
32
OTHER COMPREHENSIVE INCOME
(LOSS) - Net of Tax
TOTAL COMPREHENSIVE INCOME Net of Tax
Attributable to:
Equity holders of the Company
Non-controlling interests
368
77
(2)
75
443
(674)
(379)
636
(1)
635
(1,021)
(6)
(1,027)
(39)
(1,406)
P13,958
P12,482
P13,692
P13,474
484
P13,958
P12,037
445
P12,482
P13,194
498
P13,692
See Notes to the Consolidated Financial Statements.
SMBI FS 2014 C5 6.indd 35
5/15/15 1:51 PM
SMBI FS 2014 C5 6.indd 36
P515
P15,410
Other comprehensive income (loss)
Net income
Total comprehensive income (loss)
Additions to non-controlling interests
Cash dividends
Forward
As of December 31, 2014
Equity reserve for retirement plan
Gain on exchange differences on
translation of foreign operations
Net loss on available-for-sale financial
assets - net of tax
P515
P15,410
As of January 1, 2014
10
33
32
28
Note
Additional
Paid-in
Capital
Capital
Stock
75
75
75
(P765)
-
-
-
-
(P840)
Translation
Reserve
(P9)
(2)
-
(2)
-
(2)
-
-
(P7)
Fair
Value
Reserve
Cumulative Translation
Adjustments
(P2,498)
372
-
372
-
-
-
372
(P2,870)
Reserve for
Retirement
Plan
P24,164
13,029
(8,605)
13,029
-
-
-
P19,740
Retained
Earnings
Equity Attributable to Equity Holders of the Company
(In Millions)
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
(A Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(P1,029)
-
-
-
-
-
(P1,029)
Treasury
Stock
P35,788
13,474
(8,605)
445
13,029
(2)
75
372
P30,919
Total
P2,466
484
232
(366)
(2)
486
-
2
(4)
P2,116
Noncontrolling
Interests
P38,254
13,958
232
(8,971)
443
13,515
(2)
77
368
P33,035
Total
Equity
36
SAN MIGUEL BREWERY INC.
5/15/15 1:51 PM
SMBI FS 2014 C5 6.indd 37
Forward
As of December 31, 2013
33
P15,410
-
Total comprehensive income (loss)
Redemption of common shares
Cash dividends
P515
-
-
-
(P840)
656
-
656
-
-
656
-
-
-
(P1,496)
P515
-
Translation
Reserve
Additional
Paid-in
Capital
-
P15,410
-
32
28
Other comprehensive income (loss)
Net income
Equity reserve for retirement plan
Gain (loss) on exchange differences
on translation of foreign operations
Net loss on available-for-sale financial
assets - net of tax
As of January 1, 2013
Note
Capital
Stock
(P7)
(1)
-
(1)
-
(1)
-
-
(P6)
Fair
Value
Reserve
Cumulative Translation
Adjustments
(P2,870)
(668)
-
(668)
-
-
-
(668)
(P2,202)
Reserve for
Retirement
Plan
(1)
P19,740
12,050
(8,622)
(1)
12,051
-
-
P16,312
Retained
Earnings
Equity Attributable to Equity Holders of the Company
(P1,029)
(1,029)
-
-
-
-
-
P -
Treasury
Stock
P30,919
12,037
(1,029)
(8,622)
(14)
12,051
(1)
655
(668)
P28,533
Total
P2,116
445
(401)
(25)
470
-
(19)
(6)
P2,072
P33,035
12,482
(1,029)
(9,023)
(39)
12,521
(1)
636
(674)
P30,605
Noncontrolling Total Equity
Interests
2014 ANNUAL REPORT
37
5/15/15 1:51 PM
SMBI FS 2014 C5 6.indd 38
See Notes to the Consolidated Financial Statements.
As of December 31, 2012
P15,410
P515
-
-
Total comprehensive income (loss)
Cash dividends
33
-
-
-
-
Other comprehensive loss
Net income
-
-
-
32
28
P515
P15,410
-
Equity reserve for retirement plan
Loss on exchange differences on
translation of foreign operations
Net loss on available-for-sale
financial assets - net of tax
As of January 1, 2012
Note
Additional
Paid-in
Capital
Capital
Stock
(P1,496)
(823)
-
(823)
-
-
(821)
(2)
(P673)
(P6)
(6)
-
(6)
-
(6)
-
-
P-
Cumulative Translation
Adjustments
Fair
Translation
Value
Reserve
Reserve
(P2,202)
(335)
-
(335)
-
-
-
(335)
(P1,867)
Reserve for
Retirement
Plan
P16,312
14,358
(8,630)
(2)
14,360
-
-
(2)
P10,584
Retained
Earnings
Equity Attributable to Equity Holders of the Company
P -
-
-
-
-
-
P -
Treasury
Stock
P28,533
13,194
(8,630)
(1,166)
14,360
(6)
(821)
(339)
P23,969
Total
P2,072
498
(385)
(240)
738
-
(200)
(40)
P1,959
Noncontrolling
Interests
P30,605
13,692
(9,015)
(1,406)
15,098
(6)
(1,021)
(379)
P25,928
Total
Equity
38
SAN MIGUEL BREWERY INC.
5/15/15 1:51 PM
2014 ANNUAL REPORT
39
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
(A Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(In Millions)
2014
2013
2012
P19,595
P17,851
P20,938
21
23
28
2,979
2,722
632
3,093
3,872
582
2,501
4,072
527
7, 8
162
342
360
25
(188)
(463)
(1,367)
(724)
24
(4)
(77)
4
25,898
25,200
26,311
776
(293)
(134)
(1,508)
(136)
(53)
(148)
266
55
(1,271)
97
353
52
287
(18)
Cash generated from operations
Interest paid
Income taxes paid
Contributions paid
25,073
(2,949)
(5,744)
(923)
23,908
(3,695)
(5,792)
(751)
26,753
(3,773)
(5,709)
(472)
Net cash flows provided by operating activities
15,457
13,670
16,799
Note
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation, amortization and others
Interest expense and other financing charges
Retirement costs
Provision for impairment losses on
receivables, inventories and others
Reversals on impairment of noncurrent
assets - net
Interest income
Loss (gain) on sale of property and
equipment, investment and intangible
assets
Operating income before working capital
changes
Decrease (increase) in:
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Other taxes payable
Forward
SMBI FS 2014 C5 6.indd 39
5/15/15 1:51 PM
40
SAN MIGUEL BREWERY INC.
Note
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property, plant and equipment
Acquisitions of investment property
Proceeds from sale of property and equipment,
investment property and intangible assets
Proceeds from sale of investment
Increase in intangible assets and other
noncurrent assets
Interest received
2014
2013
2012
(P927)
(695)
(P1,022)
(8)
7
140
3
(2,078)
192
(3,424)
472
(3,054)
725
(3,501)
(3,839)
(3,136)
14,851
-
21,078
(22,400)
(365)
232
(6)
(7,884)
(401)
(1,008)
(1,757)
(19,989)
(385)
-
4
(8,606)
(7)
(8,618)
(6)
(8,630)
(16,290)
(17,918)
(9,689)
22
326
(294)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
(4,312)
(7,761)
3,680
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
14,198
21,959
18,279
P9,886
P14,198
P21,959
11
12
-
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings
Payments of:
Short-term borrowings
Long-term borrowings
Dividends paid to non-controlling shareholders
Increase in non-controlling interests
Redemption of common shares
Increase (decrease) in other noncurrent liabilities
Cash dividends paid
33
Net cash flows used in financing activities
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
END OF YEAR
6
(P790)
(25)
-
8
See Notes to the Consolidated Financial Statements.
SMBI FS 2014 C5 6.indd 40
5/15/15 1:51 PM
2014 ANNUAL REPORT
41
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
(A Subsidiary of San Miguel Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Millions, Except Per Share and Number of Shares Data)
1. Reporting Entity
San Miguel Brewery Inc. (SMB or the Company) was incorporated and registered with the Philippine Securities and
Exchange Commission (SEC) on July 26, 2007. The accompanying consolidated financial statements comprise the
financial statements of the Company and its Subsidiaries (collectively referred to as the Group). The Company is a public
company under Section 17.2 of the Securities Regulation Code and its Peso-denominated fixed-rate bonds issued in
2009, 2012 and 2014 are listed on the Philippine Dealing & Exchange Corp. (PDEx).
The Company’s common shares were listed on the Philippine Stock Exchange, Inc. (PSE) on May 12, 2008. The Company
filed a petition for voluntary delisting with the PSE following the PSE’s adoption of the minimum public ownership rule
and denial by SEC of all requests made (including the Company’s request) for the extension of the grace period to comply
with such rule. The petition was approved by the PSE on April 24, 2013 and the Company’s common shares were delisted
effective May 15, 2013 (Notes 16 and 18).
San Miguel Corporation (SMC) is the parent company of the Group. Top Frontier Investment Holdings, Inc. is the ultimate
parent company of the Group.
The Group is primarily engaged in manufacturing, selling and distribution of fermented and malt-based beverages. The
Group is also engaged in acquiring, developing and licensing trademarks and intellectual property rights and in the
management, sale, exchange, lease and holding for investment of real estate of all kinds including buildings and other
structures.
The registered office address of the Company is No. 40 San Miguel Avenue, Mandaluyong City, Philippines.
2. Basis of Preparation
Statement of Compliance
The accompanying consolidated financial statements have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS). PFRS are based on International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB). PFRS consist of PFRS, Philippine Accounting Standards (PAS) and
Philippine Interpretations issued by the Financial Reporting Standards Council (FRSC).
The consolidated financial statements were authorized for issuance by the Board of Directors (BOD) on March 11, 2015.
Basis of Measurement
The consolidated financial statements of the Group have been prepared on a historical cost basis of accounting except
for the following items which are measured on an alternative basis at each reporting date:
Items
Derivative financial instruments
Available-for-sale (AFS) financial assets
Defined benefit retirement liability
Measurement Basis
Fair value
Fair Value
Fair value of the plan assets less the present
value of the defined benefit retirement
obligation
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine peso, which is the Company’s functional currency. All
financial information are rounded off to the nearest million (000,000), unless otherwise indicated.
SMBI FS 2014 C5 6.indd 41
5/15/15 1:51 PM
42
SAN MIGUEL BREWERY INC.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries as follows:
Name of Subsidiary
Iconic Beverages, Inc. (IBI)
San Miguel Brewing International Ltd.
(SMBIL)
Neptunia Corporation Limited (NCL)
San Miguel Company Limited
Proportion of
Ownership Interest
Held by the
Effective Equity
Interest of
the Company *
Place of
Buisiness
Company
Subsidiaries
Philippines
100
-
100
British Virgin Islands
100
-
100
Hong Kong
-
100
100
Hong Kong
-
100
100
-
100
100
-
65.8
65.8
-
100
100
65.8
65.8
-
100
92
65.8
60.5
-
100
60.5
-
93
61.2
-
70
42.8
-
100
100
-
100
100
-
49
49
-
100
49
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
58.3
58.3
40
-
100
40
40
San Miguel Company Limited Taiwan
Taiwan Branch
San Miguel Brewery Hong Kong Hong Kong
Limited (SMBHK)
Ravelin Limited
Hong Kong
Best Investments International, British Virgin Islands
Inc.
Hong Kong Brewery Limited
Hong Kong
San Miguel Shunde Holdings Hong Kong
Limited (SMSH)
San Miguel (Guangdong) People’s Republic of China
Brewery Company Limited
(SMGB)
San Miguel (Guangdong) Limited Hong Kong
(SMGL)
Guangzhou San Miguel People’s Republic of China
Brewery Company Limited (GSMB)
San Miguel (China) Investment People’s Republic of China
Company Limited (SMCIC)
San Miguel (Baoding) Brewery People’s Republic of China
Company Limited (SMBB)
San Miguel Holdings (Thailand) Ltd Thailand
(SMHTL)
San Miguel Beer (Thailand) Thailand
Limited (SMBTL)
San Miguel Marketing (Thailand)
Thailand
Limited (SMMTL)
Dragon Island Investments British Virgin Islands
Limited (DIIL)
San Miguel (Vietnam) Limited Bermuda
(SMVL)
San Miguel Brewery Vietnam Republic of Vietnam
Limited (SMBVL)
San Miguel Malaysia Pte. Ltd
Malaysia
PT. Delta Djakarta Tbk. and Republic of Indonesia
Subsidiary (PTD)
Brewery Properties Inc. (BPI)
Philippines
Brewery Landholdings, Inc. (BLI)
Philippines
Line of
Business
Licensing
trademarks
Manufacture and
sale of beer
Investment
holding
Investment
holding
Beer distribution
Manufacture and
sale of beer
Property holding
Investment
holding
Dormant
Investment
holding
Manufacture and
sale of beer
Investment
holding
Beer distribution
Investment
holding
Manufacture and
sale of beer
Investment
holding
Manufacture and
sale of beer
Trading
Investment
holding
Investment
holding
Manufacture and
sale of beer
Investment
holding
Manufacture and
sale of beer
Property holding
Property holding
* Represents the ultimate equity interest in the subsidiary at the level of the Company after taking into consideration the dilutive effects of the non-controlling interests at
the various intervening levels of ownership.
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There are no changes to the Group’s ownership structure as of December 31, 2014 and 2013 except for the merger of San
Miguel (Baoding) Utility Limited in 2014 with SMBB. SMBB is the surviving entity.
A subsidiary is an entity controlled by the Group. The Group controls an entity if and only if, the Group is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including the contractual arrangement with
the other vote holders of the investee, rights arising from other contractual arrangements and the Group’s voting rights
and potential voting rights.
The financial statements of the subsidiaries are included in the consolidated financial statements from the date when the
Group obtains control and continues to be consolidated until the date when such control ceases.
The subsidiaries’ financial statements are prepared for the same reporting period as the Company, using uniform
accounting policies for like transactions and other events in similar circumstances. Intergroup balances and transactions,
including intergroup unrealized profits and losses, are eliminated in preparing the consolidated financial statements.
Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented
in the consolidated statements of income, consolidated statements of comprehensive income, and within equity in the
consolidated statements of financial position but separate from the Group’s equity attributable to equity holders of the
Company.
Non-controlling interests represent the interests not held by the Group in PTD, SMHTL, SMBHK group and BPI group in
2014 and 2013.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If
the Group loses control over a subsidiary, the Group: (i) derecognizes the assets (including goodwill) and liabilities of the
subsidiary, the carrying amount of any non-controlling interests and the cumulative transaction differences recorded
in equity; (ii) recognizes the fair value of the consideration received, the fair value of any investment retained and any
surplus or deficit in profit or loss; and, (iii) reclassify the Company’s share of components previously recognized in other
comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had
directly disposed of the related assets or liabilities.
When the Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related
non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any
interest retained in the former subsidiary is measured at fair value when control is lost.
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial
statements, except for the changes in accounting policies as explained below.
Adoption of New and Amended Standards and Interpretation
The FRSC approved the adoption of a number of new and amended standards and interpretation as part of PFRS.
Amendments to Standards and Interpretation Adopted in 2014
The Group has adopted the following PFRS effective January 1, 2014 and accordingly, changed its accounting policies in the
following areas:
•
SMBI FS 2014 C5 6.indd 43
Recoverable Amount Disclosures for Non-financial Assets (Amendments to PAS 36, Impairment of Assets). These narrowscope amendments to PAS 36 address the disclosure of information about the recoverable amount of impaired assets if
that amount is based on fair value less costs of disposal. The amendments clarified that the scope of those disclosures is
limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal. The adoption of
these amendments did not have an effect on the consolidated financial statements.
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SAN MIGUEL BREWERY INC.
•
Offsetting Financial Assets and Financial Liabilities (Amendments to PAS 32, Financial Instruments). The amendments
clarify that: (a) an entity currently has a legally enforceable right to set-off if that right is: (i) not contingent on a
future event; and (ii) enforceable both in the normal course of business and in the event of default, insolvency or
bankruptcy of the entity and all counterparties; and (b) gross settlement is equivalent to net settlement if and only if
the gross settlement mechanism has features that: (i) eliminate or result in insignificant credit and liquidity risk; and
(ii) process receivables and payables in a single settlement process or cycle. The adoption of these amendments did
not have an effect on the consolidated financial statements.
• Measurement of Short-term Receivables and Payables (Amendment to PFRS 13, Fair Value Measurement).
The amendment clarifies that, in issuing PFRS 13 and making consequential amendments to PAS 39 and PFRS 9,
Financial Instruments, the intention is not to prevent entities from measuring short-term receivables and payables
that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is
immaterial. The adoption of this amendment did not have an effect on the consolidated financial statements.
•
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to PAS 39, Financial Instruments:
Recognition and Measurement). The amendments allow hedge accounting to continue in a situation where a derivative,
which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a
result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a
contract agree to replace their original counterparty with a new one). The adoption of these amendments did not
have an effect on the consolidated financial statements.
•
Philippine Interpretation IFRIC 21, Levies. The interpretation provides guidance on accounting for levies in accordance
with the requirements of PAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation confirms
that an entity recognizes a liability for a levy when, and only when, the triggering event specified in the legislation
occurs. An entity does not recognize a liability at an earlier date even if it has no realistic opportunity to avoid the
triggering event. Other standards should be applied to determine whether the debit side is an asset or expense.
Outflows within the scope of PAS 12, Income Taxes, fines and penalties and liabilities arising from emission trading
schemes are explicitly excluded from the scope. The adoption of this interpretation did not have an effect on the
consolidated financial statements.
Additional disclosures required by the new and amended standards and interpretation were included in the consolidated
financial statements, where applicable.
New and Amended Standards Not Yet Adopted
A number of new and amended standards and interpretation are effective for annual periods beginning after
January 1, 2014 and have not been applied in preparing these consolidated financial statements. Unless otherwise
indicated, none of these are expected to have a significant effect on the consolidated financial statements.
