Your San Miguel Beer. Our Commitment.

Transcription

SAN MIGUEL BREWERY INC.
Your San Miguel Beer.
Our Commitment.
2011 ANNUAL REPORT
TABLE OF CONTENTS
02
Message to Stockholders
Management’s Discussion and Analysis
04
12
2011 Highlights
Corporate Social Responsibility
Board of Directors
Corporate Governance
Financial Statements
14
18
22
30
02
Your San Miguel Beer. Our Commitment
Message to Stockholders
Strengthening relationships with our business partners, customers and
consumers proved to be the key to our growth in 2011. Indeed, managing and
nurturing our relationships have had a positive effect on our overall productivity
and quality of our execution—factors that have helped us grow in the last year.
Having turned in strong results in both our
domestic and overseas markets, we are proud
to report another record-breaking year for
San Miguel Brewery and we celebrate the
noteworthy achievement of having sold
224 million cases in 2011, three million cases
more than the previous year. Sales revenue
grew 6.4%, reaching P72 billion, while
operating income rose 10.4% over the previous
year to P20 billion. Operating margins were at
a robust 29%. Our consolidated net income
of P12.2 billion is 17.4% above last year’s
P10.4 billion.
In the Philippines, San Miguel Brewery remains
the undisputed leader in the industry. We have
maintained our dominant market position
through brand strength, quality product
offerings, extensive trade distribution systems,
customer-oriented programs and promotions,
and unparalleled customer service.
By passionately bringing together these
elements and cultivating our relationships
with all our key publics with exceptional care
and attention to detail and service, we have
succeeded in providing a truly rewarding
experience in every bottle of San Miguel Beer.
Our synergy with our stockholders in setting
the company’s direction inspires us to
continually seek ways to deliver superior
long‑term value to our shareholders through
the development and refinement of programs
that further raise brand awareness and
San Miguel Brewery, Inc. 2011 Annual Report
generate consumption. As we move into the
future, we also commit to create and develop
innovative products and fresh experiences for
the new generation of SMB consumers.
Collaboration among the different SMB teams
helped increase the company’s value amid
difficult economic conditions. Productivity
enhancements and cost management
programs were pursued to further strengthen
our position and provide support for our
expansion plans. Present global market
conditions, including the soaring cost of raw
materials and fuel, gave us the opportunity
to revisit ways to carefully manage and
optimize our resources and further improve
the efficiency levels, and quality and
productivity systems in all our breweries and
facilities. To help meet the growing demand
for our products, our new Sta. Rosa bottling
plant began operating in full capacity last
year—providing additional support to our
five existing domestic breweries across the
country.
Like its domestic counterpart, San Miguel
Brewing International, Ltd. (SMBIL)
strengthened relationships with its customers
in 2011. Stronger fundamentals apply to
our international operations, where in China
we have centralized resources and created
efficiencies to better manage growth in this
challenging market. Our Hong Kong and North
China operations also registered profit growth
last year. SMBIL continues to gain ground in
our chosen regional markets and has reported
significant increases in both volume and profit
growth for 2011. In Indonesia, we capitalized
on the solid performance of both San Miguel
and Anker brands, maintaining its
double-digit volume increase from the
previous year. Our exports business continues
to grow, with significant volume gains in
established markets such as Sudan, Singapore,
Malaysia, Taiwan and South Korea, as well
as emerging markets in Africa and as yet
underserved markets in Asia.
With your continued support, San Miguel
Brewery is ready to face the challenge of
sustaining its dominance in the Philippines
while expanding its international presence.
As we strive to continuously improve and grow
the business, our company is only as strong
as the relationships we maintain. The goal of
bringing outstanding value to SMB has never
been more paramount.
This is your company.
This is your San Miguel Beer.
Cheers!
Ramon S. Ang
Chairman
Roberto N. Huang
President
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04
MANAGEMENT’S DISCUSSION AND ANALYSIS
Delivering on
Our Promises
San Miguel Brewery’s success in 2011 is attributed to its core strengths—the
popularity of our brands, the loyalty of our customers, and the synergy with
our suppliers and business partners. Together, these helped SMB counteract
the effects of a global economic slowdown and various market challenges to
produce exceptionally strong results last year.
Combining domestic and international
performance, the company posted a sales
volume of 224 million cases, a 1.4% increase
from last year. Sales revenue grew 6.4% to
reach P72 billion. Operating income rose to
P20 billion, an increase of 10.4% from the
previous year, resulting in a 28.5% operating
margin.
DOMESTIC OPERATIONS
SMB continues to enjoy dominant market
leadership in the local beer industry, and its
share in the total alcoholic beverage market
remained high amid the slower‑than‑expected
economic expansion and intensified
competition.
Programs designed to further raise brand
awareness and increase consumption across
all market segments were implemented. These
kept our core base of drinkers delighted
while we continually reach out to the new
generation of SMB patrons and heightened
our share in the total alcoholic market.
Flagship brand San Miguel Pale Pilsen
has reported increased consumer loyalty
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1. Roberto N. Huang, SMB President
2. Debbie D. Namalata, VP and SMB National Sales Manager
throughout the local market. Top-tier celebrity
endorsers, signature programs such as Sarap
Mag Babad, and various consumer and trade
promotions reinforced the brand’s status as the
best-tasting beer. Meanwhile, the introduction
of the San Miguel Pale Pilsen 330ml long neck
variant in select upscale outlets attracted
newer generations of drinkers to the Pale
Pilsen fold.
Red Horse remains the undisputed strong
beer of choice in the market, maintaining its
status as the country’s “#1 Extra Strong Beer”.
The brand’s marquee event Pambansang
Muziklaban Grand Finals attracted a record
number of 28,000 attendees in a single night’s
event, a fitting testament to the brand’s loyal
following.
San Mig Light’s improved performance
comes from the established ownership of
the low calorie story as communicated in its
“Pwede” campaign featuring FHM’s Sexiest
Combining domestic and
international performance,
the company posted a sales
volume of 224 million cases,
a 1.4% increase from last year.
Sales revenue grew 6.4% to
reach P72 billion. Operating
income rose to P20 billion,
an increase of 10.4% from the
previous year, resulting in a
28.5% operating margin.
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OUR WINNING BRANDS
Our brands define who we are in SMB.
Our customers choose our products because
they know that each San Miguel Beer brand
is the best beer in taste and quality. In our
commitment to serve our core markets
and cater to a new generation of drinkers,
we continue to strengthen our product
portfolio. With this, we introduced the
San Miguel Flavored Beer in lemon and
apple flavors—the addition of which has
now expanded our domestic brand portfolio
to 11.
3
In the international market, San Miguel
brands—as well as affiliated brands
like Blue Star and Anker—continue to
enjoy stronger patronage in Hong Kong,
Vietnam, Indonesia, Thailand, China and
in over 50 export markets worldwide.
The overwhelming performance of our
international business in 2011 is additional
proof that the name San Miguel is definitely
world-class.
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3. Carlos Antonio M. Berba, SMBIL Managing Director
4. Hercila M. Reyes, VP and SMBIL Chief Finance Officer
5. Jesus J. Bitanga Jr., VP and SMBIL International Sales Manager
6. Teruyuki Daino, SMB Executive Vice President
7. Shobu Nishitani, SMB Executive Financial Advisor
8. Mercy Marie Jacqueline L. Amador, VP and SMB Chief Finance Officer
and Treasurer
Alongside our passion for brewing
excellence is our commitment to share
delightful and memorable drinking
experiences with consumers through
signature brand events that get bigger and
better through the years. With the annual
San Miguel Oktoberfest Beer Festival,
Red Horse Beer Pambansang Muziklaban,
San Mig Light Party All Night, San Miguel
Pale Pilsen Sarap Mag Babad on top of
other exciting programs, SMB remains as
the event authority in the Philippines.
This distinct brand of customer delight
has likewise spread across the globe as we
implemented exciting marketing campaigns
such as the re-launch of San Mig Light in
Hong Kong and South China, sponsorships
of numerous events like the renowned
Dragon Boat Carnival in Hong Kong,
Baoding Beer Festival in North China,
and Anker’s sports and music events in
Indonesia.
Our SMB brands connect us to the inspired
and the weary, to individuals and groups,
to the Philippines and to the world. More
and more people around the globe are
experiencing what Filipinos know—that
San Miguel Beer is more than a brand, it is
our toast to life.
female celebrity Sam Pinto. Also key are its
below‑the-line initiatives that highlight the
brand’s properties — in the club music scene
via the Party All Night series, and in bars via the
nationwide Bucket Nights Tour.
With the successful implementation of the
“Araw-araw Mag Relaks, Araw-araw Mag Gold
Eagle Beer” campaign plus complementary
consumer promotions and trade activations,
SMB’s economy brand Gold Eagle Beer
continued its growth in the rural areas.
San Mig Strong Ice enjoyed increased market
share in the upscale beer outlets. The “smooth
yet unpredictably strong beer” benefited
from its association with both hip-hop dance
competitions and mixed martial arts.
07
The Lifestyle Brews consisting of San Miguel
Premium All-Malt, San Miguel Super Dry,
and Cerveza Negra continue to delight the
upscale market by providing a premium beer
experience through beer tasting bar tours and
food pairing events. These resulted in higher
volumes and improved visibility for the brands.
The first flavored beer in the Philippines,
San Miguel Flavored Beer, surpassed volume
expectations as drinkers embraced the
refreshingly fruity flavors of apple and lemon.
Targeting a younger set of beer drinkers, we
will continue to expand the distribution of this
product to reach key markets nationwide.
Combining the might of the entire SMB
brand portfolio, San Miguel Oktoberfest
Beer Festival attracted a historic number
OUR BREWING EXCELLENCE
Our business is not only brewing beers,
but brewing in the San Miguel tradition
of excellence.
SMB’s commitment to quality is evident in all
our processes—from choosing the finest raw
materials to beer manufacturing, packaging,
sales and distribution. We regularly improve
quality systems and adopt new technologies
while following the most stringent
manufacturing standards to ensure that we
get the affirmation of the industry, and most
importantly, our stakeholders.
Even the world’s most discriminating
beer connoisseurs attest to our products’
superiority. We are consistently recognized
in the annual Monde Selection Award and
our ardent passion for quality was recently
acknowledged in one of our newer brands.
San Miguel Premium All-Malt was bestowed
Monde’s coveted International High Quality
Trophy, a distinction given to brands with
three consecutive gold awards.
Accolades from peers in the industry is a
well-deserved reward for our constant and
tireless pursuit of brewing excellence. On top
of it all, the recognition and appreciation of
stakeholders is a singular affirmation of our
unmatched reputation in the business.
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9. Minerva Lourdes B. Bibonia, SVP and SMB Marketing Manager
10. Frederick Gerard S. Martelino, VP and SMBIL International
Marketing Head
11. Feliciano M. Madlansacay, AVP and SMB Finance Operation
Manager
12. Atty. Rosabel Socorro T. Balan, VP, General Counsel, Corporate
Secretary and Compliance Officer
13. Taro Matsunaga, SMBIL Executive Vice President
14. Josefino C. Cruz, SMB Manufacturing Manager
15. Rebecca S. Flores, AVP and SMB Brewing Technical Group Manager
of over 40,000 participants to the country’s largest and
longest‑running beer festival culminating in a grand
spectacle of live music, simultaneous parties, and on-ground
promotional activities.
Meanwhile, intensified trade programs and strengthened
business relationships all contributed to the bolstering of
our trade efficiencies and increasing SMB’s brand presence.
Visibility was heightened through the successful conduct
of outlet-based events and sponsorship of local fiestas and
festivals.
Our keen focus on emerging markets also contributed to the
overall success of SMB. The expansion of the 632-BEER hotline
delivery coverage outside the Greater Manila Area helped
boost home consumption, while partnerships targeting
specific market segments such as balikbayans and overseas
workers increased awareness and volume for SMB brands.
As the cost of raw materials and fuel continues to soar,
improvements in plant efficiency, quality and productivity
were implemented and constantly evaluated. To supplement
the output of SMB’s five existing breweries and help keep up
with the increasing demand, our Sta. Rosa bottling plant had
been commissioned and went into full operations last year.
This further enabled us to give the freshest beer at the fastest
time possible in South Luzon and neighboring areas.
INTERNATIONAL OPERATIONS
2011 proved to be a remarkable year for SMBIL as the unit
successfully reverted to its volume and profit growth trend,
driven by strong performances in Indonesia, Hong Kong and
export markets. SMBIL’s sterling performance was activated by
volume increases and sustained by operational efficiencies and
cost management.
Our Indonesian operations sustained its double-digit
volume and profit expansion led by San Miguel and Anker
brands, leading to an increased market share. Anker Bir and
Anker Stout remained key brands in the Indonesian beer
market, with both brands reporting robust growth while
supported by sports/music events and market-wide consumer
activities.
San Miguel remained as the leading player in the Hong Kong
beer market, with reported higher sales in San Miguel and
premium brands.
Brand-building initiatives aided the San Miguel brands’
strong performance in 2011. It was a particularly big year for
San Mig Light, with a successful re-launch of the low‑calorie
and low‑alcohol version of the brand in Hong Kong and
South China via the regional campaign “Life, best served
light”. In addition, San Miguel Pale Pilsen’s growth across the
region was propelled by exciting special events and consumer
promos, including print ads featured in in-flight magazines for
Cathay Pacific Airlines and Singapore Airlines. Vietnam also
reported double-digit growth for San Miguel brands, especially
in targeted upscale and tourist outlets.
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10
Our North China unit exhibited significant
volume growth over the past year, with Blue
Star sustaining its market dominance through
community-based activities headlined by
its 9th annual Baoding Beer Festival, and
supported by drinking contests and road
shows.
For our export operations, volume and profit
expansion was evident across all regions,
especially in proven markets such as Sudan,
Singapore, Malaysia, Taiwan and South Korea,
as well emerging markets in Africa and the
Middle East.
Thailand operations were already showing
great promise when the weather disturbances
wreaked havoc on the local economy, virtually
wiping out any gains from the first three
quarters of the year. Increased off-premise
sales, however, helped partially offset the loss
from the temporary closure of outlets due to
flooding.
OUR EXTENSIVE SALES AND
DISTRIBUTION NETWORK
Anchored on a well-established and extensive
sales and distribution network, we ensure our
world-class products are available anywhere,
anytime for our consumers.
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SMB journeys from the hub to the spokes of
modern life to be the brand that is always part
of the celebration and the center of the toast
to life. Our highly dynamic business partners
and competent sales force have mastered the art
and science of product distribution in local and
offshore operations, so that SMB brands are
always within the reach of our consumers.
At the homefront, we continue expanding our
reach and improving operational efficiencies by
building solid relationships with dealers and
logistics service providers, fortifying retail‑based
selling and actively tapping emerging markets
and channels. We will carry on in exploring
new territories, especially in existing and
new markets worldwide where we strive to
strengthen distribution channels and build a
wider network to establish a stronger foothold
in the international market.