The Group will adopt the following new and amended standards on the respective effective dates:
•
Annual Improvements to PFRS Cycles 2010-2012 and 2011-2013 contain 11 changes to nine standards with
consequential amendments to other standards and interpretations, of which only the following are applicable to
the Group.
o Meaning of ‘Vesting Condition’ (Amendment to PFRS 2, Share-based Payment). PFRS 2 has been amended
to clarify the definition of ‘vesting condition’ by separately defining ‘performance condition’ and ‘service
condition’. The amendment also clarifies the following: (i) how to distinguish between a market and a nonmarket performance condition; and (ii) the basis on which a performance condition can be differentiated from
a non-vesting condition. The amendment is required to be applied prospectively for annual periods beginning
on or after July 1, 2014.
o
Scope Exclusion for the Formation of Joint Arrangements (Amendment to PFRS 3,
). PFRS
3 has been amended to clarify that the standard does not apply to the accounting for the formation of all
types of joint arrangements in PFRS 11, Joint Arrangements - i.e., including joint operations - in the financial
statements of the joint arrangements themselves. The amendment is required to be applied prospectively for
annual periods beginning on or after July 1, 2014.
o Disclosures on the Aggregation of Operating Segments (Amendments to PFRS 8, Operating Segments).
PFRS 8 has been amended to explicitly require the disclosure of judgments made by management in applying
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the aggregation criteria. The disclosures include: (i) a brief description of the operating segments that have
been aggregated; and (ii) the economic indicators that have been assessed in determining that the operating
segments share similar economic characteristics. In addition, the amendments clarify that a reconciliation of
the total of the reportable segments’ assets to the entity’s assets is required only if this information is regularly
provided to the entity’s chief operating decision maker. This change aligns the disclosure requirements with
those for segment liabilities. The amendments are required to be applied prospectively for annual periods
beginning on or after July 1, 2014.
SMBI FS 2014 C5 6.indd 45
o
Scope of Portfolio Exception (Amendment to PFRS 13). The amendment clarifies that the scope of the exception
for measuring the fair value of a group of financial assets and financial liabilities with offsetting risk positions
on a net basis (portfolio exception) applies to contracts within the scope of PAS 39 and PFRS 9, regardless of
whether they meet the definition of financial assets or financial liabilities under PAS 32 - e.g., certain contracts to
buy or sell non-financial items that can be settled net in cash or another financial instrument. The amendment
is required to be applied prospectively for annual periods beginning on or after July 1, 2014.
o
Restatement of accumulated depreciation (amortization) on revaluation (Amendments to PAS 16, Property, Plant
and Equipment and PAS 38, Intangible Assets). The amendments clarify the requirements of the revaluation model
in PAS 16 and PAS 38, recognizing that the restatement of accumulated depreciation (amortization) is not always
proportionate to the change in the gross carrying amount of the asset. PAS 16 and PAS 38 have been amended
to clarify that, at the date of revaluation: the gross carrying amount is adjusted in a manner that is consistent
with the revaluation of the carrying amount of the asset - e.g. restated in proportion to the change in the
carrying amount or by reference to observable market data; and the accumulated depreciation (amortization)
is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset
after taking into account accumulated impairment losses; or the accumulated depreciation (amortization) is
eliminated against the gross carrying amount of the asset.
o
Definition of ‘Related Party’ (Amendments to PAS 24, Related Parties). The definition of a ‘related party’ is extended
to include a management entity that provides key management personnel (KMP) services to the reporting
entity, either directly or through a group entity. For related party transactions that arise when KMP services
are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it
has recognized as an expense for those services that are provided by a management entity; however, it is not
required to ‘look through’ the management entity and disclose compensation paid by the management entity
to the individuals providing the KMP services. The reporting entity will also need to disclose other transactions
with the management entity under the existing disclosure requirements of PAS 24 - e.g., loans. The amendment
is required to be applied prospectively for annual periods beginning on or after July 1, 2014.
o
Inter-relationship of PFRS 3 and PAS 40 (Amendment to PAS 40, Investment Property). PAS 40 has been amended
to clarify that an entity should assess whether an acquired property is an investment property under PAS 40
and perform a separate assessment under PFRS 3 to determine whether the acquisition of the investment
property constitutes a business combination. Entities will still need to use judgment to determine whether the
acquisition of an investment property is an acquisition of a business under PFRS 3. The amendment is required
to be applied prospectively for annual periods beginning on or after July 1, 2014.
•
Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to PAS 16, Property, Plant and
Equipment and PAS 38, Intangible Assets). The amendments to PAS 38, Intangible Assets, introduce a rebuttable
presumption that the use of revenue-based amortization methods for intangible assets is inappropriate. This
presumption can be overcome only when revenue and the consumption of the economic benefits of the intangible
asset are ‘highly correlated’, or when the intangible asset is expressed as a measure of revenue. The amendments
to PAS 16 explicitly state that revenue-based methods of depreciation cannot be used for property, plant and
equipment. This is because such methods reflect factors other than the consumption of economic benefits embodied
in the asset - e.g., changes in sales volumes and prices. The amendments are required for annual periods beginning
on or after January 1, 2016, and are to be applied prospectively. Early application is permitted.
•
PFRS 9, Financial Instruments (2014). PFRS 9 (2014) replaces PAS 39 and supersedes the previously published
versions of PFRS 9 that introduced new classifications and measurement requirements (in 2009 and 2010) and a
new hedge accounting model (in 2013). PFRS 9 includes revised guidance on the classification and measurement of
financial assets, including a new expected credit loss model for calculating impairment, guidance on own credit risk
on financial liabilities measured at fair value. It also supplements the new general hedge accounting requirements
published in 2013. PFRS 9 incorporates new hedge accounting requirements that represent a major overhaul of
hedge accounting and introduces significant improvements by aligning the accounting more closely with risk
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SAN MIGUEL BREWERY INC.
management. The new standard is required to be applied retrospectively for annual periods beginning on or after
January 1, 2018. Early adoption is permitted.
Financial Assets and Financial Liabilities
Date of Recognition. The Group recognizes a financial asset or financial liability in the consolidated statements of financial
position when it becomes a party to the contractual provisions of the instrument. In the case of regular way purchase or
sale of financial assets, recognition is done using settlement date accounting.
Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value of the consideration
given (in case of an asset) or received (in case of a liability). The initial measurement of financial instruments, except for
those designated as at fair value through profit or loss (FVPL), includes transaction costs.
Financial Assets
The Group classifies its financial assets, at initial recognition, in the following categories: held-to-maturity (HTM)
investments, AFS financial assets, financial assets at FVPL and loans and receivables. The classification depends on
the purpose for which the investments are acquired and whether they are quoted in an active market. Management
determines the classification of its financial assets and financial liabilities at initial recognition and, where allowed and
appropriate, re-evaluates such designation at every reporting date.
Financial Assets at FVPL. A financial asset is classified as at FVPL if it is classified as held for trading or is designated as
such upon initial recognition. Financial assets are designated as at FVPL if the Group manages such investments and
makes purchase and sale decisions based on their fair values in accordance with the documented risk management or
investment strategy of the Group. Derivative instruments (including embedded derivatives), except those covered by
hedge accounting relationships, are classified under this category.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term.
Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria
is met:
•
the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from
measuring the assets or recognizing gains or losses on a different basis;
•
the assets are part of a group of financial assets which are managed and their performances are evaluated on a fair
value basis, in accordance with a documented risk management or investment strategy; or
•
the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly
modify the cash flows or it is clear, with little or no analysis, that it would not be separately recognized.
The Group carries financial assets at FVPL using their fair values. Attributable transaction costs are recognized in profit or
loss as incurred. Fair value changes and realized gains or losses are recognized in profit or loss. Fair value changes from
derivatives accounted for as part of an effective cash flow hedge are recognized in other comprehensive income and
presented in the consolidated statements of changes in equity. Any interest earned is part of “Interest income” account
in the consolidated statements of income. Any dividend income from equity securities classified as at FVPL is recognized
in profit or loss when the right to receive payment has been established.
The Group’s derivative assets are classified under this category (Notes 9 and 32).
Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments
and maturities that are not quoted in an active market. They are not entered into with the intention of immediate or
short-term resale and are not designated as AFS financial assets or financial assets at FVPL.
Subsequent to initial measurement, loans and receivables are carried at amortized cost using the effective interest
method, less any impairment in value. Any interest earned on loans and receivables is recognized as part of “Interest
income” account in the consolidated statements of income on an accrual basis. Amortized cost is calculated by taking
into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The
periodic amortization is also included as part of “Interest income” account in the consolidated statements of income.
Gains or losses are recognized in profit or loss when loans and receivables are derecognized or impaired.
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Cash includes cash on hand and in banks which are stated at face value. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in
value.
The Group’s cash and cash equivalents, trade and other receivables and noncurrent receivables are included in this
category (Notes 6, 7, 14 and 26).
AFS Financial Assets. AFS financial assets are non-derivative financial assets that are either designated in this category
or not classified in any of the other financial asset categories. Subsequent to initial recognition, AFS financial assets
are measured at fair value and changes therein, other than impairment losses and foreign currency differences on AFS
debt instruments, are recognized in other comprehensive income and presented in the “Fair value reserve” account in
the consolidated statements of changes in equity. The effective yield component of AFS debt securities is reported as
part of “Interest income” account in the consolidated statements of income. Dividends earned on holding AFS equity
securities are recognized as dividend income when the right to receive payment has been established. When individual
AFS financial assets are either derecognized or impaired, the related accumulated unrealized gains or losses previously
reported in equity are transferred to and recognized in profit or loss. AFS financial assets also include unquoted equity
instruments with fair values which cannot be reliably determined. These instruments are carried at cost less impairment
in value, if any.
The Group’s investments in equity securities included under “Investments” account in the consolidated statements of
financial position are classified under this category (Note 10).
The Group has no financial assets classified as HTM investments as of December 31, 2014 and 2013.
‘Day 1’ Profit. Where the transaction price in a non-active market is different from the fair value of other observable
current market transactions in the same instrument or based on a valuation technique whose variables include only
data from observable market, the Group recognizes the difference between the transaction price and the fair value (a
‘Day 1’ profit) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where data used are
not observable, the difference between the transaction price and model value is only recognized in profit or loss when
the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the
appropriate method of recognizing the ‘Day 1’ profit amount.
Financial Liabilities
The Group classifies its financial liabilities, at initial recognition, in the following categories: financial liabilities at FVPL
and other financial liabilities, as appropriate. The Group determines the classification of its financial liabilities at initial
recognition and where allowed and appropriate, re-evaluates such designation at each financial year-end. All financial
liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable
transaction costs.
Financial Liabilities at FVPL. Financial liabilities are classified under this category through the fair value option. Derivative
instruments (including embedded derivatives) with negative fair values, except those covered by hedge accounting
relationships, are also classified under this category.
The Group carries financial liabilities at FVPL using their fair values and recognizes fair value changes in profit or loss.
Fair value changes from derivatives accounted for as part of an effective accounting hedge are recognized in other
comprehensive income and presented in the consolidated statements of changes in equity. Any interest expense incurred
shall be recognized as part of “Interest expense and other financing charges” account in the consolidated statements of
income.
The Group’s derivative liabilities are classified under this category (Note 15 and 32).
Other Financial Liabilities. This category pertains to financial liabilities that are not designated or classified at FVPL. After
initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest
method. Amortized cost is calculated by taking into account any premium or discount and any directly attributable
transaction costs that are considered an integral part of the effective interest rate of the liability. The effective interest
rate amortization is included in “Interest expense and other financing charges” account in the consolidated statements
of income. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the
amortization process.
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SAN MIGUEL BREWERY INC.
The Group’s liabilities arising from its trade or borrowings such as accounts payable and accrued expenses, current
maturities of long-term debt and long-term debt are included in this category (Notes 15, 16 and 26).
Embedded Derivatives
The Group assesses whether embedded derivatives are required to be separated from the host contracts when the
Group becomes a party to the contract.
An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following
conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded
derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL.
Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that
would otherwise be required.
Derecognition of Financial Assets and Financial Liabilities
Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is primarily derecognized when:
•
the rights to receive cash flows from the asset have expired; or
•
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay them
in full without material delay to a third party under a “pass-through” arrangement; and either: (a) has transferred
substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or entered into a pass-through arrangement,
it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor
retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues
to recognize the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also
recognizes the associated liability. The transferred asset and the associated liability are measured on the basis that
reflects the rights and obligations that the Group has retained.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled,
or expires. When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying
amounts is recognized in profit or loss.
Impairment of Financial Assets
The Group assesses, at the reporting date, whether there is objective evidence that a financial asset or a group of financial
assets is impaired.
A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of
impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss
event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial
assets that can be reliably estimated.
Assets Carried at Amortized Cost. For financial assets carried at amortized cost such as loans and receivables, the Group
first assesses whether objective evidence of impairment exists individually for financial assets that are individually
significant, or collectively for financial assets that are not individually significant. If no objective evidence of impairment
has been identified for a particular financial asset that was individually assessed, the Group includes the asset as part of a
group of financial assets with similar credit risk characteristics and collectively assesses the group for impairment. Assets
that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not
included in the collective impairment assessment.
Evidence of impairment for specific impairment purposes may include indications that the borrower or a group of
borrowers is experiencing financial difficulty, default or delinquency in principal or interest payments, or may enter into
bankruptcy or other form of financial reorganization intended to alleviate the financial condition of the borrower. For
collective impairment purposes, evidence of impairment may include observable data on existing economic conditions
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or industry-wide developments indicating that there is a measurable decrease in the estimated future cash flows of the
related assets.
If there is objective evidence of impairment, the amount of loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the
financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). Time value
is generally not considered when the effect of discounting the cash flows is not material. If a loan or receivable has a
variable rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the
original credit risk premium. For collective impairment purposes, impairment loss is computed based on their respective
default and historical loss experience.
The carrying amount of the asset is reduced either directly or through the use of an allowance account. The impairment
loss for the period is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to
the extent that the carrying amount of the asset does not exceed its amortized cost at the reversal date.
AFS Financial Assets. For equity instruments carried at fair value, the Group assesses, at each reporting date, whether
objective evidence of impairment exists. Objective evidence of impairment includes a significant or prolonged decline in
the fair value of an equity instrument below its cost. ‘Significant’ is evaluated against the original cost of investment and
‘prolonged’ is evaluated against the period in which the fair value has been below its original cost. The Group generally
regards fair value decline as being significant when decline exceeds 25%. A decline in a quoted market price that persists
for 12 months is generally considered to be prolonged.
If an AFS financial asset is impaired, an amount comprising the difference between the cost (net of any principal payment
and amortization) and its current fair value, less any impairment loss on that financial asset previously recognized in
profit or loss, is transferred from equity to profit or loss. Reversals of impairment losses in respect of equity instruments
classified as AFS financial assets are not recognized in profit or loss. Reversals of impairment losses on debt instruments
are recognized in profit or loss, if the increase in fair value of the instrument can be objectively related to an event
occurring after the impairment loss was recognized in profit or loss.
In the case of an unquoted equity instrument or of a derivative asset linked to and must be settled by delivery of an
unquoted equity instrument, for which its fair value cannot be reliably measured, the amount of impairment loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows
from the asset discounted using the historical effective rate of return on the asset.
Classification of Financial Instruments between Debt and Equity
From the perspective of the issuer, a financial instrument is classified as debt instrument if it provides for a contractual
obligation to:
•
deliver cash or another financial assets to another entity;
•
exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable
to the Group; or
•
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed
number of own equity shares.
If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual
obligation, the obligation meets the definition of a financial liability.
Debt Issue Costs
Debt issue costs are considered as an adjustment to the effective yield of the related debt and are deferred and amortized
using the effective interest rate method. When a loan is paid, the related unamortized debt issue costs at the date of
repayment are recognized in profit or loss.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of
financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is
an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. This is not generally
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SAN MIGUEL BREWERY INC.
the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated
statements of financial position.
Inventories
Finished goods, goods in process and materials and supplies are valued at the lower of cost and net realizable value.
Costs incurred in bringing each inventory to its present location and conditions are accounted for as follows:
Finished goods and goods in process
-
Materials and supplies
-
at cost, which includes direct materials and labor
and a proportion of manufacturing overhead costs
based on normal operating capacity but excluding
borrowing costs; costs are determined using the
moving-average method;
at cost, using the moving-average method.
Finished Goods. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated
costs necessary to make the sale.
Goods in Process. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and the estimated costs necessary to make the sale.
Materials and Supplies. Net realizable value is the current replacement cost.
Any write-down of inventories to net realizable value and all losses of inventories are recognized as expense in the year
of write-down or loss occurrence. The amount of reversals, if any, of write-down of inventories arising from an increase in
net realizable value are recognized as reduction in the amount of inventories recognized as expense in the year in which
the reversal occurs.
Containers (i.e., returnable bottles and shells). These are stated at deposit values less any impairment in value. The excess
of the acquisition cost of the containers over their deposit value is presented under deferred containers included
under “Other noncurrent assets” account in the consolidated statements of financial position and is amortized over
the estimated useful lives of two to ten years. Amortization of deferred containers is included under “Selling and
administrative expenses” account in the consolidated statements of income.
Business Combination
Business combinations are accounted for using the acquisition method as at the acquisition date. The cost of an acquisition
is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of
any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the
non-controlling interests in the acquiree at fair value or at proportionate share of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred and included as part of “Selling and administrative expenses” account
in the consolidated statements of income.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the
acquisition date.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree is remeasured at the acquisition date fair value and any resulting gain or loss is recognized in
profit or loss.
The Group measures goodwill at the acquisition date as: a) the fair value of the consideration transferred; plus b) the
recognized amount of any non-controlling interests in the acquiree; plus c) if the business combination is achieved in
stages, the fair value of the existing equity interest in the acquiree; less d) the net recognized amount (generally fair
value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is
recognized immediately in profit or loss. Subsequently, goodwill is measured at cost less any accumulated impairment in
value. Goodwill is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate
that the carrying amount may be impaired.
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The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognized in profit or loss. Costs related to acquisition, other than those associated with the issue
of debt or equity securities that the Group incurs in connection with a business combination, are expensed as incurred.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is
classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes
to the fair value of the contingent consideration are recognized in profit or loss.
•
Goodwill in a Business Combination
Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating
units, or groups of cash-generating units that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities are assigned to those units or groups of units. Each unit or group of
units to which the goodwill is so allocated:
•
represents the lowest level within the Group at which the goodwill is monitored for internal management
purposes; and
•
is not larger than an operating segment determined in accordance with PFRS 8.