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16. Carmela R. Ortiz, AVP and SMBIL Business Planning Head
17. Lynn B. Santos, AVP and SMB Business Planning and
Quality and Productivity Management Manager
18. Rodney Ralph D. Holmes, AVP and SMB Financial Planning
and Analysis Manager
19. Ramon G. Torralba, VP and SMBIL Export Development
Manager
True to form, we execute these product
distribution strategies with the premise that we,
at SMB, strive to be a renowned brand name
by working hard at building strong connections
with customers.
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OUR COMMITMENT-DRIVEN
SMB TEAM
We are a team like no other because we are
one in bringing out the best in each other
through unparalleled teamwork gained from
experience and inspiration.
Armed with SMB’s core values, our team
members aim to always do what is right
for the company, what is best for the
stakeholders, and what is delightful for our
consumers.
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Our excellent products are created by people
who do things like no one else does—
conducts business with honor, leads with
passion, inspires teamwork, offers unmatched
products and services, and promotes values
beyond business.
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In addition, SMB is a powerhouse of experts
whose core strengths lie on competent skills
and knowledge that are shared and imbibed
through rigorous training.
Backed by its highly-experienced and
supportive management, our SMB team
is dedicated to give consumers, business
partners and stakeholders their best. They are
what San Miguel Beer is truly made of.
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20. Charity Anne A. Chiong, SMB Business Procurement Group Manager
21. Clifford T. Que, SMBIL Information Systems Management Manager
22. Alma Leonora C. Javenia, AVP and SMB Information Systems
Management Manager
23. Daniel B. Trajano II, AVP and SMBIL Logistics Manager
24. Rene T. Ceniza, AVP and SMB National Logistics Manager
25. Daniel T. de Castro, Jr., AVP and SMBIL Human Resources Head
26. Enrico E. Reyes, AVP and SMB National Human Resources and
Business Affairs and Communications Head
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2011 HIGHLIGHTS
P20,471
million
P71,910
million
6.4%
INCREASE
P223.8
million
1.4%
10.4%
INCREASE
INCREASE
2010
2009
SALES VOLUME
220.8
175.8
SALES REVENUE
67,575
51,009
OPERATING INCOME
18,551
16,011
(in millions of cases)
(in millions of pesos)
(in millions of pesos)
Operating Margin
28.5%
In the PHILIPPINES 9 out of 10
DRINK SMB
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GROWTH IN EXPORTS
PROVEN MARKETS:
Singapore, Malaysia, Taiwan, South
Korea, Japan, US, Sudan and UAE
EMERGING MARKETS:
Africa and Middle East
ER
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14
SMC President and Chief Operating Officer Ramon Ang along with SMB President Roberto Huang and San Miguel Foundation Chairman Ramon Santiago
formally seal San Miguel Corporation’s (SMC) commitment to build more than 300 homes at the City’s Disiplina Village housing project for victims of flooding
brought about by Typhoon Ondoy with Dakilang Handog Foundation, Inc. Chairperson Dee Hua Gatchalian and Valenzuela City Mayor Sherwin Gatchalian.
CORPORATE SOCIAL RESPONSIBILITY
A Good Life, A Green World,
A Great Future in Every Brew
We care beyond business.
This has always been the hallmark of our commitment to responsible
corporate citizenship. We care for our employees, stakeholders, investors,
business partners and our customers. But more significantly, we care about
our communities and the environment.
SMB’s shared core purpose and values are the linchpins that hold our drive
to nurture sustainable relationships and build strong alliances to make a
difference. We see ourselves as the first mover who implement significant
initiatives that address pressing social, economic and environmental issues.
The journey in corporate social responsibility opens up a world of innovative
opportunities, investments and expansion drives, broadening the growth
15
The journey in corporate
social responsibility opens
up a world of innovative
opportunities, investments
and expansion drives,
broadening the growth of
our business. Yet we at SMB
ensure that wherever our
vision takes us, we bring
our brand of corporate
citizenship closer to the
communities of where we
live and work.
of our business. Yet we at SMB ensure that wherever
our vision takes us, we bring our brand of corporate
citizenship closer to the communities where we live and
work.
Our San Miguel Beer is at the heart of these meaningful
relationships with various communities. Year after year,
we pledge part of our company’s profit to fulfilling
our deep commitments to responsible corporate
citizenship. Our CSR initiatives have adopted the
holistic approach by focusing on Education, Enterprise,
Health and Basic Services, and the Environment with the
ultimate objective of developing self-reliant and vibrant
communities.
In place are sustainable schemes responsive to the
needs of individuals or organizations and follow the
cycle of capability-building through skills training or
entrepreneurial development, community organizing,
cooperative development, and institution-building.
In 2011, SMB implemented 18 programs and 27 projects
benefiting 108 communities and 21,744 individuals at
the homefront and overseas.
A GOOD LIFE
Our various community development projects are
designed to nurture our beneficiaries’ source of
livelihood so that they can lead productive lives and in
turn achieve a good life.
On top of our continuing projects under the
Hanap‑Buhay, Habang Buhay Livelihood Program,
600 individuals benefited from our Kawang-Gawa
Livehood projects and the training programs we
conducted in Central and Eastern Visayas.
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And while we pursue dynamic streams of revenue
especially overseas, we also grow responsibly.
San Miguel Brewery Hong Kong Limited continues
to promote responsible drinking as we partner with
various communities in Hong Kong to gain support for
the awareness campaign.
Over in Indonesia, PT Delta Djakarta in cooperation
with the Red Cross conducted a blood-letting activity
where 221 of our employees participated in the
project. They also provided financial assistance and
food aid for orphans in Merpati Jatimulya and during
the Holy Month of Ramadan.
Bayanihan or volunteerism is a way of life in SMB.
This year, 2,456 employees rendered 11,568 hours of
volunteer work while 24 personnel were part of relief
and rescue teams that responded to 30 flood-stricken
victims in Bulacan and Pampanga at the height of
Typhoons Pedring and Quiel. Relief operations were
also conducted for fire and flood victims in Davao
del Sur, Cagayan de Oro, Iligan and Dumaguete as
well as for those who were affected in certain villages
in Thailand and Indonesia. The construction of a
resettlement site in Barangay Ugong, Valenzuela is
ongoing and soon, it will be the home of 300 families
who were displaced by Typhoon Ondoy.
Doing good abounds in SMB and every year, we carry
on in making a difference. In 2011, employees devoted
all Saturdays of August to planting trees as part of the
Company’s Trees Brew Life Adopt-a-Hectare program.
Our employees continue to volunteer in cleaning
waterways as part of the company’s clean up drive or
the Linis Kalat, Linis Dagat project.
The opportunity to be productive is a meaningful
lasting gift for our beneficiary communities,
and as we work to provide them a good life, we, in SMB
discover more ways to live a good life.
A GREEN WORLD
A good life is only achievable in a green world. Thus,
caring for the environment remains to be a top priority
in SMB’s social development agenda.
Now on the second year of implementing a five-year
reforestation program, our Company, with the help of
our employees, dependents and multi-sectoral partner
organizations in Bulacan, Pampanga, Laguna, Cebu,
Bacolod and Davao, have planted a total of 69,200
seedlings of hardwood, mangrove and fruit-bearing
species. In 2012, we plan to cover more area by inviting
our business partners to join us in this endeavor.
Silted rivers also remain a major concern in our
country’s waterways. Through the San Miguel
Foundation Inc. (SMF) and in partnership with the
Metro Manila Development Authority (MMDA), our
Tulong Tulong para sa Tullahan Project has eliminated
180,000 cubic meters of silt. With this project, SMB
envisions to rehabilitate the river and mitigate the
effects of flooding to benefit more than 7,000 families
in Valenzuela, Navotas and Malabon.
While we continue to help protect our coasts with the
implementation of a coral reef rehabilitation project
in Occidental Mindoro, we also extended assistance
to local environmental efforts in towns and cities.
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Our employees participated in street and drainage
clean up drives in Mandaue, Banilad, Cabangcalan and
Talamban. Recently, SMB contributed to the upkeep of
the institute for the endangered Philippine Eagle and
assisted in raising funds for the protection of animals in
Hong Kong.
Inherent in our Company’s core values is the passion to
protect, preserve and rehabilitate the ecosystem. We
will continue this important mission of preserving the
environment in order to achieve the greater good.
A GREAT FUTURE
While we contribute to reversing past negative effects
on our environment and focus on present issues with
our development programs, we also anticipate to build
our future.
SMB has vigorously engaged in programs that
promote education and community health care.
Our Company has 27 scholars nationwide under
the community‑based scholarship program. Twenty
students participated in a countrywide scholars’
conference to further hone their skills in leadership and
values awareness.
And because good nutrition promotes good
well‑being, we feed students’ minds and bodies as
well. Under the Malusog na Katawan, Matalas na Isipan
supplemental feeding program, 345 schoolchildren
from eight elementary schools and day care centers
across the country recovered from severe malnutrition
this year.
As we live up to our lifelong commitment to serving
the less-fortunate in our society, we facilitated the
treatment of 2,670 patients under SMB’s off-site
community clinics in Valenzuela, Davao and Pampanga.
This ran alongside our Alay sa Kapit-Bahay medical
missions, which benefited 3,000 people.
SMB’s corporate social responsibility is a voyage that
we vow to take, a commitment we fulfill and a social
covenant that we perpetually honor. In every brew,
SMB will carry on its mission for a better life, a greener
world and a greater future for everyone.
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Board of Directors
Ramon S. Ang
Roberto N. Huang
Ferdinand K. Constantino
Chairman of the Board
Chairman,
Executive Committee
President
Director
Chairman,
Executive Compensation Committee
Keisuke Nishimura
Carlos Antonio M. Berba
Director
Director
Teruyuki Daino
Alonzo Q. Ancheta
Yoshinori Isozaki
Director
Independent Director
Chairman,
Governance and Nomination Committee
Director
Carmelo L. Santiago
Virgilio S. Jacinto
Shobu Nishitani
Independent Director
Chairman,
Audit Committee
Director
Director
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Ramon S. Ang
58, 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”); Chairman of
San Miguel Properties, Inc. (“SMPI”), San Miguel
Yamamura Packaging Corporation (“SMYPC”),
Anchor Insurance Brokerage Corporation (“AIBC”),
and San Miguel Brewery Hong Kong Limited
(Hong Kong) (“SMBHK”); and a Director of Ginebra
San Miguel, Inc. (“GSMI”), San Miguel Pure
Foods Company, Inc. (“SMPFC”) and Top Frontier
Investment Holdings, Inc. (“Top Frontier”). He is
also the Chairman and Chief Executive Officer of
Petron Corporation and SMC Global Power Holdings
Corp. (“SMC Power”); Chairman of Liberty Telecoms
Holdings Inc., Philippine Diamond Hotel & Resort,
Inc., Philippine Oriental Realty Development,
Inc., Atea Tierra Corporation and Cyber Bay
Corporation; Vice Chairman of The Manila Electric
Company; and an Independent Director of Philweb
Corporation. He was recently elected as President
and Chief Operating Officer of PAL Holdings, Inc.
(“PAL Holdings”), Philippine Airlines, Inc. (“PAL”),
Trustmark Holdings Corporation and Zuma Holdings
and Management Corporation; and Director of
Air Philippines Corporation. Mr. Ang has held
directorships in various subsidiaries of SMC during
the last five years and was previously the Company’s
President (2007-2009).
Roberto N. Huang g
63, 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
Chairman and President of Iconic Beverages, Inc. ,
Brewery Properties Inc. and Brewery Landholdings,
Inc. He also served as General Manager of the
Company (2007-2009), Director of GSMI (20042008), SMPFC (2004-2008); President of San Miguel
Beverages, Inc. (2007-2008); and President of
Coca-Cola Bottlers Philippines, Inc., Cosmos Bottling
Corporation and Philippine Beverage Partners, Inc.
(2003-2007).
60, 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; and a
Director of SMYPC, SMC Power, and Top Frontier.
Mr. Constantino previously served as Director of
SMPFC (2008-2009), GSMI (2008-2010) and SMPI
(2001-2009); Chief Finance Officer of Manila Electric
Company (2009); and as Chief Finance Officer and
Treasurer of the Company (2007-2009). He has
held directorships in various subsidiaries of SMC
during the last five years. He was recently elected as
Director of PAL Holdings and PAL.
Keisuke Nishimura
55, Japanese, has served as Director of the Company
since April 30, 2009. He is the Executive Officer and
General Manager, Strategy Planning Department of
Kirin Holdings Company, Limited (“Kirin”). He was
previously the Company’s Executive Vice President
(2009-2011). He is a former Director of SMBHK
(2010-2011), and SMBIL. He was previously Director
(2005) and Chairman and CEO (2007) of Kirin (China)
Investment Company, Limited.
Yoshinori Isozaki
since May 18, 2010. He is the Managing Director of
Kirin. His previous work experience in Kirin includes:
Managing Executive Officer and General Manager
(2009), and Executive Officer and General Manager,
Corporate Planning Department (2008). He was
previously a Director of SMC (2004-2008).
since August 10, 2010. He is the Managing Director
of SMBIL since January 1, 2008. He is also currently
Vice Chairman of SMBHK, a Commissioner of PT
Delta Djarkarta Tbk (Indonesia); and a Director of
San Miguel Beer (Thailand) Limited and San Miguel
Holdings (Thailand) Ltd. He previously served SMC as
President of the San Miguel Beer Division (2006).
Virgilio S. Jacinto
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, and
Corporate Secretary of GSMI and Top Frontier. 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 holds various directorships in various local and
offshore subsidiaries of SMC.
Teruyuki Daino
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 and SMBIL.
He was previously the Executive Financial Advisor
of the Company (April-October 2011). His previous
work experience includes: General Sales Manager
of Gifu Branch of Kirin Brewery Company Limited
(2009-March 2011); and President and Chief
Executive Officer of Four Roses Distillery, LLC (20022009).
Shobu Nishitani
and Executive Financial Advisor since October 11,
2011. He is a member of the Executive Committee
and Audit Committee and a Director of SMBHK
and SMBIL. He served as Deputy General Manager
of Finance and Accounting Department of Kirin
Group Office Company, Limited. He was also the
Deputy General Manager of Finance and Accounting
Department of Kirin Business Expert Company,
Limited (2008-2010) and Manager of Finance Group
(2006-2007).
Carmelo L. Santiago
69, Filipino, has served as Independent Director of
the Company since February 25, 2010. He was 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 SMC, Liberty Telecoms Holdings Inc. and SMBHK;
and Director of Terbo Concept, Inc.. Mr Santiago
was a former independent director of GSMI, SMPI
and AIBC. Mr. Santiago is the founder and owner of
several branches of Melo’s Restaurant and founder of
Wagyu Restaurant.
Alonzo Q. Ancheta
79, 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.,
Kinoshita Pearl (Philippines), Inc. and Growe
Investments Ltd.; Member of the Board of Trustees
and Corporate Secretary of St. Luke’s Medical
Center; Corporate Secretary of Ingasco, Inc.; 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.
21
22
CORPORATE GOVERNANCE
San Miguel Brewery Inc. recognizes
the importance of good governance
in generating and sustaining
shareholder value and safeguarding
shareholders’ rights and interests,
and is committed to the highest
standards of corporate governance.