Impairment is determined by assessing the recoverable amount of the cash-generating unit or group of cashgenerating units, to which the goodwill relates. Where the recoverable amount of the cash-generating unit or
group of cash-generating units is less than the carrying amount, an impairment loss is recognized. Where goodwill
forms part of a cash-generating unit or group of cash-generating units and part of the operation within that unit
is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the
operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance
is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit
retained. An impairment loss with respect to goodwill is not reversed.
•
Intangible Assets Acquired in a Business Combination
The cost of an intangible asset acquired in a business combination is the fair value as at the date of acquisition,
determined using discounted cash flows as a result of the asset being owned.
Following initial recognition, intangible asset is carried at cost less any accumulated amortization and impairment
losses, if any. The useful life of an intangible asset is assessed to be either finite or indefinite.
Transactions under Common Control
Transactions under common control entered into in contemplation of each other and business combination under
common control designed to achieve an overall commercial effect are treated as a single transaction.
Transfers of assets between commonly controlled entities are accounted for using book value accounting.
Non-controlling Interests
The acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners
and therefore no goodwill is recognized as a result of such transactions. Any difference between the purchase price and
the net assets of acquired entity is recognized in equity. The adjustments to non-controlling interests are based on a
proportionate amount of the identifiable net assets of the acquired subsidiary.
Property, Plant and Equipment
Property, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any
accumulated impairment in value. Such cost includes the cost of replacing part of the property, plant and equipment at
the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. Land is
stated at cost less any impairment in value.
The initial cost of property, plant and equipment comprises its construction cost or purchase price, including import
duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended
use. Cost also includes any related asset retirement obligation (ARO). Expenditures incurred after the asset has been put
into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period the
costs are incurred. Major repairs are capitalized as part of property, plant and equipment only when it is probable that
future economic benefits associated with the items will flow to the Group and the cost of the items can be measured
reliably.
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SAN MIGUEL BREWERY INC.
Construction in progress (CIP) represents structures under construction and is stated at cost. This includes the costs
of construction and other direct costs. Borrowing costs that are directly attributable to the construction of plant and
equipment are capitalized during the construction period. CIP is not depreciated until such time that the relevant assets
are ready for use.
Depreciation and amortization, which commences when the assets are available for their intended use, are computed
using the straight-line method over the following estimated useful lives of the assets:
Number of Years
Machinery and equipment
Buildings and improvements
Transportation equipment
Leasehold improvements
Office equipment, furniture and fixtures
Tools and small equipment
4 - 50
5 - 50
3-7
3 - 50
or term of the lease,
whichever is shorter
2 - 20
2 - 10
The remaining useful lives, residual values and depreciation and amortization methods are reviewed and adjusted
periodically, if appropriate, to ensure that such periods and methods of depreciation and amortization are consistent
with the expected pattern of economic benefits from the items of property, plant and equipment.
The carrying amounts of property, plant and equipment are reviewed for impairment when events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Fully depreciated assets are retained in the accounts until they are no longer in use.
An item of property, plant and equipment is derecognized when either it has been disposed of or when it is permanently
withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss arising
from the retirement and disposal of an item of property, plant and equipment (calculated as the difference between the
net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period of retirement or
disposal.
Investment Property
Investment property consists of property held to earn rentals and/or for capital appreciation but not for sale in the
ordinary course of business, used in the production or supply of goods or services or for administrative purposes.
Investment property, except for land, is measured at cost including transaction costs less accumulated depreciation and
amortization and any accumulated impairment in value. The carrying amount includes the cost of replacing part of an
existing investment property at the time the cost is incurred, if the recognition criteria are met, and excludes the costs of
day-to-day servicing of an investment property. Land is stated at cost less any impairment in value.
Depreciation and amortization, which commence when the assets are available for their intended use, are computed
using the straight-line method over the following estimated useful lives of the assets:
Number of Years
Land improvements
Buildings and improvements
5 - 50
5 - 50
The useful lives, residual values and depreciation and amortization method are reviewed and adjusted, if appropriate, at
each reporting date.
Investment property is derecognized either when it has been disposed of or when it is permanently withdrawn from
use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement and disposal of
investment property are recognized in profit or loss in the period of retirement or disposal.
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Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owneroccupation or commencement of an operating lease to another party. Transfers are made from investment property when,
and only when, there is a change in use, evidenced by commencement of the owner-occupation or commencement of
development with a view to sell.
For a transfer from investment property to owner-occupied property or inventories, the cost of property for subsequent
accounting is its carrying amount at the date of change in use. If the property occupied by the Group as an owner-occupied
property becomes an investment property, the Group accounts for such property in accordance with the policy stated under
property, plant and equipment up to the date of change in use.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is its fair value at the date of acquisition. Subsequently, intangible assets are measured at cost
less accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding
capitalized development costs, are not capitalized and expenditures are recognized in profit or loss in the year in which the
related expenditures are incurred. The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is an
indication that the intangible assets may be impaired. The amortization period and the amortization method used for an
intangible asset with a finite useful life are reviewed at least at each reporting date. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the
amortization period or method, as appropriate, and are treated as changes in accounting estimate. The amortization expense
on intangible assets with finite lives is recognized in profit or loss consistent with the function of the intangible asset.
Amortization is computed using the straight-line method over the following estimated useful lives of other intangible assets
with finite lives:
Number of Years
Computer software
Land use rights
2 - 10
42 - 50
or term of the lease,
whichever is shorter
The Group assessed the useful lives of trademarks, some licenses and brand names to be indefinite. Based on an analysis of
all the relevant factors, there is no foreseeable limit to the period over which the assets are expected to generate cash inflows
for the Group.
Trademarks, licenses and brand names with indefinite useful lives are tested for impairment annually, either individually or at
the cash-generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life
is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the
useful life assessment from indefinite to finite is made on a prospective basis.
Gains or losses arising from the disposal of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset is derecognized.
Impairment of Non-financial Assets
The carrying amounts of property, plant and equipment, investment property, deferred containers and intangible assets with
finite useful lives are reviewed for impairment when events or changes in circumstances indicate that the carrying amount
may not be recoverable. Trademarks, licenses and brand names with indefinite useful lives are tested for impairment annually
either individually or at the cash-generating unit level. If any such indication exists, and if the carrying amount exceeds the
estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The
recoverable amount of the asset is the greater of fair value less costs to sell and value in use. The fair value less costs to sell
is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties,
less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs. Impairment losses are recognized in profit or loss in those expense categories
consistent with the function of the impaired asset.
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SAN MIGUEL BREWERY INC.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment
losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A
previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine
the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of
the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would
have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in
prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization charge
is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis
over its remaining useful life.
Fair Value Measurements
The Group measures a number of financial and non-financial assets and liabilities at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability,
or in the absence of principal market, in the most advantageous market for the asset or liability. The principal or most
advantageous market must be accessible to the Group.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their best economic interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable
inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are
categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the
fair value measurement as a whole:
• Level 1:
quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2:
inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly; and
• Level 3:
inputs for the asset or liability that are not based on observable market data.
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorization at the
end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy.
Provisions
Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of past
events; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be
required to settle the obligation; and (c) a reliable estimate of the amount of the obligation can be made if the effect
of the time value of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense.
Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the
reimbursement is recognized as a separate asset only when it is virtually certain that reimbursement will be received.
The amount recognized for the reimbursement shall not exceed the amount of the provision. Provisions are reviewed at
each reporting date and adjusted to reflect the current best estimate.
Share Capital
Common Shares
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are
recognized as a deduction from equity, net of any tax effects.
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Treasury Shares
Own equity instruments which are reacquired are carried at cost and deducted from equity. No gain or loss is recognized
on the purchase, sale, reissuance or cancellation of the Company’s own equity instruments. When the shares are retired,
the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to
additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued
and to retained earnings for the remaining balance.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits associated with the transaction will
flow to the Group and the amount of revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
Sale of Goods. Revenue from sale of goods in the course of ordinary activities is measured at the fair value of the
consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when
the significant risks and rewards of ownership of the goods have passed to the buyer, which is normally upon delivery,
and the amount of revenue can be measured reliably.
Interest. Revenue is recognized as the interest accrues, taking into account the effective yield on the asset.
Rent. Revenue from investment property is recognized on a straight-line basis over the term of the lease.
Others. Revenue is recognized when earned.
Cost and Expense Recognition
Costs and expenses are recognized upon receipt of goods, utilization of services or at the date they are incurred.
Expenses are also recognized when a decrease in future economic benefit related to a decrease in an asset or an increase
in a liability that can be measured reliably has arisen. Expenses are recognized in the consolidated statements of income
on the basis of a direct association between costs incurred and the earning of specific items of income; on the basis of
systematic and rational allocation procedures when economic benefits are expected to arise over several accounting
periods and the association can only be broadly or indirectly determined; or immediately when an expenditure produces
no future economic benefits or when, and to the extent that future economic benefits do not qualify, or cease to qualify,
for recognition as an asset.
Share-based Payment Transactions
Under SMC’s Employee Stock Purchase Plan (ESPP), employees of the Group receive remuneration in the form of sharebased payment transactions, whereby the employees render services as consideration for equity instruments of SMC.
Such transactions are handled centrally by SMC.
Share-based transactions in which SMC grants option rights to its equity instruments direct to the Group’s employees are
accounted for as equity-settled transactions. SMC charges the Group for the costs related to such transactions with its
employees. The amount is charged to operations by the Group.
The cost of ESPP is measured by reference to the market price at the time of the grant less subscription price. The
cumulative expenses recognized for share-based payment transactions at each reporting date until the vesting date
reflect the extent to which the vesting period has expired and SMC’s best estimate of the number of equity instruments
that will ultimately vest. Where the terms of a share-based award are modified, as a minimum, an expense is recognized
as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the
total fair value of the share-based payment agreement, or is otherwise beneficial to the employee as measured at the
date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognized for the award is recognized immediately.
However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that
it is granted, the cancelled and new awards are treated as if they were a modification of the original award.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets
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SAN MIGUEL BREWERY INC.
and the arrangement conveys a right to use the asset. A reassessment is made after the inception of the lease only if one
of the following applies:
(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) a renewal option is exercised or an extension is granted, unless the term of the renewal or extension was initially
included in the lease term;
(c) there is a change in the determination of whether fulfillment is dependent on a specific asset; or
(d) there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances
gives rise to the reassessment for scenarios (a), (c) or (d), and at the date of renewal or extension period for scenario (b)
above.
Operating Lease
Group as Lessee. Leases which do not transfer to the Group substantially all the risks and rewards of ownership of the
asset are classified as operating leases. Operating lease payments are recognized as an expense in profit or loss on a
straight-line basis over the lease term. Associated costs such as maintenance and insurance are expensed as incurred.
Group as Lessor. Leases where the Group does not transfer substantially all the risks and rewards of ownership of the
assets are classified as operating leases. Rent income from operating leases is recognized as income on a straight-line
basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount
of the leased asset and recognized as an expense over the lease term on the same basis as rent income. Contingent rents
are recognized as income in the period in which they are earned.
Borrowing Costs
Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset.
Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures
and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their
intended use.
Research and Development Costs
Research costs are expensed as incurred. Development costs incurred on an individual project are carried forward when
their future recoverability can be reasonably regarded as assured. Any expenditure carried forward is amortized in line
with the expected future sales from the related project.
The carrying amount of development costs is reviewed for impairment annually when the related asset is not yet in use.
Otherwise, this is reviewed for impairment when events or changes in circumstances indicate that the carrying amount
may not be recoverable.
Employee Benefits
Short-term Employee Benefits. Short-term employee benefits are expensed as the related service is provided. A liability
is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Retirement Costs. The Company and majority of its subsidiaries have separate funded, noncontributory retirement plans,
administered by the respective trustees, covering their respective permanent employees. The cost of providing benefits
under the defined benefit retirement plan is actuarially determined using the projected unit credit method. Projected
unit credit method reflects services rendered by employees to the date of valuation and incorporates assumptions
concerning employees’ projected salaries. Actuarial gains and losses are recognized in full in the period in which they
occur in other comprehensive income. Such actuarial gains and losses are also immediately recognized in equity and are
not reclassified to profit or loss in subsequent period.
The net defined benefit retirement liability or asset is the aggregate of the present value of the amount of future benefit
that employees have earned in return for their service in the current and prior periods, reduced by the fair value of plan
assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the
present value of economic benefits available in the form of reductions in future contributions to the plan.
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Defined benefit costs comprise the following:
• Service costs
• Net interest on the defined benefit retirement liability or asset
• Remeasurements of defined benefit retirement liability or asset
Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are
recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs.
These amounts are calculated periodically by an independent qualified actuary using the projected unit credit method.
Net interest on the net defined benefit retirement liability or asset is the change during the period as a result of
contributions and benefit payments, which is determined by applying the discount rate based on the government
bonds to the net defined benefit retirement liability or asset. Net interest on the net defined benefit retirement liability
or asset is recognized as expense or income in profit or loss.
Remeasurements of net defined benefit retirement liability or asset comprising actuarial gains and losses, return on plan
assets, and the effect of the asset ceiling (excluding net interest) are recognized immediately in other comprehensive
income in the period in which they arise.
When the benefits of a plan are changed, or when a plan is curtailed, the resulting change in benefit that relates to past
service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and
losses on the settlement of a defined benefit retirement plan when the settlement occurs.
Foreign Currency
Foreign Currency Translations. Transactions in foreign currencies are translated to the respective functional currencies
of the entities within the Group at exchange rates 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 or loss on monetary items is the difference between amortized cost in the functional
currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized
cost in foreign currency translated at the exchange rate at the reporting date.
Nonmonetary assets and nonmonetary liabilities denominated in foreign currencies that are measured at fair value are
retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Nonmonetary
items in foreign currencies that are measured in terms of historical cost are translated using the exchange rate at the date
of the transaction.
Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on
the retranslation of AFS financial assets, a financial liability designated as an effective hedge of the net investment in a
foreign operation or qualifying cash flow hedges, which are recognized in other comprehensive income.
Foreign Operations. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising
on acquisition, are translated to Philippine peso at exchange rates at the reporting date. The income and expenses of
foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Philippine peso at
average exchange rates for the period.
Foreign currency differences are recognized in other comprehensive income and presented in the “Translation reserve
account” in the consolidated statements of changes in equity. However, if the operation is not a wholly-owned subsidiary,
then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a
foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount
in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on
disposal.
When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining
control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to
occur in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to
form part of a net investment in a foreign operation and are recognized in other comprehensive income and presented
in the “Translation reserve” account in the consolidated statements of changes in equity.
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SAN MIGUEL BREWERY INC.
Taxes
Current Tax. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred Tax. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
•
where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
•
with respect to taxable temporary differences associated with investments in subsidiaries, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax losses Net Operating Loss Carry Over (NOLCO) to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences, and the carryforward benefits of NOLCO can be utilized, except:
•
where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss; and
•
with respect to deductible temporary differences associated with investments in subsidiaries, deferred tax assets
are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable
future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has
become probable that future taxable profit will allow the deferred tax asset to be recovered.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group
expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at
the reporting date.
In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions
and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate
for all open tax years based on its assessment of many factors, including interpretation of tax laws and prior experience.
This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New
information may become available that causes the Group to change its judgment regarding the adequacy of existing tax
liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.
Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination,
or items recognized directly in equity or in other comprehensive income.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Value Added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, except:
•
SMBI FS 2014 C5 6.indd 58
where the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which
case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable;
and
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2014 ANNUAL REPORT
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59
receivables and payables that are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the taxation authority is included as part of “Prepaid expenses and
other current assets” or “Income and other taxes payable” accounts in the consolidated statements of financial position.
Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operating decisions. Parties are also considered to be
related if they are subject to common control. Related parties may be individuals or corporate entities.
Basic and Diluted Earnings Per Share (EPS)
Basic EPS is computed by dividing the net income for the period attributable to equity holders of the Company by the
weighted average number of issued and outstanding common shares during the period, with retroactive adjustment for
any stock dividends declared.
Diluted EPS is computed in the same manner, adjusted for the effects of all dilutive common shares.
Operating Segments
The Group’s operating segments are organized and managed separately according to geographical location, with each
segment representing a strategic business unit that offers different products and serves different markets. Financial
information on operating segments is presented in Note 5 to the consolidated financial statements. The Chief Executive
Officer (the chief operating decision maker) reviews management reports on a regular basis.
The measurement policies the Group used for segment reporting under PFRS 8 are the same as those used in its
consolidated financial statements. There have been no changes in the measurement methods used to determine
reported segment profit or loss from prior periods. All inter-segment transfers are carried out at arm’s length prices.
Segment revenues, expenses and performance include sales and purchases between business segments and between
geographical segments. Such sales and purchases are eliminated in consolidation.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in the notes to
the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to
the consolidated financial statements when an inflow of economic benefits is probable.
Events After the Reporting Date
Post year-end events that provide additional information about the Group’s financial position at the reporting date
(adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting
events are disclosed in the notes to the consolidated financial statements when material.
4. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in accordance with PFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the amounts of assets,
liabilities, income and expenses reported in the consolidated financial statements at the reporting date. However,
uncertainty about these judgments, estimates and assumptions could result in outcome that could require a material
adjustment to the carrying amount of the affected asset or liability in the future.
Judgments and estimates are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. Revisions are recognized in
the period in which the judgments and estimates are revised and in any future period affected.
Judgments
In the process of applying the Group’s accounting policies, management has made the following judgments, apart from
those involving estimations, which have the most significant effect on the amounts recognized in the consolidated
financial statements:
SMBI FS 2014 C5 6.indd 59
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SAN MIGUEL BREWERY INC.
Assessment of Control. Although the Company owned less than half of BPI and less than half of their voting power, the
Company has determined that the Company controls BPI. The Company receives substantially all of the returns related
to BPI’s operations and net assets and has the current ability to direct BPI’s activities that most significantly affect the
returns.
Operating Lease Commitments - Group as Lessor/Lessee. The Group has entered into various lease agreements either as
a lessor or a lessee. The Group had determined that it retains all the significant risks and rewards of ownership of the
property leased out on operating leases while the significant risks and rewards for properties leased from third parties
are retained by the lessors.
Rent income recognized as part of other income amounted to P84, P65 and P74 in 2014, 2013 and 2012, respectively
(Notes 24 and 27).