The Board of Directors believes in
conducting its business affairs in
a fair and transparent manner and
in maintaining the highest ethical
standards in all the Company’s
business dealings.
This section describes the Company’s
approach and principles on
corporate governance.
SHAREHOLDERS’ RIGHTS
The Company recognizes that the
most cogent proof of good corporate
governance is that which is visible to
the eyes of its investors.
Voting rights
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 General Stockholders’
Meeting (AGSM). Shareholders
have the right to elect, remove and
replace directors as well as vote on
certain corporate acts in accordance
with the Corporation Code.
Right to Information
Shareholders are provided, through
the Investor Relations of the San
Miguel Group of Companies,
disclosures, announcements,
and upon request, with periodic
reports filed with the Securities and
Exchange Commission (SEC).
and trade partners. The Company
ensures that these transactions
adhere to fair business practices in
order to establish long-term and
mutually-beneficial relationships.
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.
Shareholder Meeting and Voting
Procedures
The agenda, date, time and place of
the AGM meeting, and the deadlines
for the submission and validation
of proxies are disclosed more than
one month prior to the AGM. In
2011, the Definitive Information
Statement and Notices of the 2011
AGSM were sent to the stockholders
on May 6, 2011. Voting procedures
on matters presented for approval
of the stockholders in the AGSM are
set out in the Definitive Information
Statement.
In 2011, the Company paid out cash
dividends of P0.56 per share.
Pre-emptive rights
Unless denied in its articles of
incorporation or an amendment
thereto, stockholders have the right
to subscribe to all issues of shares of
the company in proportion to their
shareholdings.
Under the Company’s amended
articles of incorporation,
shareholders do not have
pre-emptive rights.
STAKEHOLDER RELATIONS
San Miguel Brewery Inc. exercises
transparency when dealing with
shareholders, customers, employees
Shareholder and Investor
Relations
San Miguel Brewery Inc. responds
to information requests from the
investing community and keeps
shareholders informed through
timely disclosures to the Philippine
Stock Exchange (PSE), regular
quarterly briefings, AGSMs, investor
conferences, website, emails and
telephone calls.
The Company, through the Investor
Relations of the San Miguel Group of
Companies, holds regular briefings
and meetings with investment and
financial analysts.
Suppliers, Creditors and Customers
The Company recognizes the
importance of its other stakeholders
– 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 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. adheres to
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 AGSM.
Financial Reporting
San Miguel Brewery Inc. provides the
investing community with regular
updates on operating and financial
information through adequate and
timely disclosures filed with the SEC
and the PSE.
Consolidated audited financial
statements are submitted to the SEC
and PSE on or before the prescribed
period and are distributed to the
shareholders prior to the AGSM.
San Miguel Brewery Inc.’s financial
statements conform to Philippine
Accounting Standards and
Philippine Financial Reporting
Standards, which are all in
compliance with International
Accounting Standards.
Quarterly financial results, on the
other hand, are released and are
duly disclosed to the SEC and PSE
in accordance with the prescribed
rules. The results are also presented
to financial and investment analysts
through a quarterly analysts’
briefing. These disclosures are
posted on the Company’s corporate
website.
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.
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
price-sensitive information by such
persons. Under the policy, directors,
officers and employees who have
knowledge or are in possession of
material non-public information
are prohibited from dealing in
the Company’s securities prior to
disclosure of such information to
the public. The policy likewise
prescribes the periods before
and after public disclosure of
23
structured and non-structured
reports during which trading in the
Company’s securities by persons
who, by virtue of their functions and
responsibilities, are considered to
have knowledge or possession of
material non-public information, is
not allowed.
ACCOUNTABILITY AND AUDIT
The Audit Committee provides
oversight to external and internal
auditors. The role and responsibilities
of the Audit Committee are clearly
defined in the Company’s Amended
Manual on Corporate Governance
and in the Audit Committee Charter
which was approved in 2011.
External Auditor
The accounting firm of Manabat
Sanagustin & Co., CPAs served as the
Company’s external auditors for the
fiscal years 2011 and 2010.
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. The external
auditor’s main function is to facilitate
the 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
reports.
The external auditors are expected
to attend the AGSM of the Company
and respond to appropriate
24
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.
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.
The Company paid the external
auditor Audit Fees amounting to
P6.0 million in 2011 and P6.0 million
in 2010. Other Fees paid to the
external auditor in the amount of
P3.0 million in 2011 and P0.60 million
in 2010 are for the services rendered
in connection with the P20.0 billion
bond offering of the Company
and advisory services rendered in
connection with the valuation of the
contingent consideration as set out
in the 2010 Audited Consolidated
Financial Statements of the
Company, respectively.
RISK MANAGEMENT
The Company’s Audit Committee
currently has oversight function on
risk management and corporate
governance compliance. At
the management level, the risk
management function is currently
integrated with the Finance function.
The Company is continuously
reviewing its enterprise risk
management practices, systems and
processes.
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 adequacy and
BOARD OF DIRECTORS
Compliance with the principles
of good corporate governance
starts with the Company’s Board of
Directors. The Board is responsible
for oversight of the business, affairs
and integrity of the Company;
determination of the Company’s
mission, long-term strategy and
objectives; and management of the
Company’s risks through evaluation
and ensuring the adequacy of the
Company’s internal controls and
procedures.
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.
Composition
The Board consists of eleven
members, each elected by the
stockholders with voting rights
during the AGSM. 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, 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. The names and
profiles of each director are found in
the Board of Directors section of this
Annual Report and in the Definitive
Information Statement.
Independent and Non-Executive
Directors
San Miguel Brewery Inc. complies
with the legal requirement of
having at least two independent
directors on the Board. Of the eleven
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
25
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. The Chairman and the President
attended the last AGSM.
Board Performance
The Board holds regular meetings. To assist the directors in the discharge of their duties, each director is given access
to the Corporate Secretary and Assistant Corporate Secretary, who serve as counsel to the Board of Directors and at the
same time communicate with the Board, management, the Company’s shareholders and the investing public.
In 2011, the Board held nine meetings. Set out below is the record of attendance of the directors at these meetings and at
the AGSM.
NAME
MAR 11 APR 12 MAY 10 MAY 31 JUL 14 AUG 11 OCT 11 NOV 10 DEC 8
AGSM
Ramon S. Ang
√
√
√
√
√
√
√
√
√
√
Roberto N. Huang
√
√
√
√
√
√
√
√
√
√
√
×
√
√
√
√
√
√
√
√
Keisuke Nishimura
√
√
√
√
√
√
√
√
√
√
Motoyasu Ishihara
√
-
-
-
-
-
-
-
-
-
Alonzo Q. Ancheta
√
√
×
√
√
√
√
√
√
√
Carmelo L. Santiago
√
√
√
√
√
√
×
√
√
√
Yoshinori Isozaki
×
√
√
√
√
×
√
√
√
√
√
×
√
√
√
√
√
√
√
√
Takahiro Kobayashi
√
√
√
√
√
√
-
-
-
√
Virgilio S. Jacinto
√
√
√
√
√
√
√
√
√
√
Teruyuki Daino
-
√
√
√
√
√
√
√
√
√
Shobu Nishitani
-
-
-
-
-
-
√
√
√
-
√ Present
× Absent
- Not Applicable
26
Board Remuneration
By resolution of the Board of
Directors, each director shall receive
a reasonable per diem allowance for
his attendance at each Board meeting.
The Company provides each director
with reasonable per diem of P20,000
and P10,000 for each Board and Board
Committee meeting, respectively,
attended by such director. Other than
these per diem amounts, there are no
standard arrangements pursuant to
which the directors of the Company
are compensated, or are to be
compensated, directly or indirectly, by
the Company for services rendered by
such directors.
Responsibility for Financial
Statements
The Board of Directors is 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.
and the President. Mr. Ramon S. Ang
sits as Chairman of the Committee
with Mr. Roberto N. Huang, Mr.
Carmelo L. Santiago (independent
director), Mr. Teruyuki Daino and Mr.
Shobu Nishitani as members. The
Committee acts within the power and
authority granted upon it by the Board
and is called upon when the Board is
not in session to exercise the powers
of the latter in the management of
the Company, with the exception of
the power to appoint any entity as
general managers or management or
technical consultants, to guarantee
obligations of other corporations
in which the Company has lawful
interest, to appoint trustees who,
for the benefit of the Company, may
receive and retain such properties
of the company or entities in which
it has interests and to perform such
acts as may be necessary to transfer
ownership of such properties to
trustees of the Company, and such
other powers as may be specifically
limited by the Board or by law.
BOARD COMMITTEES
To assist the Board in complying with
the principles of good corporate
governance, the Board created four
committees.
The Executive Committee held one
meeting in 2011 to approve the
replacement of the financial covenant
in the terms and conditions of the
P38.8 billion bonds issued by the
Company in 2009 to maintain a
minimum current ratio of 1:1 with
a minimum interest coverage ratio
of 4.75:1 and submission of such
amendment for the approval of
bondholders.
Executive Committee
The Executive Committee is currently
composed of five directors, which
includes the Chairman of the Board
Governance and Nomination
Committee
The Governance and Nomination
Committee is chaired by Atty. Alonzo
Q. Ancheta, an independent director,
and currently composed of three
voting directors – Atty. Ancheta, Atty.
Virgilio S. Jacinto and Mr. Carmelo
L. Santiago, 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
Manager. Two of the voting directors
are independent, Atty. Ancheta and
Mr. Santiago.
Among others, 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 Amended
Manual on Corporate Governance, the
amended articles of incorporation and
amended by-laws of the Company and
applicable laws, rules and regulations.
In 2011, the Board approved the
expansion of the functions of
the Governance and Nomination
Committee to include assistance in the
Board’s 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 change in its name and
the appointment of the two nonvoting members were also approved
in 2011.
The Committee held three meetings
in 2011 in which the Committee
discussed and deliberated on the
qualification of the nominees for
directors who will replace resigning
directors and the nominees for
election to the Board at the 2011
AGSM. The Committee also approved
its charter and the creation and
implementation of an internal
self-rating system to evaluate the
performance of the Board during
these meetings.
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 three meetings in
2011 to review, discuss and endorse
for Board approval Management’s
proposed promotions to officership.
The Committee also approved its
charter in 2011.
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, Mr. Shobu Nishitani and
Atty. Virgilio S. Jacinto.
The Audit Committee is responsible
for assisting the Board of Directors in
discharging its corporate governance
and fiduciary duties in relation to
financial reporting, internal control
structure, risk management systems
and internal and external audit
functions. It reviews and monitors,
among others, the integrity of all
financial statements and reports
and ensures their compliance with
pertinent accounting standards
and regulatory requirements. It
also evaluates the adequacy and
effectiveness of its internal control
procedures and enterprise risk
27
28
management framework and processes, and performs oversight financial management functions, approves audit
plans, directly interfaces with internal and external auditors, and elevates to international standards the accounting
and auditing processes, practices, and methodologies of the Company.
The Audit Committee held four meetings in 2011 wherein the Committee reviewed and approved, among others, the
Company’s 2010 Audited Financial Statements as prepared by Management, and the Company’s unaudited financial
statements for the first to the third quarters of the year. The Audit Committee likewise monitored and reviewed the
adequacy and effectiveness of the Company’s internal control systems through the regular reports of the internal
audit, and approved its charter in 2011. The Committee was appraised of the latest developments in regulatory and
corporate governance requirements through the reports of the Compliance Officer.
Board Committee Members
The members of each Board Committee and their attendance at the Board Committee meetings in 2011 are set out in
the table below. The Chairman of each of the Board Committees attended the 2011 AGSM.
COMMITTEES
NAME OF DIRECTOR
Ramon S. Ang
Roberto N. Huang
Keisuke Nishimura(a)
Motoyasu Ishihara(b)
Alonzo Q. Ancheta
Carmelo L. Santiago
Virgilio S. Jacinto
Teruyuki Daino(c)
Shobu Nishitani(d)
Mercy Marie J.L. Amador(e)
Lynn B. Santos(e)
EXECUTIVE*
AUDIT
EXECUTIVE COMPENSATION
M (4/4)
C (3/3)
M (2/2)
NOMINATION & HEARING
C (1/1)
M (1/1)
M (0/0)
M (0/0)
M (1/1)
M (1/1)
M (1/1)
M (1/1)
M (3/4)
C (4/4)
M (4/4)
M (2/2)
M (1/1)
M (3/3)
C (3/3)
M (2/3)
M (3/3)
M (1/1)
M (1/1)
M (1/1)
C - Chairman
M - Member
(a) resigned as member of Executive and Executive Compensation Committees on October 11, 2011
(b) resigned as member of the Executive and Audit Committees on April 12, 2011
(c) appointed as member of Executive and Audit Committees on April 12, 2011; resigned as member of the Audit Committee and appointed as member of the Executive
Compensation Committee on October 11, 2011
(d) appointed as member of Executive and Audit Committees on October 11, 2011
(e) appointed as non-voting member of Governance and Nomination Committee on December 8, 2011
MANAGEMENT
Management is primarily responsible
for the day-to-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, 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.
CODE OF ETHICS
The Company 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.
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 on the
Company’s website.
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 Amended
29
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.
Amendments to the Company’s
were approved by the Board on
March 11, 2011 in compliance with
the Revised Code of Corporate
Governance of the SEC and on
December 8, 2011 to include the
changes in the functions and
membership of the Governance and
Nomination Committee.
WEB SITE
Up-to-date information on the
Company’s corporate structure,
products and services, results of
business operations, financial
statements, career opportunities
and other relevant information on
the Company may be found at its
website www.sanmiguelbrewery.
com.ph.
30
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 for the years ended December 31, 2011, 2010 and 2009, 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.
Manabat Sanagustin & Co., CPAs, the independent auditors appointed by the stockholders, has examined 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 examination.
Ramon S. Ang
Chairman of the Board
Roberto N. Huang
President
Mercy Marie J. L. Amador
Chief Finance Officer and Treasurer
31
REPORT OF THE AUDIT COMMITTEE
For the year ended December 31, 2011
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 2011:
recommended to the Board of Directors the re-appointment of Manabat Sanagustin & Co. as external auditors of the
Company for 2011;
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;
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; and
reviewed, approved and endorsed to the Board of Directors, the Audit Committee Charter which sets out the role, authority,
duties and responsibilities of the Audit Committee of the Company and the procedures which guide the conduct of its
functions.
Carmelo L. Santiago
Chairman
Member
Alonzo Q. Ancheta
Member
Virgilio S. Jacinto
Member
Shobu Nishitani
Member
32
REPORT OF INDEPENDENT AUDITOR
Manabat Sanagustin & Co., CPAs
The KPMG Center, 9/F
6787 Ayala Avenue
Makati City 1226, Metro Manila, Philippines
Telephone
Fax
Internet E-Mail
+63 (2) 885 7000
+63 (2) 894 1985
www.kpmg.com.ph
manila@kpmg.com.ph
Branches • Subic • Cebu • Bacolod • Iloilo
The Stockholders and Board of Directors
San Miguel Brewery Inc.
No. 40 San Miguel Avenue
Mandaluyong City
We have audited the accompanying consolidated financial statements of San Miguel Brewery Inc. and Subsidiaries, which
comprise the consolidated statements of financial position as at December 31, 2011 and 2010, 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, 2011, 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 as at December 31, 2011 and 2010, and its consolidated financial performance and
its consolidated cash flows for each of the three years in the period ended December 31, 2011, in accordance with Philippine
Financial Reporting Standards.
MANABAT SANAGUSTIN & CO., CPAs
JOSE P. JAVIER, JR.
Partner
CPA License No. 0070807
SEC Accreditation No. 6078-AR-1, Group A, valid until March 30, 2014
Tax Identification No. 112-071-224
BIR Accreditation No. 08-001987-16-2011
Issued February 4, 2011; valid until February 3, 2014
PTR No. 3174013MA
Issued January 2, 2012 at Makati City
February 7, 2012
Makati City, Metro Manila
33
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
(A Subsidiary of San Miguel Corporation)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In Millions)
December 31
Note
2011
2010
6, 32, 33
4, 7, 27, 32, 33
4, 8
4, 9, 29, 32, 33
P18,279
4,977
3,370
996
P15,076
4,366
3,557
1,149
27,622
24,148
132
20,214
664
36,063
341
6,387
135
19,635
1,379
36,136
68
5,620
63,801
62,973
P91,423
P87,121
15, 32, 33
16, 27, 32, 33
18
P1,857
7,296
2,606
P1,644
6,833
2,263
17, 32, 33
13,577
-
25,336
10,740
37,962
35
216
51,364
89
107
38,213
51,560
P15,410
515
(672)
10,618
P15,410
515
(542)
7,286
25,871
22,669
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
10, 32, 33
4, 11
4, 12
4, 13
4, 18
4, 14, 27, 28, 29, 32, 33
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Drafts and loans payable
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
17, 32, 33
18
4, 29
Total Noncurrent Liabilities
Equity
Equity Attributable to Equity Holders of the
Parent Company
Capital stock
Additional paid-in capital
Cumulative translation adjustments
Retained earnings
Non-controlling Interests
Total Equity
See Notes to the Consolidated Financial Statements.
19
33
34
2
2,003
2,152
27,874
24,821
P91,423
P87,121
34
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In Millions, Except Per Share Data)
Note
SALES
COST OF SALES
INTEREST EXPENSE
AND OTHER
FINANCING CHARGES
2010
2009
27
P71,910
P67,575
P51,009
20, 27
36,819
34,505
26,261
35,091
33,070
24,748
21
(14,620)
(14,519)
(8,737)
15, 17, 24
(4,132)
(3,983)
(2,600)
GROSS PROFIT
SELLING AND
ADMINISTRATIVE EXPENSES
2011
INTEREST INCOME
658
696
538
INCOME FROM
ACQUISITION OF ASSETS
AT FAIR VALUE
10
-
2,418
-
IMPAIRMENT LOSSES ON NONCURRENT ASSETS
26
(30)
(3,694)
-
OTHER INCOME
(CHARGES) - Net
25
402
1,247
(19)
17,369
15,235
13,930
5,187
4,862
3,897
NET INCOME
P12,182
P10,373
P10,033
Attributable to:
Equity holders of the Parent Company
Non-controlling interests
P11,962
220
P11,768
(1,395)
P10,033
-
P12,182
P10,373
P10,033
P0.78
P0.76
P0.65
INCOME BEFORE INCOME
TAX
INCOME TAX EXPENSE
Basic and Diluted Earnings Per Share
18
30
35
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
Note
NET INCOME
LOSS ON EXCHANGE DIFFERENCES ON TRANSLATION OF FOREIGN OPERATIONS
2011
2010
2009
P12,182
P10,373
P10,033
(145)
(565)
-
NET GAIN (LOSS) ON AVAILABLE-
FOR-SALE FINANCIAL ASSETS
33
NET GAIN ON CASH FLOW HEDGES
33
-
-
64
INCOME TAX EXPENSE
18
-
-
(19)
(564)
45
OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR - NET OF TAX
(1)
(146)
1
-
TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET OF TAX
P12,036
P9,809
P10,078
Comprehensive Income Attributable to:
P11,832
204
P11,226
(1,417)
P10,078
-
P12,036
P9,809
P10,078
As of January 1, 2009
Gain on cash flow hedges, net of tax
Net income for the year
Total comprehensive income for the year
Cash dividends
As of December 31, 2009
Loss on exchange differences on translation of foreign operations
Net gain on available-for-sale financial assets, net of tax
Other comprehensive income (loss)
Total comprehensive income (loss) for the year
Acquisition of a subsidiary
Addition to non-controlling interests
Cash dividends
Loss on exchange differences on
translation of foreign operations
Net loss on available-for-sale
financial assets, net of tax
Other comprehensive loss
Total comprehensive income (loss)
for the year
Cash dividends
34
33
34
10
33
34
33
Note
P15,410
P15,410
P515
P515
-
P515
P15,410
P15,410
-
-
-
-
P515
-
-
-
-
P515
-
Capital Stock
P15,410
P15,410
Additional
Paid-in
Capital
P515
P -
P -
(543)
(P543)
(543)
-
(543)
P -
(129)
(P672)
(129)
-
(129)
Translation
Reserve
(P543)
45
P -
(P45)
45
-
P -
-
-
P -
P -
-
-
Hedging
Reserve
P -
P -
P -
1
P1
1
1
-
-
P -
(1)
P -
(1)
(1)
-
-
Fair Value
Reserve
P1
Cumulative Translation Adjustments
10,033
(9,170)
P3,993
P3,130
10,033
11,768
(8,475)
P7,286
11,768
-
P3,993
11,962
(8,630)
P10,618
11,962
-
10,078
(9,170)
P19,918
P19,010
45
10,033
11,226
(8,475)
P22,669
1
(542)
11,768
(543)
P19,918
11,832
(8,630)
P25,871
(1)
(130)
11,962
(129)
Retained
Earnings
Total
P7,286 P22,669
Equity Attributable to Equity Holders of the Parent Company
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In Millions)
P -
P -
(1,417)
3,884
(1)
(314)
P2,152
(22)
(1,395)
(22)
P -
204
(353)
P2,003
(16)
220
(16)
Noncontrolling
Interests
P2,152
10,078
(9,170)
P19,918
P19,010
45
10,033
9,809
3,884
(1)
(8,789)
P24,821
1
(564)
10,373
(565)
P19,918
12,036
(8,983)
P27,874
(1)
(146)
12,182
(145)
Total Equity
P24,821
36
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
2011
2010
2009
P17,369
P15,235
P13,930
24
4,132
3,983
2,600
22
29
2,619
493
2,064
434
1,694
168
7, 8
270
294
26
30
3,694
-
10
(658)
(2,418)
(696)
(538)
25
(392)
Note
CASH FLOWS FROM
OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest expense and other
financing charges
Depreciation, amortization and
others
Retirement costs
Provision (reversal) of
allowance for impairment
losses on receivables,
inventory and others
Impairment losses on
noncurrent assets
Income from acquisition of
assets at fair value
Interest income
Loss (gain) on sale of property and equipment, investment property and intangible assets
(236)
7
4
22,597
17,622
(808)
227
476
202
368
266
(72)
(203)
165
411
(12)
465
(29)
309
(439)
Cash generated from operations
Interest paid
Income taxes paid
Contributions paid
23,609
(3,906)
(5,157)
(202)
23,508
(3,753)
(4,467)
(376)
18,291
(1,708)
(4,187)
(372)
Net cash flows provided by
operating activities
14,344
14,912
12,024
Operating income before
working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Increase (decrease) in:
Other taxes payables
Forward
23,863
38
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
Acquisition of subsidiaries, net
of cash received
Increase in intangible assets and other noncurrent assets
Interest received
Note
2011
2010
2009
11
(P1,778)
(P956)
(P626)
12
(29)
(1)
1,106
10
Net cash flows used in investing activities
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from:
Short-term borrowings
Long-term borrowings
Payments of short-term borrowings
Dividends paid to non controlling shareholders
Increase (decrease) in other noncurrent liabilities
Cash dividends paid
Net cash flows provided by (used in) financing activities
EFFECT OF EXCHANGE
RATE CHANGES ON
CASH AND CASH
EQUIVALENTS
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH
EQUIVALENTS AT
END OF YEAR
6
5
(16,464)
(32,000)
(2,257)
656
(1,032)
694
(1,559)
535
(2,302)
(17,746)
(33,645)
457
13,469
38,356
(194)
(484)
-
(361)
(300)
-
2
(8,630)
(83)
(8,475)
(39)
(9,170)
(8,842)
4,584
29,147
3
NET INCREASE IN CASH
AND CASH EQUIVALENTS
13
-
341
-
34
-
(237)
(4)
3,203
1,513
7,522
15,076
13,563
6,041
P18,279
P15,076
P13,563
39
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 shares are
listed on the Philippine Stock Exchange, Inc. (PSE). 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.
San Miguel Corporation (SMC) is the ultimate parent company of the Group.
2. Basis of Preparation
Statement of Compliance
The consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). PFRS includes
statements named PFRS and Philippine Accounting Standards (PAS) and Philippine Interpretations from International Financial Reporting
Interpretations Committee (IFRIC), issued by the Financial Reporting Standards Council (FRSC).
The accompanying consolidated financial statements were authorized for issue by the Board of Directors (BOD) on February 7, 2012.
Basis of Measurement
The consolidated financial statements of the Group have been prepared on a historical cost basis of accounting, except for the following:
derivative financial instruments are measured at fair value;
available-for-sale (AFS) financial assets are measured at fair value; and
defined benefit liability (asset) is measured as the net total of the fair value of the plan assets, less unrecognized actuarial (losses) gains and
the present value of the defined benefit obligation.
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine peso, which is the Company’s functional currency. All financial information is
rounded off to the nearest million (P000,000), except when otherwise indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries as follows:
Proportion of
Ownership Interest
Held by the
Subsidiaries
Effective Equity
Interest of
the Company *
Line of
Business
100
-
100
Licensing trademarks
British Virgin
Islands
100
-
100
Manufacture and sale
of beer
Neptunia Corporation Limited (NCL)(b)
Hong Kong
-
100
100
Investment holding
San Miguel Company Limited(b)
Hong Kong
-
100
100
Investment holding
San Miguel Company Limited Taiwan Branch(b)
Taiwan
-
100
100
Beer distribution
Hong Kong
-
65.8
65.8
of beer
Ravelin Limited(b)
Hong Kong
-
100
65.8
Property holding
Best Investments International,
Inc.(b)
British Virgin
Islands
-
100
65.8
Investment holding
Hong Kong Brewery Limited(b)
Hong Kong
-
100
65.8
Dormant
San Miguel Shunde Holdings Limited (SMSH)(b)
Hong Kong
-
92
60.5
Investment holding
Place of
Incorporation
Company
Philippines
San Miguel Brewing International Ltd. (SMBIL)(b)
Name of Subsidiary
Iconic Beverages, Inc. (IBI)(a)
San Miguel Brewery Hong Kong Limited (SMBHK)(b)
Forward
40
Proportion of
Ownership Interest
Held by the
Company
Subsidiaries
Effective Equity
Interest of
the Company *
People’s Republic
of China
-
100
60.5
of beer
Hong Kong
-
93
61.2
Investment holding
Guangzhou San Miguel Brewery Company Limited (GSMB)(b)
People’s Republic
of China
-
70
42.8
Beer distribution
San Miguel (China) Investment Company Limited (SMCIC)(b)
People’s Republic
of China
-
100
100
Investment holding
San Miguel (Baoding) Brewery Company Limited (SMBB)(b)
People’s Republic
of China
-
100
100
of beer
San Miguel (Baoding) Utility Company Limited (SMBU)(b)
People’s Republic
of China
-
100
100
Power generation
San Miguel Holdings (Thailand) Ltd (SMHTL)(b)
Thailand
-
49
49
Investment holding
San Miguel Beer (Thailand) Limited (SMBTL)(b)
Thailand
-
100
49
of beer
San Miguel Marketing (Thailand) Limited (SMMTL)(b)
Thailand
-
100
100
Trading
British Virgin
Islands
-
100
100
Investment holding
San Miguel (Vietnam) Limited (SMVL)(b)
Bermuda
-
100
100
Investment holding
San Miguel Brewery Vietnam Limited (SMBVL)(b)
Republic of
Vietnam
-
100
100
of beer
Place of
Incorporation
Name of Subsidiary
San Miguel (Guangdong) Brewery Company Limited (SMGB)(b)
San Miguel (Guangdong) Limited (SMGL)(b)
Dragon Island Investments Limited (DIIL)(b)
Line of
Business
Malaysia
-
100
100
Holding
PT. Delta Djakarta Tbk. and Subsidiary (PTD)(b)
Republic of
Indonesia
-
58.3
58.3
of beer
Brewery Properties Inc. (BPI)(c)
Philippines
40
40
Property holding
Philippines
-
40
Property holding
San Miguel Malaysia Pte. Ltd(b)
Brewery Landholdings, Inc.
(BLI)(c)
100
* 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.
(a) Consolidated effective April 29, 2009.
(b) Consolidated effective January 29, 2010.
(c) Consolidated effective November 10, 2010. The Company has the ability to govern BPI’s financial and operating policies and conduct activities
in order that the Company may obtain benefits from its operations. As such and in accordance with PAS 27, Consolidated and Separate Financial
Statements, BPI is consolidated to the Company.
A subsidiary is an entity controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefit from its activities. In assessing control, potential voting rights that are presently exercisable
or convertible are taken into account. The financial statements of the subsidiaries are included in the consolidated financial statements from the
date when the Group obtains control, and continue to be consolidated until the date when such control ceases.
The consolidated 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,
separately 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 and BPI in 2011 and 2010.
41
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except
for the changes in accounting policies as explained below.
Adoption of New or Revised Standards, Amendments to Standards and Interpretations
The FRSC approved the adoption of a number of new or revised standards, amendments to standards, and interpretations (based on IFRIC
Interpretations) as part of PFRS.
Adopted Effective 2011
The Group has adopted the following PFRS starting January 1, 2011 and accordingly, changed its accounting policies in the following areas:
Revised PAS 24, Related Party Disclosures (2009), amends the definition of a related party and modifies certain related party disclosure
requirements for government-related entities. The revised standard is effective for annual periods beginning on or after January 1, 2011. The
adoption of this revised standard did not have a material effect on the consolidated financial statements.
Prepayments of a Minimum Funding Requirement (Amendments to Philippine Interpretation IFRIC 14: PAS 19 - The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction). These amendments remove unintended consequences arising from the treatment of
prepayments where there is a minimum funding requirement and result in prepayments of contributions in certain circumstances being
recognized as an asset rather than an expense. The amendments are effective for annual periods beginning on or after January 1, 2011. The
adoption of these amendments did not have a material effect on the consolidated financial statements.