Rent expense charged to profit or loss amounted to P568, P583 and P559 in 2014, 2013 and 2012, respectively
(Notes 19, 20 and 27).
Assessment of Intangible Assets with Indefinite Useful Life. The Group has assessed that the intangible assets have an
indefinite useful life when, based on an analysis of all relevant factors, there is no foreseeable limit to the period over
which the assets are expected to generate cash inflows for the entity (Note 13).
Contingencies. The Group is currently involved in pending claims for tax refund and tax cases which could be decided in
favor of or against the Group. The Group’s estimate of the probable costs for the resolution of these pending claims and
tax cases has been developed in consultation with in-house as well as outside legal counsel handling the prosecution and
defense of these matters and is based on an analysis of potential results. The Group currently does not believe that these
pending claims and tax cases will have a material adverse effect on its financial position and financial performance. It is
possible; however, that future financial performance could be affected by changes in the estimates or in the effectiveness
of strategies relating to these proceedings. No accruals were made in relation to these proceedings (Note 34).
Estimates and Assumptions
The key estimates and assumptions used in the consolidated financial statements are based upon management’s
evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results
could differ from such estimates.
Fair Value Measurements. A number of the Group’s accounting policies and disclosures require the measurement of fair
values for both financial and non-financial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values. This includes a
valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level
3 fair values. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third
party information is used to measure fair values, then the valuation team assesses the evidence obtained to support the
conclusion that such valuations meet the requirements of PFRS, including the level in the fair value hierarchy in which
such valuations should be classified.
The Group uses market observable data when measuring the fair value of an asset or liability. Fair values are categorized
into different levels in a fair value hierarchy based on the inputs used in the valuation techniques (Note 3).
If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair
value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy
based on the lowest level input that is significant to the entire measurement.
The methods and assumptions used to estimate fair values for both financial and non-financial assets and liabilities are
discussed in Notes 12 and 32.
Allowance for Impairment Losses on Trade and Other Receivables. Provisions are made for specific and groups of accounts,
where objective evidence of impairment exists. The Group evaluates these accounts on the basis of factors that affect
the collectibility of the accounts. These factors include, but are not limited to, the length of the Group’s relationship with
the customers and counterparties, the current credit status based on third party credit reports and known market forces,
average age of accounts, collection experience, and historical loss experience. The amount and timing of recorded
expenses for any period would differ if the Group made different judgments or utilized different methodologies. An
increase in allowance for impairment losses would increase the recorded selling and administrative expenses and
decrease current assets.
SMBI FS 2014 C5 6.indd 60
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2014 ANNUAL REPORT
61
The allowance for impairment losses amounted to P792 and P1,282 as of December 31, 2014 and 2013, respectively.
The carrying amount of trade and other receivables amounted to P6,005 and P6,352 as of December 31, 2014 and 2013,
respectively (Notes 7, 31 and 32).
Write-down of Inventory. The Group writes-down the cost of inventory to net realizable value whenever net realizable
value becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other
causes.
Estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made
of the amount the inventories are expected to be realized. These estimates take into consideration fluctuations of price
or cost directly relating to events occurring after the reporting date to the extent that such events confirm conditions
existing at the reporting date.
The write-down of inventories amounted to P587 and P500 as of December 31, 2014 and 2013, respectively. The carrying
amount of inventories amounted to P3,460 and P3,254 as of December 31, 2014 and 2013, respectively (Note 8).
Estimated Useful Lives of Property, Plant and Equipment, Investment Property and Deferred Containers. The Group estimates
the useful lives of property, plant and equipment, investment property and deferred containers based on the period
over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment,
investment property and deferred containers are reviewed periodically and are updated if expectations differ from
previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the
use of the assets.
In addition, estimation of the useful lives of property, plant and equipment, investment property and deferred containers
is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets.
It is possible, however, that future financial performance could be materially affected by changes in estimates brought
about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would
be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of property, plant
and equipment, investment property and deferred containers would increase recorded cost of sales and selling and
administrative expenses and decrease noncurrent assets.
Property, plant and equipment, net of accumulated depreciation and amortization and impairment losses, amounted to
P20,120 and P20,544 as of December 31, 2014 and 2013, respectively (Note 11). Investment property, net of accumulated
depreciation and impairment losses amounted to P1,416 and P733 as of December 31, 2014 and 2013, respectively
(Note 12). Accumulated depreciation, amortization and impairment losses of property, plant and equipment and
investment property amounted to P40,635 and P39,302 as of December 31, 2014 and 2013, respectively (Notes 11 and
12).
Deferred containers, net of accumulated amortization included under “Other noncurrent assets” account in the
consolidated statements of financial position amounted to P8,785 and P8,750 as of December 31, 2014 and 2013,
respectively. Accumulated amortization of deferred containers amounted to P9,602 and P8,427 as of December 31, 2014
and 2013, respectively (Note 14).
Estimated Useful Lives of Intangible Assets with Finite Lives. The useful lives of intangible assets are assessed at the individual
asset level as having either a finite or indefinite life. Intangible assets are regarded to have an indefinite useful life when,
based on analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected
to generate net cash inflows for the Group.
Intangible assets with finite useful lives amounted to P788 and P813 as of December 31, 2014 and 2013, respectively
(Note 13).
Impairment of Trademarks, Licenses and Brand Names with Indefinite Lives. The Group determines whether trademarks,
licenses and brand names are impaired at least annually. The basis used to determine the recoverable amount is the
value in use of the trademarks, licenses and brand names. Estimating value in use requires management to make an
estimate of the expected future cash flows from the cash-generating unit and from the trademarks, licenses and brand
names and to choose a suitable discount rate to calculate the present value of those cash flows.
The carrying amounts of trademarks, licenses and brand names with indefinite useful lives amounted to P35,210 and
P35,196 as of December 31, 2014 and 2013, respectively (Note 13).
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62
SAN MIGUEL BREWERY INC.
Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each reporting date and reduces the
carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all
or part of the deferred tax assets to be utilized. The Group’s assessment on the recognition of deferred tax assets on
deductible temporary difference is based on the projected taxable income in the following periods.
Deferred tax assets amounted to P1,610 and P1,909 as of December 31, 2014 and 2013, respectively (Note 17).
Impairment of Non-financial Assets. PFRS requires that an impairment review be performed on property, plant and
equipment, investment property, deferred containers and intangible assets with finite useful lives when events or
changes in circumstances indicate that the carrying amount may not be recoverable. Determining the recoverable
amount of these assets requires the estimation of cash flows expected to be generated from the continued use and
ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected
in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may
materially affect the assessment of recoverable amounts and any resulting impairment loss could have a material adverse
impact on financial performance.
Accumulated impairment losses of property, plant and equipment, investment property and intangible assets with finite
useful lives amounted to P9,639 and P9,600 as of December 31, 2014 and 2013, respectively.
The combined carrying amounts of property, plant and equipment, investment property, deferred containers and
intangible assets with finite useful lives amounted to P31,109 and P30,840 as of December 31, 2014 and 2013, respectively
(Notes 11, 12, 13 and 14).
Present Value of Defined Benefit Retirement Obligation. The present value of the defined benefit retirement obligation
depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These
assumptions are described in Note 28 to the consolidated financial statements and include discount rate and salary
increase rate.
The Group determines the appropriate discount rate at the end of each reporting period. It is the interest rate that
should be used to determine the present value of estimated future cash outflows expected to be required to settle
the retirement obligations. In determining the appropriate discount rate, the Group considers the interest rates on
government bonds that are denominated in the currency in which the benefits will be paid. The terms to maturity of
these bonds should approximate the terms of the related retirement obligation.
Other key assumptions for the defined benefit retirement obligation are based in part on current market conditions.
While it is believed that the Group’s assumptions are reasonable and appropriate, significant differences in actual
experience or significant changes in assumptions may materially affect the Group’s defined benefit retirement obligation.
The present value of defined benefit retirement obligation amounted to P9,996 and P10,085 as of December 31, 2014
and 2013, respectively (Note 28).
Asset Retirement Obligation. Determining ARO requires estimation of the costs of dismantling and restoring leased
properties to their original condition. The Group determined that there is no significant ARO as of December 31, 2014
and 2013.
5. Segment Information
Operating Segments
The reporting format of the Group’s operating segments is determined based on the Group’s risks and rates of return
which are affected predominantly by differences in the products produced. The operating businesses are organized and
managed separately according to geographical location, with each segment representing a strategic business unit that
offers different products and serves different markets.
The Group’s reportable segments are domestic and international operations.
Domestic operations produce and market fermented and malt-based beverages within the Philippines and distribute
products to some export markets.
SMBI FS 2014 C5 6.indd 62
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63
2014 ANNUAL REPORT
International operations produce and market fermented and malt-based beverages in several foreign markets.
Segment Assets and Liabilities
Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables,
inventories and property, plant and equipment, net of allowances, accumulated depreciation and amortization and
impairment. Segment liabilities include all operating liabilities and consist principally of accounts payable and accrued
expenses, wages and accrued liabilities. Segment assets and liabilities do not include deferred taxes.
Inter-segment Transactions
Segment revenues, expenses and performance include sales and purchases between operating segments. Transfer
prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties.
Such transactions are eliminated in consolidation.
Major Customer
The Group does not have a single external customer from which sales revenue generated amounted to 10% or more of
the total revenues of the Group.
Financial information about the operating segments follow:
For the Year Ended December 31, 2014
Sales
External sales
Inter-segment sales
Total Sales
Results
Segment result
Interest expense and other financing charges
Interest income
Other income - net
Income tax expense
Net Income
Attributable to:
Equity holders of the Company
Non-controlling interests
Net Income
SMBI FS 2014 C5 6.indd 63
Domestic
International
Eliminations
Total
P64,569
54
P64,623
P14,436
P14,436
P (54)
(P54)
P79,005
P79,005
P20,773
P1,306
P -
P22,079
(2,722)
-
-
(2,722)
188
50
(6,080)
P13,515
P13,029
486
P13,515
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64
SAN MIGUEL BREWERY INC.
As of and For the Year Ended December 31, 2014
Other Information
Segment assets
Trademarks and brand names
Other assets
Deferred tax assets
Consolidated Total Assets
Segment liabilities
Long-term debt including current maturities - net of debt issue costs
Income and other taxes payable
Dividends payable and others
Deferred tax liabilities
Consolidated Total Liabilities
Capital expenditures
Depreciation of property, plant and equipment
Noncash items other than depreciation of property, plant and equipment
Domestic
International
Eliminations
Consolidated
P49,048
32,000
P18,479
1,422
(P14,078)
P6,795
P2,402
(P57)
P53,449
33,422
67
1,610
P88,548
P9,140
37,518
-
-
P776
P151
P -
37,518
2,650
603
383
P50,294
P927
933
443
-
1,376
1,426
177
-
1,603
Eliminations
Total
P (41)
(P41)
P75,053
P75,053
P -
P21,554
For the Year Ended December 31, 2013
Domestic
Sales
External sales
Inter-segment sales
Total Sales
Results
Segment result
Interest expense and other financing charges
Interest income
Other changes - net
Income tax expense
Net Income
Attributable to:
Equity holders of the Company
Non-controlling interests
Net Income
SMBI FS 2014 C5 6.indd 64
International
P60,720
41
P60,761
P14,333
P14,333
P20,446
P1,108
(3,845)
(27)
-
(3,872)
463
(294)
(5,330)
P12,521
P12,051
470
P12,521
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2014 ANNUAL REPORT
65
As of and For the Year Ended December 31, 2013
Domestic
Other Information
Segment assets
Trademarks and brand names
Other assets
Deferred tax assets
Consolidated Total Assets
Segment liabilities
Long-term debt including current maturities - net of debt issue costs
Income and other taxes payable
Dividends payable and others
Deferred tax liabilities
Consolidated Total Liabilities
Capital expenditures
Depreciation of property, plant and equipment
Noncash items other than depreciation of property, plant and equipment
International
Eliminations
Consolidated
P57,515
33,412
73
1,910
P92,910
P11,240
P53,632
32,000
P17,956
1,412
(P14,073)
-
P8,735
P2,558
(P53)
45,013
-
-
45,013
P932
P90
P -
2,869
736
17
P59,875
P1,022
963
472
-
1,435
(32)
-
1,658
1,690
For the Year Ended December 31, 2012
Sales
External sales
Inter-segment sales
Total Sales
Results
Segment result
Interest expense and other
financing charges
Interest income
Reversals on impairment of
noncurrent assets - net
Other income - net
Income tax expense
Net Income
Attributable to:
Equity holders of the Company
Non-controlling interests
Net Income
SMBI FS 2014 C5 6.indd 65
Domestic
International
Eliminations
Total
P61,572
46
P61,618
P14,008
P14,008
P (46)
(P46)
P75,580
P75,580
P21,472
P795
P66
P22,333
(3,997)
(75)
-
(4,072)
724
1,367
586
(5,840)
P15,098
P14,360
738
P15,098
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66
SAN MIGUEL BREWERY INC.
As of and For the Year Ended December 31, 2012
Domestic
Other Information
Segment assets
Trademarks and brand names
Other assets
Deferred tax assets
Consolidated Total Assets
Segment liabilities
Long-term debt including
current maturities - net of
debt issue costs
Income and other taxes
payable
Dividends payable and others
Deferred tax liabilities
Consolidated Total Liabilities
Capital expenditures
Depreciation of property,
plant and equipment
Noncash items other than
depreciation of property,
plant and equipment
Reversal for impairment of
noncurrent assets - net
International
Eliminations
Consolidated
P61,979
33,305
82
1,260
P96,626
P10,136
P57,957
32,000
P18,089
1,305
(P14,067)
-
P7,851
P2,337
(P52)
50,995
1,227
-
52,222
P659
P131
P -
2,761
883
19
P66,021
P790
1,044
422
-
1,466
1,181
(146)
-
1,035
(1,367)
-
(1,367)
-
6. Cash and Cash Equivalents
This account consists of:
Note
2014
2013
31, 32
P2,625
7,261
P9,886
P2,991
11,207
P14,198
Cash on hand and in banks
Short-term investments
Cash in banks earns interest at the respective deposit rates. Short-term investments include demand deposits which can
be withdrawn anytime depending on the immediate cash requirements of the Group and earn interest at the respective
short-term investment rates.
SMBI FS 2014 C5 6.indd 66
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2014 ANNUAL REPORT
67
7. Trade and Other Receivables
This account consists of:
Note
2014
2013
26
P5,814
20
P6,746
17
100
863
6,797
792
P6,005
101
770
7,634
1,282
P6,352
Trade
Receivables
Amounts owed by related parties
Nontrade
Amounts owed by related parties
Others
26
4
4, 31, 32
Less allowance for impairment losses
Trade receivables are non-interest bearing and are generally on a seven to 30-day credit term.
“Others” include receivables from employees, insurance and freight claims, interest and various receivables.
The movements in the allowance for impairment losses are as follows:
2014
P1,282
5
(494)
(1)
P792
Balance at beginning of year
Charges for the year
Write-off and reversal
Currency translation adjustments
Balance at end of year
2013
P1,268
61
(43)
(4)
P1,282
Allowance for impairment losses related to amounts owed by related parties as of December 31, 2014 and 2013 amounted
to P13 (Note 26).
As of December 31, 2014 and 2013, the aging of trade and other receivables is as follows:
Trade
Amounts
Owed by
Related
Parties
Others
Total
P5,325
P84
P796
P6,205
235
37
43
174
P5,814
16
6
1
13
P120
19
6
7
35
P863
270
49
51
222
P6,797
2013
Trade
Amounts
Owed by
Related
Parties
Others
Total
Current
Past due
Less than 30 days
30 - 60 days
61 - 90 days
Over 90 days
P5,838
P86
P545
P6,469
425
165
11
307
P6,746
1
15
3
13
P118
16
25
98
86
P770
442
205
112
406
P7,634
2014
Current
Past due
Less than 30 days
30 - 60 days
61 - 90 days
Over 90 days
Various collaterals for trade receivables such as bank guarantees, time deposits and real estate mortgage are held by the
Group for certain credit limits.
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68
SAN MIGUEL BREWERY INC.
8. Inventories
This account consists of:
At net realizable value
Finished goods and goods in process
Containers
Materials and supplies
2014
2013
P1,376
1,116
968
P3,460
P1,385
984
885
P3,254
The cost of finished goods and goods in process as of December 31, 2014 and 2013 amounted to P1,394 and P1,399,
respectively. The cost of containers as of December 31, 2014 and 2013 amounted to P1,670 and P1,453, respectively. The
cost of materials and supplies as of December 31, 2014 and 2013 amounted to P983 and P902, respectively.
The write-down of inventories recognized as expense amounted to P534, P403 and P181 for the years ended December
31, 2014, 2013 and 2012, respectively.
9. Prepaid Expenses and Other Current Assets
This account consists of:
Note
Prepaid taxes and licenses
Prepaid insurance
Derivative assets
Prepaid rentals
Others
31, 32
2014
2013
P770
91
5
24
172
P1,062
P660
90
1
27
160
P938
“Others” include prepaid supplies, prepaid promotional expenses and other miscellaneous prepaid expenses.
10.Investments
The following are the developments relating to the Company’s investments in shares of stock of subsidiaries:
BPI
On April 7, 2014, the board of directors and stockholders of BPI approved the increase of its authorized capital stock
from P800 million to P1,600 million consisting of 3,200,000 common shares at par value of P350 per share and 4,800,000
preferred shares at par value of P100 per share. The Company subscribed and paid for an additional 1,546,000 common
shares in the amount of P541 million while San Miguel Brewery Inc. Retirement Plan (SMBRP) subscribed and paid for an
additional 2,319,000 preferred shares in the amount of P232 million. The increase in BPI’s authorized capital stock was
approved by the SEC on November 18, 2014.
AFS Financial Assets
The Group’s AFS financial assets pertain to investments in shares of stock and club shares amounting to P60 and P62 as
of December 31, 2014 and 2013, respectively (Notes 31 and 32).
The methods and assumptions used to estimate the fair value of AFS financial assets are discussed in Note 32.