Improvements to PFRSs 2010 contain 11 amendments to 6 standards and 1 interpretation. The following are the said amendments to PFRS and
interpretation:
o PFRS 3, Business Combinations. The amendments: (a) clarify that contingent consideration arising in a business combination previously
accounted for in accordance with PFRS 3 (2004) that remains outstanding at the adoption date of PFRS 3 (2008) continues to be accounted
for in accordance with PFRS 3 (2004); (b) limit the accounting policy choice to measure non-controlling interests upon initial recognition
at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets to instruments that give rise
to a present ownership interest and that currently entitle the holder to a share of net assets in the event of liquidation; and (c) expand
the current guidance on the attribution of the market-based measure of an acquirer’s share-based payment awards issued in exchange
for acquiree awards between consideration transferred and post-combination compensation cost when an acquirer is obliged to replace
the acquiree’s existing awards to encompass voluntarily replaced unexpired acquiree awards. The amendments are effective for annual
periods beginning on or after July 1, 2010. The adoption of these amendments did not have a material effect on the consolidated
financial statements.
o PAS 27, Consolidated and Separate Financial Statements. The amendments clarify that the consequential amendments to PAS 21, The Effects
of Changes in Foreign Exchange Rates, PAS 28, Investments in Associates, and PAS 31, Interests in Joint Ventures, resulting from PAS 27 (2008)
should be applied prospectively, with the exception of amendments resulting from renumbering. The amendments are effective for
annual periods beginning on or after July 1, 2010. The adoption of these amendments did not have a material effect on the consolidated
o PFRS 7, Financial Instruments: Disclosures. The amendments add an explicit statement that qualitative disclosure should be made in the
context of the quantitative disclosures to better enable users to evaluate an entity’s exposure to risks arising from financial instruments. In
addition, the International Accounting Standards Board (IASB) amended and removed existing disclosure requirements. The amendments
are effective for annual periods beginning on or after January 1, 2011. The adoption of these amendments did not have a material effect
on the consolidated financial statements.
o PAS 1, Presentation of Financial Statements. The amendments clarify that disaggregation of changes in each component of equity arising
from transactions recognized in other comprehensive income is also required to be presented either in the statement of changes in
equity or in the notes. The amendments are effective for annual periods beginning on or after January 1, 2011. The adoption of these
amendments did not have a material effect on the consolidated financial statements.
o PAS 34, Interim Financial Reporting. The amendments add examples to the list of events or transactions that require disclosure under PAS
34 and remove references to materiality in PAS 34 that describes other minimum disclosures. The amendments are effective for annual
periods beginning on or after January 1, 2011. The adoption of these amendments did not have a material effect on the consolidated
Additional disclosures required by the revised standards, amendments to standards and interpretations were included in the consolidated
financial statements, where applicable.
New or Revised Standards, Amendments to Standards and Interpretations Not Yet Adopted
A number of new or revised standards, amendments to standards and interpretations are effective for annual periods beginning after January 1,
2011, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect
on the consolidated financial statements of the Group, except for PFRS 9, Financial Instruments, which becomes mandatory for the Group’s 2015
consolidated financial statements and could change the classification and measurement of financial assets. The Group does not plan to adopt
this standard early and the extent of the impact has not been determined.
42
The Group will adopt the following new or revised standards, amendments to standards and interpretations in the respective effective dates:
Disclosures - Transfers of Financial Assets (Amendments to PFRS 7, Financial Instruments Disclosures), require additional disclosures about transfers
of financial assets. The amendments require disclosure of information that enables users of the financial statements to understand the
relationship between transferred financial assets that are not derecognized in their entirety and the associated liabilities; and to evaluate the
nature of, and risks associated with, the entity’s continuing involvement in derecognized financial assets. Entities are required to apply the
amendments for annual periods beginning on or after July 1, 2011.
Deferred Tax: Recovery of Underlying Assets (Amendments to PAS 12, Income Taxes) introduces an exception to the current measurement
principles of deferred tax assets and liabilities arising from investment property measured using the fair value model in accordance with PAS
40, Investment Property. The exception also applies to investment properties acquired in a business combination accounted for in accordance
with PFRS 3 provided the acquirer subsequently measure these assets applying the fair value model. The amendments integrated the guidance
of Philippine Interpretation Standards Interpretation Committee (SIC) - 21, Income Taxes - Recovery of Revalued Non-Depreciable Assets into PAS
12, and as a result Philippine Interpretation SIC - 21 has been withdrawn. The effective date of the amendments is for periods beginning on or
after January 1, 2012 and is applied retrospectively.
Presentation of Items of Other Comprehensive Income (Amendments to PAS 1, Presentation of Financial Statements). The amendments: (a)
require that an entity present separately the items of other comprehensive income that would be reclassified to profit or loss in the future if
certain conditions are met from those that would never be reclassified to profit or loss; (b) do not change the existing option to present profit or
loss and other comprehensive income in two statements; and, (c) change the title of the statement of comprehensive income to the statement
of profit or loss and other comprehensive income. However, an entity is still allowed to use other titles. The amendments do not address which
items are presented in other comprehensive income or which items need to be reclassified. The requirements of other PFRSs continue to apply
in this regard. The effective date of the amendment is for periods beginning on or after January 1, 2013.
PFRS 10, Consolidated Financial Statements. PFRS 10 introduces a new approach to determining which investees should be consolidated
and provides a single model to be applied in the control analysis for all investees. An investor controls an investee when: (a) it is exposed or
has rights to variable returns from its involvement with that investee; (b) it has the ability to affect those returns through its power over that
investee; and (c) there is a link between power and returns. Control is reassessed as facts and circumstances change. PFRS 10 supersedes PAS
27 (2008). The new standard is effective for annual periods beginning on or after January 1, 2013.
PFRS 11, Joint Arrangements. PFRS 11 focuses on the rights and obligations of joint arrangements, rather than the legal form (as is currently
the case). It (a) distinguishes joint arrangements between joint operations and joint ventures; and (b) always requires the equity method for
jointly controlled entities that are now called joint ventures; they are stripped of the free choice of using the equity method or proportionate
consolidation. PFRS 11 supersedes PAS 31 and Philippine Interpretation SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by
Venturers. The new standard is effective for annual periods beginning on or after January 1, 2013.
PFRS 12, Disclosure of Interests in Other Entities. PFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint
arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities, aiming to provide information to
enable users to evaluate the nature of, and risks associated with, an entity’s interests in other entities; and the effects of those interests on the
entity’s financial position, financial performance and cash flows. The new standard is effective for annual periods beginning on or after January
1, 2013.
PFRS 13, Fair Value Measurement. PFRS 13 replaces the fair value measurement guidance contained in individual PFRSs with a single source of
fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements
for fair value measurements. It explains how to measure fair value when it is required or permitted by other PFRSs. It does not introduce new
requirements to measure assets or liabilities at fair value nor does it eliminate the practicability exceptions to fair value measurements that
currently exist in certain standards. The new standard is effective for annual periods beginning on or after January 1, 2013. Early application is
permitted and is required to be disclosed.
PAS 19, Employee Benefits (amended 2011). The amended PAS 19 includes the following requirements: (a) actuarial gains and losses are
recognized immediately in other comprehensive income; this change will remove the corridor method and eliminate the ability for entities
to recognize all changes in the defined benefit obligation and in plan assets in profit or loss, which is currently allowed under PAS 19; and, (b)
expected return on plan assets recognized in profit or loss is calculated based on the rate used to discount the defined benefit obligation. The
adoption of the amended or revised standard is required for annual periods beginning on or after January 1, 2013.
PAS 28, Investments in Associates and Joint Ventures (2011). PAS 28 (2011) supersedes PAS 28 (2008). PAS 28 (2011) makes the following
amendments: (a) PFRS 5 applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria
to be classified as held for sale; and, (b) on cessation of significant influence or joint control, even if an investment in an associate becomes
an investment in a joint venture or vice versa, the entity does not remeasure the retained interest. The adoption of the amended or revised
standard is required for annual periods beginning on or after January 1, 2013.
PFRS 9, Financial Instruments. PFRS 9 (2009) is the first standard issued as part of a wider project to replace PAS 39. PFRS 9 (2009) retains but
simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair
value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset.
The guidance in PAS 39 on impairment of financial assets and hedge accounting continues to apply. Prior periods need not be restated if
an entity adopts the standard for reporting periods beginning before January 1, 2012. PFRS 9 (2010) adds the requirements related to the
classification and measurement of financial liabilities, and derecognition of financial assets and liabilities to the version issued in November
2009. It also includes those paragraphs of PAS 39 dealing with how to measure fair value and accounting for derivatives embedded in a
contract that contains a host that is not a financial asset, as well as the requirements of Philippine Interpretation - IFRIC 9, Reassessment of
Embedded Derivatives. The adoption of the new standard is required for annual periods beginning on or after January 1, 2015.
43
Financial Assets and Financial Liabilities
Date of Recognition. The Group recognizes a financial asset or a 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 a 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 at fair value through profit or loss
(FVPL), includes transaction costs.
The Group classifies its financial assets in the following categories: held-to-maturity (HTM) investments, AFS financial assets, financial assets at
FVPL and loans and receivables. The Group classifies its financial liabilities as either financial liabilities at FVPL or other financial liabilities. 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.
Determination of Fair Value. The fair value of financial instruments traded in active markets at the reporting date is based on their quoted market
price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When
current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there is
no significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation
techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing
models and other relevant valuation models.
‘Day 1’ Profit. Where the transaction price in a non-active market is different from the fair value of the 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 fair value (a ‘Day 1’ profit) in profit or loss unless it qualifies for recognition as some other type
of asset. In cases where use is made of data which 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 Assets
Financial Assets at FVPL. A financial asset is classified at FVPL if it is classified as held for trading or is designated as such upon initial recognition.
Financial assets are designated at FVPL if the Group manages such investments and makes purchase and sale decisions based on their fair value
in accordance with the Group’s documented risk management or investment strategy. 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
accounting hedge are recognized in other comprehensive income and presented under the “Hedging reserve” account in equity. Any interest
earned shall be recognized as part of “Interest income” in the consolidated statements of income. Any dividend income from equity securities
classified as FVPL shall be recognized in profit or loss when the right to receive payment has been established.
The Group’s derivative assets are classified under this category (Note 9).
The carrying amounts of financial assets under this category amounted to P41 and P54 as of December 31, 2011 and 2010, respectively (Note
33).
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 rate method, less any
impairment in value. Any interest earned on loans and receivables shall be recognized as part of “Interest income” 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” in the consolidated statements
of income. Gains or losses are recognized in profit or loss when loans and receivables are derecognized or impaired, as well as through the
amortization process.
44
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 which 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
27).
The combined carrying amounts of financial assets under this category amounted to P23,301 and P19,453 as of December 31, 2011 and 2010,
respectively (Note 33).
HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which
the Group’s management has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of
HTM investments, the entire category would be tainted and reclassified as AFS financial assets. After initial measurement, these investments are
measured at amortized cost using the effective interest rate method, less impairment in value. Any interest earned on the HTM investments shall
be recognized as part of “Interest income” 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 integral part of the effective interest rate. The periodic amortization is
also included as part of “Interest income” in the consolidated statements of income. Gains or losses are recognized in profit or loss when the HTM
investments are derecognized or impaired, as well as through the amortization process.
As of December 31, 2011 and 2010, the Group has no investments accounted for under this category.
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” in equity. 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 are classified under this category (Note 10).
The carrying amounts of financial assets under this category amounted to P132 and P135 as of December 31, 2011 and 2010, respectively (Note
33).
Financial Liabilities
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 reports 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 under the “Hedging reserve”
account in equity. Any interest expense incurred shall be recognized as part of “Interest expense” in the consolidated statements of income.
The Group’s derivative liabilities are classified under this category (Note 16).
The carrying amounts of financial liabilities under this category amounted to P11 and P8 as of December 31, 2011 and 2010, respectively (Note
33).
Other Financial Liabilities. This category pertains to financial liabilities that are not designated or classified as at FVPL. After initial measurement,
other financial liabilities are carried at amortized cost using the effective interest rate 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.
Included in this category are the Group’s liabilities arising from its trade or borrowings such as drafts and loans payable, accounts payable and
accrued expenses, current maturities of long-term debt and long-term debt (Notes 15, 16, 17 and 27).
The combined carrying amounts of financial liabilities under this category amounted to P60,674 and P59,819 as of December 31, 2011 and 2010,
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.
Derivative Financial Instruments and Hedging
Freestanding Derivatives
For the purpose of hedge accounting, hedges are classified as either: a) fair value hedges when hedging the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk); b) cash flow hedges when hedging
exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable
forecast transaction or the foreign currency risk in an unrecognized firm commitment; or c) hedges of a net investment in foreign operations.
45
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to
apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification
of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such
hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value with corresponding change in fair value recognized in profit or
loss. The carrying amount of the hedged asset or liability is also adjusted for changes in fair value attributable to the hedged item and the gain
or loss associated with that remeasurement is also recognized in profit or loss.
When the hedge ceases to be highly effective, hedge accounting is discontinued and the adjustment to the carrying amount of a hedged financial
instrument is amortized immediately.
The Group discontinues fair value hedge accounting if the hedging instrument expires, is sold, terminated or exercised, the hedge no longer
meets the criteria for hedge accounting or the Group revokes the designation.
As of December 31, 2011 and 2010, the Group has no outstanding derivatives accounted for as fair value hedges.
Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are recognized in other
comprehensive income and presented under the “Hedging reserve” account in equity. The ineffective portion is immediately recognized in profit
or loss.
If the hedged cash flow results in the recognition of an asset or a liability, all gains or losses previously recognized directly in equity are transferred
from equity and included in the initial measurement of the cost or carrying amount of the asset or liability. Otherwise, for all other cash flow
hedges, gains or losses initially recognized in equity are transferred from equity to profit or loss in the same period or periods during which the
hedged forecasted transaction or recognized asset or liability affect the profit or loss.
When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging
instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. When the forecasted transaction
is no longer expected to occur, any net cumulative gain or loss previously reported in equity is recognized in profit or loss.
As of December 31, 2011 and 2010, the Group has no outstanding derivatives accounted for as cash flow hedge.
Net Investment Hedge. As of December 31, 2011 and 2010, the Group has no hedge of a net investment in a foreign operation.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value of derivatives are taken directly to
profit or loss during the year incurred.
Embedded Derivatives
The Group assesses whether embedded derivatives are required to be separated from 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 derecognized
when:
the rights to receive cash flows from the asset expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a
third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash flows from the asset 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 and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of
the asset and the maximum amount of consideration that the Group could be required to repay.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. 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.
46
Impairment of Financial Assets
The Group assesses at reporting date whether a financial asset or 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 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 pooled according to their 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 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 shall be reduced either directly or through use of an allowance account. The impairment loss for the period shall
be 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. 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 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 its 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.
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
asset and settle the liability simultaneously. This is not generally 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
-
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;
Materials and supplies
-
at cost, using the moving-average method.
47
Net realizable value of finished goods is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make
the sale.
Net realizable value of goods in process 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.
Net realizable value of materials and supplies is the current replacement cost.