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SMBI FS 2014 C5 6.indd 69
7%
60%
51%
51%
42%
P -
P233
-
-
-
-
-
P10
P259
1
(27)
P P34
(24)
-
P246
(45)
(241)
P66
(35)
(26)
P87
(691)
752
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effects of exchange rate changes on cash and
cash equivalents
(P41)
P229
P -
(P205)
P1,013
P203
P170
Total comprehensive income (loss)
P5
P229
-
P -
(P217)
12
P1,062
(49)
P212
(9)
P170
-
Net income (loss)
Other comprehensive income (loss)
P148
P215
P -
Net increase (decrease) in cash and cash equivalents
P -
P -
P6
P1,486
(P20)
P6,707
(P3)
P4,190
P16
P214
P -
P -
(P111)
Sales
P442
P24
Other comprehensive income (loss) attributable to non-controlling interests
P72
P12
Net income (loss) attributable to non-controlling interests
P -
P1,426
P-
P308
P14
P33
(P1,852)
P2,736
P3,297
Net assets
P16
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
P2,354
P396
1,110
(79)
(1)
P6
169
(142)
P1,449
2,252
(1,630)
(3,923)
P2,890
723
(726)
(151)
P1,862
3,555
(889)
(1,231)
P588
1,805
(38)
(1)
Carrying amount of non-controlling interest
Cash dividends to non-controlling assets
60%
P255
9%
P16
9%
(P944)
42%
P1,140
34%
P1,129
60%
P483
Non-controlling voting interest percentage
Non-controlling percentage on profit or loss
-
BPI
SMHT
34%
SMBTL
7%
PTD
60%
SMBHK
Non-controlling ownership interest percentage
BPI
December 31, 2014
P62
-
P119
(9)
(48)
P173
P141
32
P3,775
P11
P48
P14
P3,113
P1,890
3,622
(1,116)
(1,283)
P1,065
34%
34%
-
SMBHK
P102
(116)
P577
(3)
(356)
P531
P1,099
(568)
P6,924
(P237)
P458
P348
P2,465
P2,529
641
(567)
(138)
P1,027
42%
42%
-
PTD
P25
(1)
P62
(6)
(30)
(P94)
(P204)
110
P1,691
P56
(P104)
P -
(P1,632)
P1,362
2,440
(1,521)
(3,913)
(P833)
9%
51%
-
SMBTL
December 31, 2013
The following table summarizes the financial information relating to each of the Group’s subsidiaries that has material non-controlling interests:
P -
-
P -
(P2)
P (2)
P -
(P1)
P -
P -
P32
P6
168
(142)
P17
9%
51%
-
SMHT
2014 ANNUAL REPORT
69
5/15/15 1:51 PM
SMBI FS 2014 C5 6.indd 70
(1)
857
11,754
91
(2)
37
11,880
37,789
708
(71)
66
38,492
7,995
-
2
326
103
681
29,503
1,376
(131)
33
30,781
-
4
51
7
(2)
56
7
413
34
(12)
435
2
129
25
(1)
1
154
(1)
511
93
(45)
(1)
558
170
4,453
244
(2)
10
4,705
499
23,946
973
(69)
23
24,873
-
-
-
-
December 31, 2013
Additions
Disposals/reclassifications
Currency translation adjustments
December 31, 2014
Forward
27,672
1,435
(285)
46
5
(4)
394
34
(22)
96
31
-
60,529
578
78
(144)
547
105
4,085
226
(28)
327
1
277
50
(1)
85
20
(2)
533
25
(12)
324
4
(1)
-
2,094
6
11
2
59,637
927
(140)
P56,877
1,022
(356)
P341
(62)
(2)
Total
P75
9
(5)
Construction
in Progress
P508
36
(22)
Tools and
Other
Equipment
P293
29
-
Leasehold
Improvements
22,473
1,061
(87)
7,997
880
29
(51)
636
1,433
(6)
-
P11,036
115
(33)
P35,669
785
(98)
P919
110
(149)
Transportation
Equipment
P8,036
(47)
Buildings and
Improvements
Office
Equipment,
Furniture and
Fixtures
-
Accumulated Depreciation and Amortization
January 1, 2013
Additions
Disposals/reclassifications
Currency translation adjustments
December 31, 2014
December 31, 2013
Additions
Disposals/reclassifications
Currency translation adjustments
Cost
January 1, 2013
Additions
Disposals/reclassifications
Currency translation adjustments
Land
Machinery and
Equipment
The movements in this account are as follows:
11. Property, Plant and Equipment
70
SAN MIGUEL BREWERY INC.
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SMBI FS 2014 C5 6.indd 71
35
-
-
P7,995
P7,997
December 31, 2014
Net Book Value
December 31, 2013
December 31, 2014
P4,907
P5,041
2,268
8
2,260
-
235
P2,025
Buildings and
Improvements
9
P290
P356
-
13
(4)
1
P12
Transportation
Equipment
1
1
P172
P194
-
-
-
P1
Leasehold
Improvements
P73
P80
39
-
40
(1)
3
P37
P33
P20
14
-
14
-
1
P13
Tools and
Other
Equipment
P326
P277
-
-
-
-
P -
Construction
in Progress
P20,120
P20,544
9,628
43
9,590
(5)
924
P8,666
Total
Depreciation and amortization charged to operations amounted to P1,376, P1,435 and P1,466 in 2014, 2013 and 2012, respectively (Notes 19, 20 and 21). No interest
was capitalized in 2014 and 2013. Reversal of impairment, net of the related depreciation, recognized in profit or loss amounted to P123 in 2012.
P6,322
P6,581
7,297
7,262
-
684
-
-
P6,578
P -
December 31, 2013
Disposals/reclassifications
Currency translation adjustments
Accumulated Impairment Losses
January 1, 2013
Currency translation adjustments
Land
Machinery and
Equipment
Office
Equipment,
Furniture and
Fixtures
2014 ANNUAL REPORT
71
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72
SAN MIGUEL BREWERY INC.
12. Investment Property
The movements in investment property, including the effects of currency translation adjustments are as follows:
Land and Land
Improvements
Buildings and
Improvements
Total
P545
7
26
578
694
3
1,275
P336
1
27
364
1
2
367
P881
8
53
942
695
5
1,642
57
8
6
71
8
79
121
7
10
138
8
1
147
178
15
16
209
16
1
226
P507
P1,196
P226
P220
P733
P1,416
Cost
January 1, 2013
Additions
Currency translation adjustments
December 31, 2013
Additions
Currency translation adjustments
December 31, 2014
Accumulated Depreciation and Amortization
January 1, 2013
Additions
Currency translation adjustments
December 31, 2013
Additions
Currency translation adjustments
December 31, 2014
Net Book Value
December 31, 2013
December 31, 2014
-
No impairment loss was recognized in 2014, 2013 and 2012.
The fair value of investment property amounting to P2,693 and P1,944 as of December 31, 2014 and 2013, respectively,
has been categorized as Level 3 in the fair value hierarchy based on the inputs used in the valuation techniques (Note 4).
The fair value of investment property was determined by external, independent property appraisers having appropriate
recognized professional qualifications and recent experience in the location and category of the property being valued.
The independent appraisers provide the fair value of the Group’s investment property on a regular basis.
Valuation Technique and Significant Unobservable Inputs
Domestic. The market value was determined using the Sales Comparison Approach. The Sales Comparison Approach
considers the sale of similar or substitute property, registered within the vicinity, and the related market data. The
estimated value is established by process involving comparison. The property being valued is then compared with
sales of similar property that have been transacted in the market. Listings and offerings may also be considered. The
observable inputs to determine the market value of the property are the following: location characteristics, size, time
element, quality and prospective use, bargaining allowance, and marketability.
The rental value of the subject property was determined using the Income Approach. Under the Income Approach, the
market value of the property is determined first, and then proper capitalization rate is applied to arrive at its rental value.
The rental value of the property is determined on the basis of what a prudent lessor or a prospective lessee are willing to
pay for its use and occupancy considering the prevailing rental rates of similar property and/or rate of return a prudent
lessor generally expects on the return on its investment. A study of current market conditions indicates that the return
on capital for similar real estate investment ranges from 3% to 5%.
International. The valuation is determined using the Investment Approach which considers the capitalization of net rent
income receivable from existing tenancies and the reversionary value of the property after tenancies expire by reference
to market sales transactions. The significant unobservable input in the fair value measurement is the discount rate, which
ranged from 2.9% to 3.4%.
SMBI FS 2014 C5 6.indd 72
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2014 ANNUAL REPORT
73
13. Intangible Assets
The movements in this account are as follows:
Cost
December 31, 2012
Additions
Disposals/reclassifications
Currency translation adjustments
December 31, 2013
Additions
Disposals/reclassifications
Currency translation adjustments
December 31, 2014
Accumulated Amortization
December 31, 2012
Additions
Disposals/reclassifications
Currency translation adjustments
December 31, 2013
Additions
Disposals/reclassifications
Currency translation adjustments
December 31, 2014
Accumulated Impairment Losses
December 31, 2012
Currency translation adjustments
December 31, 2013
Additions
Currency translation adjustments
December 31, 2014
Net Book Value
December 31, 2013
December 31, 2014
Computer
Software
and Other
Intangibles
Trademarks
and Brand
Names
Licenses
Land Use
Rights
P33,517
-
P1,832
3
-
P1,016
-
P110
1
(1)
P36,475
4
(1)
124
33,641
-
18
1,853
4
-
104
1,120
-
3
113
3
1
249
36,727
7
1
12
33,653
4
1,861
6
1,126
1
118
23
36,758
35
26
15
282
22
-
-
-
3
38
-
-
-
41
9
38
50
97
4
(1)
Total
440
41
(1)
31
335
23
-
3
103
4
-
37
517
36
-
2
360
1
108
3
556
177
-
5
4
186
14
191
-
-
1
6
4
1
15
201
1
2
193
-
6
5
2
204
P1,812
P1,811
P779
P760
P6
P5
P36,009
P35,998
P33,412
P33,422
-
Trademarks and brand names with indefinite useful lives amounted to P33,422 and P33,412 as of December 31, 2014 and
2013, respectively.
Licenses with indefinite useful lives amounted to P1,788 and P1,784 as of December 31, 2014 and 2013, respectively.
Licenses with finite useful lives amounted to P23 and P28 as of December 31, 2014 and 2013, respectively.
SMBI FS 2014 C5 6.indd 73
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74
SAN MIGUEL BREWERY INC.
Trademarks and Brand Names
a. Domestic Operations
The recoverable amount of the trademarks and brand names has been determined based on a valuation using cash
flow projections (value in use) covering a five-year period based on long range plans approved by management.
Cash flows beyond the five-year period are extrapolated using a determined constant growth rate to arrive at its
terminal value. The 2% growth rate used is consistent with the long-term average growth rate for the industry. The
discount rate applied to after tax cash flow projections is 8.00% on December 31, 2014 and 2013.
b. International Operations
The recoverable amount of the trademarks and brand names has been determined based on a valuation using cash
flow projections (value in use) covering a five-year period based on long range plans approved by management.
Cash flows beyond the five-year period are extrapolated using a determined constant growth rate to arrive at its
terminal value. The 2% to 3% growth rate used is consistent with the long-term average growth rate for the industry.
The discount rates applied to after tax cash flow projections range from 6.4% to 16.6% and from 7.4% to 16.0% in
2014 and 2013, respectively.
Management assessed that there is no impairment loss in the value of trademarks and brand names in 2014, 2013 and
2012.
Management believes that any reasonably possible change in the key assumptions on which the recoverable amount of
trademarks and brand names is based would not cause its carrying amount to exceed its recoverable amount.
The calculations of value in use are most sensitive to the following assumptions:
Discount Rate. The Group uses the weighted-average cost of capital as the discount rate, which reflects management’s
estimate of the risk. This is the benchmark used by management to assess operating performance and to evaluate future
investment proposals.
Growth Rate. Revenue growth was projected taking into account the average growth levels experienced over the past
five years and the estimated sales volume and price growth for the next five years.
14. Other Noncurrent Assets
This account consists of:
Note
Deferred containers - net
Bottles
Shells
Others
4
26, 27, 28, 31, 32
2014
2013
P6,924
1,861
8,785
146
P8,931
P6,830
1,920
8,750
161
P8,911
“Others” include unamortized cost of pallets, kegs and CO2 cylinders, defined benefit retirement asset, noncurrent
portion of long-term receivable, and other noncurrent assets.
SMBI FS 2014 C5 6.indd 74
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2014 ANNUAL REPORT
75
The movements in the deferred containers are as follows:
Note
Cost
Balance at beginning of year
Additions
Disposals/reclassification
Currency translation adjustments
Balance at end of year
Accumulated Amortization
Balance at beginning of year
Amortization
Disposals/reclassification
Currency translation adjustments
Balance at end of year
2014
2013
P17,177
2,053
(838)
(5)
18,387
P14,093
3,407
(318)
(5)
17,177
4
8,427
1,453
(274)
(4)
9,602
P8,785
7,084
1,376
(53)
20
8,427
P8,750
Note
2014
2013
26
P3,437
981
P3,770
2,131
26
31, 32
286
27
216
22
591
573
23
74
463
P6,455
724
522
21
20
435
P7,861
21
15. Accounts Payable and Accrued Expenses
This account consists of:
Trade
Payables
Amounts owed to related parties
Nontrade
Amounts owed to related parties
Derivative liabilities
Accruals
Interests
Payroll
Utilities
Contracted services
Materials
Others
Accounts payable and accrued expenses are unsecured and non-interest bearing.
“Others” include accruals for repairs and maintenance, advertising and promotion expenses, freight, trucking and
handling, supplies, dividends payable and other payables.
SMBI FS 2014 C5 6.indd 75
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76
SAN MIGUEL BREWERY INC.
16. Long-term Debt
This account consists of:
Unsecured peso-denominated term notes:
Series B bonds, fixed interest rate of 8.875%
Series C bonds, fixed interest rate of 10.50%
Series D bonds, fixed interest rate of 6.05%
Series E bonds, fixed interest rate of 5.93%
Series F bonds, fixed interest rate of 6.60%
Series G bonds, fixed interest rate of 5.50%
Series H bonds, fixed interest rate of 6.00%
Less current maturities
2014
2013
P 2,793
2,985
9,933
6,944
12,349
2,514
37,518
P37,518
P22,386
2,790
2,979
9,920
6,938
45,013
22,386
P22,627
The amount represents unsecured long-term debt incurred by the Company: (a) to finance its acquisition of SMC’s
interest in IBI and BPI; (b) to support the redemption of the Series A bonds which matured on April 3, 2012; (c) to support
the partial prepayment of the US$300 unsecured loan facility agreement (paid in full in 2013); and (d) to support the
redemption of the Series B bonds which matured on April 4, 2014.
The Company’s unsecured long-term notes comprise the Philippine peso-denominated fixed rate bonds in the aggregate
principal amount of: (a) P2,810 pertaining to the aggregate principal amount of the Series C bonds which remain
outstanding of the P38,800 bonds (P38,800 Bonds) which were issued on April 3, 2009 (P38,800 Bonds Issue Date);
(b) P20,000 (P20,000 Bonds) which were issued on April 2, 2012 (P20,000 Bonds Issue Date); and (c) P15,000 (P15,000
Bonds) which were issued on April 2, 2014 (P15,000 Bonds Issue Date).
The P38,800 Bonds, which originally consisted of the Series A bonds (with a term of three years from the P38,800 Bonds
Issue Date), the Series B bonds (with a term of five years and one day from the P38,800 Bonds Issue Date), and the Series
C bonds (with a term of ten years from the P38,800 Bonds Issue Date), were sold to the public pursuant to a registration
statement that was rendered effective, and permit to sell issued, by the SEC on March 17, 2009. The Series A bonds
matured on April 3, 2012 and were accordingly redeemed by the Company on April 3, 2012. Part of the proceeds of the
Company’s P20,000 Bonds were used to pay such maturity. The Series B bonds with an aggregate principal amount of
P22,400 matured on April 4, 2014 and were accordingly redeemed by the Company on April 4, 2014. The proceeds of
the Company’s P15,000 Bonds were used to partially pay such maturity. Only the Series C bonds remain outstanding
of the P38,800 Bonds and listed in the PDEx for trading. Unamortized debt issue costs related to these long-term debts
amounted to P17 and P34 as of December 31, 2014 and 2013, respectively.
The P20,000 Bonds consist of the Series D bonds (with a term of five years and one day from the P20,000 Bonds Issue Date),
the Series E bonds (with a term of seven years from the P20,000 Bonds Issue Date), and the Series F bonds (with a term
of ten years from the P20,000 Bonds Issue Date). The P20,000 Bonds were sold to the public pursuant to a registration
statement that was rendered effective, and permit to sell issued, by the SEC on March 16, 2012. The Series E bonds and
Series F bonds were listed on the PDEx for trading on April 2, 2012, while the Series D bonds were listed on the PDEx for
trading on October 3, 2012. Unamortized debt issue costs related to these long-term debts amounted to P138 and P163
as of December 31, 2014 and 2013, respectively.
The P15,000 Bonds consist of the Series G bonds (with a term of seven years from the P15,000 Bonds Issue Date) and
Series H bonds (with a term of ten years from the P15,000 Bonds Issue Date). The P15,000 Bonds were sold to the public
pursuant to a registration statement that was rendered effective, and permit to sell issued, by the SEC on March 17, 2014
and were listed on the PDEx for trading on April 2, 2014. Unamortized debt issue costs related to these long-term debts
amounted to P137 as of December 31, 2014.
Interest on the Series C bonds are paid semi-annually, every April 3 and October 3 of each year. Interest on the P20,000
Bonds are paid semi-annually every April 2 and October 2 of each year (each P20,000 Bonds Interest Payment Date),
save for the first interest payment of the Series D bonds which was made on October 3, 2012. The Company may (but
shall not be obligated to) redeem all (and not a part only) of the outstanding P20,000 Bonds on the day after the 10th
SMBI FS 2014 C5 6.indd 76
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2014 ANNUAL REPORT
77
P20,000 Bonds Interest Payment Date for the Series E bonds, and the 14th P20,000 Bonds Interest Payment Date for the
Series F Bonds. Interest on the P15,000 Bonds are paid every April 2 and October 2 of each year (each P15,000 Bonds
Interest Payment Date). The Company may also (but shall likewise not be obligated to) redeem all (and not a part only) of
the outstanding P15,000 Bonds on the 11th P15,000 Bonds Interest Payment Date for the Series G bonds, and on the 14th,
16th or 18th P15,000 Bonds Interest Payment Dates for the Series H bonds.