Containers (i.e., returnable bottles and shells) 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 ten (10) years. Amortization of deferred containers is included
under “Selling and administrative expenses” account in the consolidated statements of income.
Business Combination
Acquisitions on or after January 1, 2010
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred
to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In
assessing control, the Group takes into consideration potential voting rights that currently are exercisable.
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 to fair value at the acquisition date through profit or loss.
For acquisitions on or after January 1, 2010, 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 and is
presented under “Income from Acquisition of Assets at Fair Value” in the consolidated statements of income. 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.
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 the 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 cashgenerating 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, Operating Segments.
Impairment is determined by assessing the recoverable amount of the cash-generating unit or group of cash-generating 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 Asset 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 intangible asset is assessed to be either finite or indefinite.
Intangible asset with finite life is amortized over the useful economic life and assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life
are reviewed at least at each reporting date. A change in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset is accounted for as a change in accounting estimates. The amortization expense on intangible asset with finite
life is recognized in profit or loss.
Loss of Control
Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other
components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group
retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is
accounted for as an equity-accounted investee or as an AFS financial asset depending on the level of influence retained.
48
Acquisitions Prior to January 1, 2010
In comparison to the above-mentioned requirements, the following differences applied:
Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of
the acquisition costs.
The non-controlling interest was measured at the proportionate share of the acquiree’s identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously
recognized goodwill.
Contingent consideration was recognized if, and only if, the Group had a present obligation, the economic outflow was more likely than not and
a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill.
Business Combination under Common Control
Business combinations arising from transfers of interests in entities that are or that become under the control of the stockholders that control
the Group during the period is accounted for using book values. The acquiree’s assets and liabilities are recognized at book values and results of
operation are included in the consolidated financial statements as if the acquisition has occurred at the beginning of the period.
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 the book value accounting.
Non-controlling Interests
For acquisitions of non-controlling interests on or after January 1, 2010, the acquisitions 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
net assets of the 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) and interest incurred during the construction period on funds borrowed to finance the construction of the projects.
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.
Construction in progress 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 property, plant and equipment are capitalized during the construction
period. Construction in progress is not depreciated until such time that the relevant assets are ready for use.
Depreciation and amortization 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
5 - 50
5 - 50
3-7
5 - 50
or term of the lease,
whichever is shorter
2 - 10
2 - 10
The remaining useful lives, residual values, depreciation and amortization method are reviewed and adjusted periodically, if appropriate, to
ensure that such periods and method 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 amount may not be recoverable.
Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization are recognized
in profit or loss.
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 on 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.
49
Investment Property
Investment property consists of properties 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 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 method of depreciation and amortization of the assets are reviewed and adjusted, if appropriate, at each
financial period.
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.
Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation 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 sale.
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 as at the date of acquisition. Subsequently, intangible assets are measured at cost less accumulated amortization and allowance for
impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is
recognized in profit or loss in the year in which the related expenditure is 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
asset may be impaired. The amortization period and method used for an intangible asset with a finite useful life are reviewed at least at each yearend. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted
for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. 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
2-8
25 - 50
or term of the lease,
whichever is shorter
The Group assessed the useful life of trademarks, 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 asset is 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 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 investments, 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 pretax discount rate that reflects current market assessment 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 cash-generating unit to which the asset belongs.
Impairment losses of continuing operations are recognized in profit or loss in those expense categories consistent with the function of the
impaired asset.
50
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.
Provisions
Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of past event; (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
can be made of the amount of the obligation. 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 those 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 shall be recognized when,
and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated
as a separate asset. 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.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits 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:
Sales. Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable,
net of returns, trade discounts and volume rebates. Revenue is recognized when 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. Rent income is included as part of other
income.
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.
Share-based Payment Transactions
Under SMC’s Employee Stock Purchase Plan (ESPP), employees of the Group receive remuneration in the form of share-based 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 equitysettled 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 expense recognized
for share-based transactions at each reporting date until the vesting date reflects 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 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 extension 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) above, and at the date of renewal or extension period for scenario (b).
51
Operating Lease
Group as Lessee. Leases which do not substantially transfer to the Group all the risks and benefits 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 substantially transfer all the risks and benefits 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. If the carrying amount of the asset exceeds its recoverable
amount, an impairment loss is recognized.
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.
Retirement Costs
The Company and some of its subsidiaries have separate funded, noncontributory retirement plan, administered by a trustee, covering all
permanent employees. Retirement costs are actuarially determined using the projected unit credit method. This method reflects service rendered
by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Retirement cost includes
current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains
and losses, effect of asset limit and effect of any curtailments or settlements. Past service cost is recognized as an expense on a straight-line basis
over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes
to the plan, past service cost is recognized immediately as an expense. Actuarial gains and losses are recognized as income or expense when the
net cumulative unrecognized actuarial gains and losses at the end of the previous reporting year exceed the greater of 10% of present value of the
defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining
working lives of the employees participating in the plan.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized,
reduced by past service costs not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such
aggregate is negative, the resulting asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial
losses and past service costs and the present value of any economic benefits available in the form of reductions in the future contributions to the
plan.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service costs and the present value of any
economic benefits available in the form of reductions in the future contributions to the plan, net actuarial losses of the current period and
past service costs of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those
economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current
period and past service costs of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the
deduction of past service costs of the current period exceeding any increase in the present value of the economic benefits stated above are
recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service costs and
the present value of any economic benefits available in the form of reductions in the future contributions to the plan. If there is no change or a
decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service costs
of the current period are recognized immediately.
Foreign Currency
Foreign Currency Translations
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency
at the exchange rate at the reporting 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 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 a foreign currency 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 a hedge of
the net investment in a foreign operation that is effective, 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 at the reporting dates.
52
Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve (“Translation
reserve”) 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 other comprehensive income 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 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” in equity.
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 credits and unused tax losses
to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward
benefits of unused tax credits and losses 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.
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 law 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:
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
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” 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
or common significant influence. Related parties may be individuals or corporate entities. Transactions between related parties are on an arm’s
length basis in a manner similar to transactions with non-related parties.
53
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 by adjusting the net income for the period attributable to equity holders of the Company and the weighted average
number of issued and outstanding common shares during the period, for the effects of all dilutive common shares.
Operating Segments
The Group’s operating segments are organized and managed separately according to the nature of the products and services provided, 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 uses for segment reporting under PFRS 8 are the same as those used in its consolidated financial statements.
There have been no changes from prior periods in the measurement methods used to determine reported segment profit or loss. All intersegment transfers are carried out at arm’s length prices.
Segment revenues, expenses and performance include sales and purchase 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 consolidated financial position at 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 Group’s consolidated financial statements in accordance with PFRS requires management to make judgments, estimates
and assumptions that affect the application of accounting policies and 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:
Operating Lease Commitments - Group as Lessor/Lessee. The Group has entered into various lease agreements as either a lessor or a lessee. The
Group had determined that it retains all the significant risks and rewards of ownership of the properties leased out on operating leases while the
significant risks and rewards for properties leased from third parties are retained by the lessors.
Rent expense charged to profit or loss amounted to P559, P709 and P603 in 2011, 2010 and 2009, respectively (Notes 20 and 21). Rental income
recognized as part of other income amounted to P66, P79, and P18 in 2011, 2010 and 2009, respectively (Note 25).
Determining Fair Values of Financial Instruments. Where the fair values of financial assets and financial liabilities recognized in the consolidated
statements of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include
the use of mathematical models. The Group uses judgments to select from a variety of valuation models and make assumptions regarding
considerations of liquidity and model inputs such as correlation and volatility for longer dated financial instruments. The input to these models is
taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair value.
Estimates
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.
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 customers’ 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.
The allowance for impairment losses amounted to P1,158 and P937 as of December 31, 2011 and 2010, respectively. The carrying amount of trade
and other receivables amounted to P4,977 and P4,366 as of December 31, 2011 and 2010, respectively (Notes 7, 32 and 33).
54
Allowance for Inventory Losses. The Group provides an allowance for inventory losses 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 reporting date to the extent that such events confirm conditions existing at reporting date. The allowance account is reviewed periodically
to reflect the accurate valuation in the financial records.
The allowance for inventory losses amounted to P244 and P277 as of December 31, 2011 and 2010, respectively. The carrying amount of inventories
amounted to P3,370 and P3,557 as of December 31, 2011 and 2010, respectively (Note 8).
Financial Assets and Financial Liabilities. The Group carries certain financial assets and financial liabilities at fair value, which requires extensive
use of accounting estimates and judgments. Significant components of fair value measurement were determined using verifiable objective
evidence (i.e., foreign exchange rates, interest rates, volatility rates). The amount of changes in fair value would differ if the Group utilized different
valuation methodologies and assumptions. Any change in the fair value of these financial assets and financial liabilities would affect profit or
loss and equity.
Fair values of financial assets and financial liabilities are discussed in Note 33.
Estimated Useful Lives of Investment Property, Deferred Containers and Property, Plant and Equipment. The Group estimates the useful lives
of investment property, deferred containers and property, plant and equipment based on the period over which the assets are expected to
be available for use. The estimated useful lives of investment property, deferred containers and property, plant and equipment 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 investment property, deferred containers and property, plant and equipment 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 investment property, deferred containers and property, plant and equipment would increase recorded cost of sales and selling and
administrative expenses and decrease noncurrent assets.
Investment property, net of accumulated depreciation and impairment losses amounted to P664 and P1,379 as of December 31, 2011 and 2010,
respectively (Note 12). Property, plant and equipment, net of accumulated depreciation and amortization and impairment losses, amounted to
P20,214 and P19,635 as of December 31, 2011 and 2010, respectively (Note 11). Accumulated depreciation, amortization and impairment losses
of investment property and property, plant and equipment amounted to P38,319 and P38,113 as of December 31, 2011 and 2010, 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 P6,095 and P5,396 as of December 31, 2011 and 2010, respectively. Accumulated amortization of deferred
containers amounted to P5,526 and P4,269 as of December 31, 2011 and 2010, respectively (Note 14).
Fair Value of Investment Property. The fair value of investment property presented for disclosure purposes is based on market values, being the
estimated amount for which the property can be exchanged between a willing buyer and seller in an arm’s length transaction, or based on a most
recent sale transaction of a similar property within the same vicinity where the investment property is located.
In the absence of current prices in an active market, the valuations are prepared by considering the aggregate estimated future cash flows
expected to be received from leasing out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the
net annual cash flows to arrive at the property valuation.
Estimated fair values of investment property amounted to P1,046 and P1,993 as of December 31, 2011 and 2010, respectively (Note 12).
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 P846 and P827 as of December 31, 2011 and 2010, 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. This requires the estimation of 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 P35,217 and P35,309 as of December 31,
2011 and 2010, respectively (Note 13).
Acquisition Accounting. The Group accounts for acquired businesses using the acquisition method of accounting which requires that the assets
acquired and the liabilities assumed be recorded at the date of acquisition at their respective fair values.
The application of the acquisition method requires certain estimates and assumptions especially concerning the determination of the fair value
of acquired land as well as liabilities assumed at the date of the acquisition. The judgments made in the context of the purchase price allocation
can materially impact the Group’s future profit or loss. The Group’s acquisitions have resulted in land.
The fair value of land arising from business combination as of December 31, 2010 amounted to P6,829 (Notes 10, 11 and 12).
55
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 P341 and P68 as of December 31, 2011 and 2010, respectively (Note 18).
Impairment of Non-financial Assets. PFRS require that an impairment review be performed on investments, 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 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 P10,950 and P11,632 as of December 31, 2011 and 2010, respectively. The aggregate amount of property, plant and equipment, investment
property, deferred containers and intangible assets with finite useful lives amounted to P27,819 and P27,237 and as of December 31, 2011 and
2010, respectively (Notes 11, 12, 13 and 14).
Present Value of Defined Benefit Obligation. The present value of the 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 29 to the consolidated financial statements
and include discount rate, expected return on plan assets and future salary increase rate. Actual results that differ from the assumptions are
accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future
periods.
The assumption of the expected return on plan assets is determined on a uniform basis, taking into consideration the long-term historical returns,
asset allocation and future estimates of long-term investment returns.
The Group determines the appropriate discount rate at the end of each year. 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 pension 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 pension liability.
Other key assumptions for pension obligations 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 pension obligations.
The Group has a net cumulative unrecognized actuarial losses amounting to P2,710 and P2,395 as of December 31, 2011 and 2010, respectively
(Note 29).
Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the cost of dismantling property, plant and equipment
and other costs of restoring the leased properties to their original condition. The Group determined that there are no significant asset retirement
obligations as of December 31, 2011 and 2010.
5. Segment Information
Operating Segments
The reporting format of the Group’s operating segments is determined by 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.
With the acquisition of SMBIL, the Group is organized in two major operating segments - domestic and international operations.
The domestic operations produce and market fermented and malt-based beverages within the Philippines. It also distributes its products to some
export markets.
The international operations also 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 and impairment. Segment liabilities include all operating liabilities and consist principally of accounts
payable, wages, taxes currently payable 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 transfers 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 revenue of the
Group.
56
Financial information about the operating segments follow:
For the Year Ended December 31, 2011
Sales
External sales
Inter-segment sales
Total Sales
Results
Segment results
Interest expense and other financing charges
Interest income
Impairment losses on noncurrent assets
Other income - net
Income tax expense
Net income
Domestic
International
Eliminations
P58,677
50
P58,727
P13,233
P13,233
P (50)
(P50)
P71,910
P71,910
P20,018
P453
P -
P20,471
(4,132)
658
(30)
402
(5,187)
P12,182
Attributable to:
Net income
Total
P11,962
220
P12,182
Domestic
International
Eliminations
Total
P53,130
P18,596
(P14,190)
P57,536
33,394
152
341
P91,423
Segment liabilities
Current maturities of long-term debt - net of debt issue costs
Long-term debt - net of current maturities and debt issue costs
Dividends payable and others
Consolidated Total Liabilities
P4,264
P2,519
(P170)
P6,613
1,857
Capital expenditures
Depreciation
Noncash items other than depreciation
Loss on impairment of noncurrent assets
P1,667
774
1,243
-
Other Information
Segment assets
Trademarks and brand names
Other assets
Deferred tax assets
Consolidated Total Assets
13,577
37,962
2,606
899
35
P63,549
P111
462
140
30
P -
P1,778
1,236
1,383
30
For the Year Ended December 31, 2010
Domestic
Sales
External sales
Inter-segment sales
Total Sales
Results
Segment results
Interest expense and other financing charges
Interest income
Impairment losses on noncurrent assets
Income from acquisition of assets at fair value
Other income - net
Income tax expense
Net Income
Attributable to:
Net income
P55,786
48
P55,834
P18,563
International
P11,789
P11,789
(P12)
Eliminations
Total
P (48)
(P48)
P67,575
P67,575
P -
P18,551
(3,983)
696
(3,694)
2,418
1,247
(4,862)
P10,373
P11,768
(1,395)
P10,373
57
Other Information
Segment assets
Other assets
Deferred tax assets
Consolidated Total Assets
Segment liabilities
Draft and loans payable
Long-term debt – net of debt issue cost
Dividends payable and others
Consolidated Total Liabilities
Capital expenditures
Depreciation
Noncash items other than depreciation
Loss on impairment of noncurrent assets
Domestic
International
Eliminations
P49,124
P18,621
(P14,239)
P3,569
P2,681
(P219)
P730
739
458
-
P226
655
212
3,694
P -
Consolidated
P53,506
33,393
154
68
P87,121
P6,031
1,644
51,364
2,263
909
89
P62,300
P956
(1,394)
(670)
3,694
As of and for the year ended December 31, 2009, the Group has determined that it operates as one segment only (both in terms of business and
geography).