On December 5 and 16, 2014, the BOD (through the Executive Committee in the December 16, 2014 meeting) approved
the conduct of a consent solicitation process for the holders of record as of December 15, 2014 of the Series C bonds,
Series D bonds, Series E bonds and Series F bonds (Record Bondholders) for the amendment of the negative covenants
in the trust agreements covering the Series C bonds, Series D bonds, Series E bonds and Series F bonds to align the same
with the negative covenants of the Series G bonds and Series H bonds, and allow the Company to engage, or amend
its Articles of Incorporation to engage, in the business of manufacturing, selling, distributing, and/or dealing, in any
and all kinds of beverage products (Negative Covenant Amendment). The Company obtained the consents of Record
Bondholders representing 90% of the outstanding aggregate principal amount of the Series C bonds and 81.05% of
the outstanding aggregate principal amount of the Series D bonds, Series E bonds and Series F bonds for the Negative
Covenant Amendment. The supplemental agreements amending the trust agreements covering the Series C bonds,
Series D bonds, Series E bonds and Series F bonds to reflect the Negative Covenant Amendment were executed by the
Company and the respective trustees of the said bonds on February 2, 2015.
As of December 31, 2014 and 2013, the Company is in compliance with its debt covenants.
As of December 31, the movements in debt issue costs are as follows:
Note
Balance at beginning of year
Addition
Amortization
Balance at end of year
23
2014
2013
P197
149
(54)
P292
P377
(180)
P197
Repayment Schedule
As of December 31, 2014, the annual maturities of long-term debt are as follows:
Year
2017
2019
2021
2022
2024
Gross
Amount
Debt Issue
Costs
Net
P3,000
12,810
12,462
7,000
2,538
P37,810
P15
84
113
56
24
P292
P2,985
12,726
12,349
6,944
2,514
P37,518
Interest expense recognized in the consolidated statements of income amounted to P2,668, P3,692 and P3,757 in 2014,
2013 and 2012, respectively (Note 23).
Valuation Technique
The market value was determined using the market comparison technique. The fair values are based on PDEX. The Bonds
are traded in an active market and the quotes reflect the actual transactions in similar instruments.
The fair value of long-term debt amounting to P42,022 and P49,311 as of December 31, 2014 and 2013, respectively, has
been categorized as Level 1 in the fair value hierarchy based on the inputs used in the valuation techniques.
SMBI FS 2014 C5 6.indd 77
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78
SAN MIGUEL BREWERY INC.
17. Income Taxes
Deferred tax assets and liabilities arise from the following:
Items recognized in profit or loss
Allowance for impairment losses on receivables
Net defined benefit retirement obligation
Allowance for inventory losses
Unrealized gains on derivatives
Unrealized foreign exchange gains - net
Others
Items recognized directly in other comprehensive income
Equity reserve for retirement plan
2014
2013
P220
200
169
(670)
294
P358
171
144
(18)
(2)
62
1,014
P1,227
1,177
P1,892
The above amounts are reported in the consolidated statements of financial position as follows:
Note
Deferred tax assets
Deferred tax liabilities
4
2014
2013
P1,610
(383)
P1,227
P1,909
(17)
P1,892
The components of income tax expense are shown below:
Current
Deferred
2014
2013
2012
P5,998
82
P6,080
P5,710
(380)
P5,330
P5,881
(41)
P5,840
The reconciliation between the statutory income tax rate on income before income tax and the Group’s effective income
tax rates is as follows:
2014
Statutory income tax rate
Increase (decrease) in income tax rate resulting from:
Income subjected to final tax
Others
Effective income tax rate
SMBI FS 2014 C5 6.indd 78
2013
2012
30.00%
30.00%
30.00%
(0.29)
1.32
31.03%
(0.78)
0.64
29.86%
(1.04)
(1.07)
27.89%
5/15/15 1:51 PM
2014 ANNUAL REPORT
79
18. Capital Stock
Pursuant to the registration statement rendered effective, and permit to sell issued by the SEC on April 28, 2008,
15,488,309,960 common shares of the Company were registered and may be offered for sale at an offer price of P8.00 per
common share.
The Company’s common shares were listed on the PSE on May 12, 2008. Following the SEC’s denial of all requests made
(including the request of the Company) for the extension of the grace period requirement for listed companies to comply
with the PSE’s minimum public ownership requirement and the PSE’s imposition of a trading suspension on the common
shares of the Company effective January 1, 2013 as a result of such denial, the BOD of the Company approved on February
15, 2013, the voluntary delisting of the Company’s common shares from the PSE. A petition for the same was thereafter
filed by SMB with the PSE on February 20, 2013.
To comply with the PSE requirements on voluntary delisting, the Company undertook a tender offer to buy back all of
the common shares held by the public (other than those held by its major stockholders and directors) at an offer price
of P20.00 per common share. The tender offer commenced on March 4, 2013 and ended on April 3, 2013. A total of
51,425,799 common shares were tendered and accepted by the Company, equivalent to 0.3337% of its total issued and
outstanding shares, and were accordingly recorded as treasury shares.
Thereafter, the PSE approved the petition for the voluntary delisting of the Company in its April 24, 2013 board meeting
and has authorized the delisting of the Company’s common shares from its official registry effective May 15, 2013.
As of December 31, 2014 and 2013, the Company has a total of 15,359,053,161 issued and outstanding common shares
(excluding the 51,425,799 common shares tendered and accepted by the Company during the tender offer and recorded
as treasury shares) and 1,210 and 1,332 shareholders of record, respectively. As of December 31, 2014 and 2013, the
Certificate Authorizing Registration (CAR) for 41,465,000 common shares and 28,005,900 common shares, respectively,
out of the 51,425,799 common shares tendered and accepted during the tender offer (equivalent to 80.63% and 54%,
respectively, of the total tendered and accepted) were secured and presented to the Company. The CARs for the remaining
common shares tendered and accepted during the tender offer have yet to be issued by the Bureau of Internal Revenue
(BIR).
The movements in the number of outstanding shares of common stock are as follows:
2014
2013
15,359,053,161
15,359,053,161
15,410,478,960
51,425,799
15,359,053,161
2014
2013
2012
P27,719
10,004
P24,537
9,766
P21,974
10,507
2,115
1,298
2,136
1,272
2,426
1,256
1,044
413
21
180
P42,794
1,035
345
20
294
P39,405
1,138
424
19
286
P38,030
Balance at beginning of year
Less redemption of common shares
Balance at end of year
19. Cost of Sales
This account consists of:
Note
Taxes and licenses
Inventories
Communications, light,
fuel and water
Personnel
Depreciation and
amortization
Repairs and maintenance
Rent
Others
22
21
4, 27
Taxes and licenses include excise, real property and business taxes.
SMBI FS 2014 C5 6.indd 79
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SAN MIGUEL BREWERY INC.
20. Selling and Administrative Expenses
This account consists of:
Selling
Administrative
2014
2013
2012
P6,292
7,840
P14,132
P6,820
7,274
P14,094
P7,549
7,668
P15,217
2014
2013
2012
P2,107
1,665
1,639
417
164
154
P2,076
1,605
1,786
421
172
169
P2,288
1,571
2,235
426
161
170
119
126
125
103
91
100
87
99
91
61
217
P6,820
177
206
P7,549
Selling expenses consist of:
Note
Freight, trucking and
handling
Personnel
Advertising and promotion
Rent
Taxes and licenses
Travel and transportation
Communications, light,
fuel and water
Depreciation and
amortization
Repairs and maintenance
Provision for impairment losses on receivables
Others
22
4, 27
21
(431)
264
P6,292
Administrative expenses consist of:
Personnel
Depreciation and
amortization
Advertising and promotion
Provision for inventory
losses
Contracted services
Management fees
Communications, light,
fuel and water
Taxes and licenses
Rent
Professional fees
Travel and transportation
Repairs and maintenance
Research and development
Shipping expenses
Others
SMBI FS 2014 C5 6.indd 80
Note
2014
2013
2012
22
P2,812
P2,554
P2,548
21
1,767
905
1,765
692
2,146
877
528
466
286
368
373
265
181
335
277
171
148
130
115
109
90
31
16
266
P7,840
116
124
142
156
137
194
53
22
313
P7,274
107
98
114
118
143
213
70
27
414
P7,668
30
4, 27
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2014 ANNUAL REPORT
81
21. Depreciation and Amortization
Depreciation and amortization are distributed as follows:
Cost of sales:
Property, plant and equipment
Selling and administrative expenses:
Deferred containers
Property, plant and equipment
Others
Note
2014
2013
2012
11, 19
P1,044
P1,035
P1,138
14
1,453
1,376
1,832
11
12, 13, 14
332
85
1,870
P2,914
400
89
1,865
P2,900
328
85
2,245
P3,383
“Others” include amortization of investment property, computer software and other intangible assets, pallets, kegs and
CO2 cylinders.
22. Personnel Expenses
This account consists of:
Salaries and wages
Other employee benefits
Retirement costs
Note
2014
2013
2012
28
P3,339
1,804
632
P5,775
P3,399
1,450
582
P5,431
P3,180
1,668
527
P5,375
Note
2014
2013
2012
19
20
20
P1,298
1,665
2,812
P5,775
P1,272
1,605
2,554
P5,431
P1,256
1,571
2,548
P5,375
Note
2014
2013
2012
16
P2,668
P3,692
P3,757
16
54
P2,722
180
P3,872
246
69
P4,072
Personnel expenses are distributed as follows:
Cost of sales
Selling expenses
Administrative expenses
23. Interest Expense and Other Financing Charges
This account consists of:
Interest expense
Amortization of debt issue costs
Other financing costs
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SAN MIGUEL BREWERY INC.
24. Other Income (Charges)
This account consists of:
Rental income
Foreign exchange gains (losses) - net
Gain (loss) on sale of:
Property and equipment
Investment
Loss on derivatives - net
Bank charges
Others
Note
2014
2013
2012
4, 27
P84
P65
P74
(60)
(449)
577
4
(9)
(3)
34
P50
76
1
(47)
(6)
66
(P294)
31
10
32
-
(4)
(9)
(11)
(41)
P586
25. Reversals on Impairment of Noncurrent Assets
The Group has determined that no further impairment losses nor reversals of previously recognized impairment losses
are required in 2014 and 2013. The recoverable amount, which is the value in use, exceeds the carrying amount.
Reversals on impairment of noncurrent assets are reported in the consolidated statement of income as follows:
2012
Provision for impairment losses:
Property, plant and equipment
Others
Reversal of impairment losses - net
US
Dollar
Peso
Equivalent
($0.3)
(1.6)
(1.9)
35.1
$33.2
(P11)
(70)
(81)
1,448
P1,367
The Group assessed the recoverable amounts of the cash-generating unit to which these assets belong (China cashgenerating unit) and as a result, the carrying amount of the assets in the China cash-generating unit was written down
by US$0.5 (P20) in 2012.
a. Mainland China Operations
In 2012, the Group noted that fierce market competition resulted in the decline in the demand for its products in
mainland China compared to previous sales forecasts. Consequently, operating losses were incurred. These factors
are indications that non-current assets of the operations in mainland China, comprising mainly of the production
plant located in Shunde, Guangdong Province and other tangible assets, may be impaired.
The estimates of recoverable amount were based on the assets’ fair values less costs to sell, determined by reference
to the observable market prices for similar assets. In estimating this amount, the Group engaged an independent
firm of surveyors, LCH (Asia-Pacific) Surveyors Limited, that has among its staff, members of the Hong Kong Institute
of Surveyors.
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2014 ANNUAL REPORT
The details of the losses are as follows:
2012
Provision for impairment losses:
Property, plant and equipment
Others
US
Dollar
Peso
Equivalent
($0.3)
(0.2)
($0.5)
(P11)
(9)
(P20)
b. Hong Kong (HK) Manufacturing Operations (SMBHK)
In 2012, there was a change in the estimates used to determine the HK cash-generating unit’s recoverable amount
as the Group was able to determine fair value less cost to sell based on a reliable estimate of the amount obtainable
from the sale of most of the assets belonging to the HK cash-generating unit under an arm’s length transaction
between knowledgeable and willing parties, due to recent comparable transaction data becoming available. The
fair value less costs to sell of the HK cash-generating unit was greater than the value in use as at December 31, 2012.
Hence, the Group determined the recoverable amount based on the fair value less costs to sell and reversed a part
of previously recognized impairment losses in respect of the HK cash-generating unit to the extent that the revised
carrying amount of individual assets does not exceed the smaller of: (i) the fair value less costs to sell as at December
31, 2012; and (ii) what would have been determined had no impairment loss been recognized in prior years.
The estimates of the HK cash-generating unit’s fair value less costs to sell were determined by reference to the
observable market prices for similar assets. In estimating this amount, the Group engaged an independent firm
of surveyors, LCH (Asia-Pacific) Surveyors Limited, that has among its staff, members of the Hong Kong Institute of
Surveyors.
Also in 2012, the Group noted an increase in the investment property’s recoverable amount, mainly arising from an
increase in the fair value less costs to sell, which exceeded the relevant carrying amount. Hence, the Group reversed
previously recognized impairment losses on the investment property to the extent that the revised carrying amount
does not exceed the smaller of: (i) the fair value less costs to sell as at December 31, 2012; and (ii) what would have
been determined had no impairment loss been recognized in prior years.
The estimates of the investment property’s fair value less costs to sell were determined by reference to the observable
market prices for similar assets. In estimating this amount, the Group engaged an independent firm of surveyors,
LCH (Asia-Pacific) Surveyors Limited, that has among its staff, members of the Hong Kong Institute of Surveyors.
A reversal of an impairment loss was made to the carrying amount that would have been determined had no
impairment loss been recognized in prior years with respect to interests in leasehold land held for own use under
operating leases, as there has been a favorable change in the estimates used to determine the recoverable amount.
The details of the reversal are as follows:
2012
Reversal of impairment losses - net
US Dollar
Peso Equivalent
$35.1
P1,488
c.PTD
SMBI FS 2014 C5 6.indd 83
In 2012, the Company performed an impairment testing of PTD’s investment in shares of stock due to the current
business condition in PT San Miguel Indonesia Foods and Beverages (PTSMIFB). The test resulted in an impairment
loss of US$1.4 (P61) in 2012.
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84
SAN MIGUEL BREWERY INC.
26. Related Party Disclosures
The Group, in the normal course of business, purchases products and services from and sells products to related parties.
Transactions with related parties are made on an arm’s length basis and at normal market prices and terms. An assessment
is undertaken at each financial year by examining the financial position of the related party and the market in which the
related party operates.
Year
Revenue
From
Related
Parties
Purchases
From
Related
Parties
Amounts
Owed by
Related
Parties
Retirement plan
(Note 28)
2014
2013
2012
P -
P -
P -
Parent
2014
2013
2012
Shareholder
2014
2013
2012
Associate of
Ultimate Parent
2014
2013
2012
Associate of
Parent
2014
2013
2012
-
Under Common
Control
2014
2013
2012
2014
2013
2012
238
292
199
P250
P309
P209
11
9
10
-
-
-
965
999
643
6
-
4
4,620
6,967
6,515
P5,585
P7,970
P7,158
Terms
Conditions
P10
15
18
On demand;
non-interest
bearing
Unsecured
no impairment
381
565
477
On demand;
non-interest
bearing
Unsecured
no impairment
1
4
4
-
On demand;
non-interest
bearing
Unsecured
no impairment
2
-
On demand;
non-interest
bearing
Unsecured
no impairment
20
13
26
1
2
Amounts
Owed to
Related
Parties
-
1
-
1
1,232
On demand;
non-interest
bearing
Unsecured
no impairment
129
135
168
P150
P155
P198
876
1,766
1,790
P1,267
P2,347
P3,517
On demand;
non-interest
bearing
Unsecured;
with
impairment
-
All current outstanding balances with the related parties are expected to be settled in cash within 12 months as of the
reporting date. None of the balances are secured.
a. Amounts owed by related parties consist of trade and nontrade receivables, share in expenses and tolling services.
Amounts owed by related parties included under “Other noncurrent assets” account in the consolidated statements
of financial position amounted to P11 and P19 as of December 31, 2014 and 2013, respectively (Note 14). Amounts
owed by related parties included under “Prepaid expenses and other current assets” account in the consolidated
statements of financial position amounted to P19 and P18 as of December 31, 2014 and 2013, respectively (Note 9).
b. Amounts owed to related parties consist of trade payables, professional fees, insurance and management fees
arising from purchases of materials, bottles, shells, cartons, reimbursement of expenses and services rendered
from/by related parties.
c. The compensation of key management personnel of the Group, by benefit type, follows:
Short-term employee benefits
Retirement costs
Share-based payments
SMBI FS 2014 C5 6.indd 84
2014
2013
2012
P152
24
P176
P137
17
3
P157
P133
19
5
P157
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2014 ANNUAL REPORT
85
27. Leasing Agreements
Operating Leases
Group as Lessor
The Group leases some of its investment property, offices and machinery and equipment under operating lease
arrangements to third parties. The leases typically run for a period of one to five years. Some lease agreements provide
an option to renew the lease at the end of the lease term and are subject to review to reflect current market rentals.
Lease receivables for the lease of the offices and machinery and equipment are as follows:
Cancellable
Less than one year
Between one and five years
Noncancellable
Less than one year
Between one and five years
2014
2013
P11
3
14
P8
11
19
34
20
54
P68
39
16
55
P74
Rent income recognized in the consolidated statements of income amounted to P84, P65 and P74 in 2014, 2013 and
2012, respectively (Notes 4 and 24).
Group as Lessee
The Group leases the land and buildings where some of its offices and warehouses are situated, and transportation
equipment under operating lease arrangements. The leases typically run for a period of one to ten years. Some leases
provide an option to renew the lease at the end of the lease term and are being subjected to reviews to reflect current
market rentals.
Lease payments for the lease of the land, buildings and transportation equipment are as follows:
Cancellable
Less than one year
Between one and five years
More than five years
Noncancellable
Less than one year
Between one and five years
2014
2013
2012
P119
79
31
229
P109
90
38
237
P118
80
7
205
8
14
22
P251
12
26
38
P275
9
24
33
P238
Rent expense recognized in the consolidated statements of income amounted to P568, P583 and P559 in 2014, 2013 and
2012, respectively (Notes 4, 19 and 20).