6. Cash and Cash Equivalents
This account consists of:
Cash in banks and on hand
Short-term investments
2011
2010
P2,802
15,477
P18,279
P1,828
13,248
P15,076
Cash in banks earns interest at the respective bank deposit rates. Short-term investments are made for varying periods of up to three months
depending on the immediate cash requirements of the Group, and earn interest at the respective short-term investment rates.
7. Trade and Other Receivables
Note
2011
2010
27
P5,549
25
P4,567
33
105
456
6,135
1,158
P4,977
87
616
5,303
937
P4,366
Trade
Receivables
Amounts owed by related parties
Nontrade
Amounts owed by related parties
Others
27
Less allowance for impairment losses
“Others” include receivables from employees, advance payments to suppliers, insurance claims and various receivables.
Trade receivables are non-interest bearing and are generally on a 7 to 30-day credit term.
The movements in the allowance for impairment losses are as follows:
Note
Balance at beginning of year
Charges for the year
Adjustments
Reversal of unused amounts
Allowance for impairment losses through business combination
Balance at end of year
21
2011
P937
206
15
P1,158
2010
P644
154
(103)
255
(13)
P937
58
As of December 31, 2011 and 2010, the aging of trade and other receivables is as follows:
2011
Current
Past due
Less than 30 days
30-60 days
61-90 days
Over 90 days
2010
Current
Past due
Less than 30 days
30-60 days
61-90 days
Over 90 days
Trade
Owed by
related
parties
Others
Total
P4,624
P96
P391
P5,111
2
311
125
112
476
P6,135
290
123
93
419
P5,549
16
16
P130
19
2
3
41
P456
Trade
Owed by
related
parties
Others
Total
P3,684
P43
P546
P4,273
233
206
96
348
P4,567
8
1
16
52
P120
10
14
13
33
P616
251
221
125
433
P5,303
-
Allowance for impairment losses related to amounts owed by related parties as of December 31, 2011 and 2010 amounted to P64 and P47,
As of December 31, 2011, various collaterals for trade receivables amounting to P4,253 such as bank guarantees, time deposits and real estate
mortgage are held by the Group for credit limits exceeding P0.275.
8. Inventories
This account at net realizable value consists of:
Finished goods and goods in process
Materials and supplies
Containers
2011
2010
P1,270
1,055
1,045
P3,370
P1,293
907
1,357
P3,557
The cost of finished goods and goods in process as of December 31, 2011 and 2010 amounted to P1,272 and P1,297, respectively. The cost of
materials and supplies as of December 31, 2011 and 2010 amounted to P1,146 and P920, respectively. The cost of containers as of December 31,
2011 and 2010 amounted to P1,196 and P1,617, respectively.
The write-down of inventories recognized as expense amounted to P64, P214 and P57 for the years ended December 31, 2011, 2010 and 2009,
respectively.
9. Prepaid Expenses and Other Current Assets
Note
Prepaid taxes and licenses
Prepaid insurance
Derivative assets
Prepaid rentals
Retirement asset
Others
32, 33
29
“Others” include prepaid supplies, prepaid promotional expenses and other miscellaneous prepaid expenses.
2011
2010
P670
44
41
23
218
P996
P677
34
54
24
221
139
P1,149
59
10. Investments and Acquisions of Subsidiaries
Acquisitions of Subsidiaries
The following are the developments relating to the Company’s investments in subsidiaries in 2011 and 2010:
a. SMBIL
The Company completed its purchase of the international beer and malt-based beverages business of SMC on January 29, 2010, with the
Company acquiring the shares of San Miguel Holdings Limited (SMHL), a wholly-owned subsidiary of SMC, in SMBIL, comprising 100% of the
issued and outstanding capital stock of SMBIL (SMBIL Shares). The SMBIL Shares were acquired by the Company for a purchase price of US$302
(peso equivalent: P13,941), after adjustments in accordance with the terms of the Share Purchase Agreement entered by the Company, SMC
and SMHL in December 2009 for the SMBIL Shares (SPA). As a result, SMBIL became a wholly-owned subsidiary of the Company.
The acquisition of SMBIL is in line with the Company’s goal to improve the growth and returns of its business as a whole and broaden its
geographic participation by integrating both the domestic and international beer business.
From the date of acquisition, SMBIL has contributed revenue of P11,789 to the Group’s results as of December 31, 2010 (Note 5).
The Group has elected to measure non-controlling interests at proportionate interest in identifiable net assets.
The following summarizes the consideration transferred, and the recognized amounts of assets acquired and liabilities assumed at the
acquisition date:
US Dollar
Consideration transferred
Assets
Inventories
Investment property - net
Property, plant and equipment - net
Other noncurrent assets
Liabilities
Loans payable
Total identifiable net assets at fair value
Non-controlling interests measured at proportionate interest
in identifiable net assets
Bargain Purchase Gain
Peso Equivalent
$302
P13,941
101
42
20
8
26
247
102
4,677
1,919
933
352
1,219
11,390
4,735
(37)
(57)
(10)
(5)
437
(1,724)
(2,648)
(452)
(203)
20,198
(83)
354
($52)
(3,839)
16,359
(P2,418)
Trade and Other Receivables
The fair value of the trade and other receivables amounts to P1,919. The gross amount of trade receivables is P2,174, of which P255 was
expected to be uncollectible at the acquisition date.
Contingent Consideration
As stated in the earn-out scheme in the SPA, SMB shall pay an amount subject to the achievement of the target cumulative EBITDA and target
cumulative Sales Volume for 2010, 2011 and 2012 by SMBIL and certain subsidiaries of SMBIL. The fair value of contingent consideration was
determined to be zero as of December 31, 2011 and 2010, based on the statistical analysis of the historical budget and actual performance
and based on the analysis of the historical trends of Sales Volumes and EBITDA.
Acquisition - Related Costs
The Group incurred acquisition-related costs of P14, which have been included in administrative expenses in the consolidated statements
of income for the year ended December 31, 2010.
Bargain Purchase Gain
The net identifiable assets including the non-controlling interest measured at proportionate interest in identifiable net assets exceeds the
consideration transferred resulting in a bargain purchase gain.
b. BPI
On November 10, 2010, the Company and SMC executed a Deed of Absolute Sale of Shares (Deed) for the purchase by the Company of
all the shares of SMC in BPI (BPI Shares), at the aggregate purchase price of P6,829 (Purchase Price). Of the Purchase Price, P6,629 [which
correspond to the appraised value of the 128 titles of certain parcels of land used in the domestic beer operations of the Company (Land)
that were transferred in the name of BPI], has been paid by the Company to SMC upon execution of the Deed. The balance shall be paid by
the Company to SMC upon transfer of the remaining eight (8) Land titles in the name of BPI. The BPI Shares comprise 40% of the issued and
outstanding capital stock of BPI.
60
The purchase of the BPI Shares will allow the Company to increase its asset base while at the same time efficiently expand its facilities, increase
plant capacities and improve distribution capabilities given that BPI owns the lands where a substantial portion of the Company’s major
operating investments are located.
acquisition date:
Assets
Cash
Other current assets
Investment property
Liabilities
Non-controlling interest measured at proportionate interest in identifiable net assets
Fair value adjustment to investment property
Goodwill (Bargain Purchase Gain)
P6,829
1
7
28
1,036
(193)
(4)
875
(239)
6,193
6,829
P -
The fair value of investment property represents the purchase price of P6,829, which is equivalent to the appraised value of the Land.
Acquisition-related Costs
The Group incurred acquisition-related costs of P2, which have been included in administrative expenses in the consolidated statements of
income for the year ended December 31, 2010.
c. IBI
IBI owns the beer and malt-based beverages brands, including related trademarks, copyrights, patents and other intellectual property rights
and know-how used by the Company in its domestic beer and malt-based beverage business. IBI became a wholly-owned subsidiary of the
Company with the Company’s acquisition of SMC’s shares in IBI in April 2009, comprising 100% of the outstanding capital stock of IBI, for a total
purchase price of P32,000.
The acquisition of IBI would enable the Company to exercise full control over its brands pursuant to its strategic initiative to secure the
Company’s main competitive advantage.
acquisition date:
Assets
Receivables
Liabilities
Other taxes payable
Fair value adjustment to trademarks and brand names
Goodwill (Bargain Purchase Gain)
P32,000
80
10,000
(70)
(10)
10,000
22,000
32,000
P -
The fair value of trademarks and brand names represents the purchase price of P32,000, which was agreed to by the Company after giving
due consideration to various factors and valuation methodologies including the independent valuation study and analysis prepared by UBS
Investments Philippines, Inc.
Investments
AFS financial assets amounting to P132 and P135 as of December 31, 2011 and 2010, respectively, pertain to investments in shares of stock and club
shares carried at fair value (Note 33).
P3,551
8,041
78
(24)
(248)
11,398
51
(154)
168
11,463
1,563
1,986
229
(24)
(63)
3,691
184
(27)
31
3,879
P2,299
1,574
(51)
3,822
(145)
125
3,802
P3,885
P3,782
18,568
625
(442)
(462)
35,588
1,256
(772)
463
36,535
13,990
6,902
1,075
(427)
(172)
21,368
934
(360)
95
22,037
P5,225
2,248
(16)
(113)
7,344
4
(640)
285
6,993
P6,876
P7,505
Buildings and
Improvements
P17,299
Machinery and
Equipment
P268
P399
P6
6
12
1
13
196
53
(27)
(5)
520
71
(39)
1
553
303
239
208
(26)
(5)
800
151
11
3
965
P384
Transportation
Equipment
P29
P195
P -
18
3
65
11
1
77
44
18
94
173
5
272
P76
Leasehold
Improvements
P77
P82
P23
20
(1)
(1)
41
(1)
1
41
260
27
(43)
(10)
590
32
(33)
1
590
356
354
52
(61)
(12)
708
23
(20)
2
713
P375
Office
Equipment,
Furniture
and
Fixtures
P12
P14
P13
8
(1)
20
1
(1)
1
21
283
7
(179)
(12)
107
4
(32)
79
8
329
7
(192)
(14)
139
7
(33)
1
114
P9
Tools and
Small
Equipment
P368
P167
P -
-
-
46
(14)
1
368
117
(318)
167
P335
Construction
in Progress
P19,635
P20,214
P7,566
3,848
(9)
(166)
11,239
5
(787)
413
10,870
9,645
1,394
(700)
(262)
26,341
1,236
(491)
129
27,215
16,264
35,666
956
(745)
(691)
57,215
1,778
(1,281)
587
58,299
P22,029
Total
Depreciation and amortization charged to operations amounted to P1,236, P1,394 and P716 in 2011, 2010 and 2009, respectively (Notes 20, 21 and 22). No interest was capitalized in 2011 and 2010.
Cost:
December 31, 2009
P Assets acquired through business combination
8,071
Additions for the year
Disposals/reclassifications
49
December 31, 2010
8,120
(50)
December 31, 2011
8,070
Accumulated depreciation and amortization:
December 31, 2009
Assets acquired through business combination
December 31, 2010
December 31, 2011
Accumulated impairment losses:
P Additions for the year
December 31, 2010
December 31, 2011
Net book value:
December 31, 2010
P8,120
December 31, 2011
P8,070
Land
The movements in this account are as follows:
11. Property, Plant and Equipment
61
62
12. Investment Property
The movements in investment property, including the effects of currency translation adjustments are as follows:
Cost:
Currency translation adjustments
December 31, 2010
December 31, 2011
Accumulated depreciation and amortization:
December 31, 2010
December 31, 2011
December 31, 2010
December 31, 2011
Net book value:
December 31, 2010
December 31, 2011
Land and Land
Improvements
Buildings and
Improvements
P1,508
17
32
1,557
28
(1,008)
(36)
541
P412
1
(39)
(19)
355
1
1
357
P1,920
1
(22)
13
1,912
29
(1,008)
(35)
898
(2)
44
10
(1)
53
111
6
(5)
(6)
106
6
1
113
150
13
(5)
(8)
150
16
(1)
1
166
340
(6)
14
348
(304)
(11)
33
48
(11)
(2)
35
35
388
(17)
12
383
(304)
(11)
68
-
39
7
P1,165
P455
P214
P209
Total
P1,379
P664
On June 10, 2011, SMBTL sold its Bangpho property in Bang Sue District, Bangkok Metropolis for THB815 (peso equivalent: P1,050). The property’s
original cost is THB506 (peso equivalent: P706) (Note 25).
The fair values of investment property as of December 31, 2011 and 2010 amounted to P1,046 and P1,993, respectively, which was determined
based on valuations performed by independent appraisers.
63
13. Intangible Assets
The movements in this account are as follows:
Trademarks and
Brand Names
Gross carrying amount:
December 31, 2009
December 31, 2010
December 31, 2011
Accumulated amortization:
December 31, 2009
December 31, 2010
December 31, 2011
December 31, 2010
December 31, 2010
December 31, 2011
Net book value:
December 31, 2010
December 31, 2011
Licenses
P32,000
P17
3,529
(1,917)
6
33,618
2
33,620
-
2
1,917
1,936
32
(93)
1,875
-
3
39
-
(2)
37
-
Land use
rights
P -
P32,034
1,093
(37)
1,056
(7)
33
1,082
143
1
2
(6)
157
14
171
4,765
3
2
(37)
36,767
46
(7)
(58)
36,748
-
11
14
140
5
2
(6)
152
4
156
404
30
(1)
(14)
433
43
(2)
10
484
37
14
131
64
(7)
188
1
189
-
256
(235)
(13)
8
8
P33,393
P33,394
7
(3)
7
7
P1,929
P1,861
Total
P17
225
18
(6)
237
32
(2)
10
277
-
Computer
Software
and Other
Intangibles
P811
P797
-
-
1
1
2
2
4
P3
P11
388
(171)
1
(20)
198
2
1
201
P36,136
P36,063
Trademarks and brand names with indefinite useful lives amounted to P33,394 and P33,393 as of December 31, 2011 and 2010, respectively.
Licenses with indefinite useful lives amounted to P1,823 and P1,916 as of December 31, 2011 and 2010, respectively. Licenses with finite useful
lives amounted to P38 and P13 as of December 31, 2011 and 2010, respectively.