SMBI FS 2014 C5 6.indd 85
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86
SAN MIGUEL BREWERY INC.
28. Retirement Plans
The Company and some of its international subsidiaries have funded, noncontributory, defined benefit retirement plans
(collectively, the Retirement Plans) covering a certain number of their permanent employees. The Company’s Retirement
Plan is a final salary plan. Contributions and costs are determined in accordance with the actuarial studies made for
the Retirement Plans. Annual cost is determined using the projected unit credit method. The Group’s latest actuarial
valuation date is December 31, 2014. Valuations are obtained on a periodic basis.
The Company’s Retirement Plan, San Miguel Brewery Inc. Retirement Plan (SMBRP) is registered with the BIR as a taxqualified plan under Republic Act No. 4917, as amended. The control and administration of the Group’s retirement plans
are vested in the Board of Trustees (BOT) of each Retirement Plan. The BOT of the Group’s Retirement Plans exercises
voting rights over the shares and approve material transactions. SMBRP’s accounting and administrative functions are
undertaken by the Retirement Funds Office of SMC.
Retirement benefits recognized in profit or loss by the Company amounted to P569, P518 and P467 in 2014, 2013 and
2012, respectively, while those charged by the subsidiaries amounted to P63, P64 and P60 in 2014, 2013 and 2012,
respectively. The Group’s annual contributions to the Retirement Plans consist of payments covering the current service
cost.
The following table shows a reconciliation of the net defined benefit retirement liability and its components:
Present Value of Defined
Benefit Retirement Obligation
Balance at beginning of year
Recognized in profit or loss
Current service cost
Interest expense
Interest income
Administrative expense paid out of plan assets
Recognized in other comprehensive income
Remeasurements:
Actuarial (gains) losses arising from:
Experience adjustments
Changes in financial assumptions
Changes in demographic assumptions
Return on plan asset excluding interest
Others
Benefits paid
Contributions
Transfers from other plans
Translation adjustment
Balance at end of year
Fair Value of
Plan Assets
Net Defined Benefit
Retirement Liability
2014
2013
2014
2013
2014
2013
P10,085
P9,106
P5,982
P5,737
P4,103
P3,369
469
408
-
394
454
-
245
-
269
(3)
469
408
(245)
-
394
454
(269)
3
877
848
245
266
632
582
(12)
(179)
(18)
-
216
420
(5)
-
317
(332)
(12)
(179)
(18)
(317)
216
420
(5)
332
(209)
631
317
(332)
(526)
963
(756)
(1)
(507)
14
(7)
(747)
923
-
(501)
751
14
47
(9)
(923)
(1)
(6)
(751)
(54)
(757)
(500)
176
311
(933)
(811)
P6,720
P5,982
P9,996
P10,085
P3,276
P4,103
As of December 31, 2014 and 2013, the defined benefit retirement liability included as part of “Other noncurrent
liabilities” account in the consolidated statements of financial position amounted to P3,280 and P4,115, respectively.
As of December 31, 2014 and 2013, the defined benefit retirement asset included as part of “Other noncurrent assets”
account in the consolidated statements of financial position amounted to P4 and P5, respectively.
The retirement benefits amounting to P632, P582 and P527 in 2014, 2013 and 2012, respectively, are recognized as part
of “Personnel expenses account” in the consolidated statements of income (Note 22).
SMBI FS 2014 C5 6.indd 86
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2014 ANNUAL REPORT
87
The carrying amounts of the Group’s retirement fund approximate fair values as of December 31, 2014 and 2013.
The Group’s plan assets consist of the following:
In Percentages
2014
2013
Investment in marketable securities and shares of stock
Investment in pooled funds:
Stock trading portfolio
Fixed income portfolio
Others
74
72
15
4
7
5
20
3
Investments in Marketable Securities
As of December 31, 2014, the plan assets include:
28,549,900 common shares of the Company with fair market value per share of P20;
2,035,000 preferred shares of Petron Corporation with fair market value per share of P101.8;
695,432 common shares of Ginebra San Miguel, Inc. (GSMI) with fair market value per share of P15.88;
556,740 common shares of SMC with a fair market value per share of P73.80;
2,615,420 Subseries A preferred shares of SMC with fair market value per share of P75.60;
53,000 Subseries B preferred shares of SMC with fair market value per share of P78.15; and
55,674 common shares of Top Frontier Holdings Inc. with fair market value per share of P124.
As of December 31, 2013, the plan assets include:
28,549,900 common shares of the Company with fair market value per share of P20;
2,035,000 preferred shares of Petron Corporation with fair market value per share of P109;
695,432 common shares of GSMI with fair market value per share of P23; and
556,740 common shares of SMC with a fair market value per share of P62.50.
The fair market value per share of the above marketable securities is determined based on quoted market prices in
active markets as of reporting date (Note 4).
SMBRP recognized losses on the investment in marketable securities of SMC and its subsidiaries amounting to P11 and
P272 in 2014 and 2013, respectively.
Dividend income of SMBRP from the investment in shares of stock of SMC and its subsidiaries amounted to P48 and P46
in 2014 and 2013, respectively.
Investments in Shares of Stock
As of December 31, 2014 and 2013, SMBRP has an investment in BPI representing 4,708,494 and 2,389,494 preferred
shares, respectively, accounted for under the cost method.
Interest in Pooled Funds
Investments in pooled funds were established mainly to put together a portion of the funds of the Retirement Plans
of SMC and its domestic subsidiaries (including SMBRP) to be able to draw, negotiate and obtain the best terms and
financial deals for the investments resulting from big volume transactions. The BOT approved the percentage of assets
to be allocated for fixed income instruments and equities. SMBRP has set maximum exposure limits for each type of
SMBI FS 2014 C5 6.indd 87
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88
SAN MIGUEL BREWERY INC.
permissible investments in marketable securities and deposit instruments. The BOT may, from time to time, in the
exercise of its reasonable discretion and taking into account existing investment opportunities, review and revise such
allocation and limits.
Approximately 6.74% and 5.99% of the Retirement Plans investment in pooled funds in stock trading portfolio include
investments in shares of stock of SMC and its subsidiaries as of December 31, 2014 and 2013, respectively.
Approximately 7.67% and 5.46% of the Retirement Plans investment in pooled funds in fixed income portfolio include
investment in shares of stock of SMC and its subsidiaries as of December 31, 2014 and 2013, respectively.
Others
Others include cash and cash equivalents, interest receivable, receivables from BLI and other retirement plans of the
SMC Group.
The BOT reviews the level of funding required for the retirement fund. Such a review includes the asset-liability matching
(ALM) strategy and investment risk management policy. The Group’s ALM objective is to match maturities of the plan
assets to the retirement benefit obligation as they fall due. The Group monitors how the duration and expected yield of
the investments are matching the expected cash outflows arising from the retirement benefit obligation. The Group is
expected to contribute P927 to the retirement plan in 2015.
The Retirement Plans expose the Group to certain risks such as investment risk, interest rate risk, longevity risk and
salary risk as follows:
Investment and Interest Rate Risks. The present value of the defined benefit retirement obligation is calculated using a
discount rate determined by reference to market yields to government bonds. Generally, a decrease in the interest rate
of a reference government bond will increase the defined benefit retirement obligation. However, this will be partially
offset by an increase in the return on the Retirement Plans’ investments and if the return on plan asset falls below
this rate, it will create a deficit in the Retirement Plans. Due to the long-term nature of the defined benefit retirement
obligation, a level of continuing equity investments is an appropriate element of the long-term strategy of the Group to
manage the Retirement Plans efficiently.
Longevity and Salary Risks. The present value of the defined benefit retirement obligation is calculated by reference to
the best estimates of: (1) the mortality of the plan participants, both during and after employment, and (2) the future
salaries of the plan participants. Consequently, increases in the life expectancy and salary of the plan participants will
result in an increase in the defined benefit retirement obligation.
The overall expected rate of return is determined based on the historical performance of the investments.
The principal actuarial assumptions used to determine retirement benefits are as follows:
In Percentages
2014
2013
1.7 - 8.0
5.0 - 10.0
Discount rate
Salary increase rate
2.1 - 8.6
5.0 - 10.0
Assumptions for mortality and disability rate are based on published statistics and mortality and disability tables.
As of December 31, 2014 and 2013, the weighted average duration of defined benefit retirement obligation is 6.80 - 11.07
years and 7.50 - 11.25 years, respectively.
As of December 31, 2014 and 2013, the reasonably possible changes to one of the relevant actuarial assumptions, while
holding all other assumptions constant, would have affected the defined benefit retirement obligation by the amounts
below.
Defined Benefit Retirement Obligation
2014
1 Percent
Increase
Discount rate
Salary increase rate
SMBI FS 2014 C5 6.indd 88
(P1,980)
2,133
2013
1 Percent
Decrease
P2,159
(2,044)
1 Percent
Increase
(P1,998)
2,112
1 Percent
Decrease
2,144
(1,999)
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2014 ANNUAL REPORT
89
BLI has amounts owed to SMBRP amounting to P10 and P15 as of December 31, 2014 and 2013, respectively, included
as part of “Accounts payable and accrued expenses” account in the consolidated statements of financial position
(Notes 15 and 26). Transactions with the Retirement Plans are made at normal market prices. Outstanding balances as of
December 31, 2014 and 2013 are unsecured and settlements are made in cash.
29. Earnings Per Share
Basic and diluted EPS is computed as follows:
Net income attributable to equity
holders of the Company (a)
Weighted average number of
shares outstanding
(in millions) (b)
Basic/diluted EPS (a/b)
2014
2013
2012
P13,029
P12,051
P14,360
15,359
P0.85
15,372
P0.78
15,410
P0.93
As of December 31, 2014, 2013 and 2012, the Group has no dilutive debt or equity instruments.
30. Employee Stock Purchase Plan
SMC offers shares of stocks to employees of SMC and its subsidiaries under the ESPP. Under the ESPP, all permanent
Philippine-based employees of SMC and its subsidiaries who have been employed for a continuous period of one year
prior to the subscription period will be allowed to subscribe at 15% discount to the market price equal to the weighted
average of the daily closing prices for three months prior to the offer period. A participating employee may acquire at
least 100 shares of stock through payroll deductions.
The ESPP requires the subscribed shares and stock dividends accruing thereto to be pledged to SMC until the subscription
is fully paid. The right to subscribe under the ESPP cannot be assigned or transferred. A participant may sell his shares
after the second year from exercise date.
The ESPP also allows subsequent withdrawal and cancellation of participants’ subscriptions under certain terms and
conditions.
Expenses for share-based payments charged to operations under “Management fees” account amounted to P17 and P48
in 2013 and 2012, respectively (Note 20).
31. Financial Risk and Capital Management Objectives and Policies
Objectives and Policies
The Group has significant exposure to the following financial risks primarily from its use of financial instruments:
Interest Rate Risk
Foreign Currency Risk
Liquidity Risk
Credit Risk
This note presents information about the exposure to each of the foregoing risks, objectives, policies and processes for
measuring and managing these risks, and for management of capital.
The principal non-trade related financial instruments of the Group include cash and cash equivalents, AFS financial
assets, noncurrent receivables, long-term loans and derivative instruments. Cash and cash equivalents are used mainly
for working capital management purposes. The trade-related financial assets and financial liabilities of the Group such
as trade and other receivables and accounts payable and accrued expenses arise directly from and are used to facilitate
its daily operations.
SMBI FS 2014 C5 6.indd 89
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90
SAN MIGUEL BREWERY INC.
The outstanding derivative instruments of the Group are intended mainly for risk management purposes. The Group uses
derivatives to manage its exposures to foreign currency and interest rate risks arising from the operating and financing
activities.
The BOD has the overall responsibility for the establishment and oversight of the risk management framework of the
Group. The risk management policies of the Group are established to identify and analyze the risks faced by the Group,
to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and activities. The Group, through its training and
management standards and procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
The Audit Committee oversees how management monitors compliance with the risk management policies and
procedures of the Group and reviews the adequacy of the risk management framework in relation to the risks faced
by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both
regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit
Committee.
The BOD constituted the Audit Committee to assist the BOD in fulfilling its oversight responsibility of the Group’s
corporate governance process relating to the: a) quality and integrity of the financial statements and financial reporting
process and the systems of internal accounting and financial controls; b) performance of the internal auditors; c) annual
independent audit of the financial statements, the engagement of the independent auditors and the evaluation of
the independent auditors’ qualifications, independence and performance; d) compliance with legal and regulatory
requirements, including the disclosure control and procedures; e) evaluation of management’s process to assess and
manage the Group’s enterprise risk issues; and f ) fulfillment of the other responsibilities set out by the BOD. The Audit
Committee shall also prepare reports required to be included in the Group’s annual report.
The accounting policies in relation to derivatives are set out in Note 3 to the consolidated financial statements.
Interest Rate Risk
Interest rate risk is the risk that future cash flows from a financial instrument (cash flow interest rate risk) or its fair value
(fair value interest rate risk) will fluctuate because of changes in market interest rates. The Group’s exposure to changes
in interest rates relates primarily to the long-term borrowings. Borrowings issued at fixed rates expose the Group to fair
value interest rate risk. On the other hand, borrowings issued at variable rates expose the Group to cash flow interest
rate risk.
The Group manages its interest cost by using an optimal combination of fixed and variable rate debt instruments.
Management is responsible for monitoring the prevailing market-based interest rate and ensures that the mark-up rates
charged on its borrowings are optimal and benchmarked against the rates charged by other creditor banks.
In managing interest rate risk, the Group aims to reduce the impact of short-term fluctuations on the earnings. Over the
longer term, however, permanent changes in interest rates would have an impact on profit or loss.
The Company does not account for any fixed-rate financial assets or financial liabilities at FVPL and the Company does
not designate derivatives as hedging instruments under a fair value hedge accounting model. Therefore, a change in
interest rates at the reporting date would not affect profit or loss.
The Group has no floating rate borrowings in 2014 and 2013.
The terms and maturity profile of the interest-bearing financial instruments, together with its gross amounts, are shown
in the following tables:
December 31, 2014
Fixed rate
Philippine peso-denominated
Interest rate
1 - 3 Years
> 3 - 5 Years
> 5 Years
Total
P3,000
6.05%
P12,810
5.93%10.5%
P12,810
P22,000
5.5%6.6%
P22,000
P37,810
P3,000
SMBI FS 2014 C5 6.indd 90
P37,810
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91
2014 ANNUAL REPORT
December 31, 2013
Fixed rate
Philippine peso-denominated
Interest rate
1 - 3 Years
> 3 - 5 Years
P22,400
8.875%
P3,000
6.05%
P22,400
P3,000
> 5 Years
Total
P19,810
5.93% 10.5%
P19,810
P45,210
P45,210
Foreign Currency Risk
The Company’s functional currency is the Philippine peso, which is the denomination of the bulk of the Group’s revenues.
The exposure to foreign currency risk results from significant movements in foreign exchange rates that adversely affect
the foreign currency-denominated transactions of the Group. The risk management objective with respect to foreign
currency risk is to reduce or eliminate earnings volatility and any adverse impact on equity.
The Group uses natural hedges and/or purchases foreign currencies at spot rates, where necessary, to address short-term
imbalances from importations, revenue and expense transactions, and other foreign currency-denominated obligations.
Information on the Group’s foreign currency-denominated monetary assets and liabilities and their Philippine peso
equivalents are as follows:
2014
Assets
Cash and cash equivalents
Trade and other receivables
Noncurrent receivables
Liabilities
Accounts payable and accrued expenses
Net foreign currency-denominated monetary assets
2013
United States
(US) Dollar*
Peso
Equivalent
United States
(US) Dollar*
Peso
Equivalent
$89.8
63.8
0.4
154.0
P4,015
2,854
17
6,886
$89.5
52.3
0.2
142.0
P3,971
2,322
10
6,303
48.0
2,146
51.6
2,289
$106.0
P4,740
$90.4
P4,014
* US dollar equivalent of foreign currency-denominated balances as of reporting date.
The Group reported net foreign exchange gains (losses) amounting to (P60), (P449) and P577 in 2014, 2013 and 2012,
respectively, with the translation of its foreign currency-denominated assets and liabilities (Note 24). These mainly
resulted from the movements of the Philippine peso against the US dollar as shown in the following table:
US Dollar to
Philippine Peso
December 31, 2014
December 31, 2013
December 31, 2012
SMBI FS 2014 C5 6.indd 91
44.72
44.40
41.05
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92
SAN MIGUEL BREWERY INC.
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all
other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and
liabilities) and the Group’s equity (due to translation of results and financial position of foreign operations):
P1 Decrease in the
US Dollar Exchange Rate
December 31, 2014
Cash and cash equivalents
Trade and other receivables
Non-current receivables
Accounts payable and accrued expenses
Effect on
Income before
Income Tax
Effect on
Equity
Effect on
Income before
Income Tax
Effect on
Equity
(P2)
(2)
(4)
(P89)
(63)
(1)
(153)
P2
2
4
P89
63
1
153
2
(P2)
48
(P105)
(2)
P2
(48)
P105
P1 Decrease in the
US Dollar Exchange Rate
December 31, 2013
Cash and cash equivalents
Trade and other receivables
Accounts payable and accrued expenses
P1 Increase in the
US Dollar Exchange Rate
P1 Increase in the
US Dollar Exchange Rate
Effect on
Income before
Income Tax
Effect on
Equity
Effect on
Income before
Income Tax
Effect on
Equity
(P8)
(1)
(9)
(P87)
(52)
(139)
P8
1
9
P87
52
139
1
(P8)
51
(P88)
(1)
P8
(51)
P88
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless,
the analysis above is considered to be representative of the Group’s currency risk.
Liquidity Risk
Liquidity risk pertains to the risk that the Group will encounter difficulty to meet payment obligations when they fall
under normal and stress circumstances.
The Group’s objectives to manage its liquidity risk are as follows: a) to ensure that adequate funding is available at all
times; b) to meet commitments as they arise without incurring unnecessary costs; c) to be able to access funding when
needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities.
The Group constantly monitors and manages its liquidity position, liquidity gaps or surplus on a daily basis. A committed
stand-by credit facility from several local banks is also available to ensure availability of funds when necessary.
The table below summarizes the maturity profile of the Group’s financial assets and financial liabilities based on
contractual undiscounted receipts and payments used for liquidity management.
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2014 ANNUAL REPORT
December 31, 2014
Financial Assets
Cash and cash equivalents
Trade and other receivables - net
Derivative assets (included under
“Prepaid expenses and other current
assets” account)
AFS financial assets (included under
“Investments” account)
Noncurrent receivables (included
under “Other noncurrent assets”
account)
Financial Liabilities
Accounts payable and accrued
expenses (excluding cash dividends
payable)
Derivative liabilities (included under
“Accounts payable and accrued
expenses” account)
Long-term debt (including current
maturities)
December 31, 2013
Financial Assets
Cash and cash equivalents
Trade and other receivables - net
Derivative assets (included under
“Prepaid expenses and other current
assets” account)
AFS financial assets (included under
“Investments” account)
Noncurrent receivables (included under
“Other noncurrent assets”
account)
Financial Liabilities
Accounts payable and accrued
expenses (excluding cash dividends
payable)
Derivative liabilities (included under
“Accounts payable and accrued
expenses” account)
Long-term debt (including current
maturities)
93
Carrying
Amount
Contractual
Cash Flow
1 Year
or Less
> 1 Year 2 Years
>2 Years 5 Years
Over
5 Years
P9,886
6,005
P9,886
6,005
P9,886
6,005
P -
P -
P -
5
5
5
-
-
-
60
60
-
-
-
60
29
29
-
-
29
-
6,416
6,416
6,416
-
-
-
27
27
27
-
-
-
37,518
51,042
2,369
2,369
21,757
24,547
Carrying
Amount
Contractual
Cash Flow
1 Year or
Less
> 1 Year 2 Years
>2 Years 5 Years
Over
5 Years
P14,198
6,352
P14,198
6,352
P14,198
6,352
P -
P -
P -
1
1
1
-
-
-
62
62
-
-
-
38
38
-
7,827
7,827
7,827
-
-
-
22
22
22
-
-
-
45,013
54,788
24,440
1,532
7,278
21,538
1
62
29
8
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from trade and other receivables and investment securities. The
Group manages its credit risk mainly through the application of transaction limits and close risk monitoring. It is the
Group’s policy to enter into transactions with a wide diversity of creditworthy counterparties to mitigate any significant
concentration of credit risk.
The Group has regular internal control reviews to monitor the granting of credit and management of credit exposures.
Trade and Other Receivables
The exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management
also considers the demographics of the Group’s customer base, including the default risk of dealers, wholesalers and
retailers as these factors may have an influence on the credit risk.
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94
SAN MIGUEL BREWERY INC.
The Group has established a credit policy under which each new customer is analyzed individually for creditworthiness
before the standard payment and delivery terms and conditions are offered. The Group ensures that sales on account
are made to customers with appropriate credit history. The Group has detailed credit criteria and several layers of credit
approval requirements before engaging a particular customer or counterparty. The review includes external ratings,
when available, and in some cases bank references. Purchase limits are established for each customer and are reviewed
on a regular basis. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only
on a prepayment or cash basis.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether
they are an individual or legal entity, whether they are a wholesale or retail customer, aging profile, maturity and existence
of previous financial difficulties. Customers that are graded as “high risk” are placed on a restricted customer list and
future sales are made on cash basis.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and
other receivables. The main components of this allowance include a specific loss component that relates to individually
significant exposures, and a collective loss component established for groups of similar assets in respect of losses that
have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment
statistics for similar financial assets.
Financial information on the Group’s maximum exposure to credit risk, without considering the effects of collaterals and
other risk mitigation techniques, is presented below.
Cash and cash equivalents
(excluding cash on hand)
Trade and other receivables - net
AFS financial assets
Derivative assets
Noncurrent receivables
Note
2014
2013
6
7
P9,798
6,005
60
5
29
P15,897
P14,193
6,352
62
1
38
P20,646
9
14
The credit risk for cash and cash equivalents and derivative assets is considered negligible, since the counterparties are
reputable entities with high quality external credit ratings.
The Group’s exposure to credit risk arises from default of counterparty. Generally, the maximum credit risk exposure
of trade and other receivables is the carrying amount without considering collaterals or credit enhancements, if any.
The Group has no significant concentration of credit risk since the Group deals with a large number of homogenous
counterparties. The Group does not execute any credit guarantee in favor of any counterparty.
Capital Management
The Group maintains a sound capital base to ensure its ability to continue as a going concern, thereby continue to
provide returns to stockholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce
cost of capital.
The Group manages its capital structure and makes adjustments in the light of changes in economic conditions. To
maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, pay-off existing
debt, return capital to shareholders or issue new shares.
The Group defines capital as paid-in capital stock, additional paid-in capital and retained earnings. Other components of
equity such as cumulative translation adjustments are excluded from capital for purposes of capital management.
The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital ratios are set in the light
of changes in the external environment and the risks underlying the Group’s business, operation and industry.
The Group monitors capital on the basis of debt-to-equity ratio, which is calculated as total debt divided by total equity.
Total debt is defined as total current liabilities and total noncurrent liabilities, while equity is total equity as shown in the
consolidated statements of financial position.
There were no changes in the Group’s approach to capital management during the year.
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2014 ANNUAL REPORT
95
32. Financial Assets and Financial Liabilities
The table below presents a comparison by category of carrying amounts and fair values of the Group’s financial
instruments:
December 31, 2014
Carrying
Amount
Financial Assets
Cash and cash equivalents
Trade and other receivables - net
Derivative assets (included under
“Prepaid expenses and other
current assets” account)
AFS financial assets (included
under “Investments” account)
Noncurrent receivables (included
under “Other noncurrent assets”
account)
Financial Liabilities
Accounts payable and accrued
expenses (excluding cash
dividends payable)
Derivative liabilities (included under
“Accounts payable and accrued
expenses” account)
Long-term debt (including current
maturities)
December 31, 2013
Fair Value
Carrying
Amount
Fair Value
P9,886
6,005
P9,886
6,005
P14,198
6,352
P14,198
6,352
5
5
1
1
60
60
62
62
29
29
38
38
6,416
6,416
7,827
7,827
27
27
22
22
37,518
42,022
45,013
49,311
The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
Cash and Cash Equivalents, Trade and Other Receivables and Noncurrent Receivables. The carrying amount of cash and cash
equivalents and trade and other receivables approximates fair value primarily due to the relatively short-term maturities
of these financial instruments. In the case of noncurrent receivables, the fair value is based on the present value of
expected future cash flows using the applicable discount rates based on current market rates of identical or similar
quoted instruments.
Derivatives. The fair values of forward exchange contracts are calculated by reference to current forward exchange rates.
Fair values for embedded derivatives are based on valuation models used for similar instruments using both observable
and non-observable inputs.
AFS Financial Assets. The fair values of publicly traded instruments and similar investments are based on quoted market
prices in an active market. Unquoted equity securities are carried at cost less impairment.
Accounts Payable and Accrued Expenses. The carrying amount of accounts payable and accrued expenses approximates
fair value due to the relatively short-term maturities of these financial instruments.
Long-term Debt. The fair value of interest-bearing fixed rate loans is based on the discounted value of expected future
cash flows using the applicable market rates for similar types of instrument as of reporting date. As of December 31, 2014
and 2013, discount rates used ranged from 2.54% to 4.33% and from 0.49% to 3.75%, respectively.
Derivative Financial Instruments
The Group’s derivative financial instruments according to the type of financial risk being managed and the details of
embedded derivative financial instruments that are not designated as hedges are discussed below.
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SAN MIGUEL BREWERY INC.
Derivative Instruments Not Designated as Hedges
The Group enters into certain derivatives as economic hedges of certain underlying exposures. These include embedded
derivatives found in host contracts, which are not designated as accounting hedges. Changes in fair value of these
instruments are accounted for directly in profit or loss.
Embedded Currency Forwards
The total outstanding notional amount of currency forwards embedded in non-financial contracts amounted to US$38
and US$21 as of December 31, 2014 and 2013, respectively. These non-financial contracts consist mainly of foreign
currency-denominated purchase orders, sales agreements and capital expenditures. The embedded forwards are not
clearly and closely related to their respective host contracts. The net negative fair value of these embedded currency
forwards amounted to P22 and P21, respectively.
The Group recognized marked-to-market losses from embedded derivatives amounting to P9, P47 and P9 in 2014, 2013
and 2012, respectively (Note 24).
Fair Value Changes on Derivatives
The net movements in fair value of all derivative instruments are as follows:
2014
2013
(P21)
(9)
(30)
(8)
(P22)
Balance at beginning of year
Net changes in fair value of non-accounting hedges
Less fair value of settled instruments
Balance at end of year
P3
(47)
(44)
(23)
(P21)
Fair Value Hierarchy
Financial assets and financial liabilities measured at fair value in the consolidated statements of financial position are
categorized in accordance with the fair value hierarchy. This hierarchy groups financial assets and financial liabilities
into three levels based on the significance of inputs used in measuring the fair value of the financial assets and financial
liabilities (Note 3).
The table below analyzes financial instruments carried at fair value, by valuation method.
December 31, 2014
Financial Assets
Derivative assets
AFS financial assets
Financial Liabilities
Derivative liabilities
December 31, 2013
Level 1
Level 2
Total
Level 1
Level 2
Total
P 60
P5
-
P5
60
P 62
P1
-
P1
62
-
27
27
-
22
22
The Group has no financial instruments valued based on Level 3 as of December 31, 2014 and 2013. During the year, there
were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value
measurements.
33. Cash Dividends
Cash dividends declared by the BOD of the Company to shareholders amounted to P0.56 per share in 2014 and 2013.
On March 11, 2015, the BOD of the Company declared cash dividends of P0.15 per share payable on May 6, 2015 to all
stockholders of record as of April 20, 2015.
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2014 ANNUAL REPORT
97
34. Other Matters
a. Amendment of Amended Articles of Incorporation
On December 5, 2014, the BOD approved the amendment of Article II (Primary Purpose) of the Amended Articles of
Incorporation (AOI) of the Company to include the non-alcoholic beverage business (Proposed Amendment). The
Company likewise obtained the affirmative vote of stockholders owning or representing at least two-thirds of the
outstanding capital stock of the Company to the Proposed Amendment, through their respective written assent
received by the Company as of February 20, 2015. The SEC approved the Proposed Amendment to the Company’s
AOI on March 11, 2015.
b. Acquisition of Assets from Ginebra San Miguel Inc.
On December 5, 2014, the BOD authorized the acquisition by the Company of the non-alcoholic beverage assets
of GSMI comprised of the property, plant and equipment as of December 31, 2014, and finished goods and other
inventories consisting of containers (pallets, crates, bottles and shells), packaging materials and raw materials as of
March 31, 2015, used in the non-alcoholic beverage business of GSMI (Acquisition).
The BOD has further authorized management to negotiate and conclude the final terms of the Acquisition.
c.
Commitments
The outstanding purchase commitments of the Group as of December 31, 2014 and 2013 amounted to P4,654 and
P5,998, respectively.
Amount authorized but not yet disbursed for capital projects as of December 31, 2014 and 2013 is approximately
P490 and P330, respectively.
d. Foreign Exchange Rates
The foreign exchange rates used in translating the US dollar accounts of foreign subsidiaries to Philippine peso
in 2014 and 2013 were closing rates of P44.72 and P44.40, respectively for consolidated statements of financial
position accounts, and average rates of P44.39, P42.43 and P42.24 in 2014, 2013, and 2012, respectively, for income
and expense accounts.
e. Claims for Tax Refund
SMBI FS 2014 C5 6.indd 97
i.
Filed by SMC
On April 12, 2004 and May 26, 2004, SMC was assessed by the BIR for deficiency excise tax on “San Mig Light”,
one of its beer products. SMC contested the assessments before the Court of Tax Appeals (CTA) First Division
under two cases, CTA Case Nos. 7052 and 7053. To these cases was consolidated SMC’s claim for refund of taxes
paid in excess of what it believes to be the excise tax rate applicable to it for its “San Mig Light” product for the
period of February 2, 2004 to November 30, 2005 (docketed as CTA Case No. 7405). The CTA, through its First
Division, and the CTA En Banc (upon appeal), both ruled in favor of SMC. On April 1, 2013, the BIR elevated the
consolidated cases to the Supreme Court (docketed as G.R. No. 20573) where they are still pending in its Third
Division.
SMC filed with the CTA by way of petition for review (Third Division and docketed as CTA Case No. 7708), a
second claim for refund for overpayments of excise taxes for the period of December 1, 2005 to July 31, 2007
on November 27, 2007, as SMC was obliged to continue paying excise taxes in excess of what it believes to be
the applicable excise tax rate. The CTA Third Division granted SMC’s petition for review and ordered the BIR to
refund or issue a tax credit certificate in favor of SMC. The BIR elevated the decision of the Third Division to the
CTA En Banc but its appeal was denied. Subsequently, the BIR filed a petition for review with the Supreme Court
(docketed as G.R. No. 205045). The case is pending with the Third Division.
Subsequently, G.R. No. 20573 was consolidated with G.R. No. 205045. SMC and the BIR have filed their respective
memoranda as required by the Third Division of the Supreme Court. The cases are now deemed submitted for
decision.
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SAN MIGUEL BREWERY INC.
SMC filed its third claim for refund with the CTA (Third Division docketed as CTA Case No. 7953) on July 24,
2009 for overpayments of excise taxes for the period of August 1, 2007 to September 30, 2007. This case is still
pending with the CTA.
ii.
Filed by SMB
In the meantime, effective October 1, 2007, SMC spun off its domestic beer business into SMB. SMB continued
to pay the excise taxes on “San Mig Light” at the higher rate required by the BIR and in excess of what it believes
to be the excise tax rate applicable to it.
SMB filed six claims for refund for overpayments of excise taxes with the BIR which were then elevated to the
CTA by way of petition for review on the following dates:
(a) first claim for refund of overpayments for the period from October 1, 2007 to December 31, 2008 - Second
Division docketed as CTA Case No. 7973 (September 28, 2009);
(b) second claim for refund of overpayments for the period of January 1, 2009 to December 31, 2009 - First
Division docketed as CTA Case No. 8209 (December 28, 2010);
(c) third claim for refund of overpayments for the period of January 1, 2010 to December 31, 2010 - Third
Division docketed as CTA Case No. 8400 (December 23, 2011);
(d) fourth claim for refund of overpayments for the period of January 1, 2011 to December 31, 2011 - Second
Division docketed as CTA Case No. 8591 (December 21, 2012);
(e) fifth claim for refund of overpayments for the period of January 1, 2012 to December 31, 2012 - Second
Division docketed as CTA Case No. 8748 (December 19, 2013); and
(f ) sixth claim for refund of overpayments for the period of January 1, 2013 to December 31, 2013 - docketed
as CTA Case No. 8955 (December 2014).
CTA Case Nos. 7973, 8209, 8400 and 8591 have all been decided by the respective CTA Divisions where they are
pending, in favor of SMB. The BIR is now in the process of appealing to the CTA En Banc the decisions rendered
by the Third Division in CTA Case Nos. 7973 and 8400.
On the other hand, the decision in CTA Case No. 8209 has been declared final and executory by the First Division
for failure on the part of the BIR to file a Motion for Reconsideration on the decision. In CTA Case No. 8591,
the BIR filed a Motion for Reconsideration, which was opposed by the Company, and subsequently denied
by the Second Division. CTA Case No. 8748 is still pending in the Second Division, while the BIR has requested
additional time to file its Answer in CTA Case No. 8955.
f.
Pending Tax Cases
The BIR issued a Final Assessment Notice dated March 30, 2012 (2009 Assessment), imposing on IBI deficiency tax
liabilities including interest and penalties for the tax year 2009. IBI treated the royalties earned from the licensing of
its intellectual properties to the Company as passive income, and therefore subject to the 20% final tax. However,
the BIR is of the position that said royalties are business income subject to the 30% regular corporate tax.
On May 16, 2012, IBI filed a protest against the 2009 Assessment. In its Final Decision on Disputed Assessment
issued on January 7, 2013, the BIR denied IBI’s protest and reiterated the demand to pay the deficiency income tax
including interests and penalties. On February 6, 2013, IBI filed a Petition for Review before the CTA contesting the
2009 Assessment. The case was docketed as CTA Case No. 8607 and is already submitted for decision.
On November 17, 2013, IBI received a Formal Letter of Demand with the Final Assessment Notice for tax year 2010
(2010 Assessment) from the BIR with a demand for payment of income tax and VAT deficiencies with administrative
penalties. The BIR maintained its position that royalties are business income subject to the 30% regular corporate
tax. The 2010 Assessment was protested by IBI before the BIR through a letter dated November 29, 2013. A Petition
for Review was filed with the CTA and the case was docketed as CTA Case No. 8813. The case remains pending to
date.
SMBI FS 2014 C5 6.indd 98
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CONTACT US
CORPORATE HEAD OFFICE
San Miguel Brewery Inc.
40 San Miguel Avenue, Mandaluyong City
1550 Metro Manila, Philippines
P.O. Box 271 Manila
Central Post Office, Philippines
Telephone: (632) 632-3000
Fax: (632) 632-3605
Website: http://www.sanmiguelbrewery.com.ph
STOCKHOLDER’S MEETING
The Company’s Annual Stockholder’s Meeting is held
every last Tuesday of May.
SHAREHOLDER SERVICES AND ASSISTANCE
The SMC Stock Transfer Service Corporation serves
as the Company’s stock transfer agent and registrar.
For inquiries regarding dividend payments, change
of address and account status, lost or damaged stock
certificates, please write or call:
SMC Stock Transfer Service Corporation
40 San Miguel Avenue, Mandaluyong City
1550 Metro Manila, Philippines
Telephone: (632) 632-3450
Fax: (632) 631-6951
INSTITUTIONAL INVESTORS’ INQUIRIES
San Miguel Brewery Inc. welcomes inquiries from
institutional investors, analysts, and the financial
community. Please write or call:
Investor Relations
San Miguel Brewery Inc.
Telephone: (632) 632-3000
Fax: (632) 632-3111
CUSTOMER AND CONSUMER SERVICES
For inquiries, feedback, and requests, please write or call
Beer Account SMC-1 customer service hotline:
Telephone: (632) 632-2000
Toll-free No.: 1-800-1-888-762-1
Fax: (632) 632-7621