Trademarks and Brand Names
a. Domestic Operations
The value of the domestic trademarks and brand names represents the purchase price of P32,000 (Note 10), which was agreed to by the
Company after giving due consideration to various factors and valuation methodologies including the independent valuation study and
analysis prepared by UBS Investments Philippines, Inc. The Company, after considering said valuation methodologies, viewed the royalty
relief (based on commercial rates) and advertising spent methodologies to be generally more relevant, compared to other methodologies
that may be used to value the SMB’s domestic trademarks and brand names, on the basis that such methodologies require fewer
assumptions and less reliance on subjective reasoning since key assumptions come from primary sources based on the Company’s filings
and projections, actual industry precedents and industry common practice. The purchase price agreed upon is within the value range
yielded by said methodologies, which value range is P25,000 to P32,000.
64
The recoverable amount of the trademarks and brand names has been determined based on a valuation using cash flow projections 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 3.5% 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% and 10% on December 31, 2011 and 2010, respectively.
b. International Operations
SMBIL acquired the international trademarks, trade dress, know-how, copyrights, patents and other intellectual property rights used in
connection with the international beer business of SMC (International IP Rights), through the assignment by SMHL of the International IP
Rights to SMBIL in exchange for common shares in SMBIL totaling 2,863,636 valued at US$31.5 (peso equivalent: P1,470). The value of the
International IP Rights is the same value used when the International IP Rights were assigned by SMC to San Miguel International Limited
(SMIL) and was derived from the independent valuation study done by Fortman Cline Capital Markets (FCCM), in which FCCM applied one
valuation methodology, the royalty relief method. This was also the value used for the International IP Rights when they were assigned by SMIL
to SMHL in exchange for SMHL shares.
The recoverable amount of the trademarks and brand names has been determined based on a valuation using cash flow projections 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 rates applied to after tax cash flow projections range from 8.9% to 14.5% and from 8.9% to 18% on December
31, 2011 and 2010, respectively.
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 (terminal value) are most sensitive to the following assumption:
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.
Management assessed that there is no impairment loss in the value of trademarks and brand names in 2011 and 2010.
14. Other Noncurrent Assets
Note
Deferred containers - net
Bottles
Shells
Others
27, 28, 29, 32, 33
2011
2010
P5,012
1,083
6,095
292
P6,387
P4,190
1,206
5,396
224
P5,620
“Others” include unamortized cost of pallets, kegs and CO2 cylinders, retirement asset, noncurrent portion of long-term receivable, and other
noncurrent assets.
The movements in the deferred containers are as follows:
Note
Gross carrying amount:
Acquired through business combination
Additions
Disposals/reclassification
Accumulated amortization:
Acquired through business combination
Amortization for the year
Disposals/reclassification
22
2011
2010
P9,665
2,142
(212)
26
11,621
P7,343
1,207
1,289
(150)
(24)
9,665
4,269
1,301
(72)
28
5,526
P6,095
2,257
774
1,287
(33)
(16)
4,269
P5,396
65
15. Drafts and Loans Payable
Drafts and loans payable mainly represent unsecured short-term borrowings obtained from multinational and local banks by SMGB and SMBB
which bear interest at current market rates. Interest rates for loans range from 3.65% to 7.87% and from 3.25% to 5.23% in 2011 and 2010,
respectively.
16. Accounts Payable and Accrued Expenses
Trade
Payables
Amounts owed to related parties
Nontrade
Amounts owed to related parties
Derivative liabilities
Accruals
Interests
Payroll
Materials
Utilities
Others
Note
2011
2010
27
P3,121
1,280
P3,074
909
27
32, 33
528
11
672
8
892
516
74
58
816
P7,296
895
369
42
30
834
P6,833
“Others” include accruals for repairs and maintenance, advertising and promotion expenses, freight, trucking and handling, contracted labor,
supplies and various other payables.
17. Long-Term Debt
a. Unsecured term notes peso-denominated:
Series A Bonds, fixed interest rate of 8.25%
Series B Bonds, fixed interest rate of 8.875%
Series C Bonds, fixed interest rate of 10.50%
b. Unsecured term loan foreign currency-denominated, floating interest rate based on LIBOR + margin
Less current maturities
2011
2010
P13,577
22,271
2,785
38,633
P13,525
22,217
2,782
38,524
12,906
51,539
12,840
51,364
13,577
P37,962
P51,364
a. The amount represents unsecured long-term debt incurred by the Company to finance its acquisition of SMC’s interests in IBI and BPI (Note 10).
Unamortized debt issue costs related to these long-term debt amounted to P167 and P276 as of December 31, 2011 and 2010, respectively.
The Company’s peso-denominated fixed rate bonds (Bonds) worth P38,800 were sold to the public pursuant to a registration statement that
was rendered effective by the SEC on March 17, 2009 and are listed on the Philippine Dealing & Exchange Corp. for trading.
b. On January 28, 2010, the Company entered into a US$300 unsecured loan facility agreement (US$300 Term Facility). Proceeds of the loan were
used to finance the Company’s acquisition of the international beer and malt-based beverages business from SMC, through the Company’s
purchase of the SMBIL Shares, comprising 100% of the outstanding capital stock of SMBIL. Interest rate for the foreign currency-denominated
loan of the Company ranges from 2.33% to 2.41% and from 2.35% to 2.54% in 2011 and 2010, respectively (Note 32). Unamortized debt issue
costs related to this loan amounted to P246 and P312 as of December 31, 2011 and 2010, respectively.
The debt agreements contain, among others, covenants relating to maintenance of certain financial ratios; redemption or reduction of capital
stock; and restrictions on payments of dividends, indebtedness, loans and guarantees, encumbrances and liens on properties and disposal of all
or substantially all of the Company’s assets. In addition, the Bonds require maintenance of controlling interest of SMC in the Company.
In 2011, the Company obtained the approval of all its lenders for its US$300 Term Facility to maintain a minimum interest coverage ratio of 4.75:1
in lieu of a current ratio of 1:1. In 2012, the Company also obtained the consent of bondholders representing 76.92% of the aggregate principal
amount of the Bonds to effect the same change in the terms and conditions of the Bonds.
As of December 31, 2011 and 2010, the Company is in compliance with the covenants of the debt agreements.
66
The movements in debt issue costs are as follows:
Note
Addition
Amortization
24
2011
2010
P588
(175)
P413
P384
371
(167)
P588
Repayment Schedule
As of December 31, 2011, the annual maturities of long-term debt are as follows:
Year
Gross Amount
Debt Issue Cost
Net
2012
2014
2015
2019
P13,590
22,400
13,152
2,810
P51,952
P13
129
246
25
P413
P13,577
22,271
12,906
2,785
P51,539
18. Income Taxes
Deferred tax assets and liabilities arise from the following:
Allowance for impairment losses on receivables
Allowance for inventory losses
Unrealized gains on derivatives
Unrealized foreign exchange gains - net
Others
2011
2010
P309
66
(44)
(210)
185
P306
P226
82
(514)
(223)
408
(P21)
2011
2010
The above amounts are reported in the consolidated statements of financial position as follows:
P341
(35)
P306
Deferred tax assets
P68
(89)
(P21)
The components of income tax expense are shown below:
2011
Current
Deferred
P5,514
(327)
P5,187
2010
2009
P4,643
219
P4,862
P3,721
176
P3,897
The reconciliation between the statutory income tax rate on income before income tax and the Group’s effective income tax rates are as follows:
2011
Statutory income tax rate
Increase (decrease) in income tax rate resulting from:
Income subjected to final tax
Others
Effective income tax rate
2010
2009
30.00%
30.00%
30.00%
(1.14)
1.00
29.86%
(1.37)
3.28
31.91%
(1.16)
(0.86)
27.98%
Deferred tax relating to items that are charged to other comprehensive income amounted to P19 in 2009.
19. Capital Stock
Pursuant to the registration statement rendered effective by the SEC on April 28, 2008 and permit to sell issued by the SEC dated 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. As
of December 31, 2011, the Company has a total of 15,410,478,960 issued and outstanding common shares and 831 stockholders.
67
20. Cost of Sales
Note
Taxes and licenses
Inventories
Communications, light, fuel and water
Personnel
Depreciation and amortization
Repairs and maintenance
Rent
Others
23
22
4, 28
2011
2010
2009
P21,527
10,253
2,270
1,222
931
467
24
125
P36,819
P19,379
10,153
1,991
1,174
1,007
514
25
262
P34,505
P15,686
7,353
1,397
809
587
340
5
84
P26,261
Taxes and licenses include excise, real property and business taxes.
21. Selling and Administrative Expenses
2011
2010
2009
P7,512
7,108
P14,620
P7,450
7,069
P14,519
P3,847
4,890
P8,737
2011
2010
2009
P2,289
2,218
1,518
424
206
171
150
123
98
91
224
P7,512
P2,275
2,307
1,461
420
154
167
134
113
97
98
224
P7,450
P1,568
554
775
415
8
89
129
92
63
70
84
P3,847
Note
2011
2010
2009
23
22
P2,512
1,609
665
328
301
299
227
195
147
123
118
111
66
59
36
2
310
P7,108
P2,072
1,697
862
184
287
262
213
331
148
89
57
264
70
169
33
13
318
P7,069
P1,106
1,201
630
285
139
284
182
168
94
47
58
183
45
57
37
323
51
P4,890
Selling
Administrative
Selling expenses consist of:
Note
Freight, trucking and handling
Advertising and promotion
Personnel
Rent
Provision for impairment losses on receivables
Travel and transportation
Taxes and licenses
Others
23
4, 28
7
22
Administrative expenses consist of:
Personnel
Advertising and promotion
Professional fees
Contracted services
Management fees
Breakages and losses
Travel and transportation
Taxes and licenses
Rent
Research and development
Provision for inventory losses
Shipping expenses
Royalty
Others
31
4, 28
68
22. Depreciation and Amortization
Depreciation and amortization are distributed as follows:
Cost of sales:
Property, plant and equipment
Selling and administrative expenses:
Deferred containers
Others
Note
2011
2010
2009
11, 20
P931
P1,007
P587
11
14
12, 13, 14
21
305
1,301
94
1,700
P2,631
387
1,287
121
1,795
P2,802
129
1,041
101
1,271
P1,858
“Others” include amortization of investment property, computer software and other intangible assets, pallets, kegs and CO2 cylinders.
23. Personnel Expenses
2011
2010
2009
P3,082
493
1,677
P5,252
P2,853
434
1,420
P4,707
P1,476
168
1,046
P2,690
Note
2011
2010
2009
20
21
21
P1,222
1,518
2,512
P5,252
P1,174
1,461
2,072
P4,707
P809
775
1,106
P2,690
Note
Salaries and wages
Retirement costs
Other employee benefits
29
Personnel expenses are distributed as follows:
Cost of sales
Selling expenses
Administrative expenses
24. Interest Expense and Other Financing Charges
Interest expense
Amortization of debt issue costs
Other financing costs
Note
2011
2010
2009
15, 17
17
P3,908
175
49
P4,132
P3,816
167
P3,983
P2,540
60
P2,600
Note
2011
2010
2009
12
P344
44
4
66
(4)
(9)
(23)
(20)
P402
25. Other income (Charges)
Gain (loss) on sale of:
Investment property
Property and equipment
Intangible assets
Rental income
Gain (loss) on derivatives - net
Foreign exchange gain (loss) - net
Bank charges
Others
4, 28
33
32
P -
(7)
79
118
1,078
(21)
P1,247
P -
(4)
18
155
13
(201)
(P19)
69
26. Impairment Losses on Noncurrent Assets of South China and Hong Kong Operations
Impairment losses are reported in the consolidated statements of income as follows:
2011
US Dollar
Provision for impairment losses:
Intangible assets
Others
Reversal of impairment losses
2010
Peso
Equivalent
$0.1
0.1
0.5
0.7
$0.7
P5
3
22
30
P30
US Dollar
Peso
Equivalent
$88.2
1.5
1.0
90.7
(5.4)
$85.3
P3,848
64
43
3,955
(261)
P3,694
a. South China Operations (SMGB and GSMB)
During 2011 and 2010, the Group noted that the decline in demand for its products in South China compared to previous forecasts in sales, as a
result of fierce market competition and the operating losses that consequently arose were indications that non-current assets of the operations
in South China, comprising mainly the production plant located in Shunde, Guangdong Province, trademarks and other tangible assets may be
impaired.
The Group assessed the recoverable amounts of the cash-generating unit to which these assets belong (China cash-generating unit) and as
a result the carrying amount of the assets in the China cash-generating unit was written down by US$0.7 (peso equivalent: P30) and US$30.9
(peso equivalent: P1,351) in 2011 and 2010, respectively, details of which are as follows:
2011
Intangible assets
Others
2010
US Dollar
Peso
Equivalent
$0.1
0.1
0.5
0.7
P5
2
23
30
$33.6
0.2
33.8
P1,467
9
1,476
$0.7
P30
(2.9)
$30.9
(125)
P1,351
Peso
Equivalent
US Dollar
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,
who have among their staff members of the Hong Kong Institute of Surveyors.
A reversal of an impairment loss in 2010 was made with respect to interests in leasehold land held for own use under operating leases to the
carrying amount that would have been determined had no impairment loss been recognized in prior years, as there has been a favorable
change in the estimates used to determine the recoverable amount.
b. Hong Kong Operations (SMBHK)
In 2010, the Group noted that the lower demand for its own brewed products and declining profitability in Hong Kong compared to previous
forecasts, as a result of fierce market competition and the operating losses that consequently arose were indications that noncurrent assets
of the manufacturing operations in Hong Kong, comprising mainly of the production plant, office building and a warehouse might be
impaired.
The Group assessed the recoverable amounts of the cash-generating unit to which these assets belong (Hong Kong cash-generating unit) and
as a result the carrying amount of the assets in the Hong Kong cash-generating unit was written down by US$54.4 (peso equivalent: P2,343),
details of which are as follows:
2010
US Dollar
Intangible assets
Others
Peso
Equivalent
$54.6
1.5
0.8
56.9
P2,380
65
34
2,479
(2.5)
$54.4
(136)
P2,343
70
The recoverable amount of the Hong Kong cash-generating unit has been determined based on a value in use calculation. That calculation
uses cash flow projections based on the business forecasts approved by the management covering a period of five years. Cash flows beyond
the five-year period are extrapolated using a steady growth rate of 2%. This growth rate does not exceed the long-term average growth rate
for Hong Kong.
A reversal of an impairment loss was made with respect to interests in leasehold land held for own use under operating leases to the carrying
amount that would have been determined had no impairment loss been recognized in prior years, as there has been a favorable change in the
estimates used to determine the recoverable amount.
Key assumptions used for value in use calculation are as follows:
Sales volume growth rate
Gross contribution rate
Pre-tax discount rate
2011
2010
1.1 - 12.4%
38 - 41%
9.75%
1.7 - 12.6%
40 - 43%
9.85%
Management determined the growth rate and gross contribution rate based on past experiences, future expected market trends and an
intermediate holding company’s import plan of beer brewed by the Group.
As the cash-generating unit has been reduced to its recoverable amount, any adverse change in the assumptions used in the calculation of
recoverable amount would result in further impairment losses.
In 2011, the Group’s results in Hong Kong were fairly consistent with the forecasts made in 2010. The Group assessed the recoverable amounts
of the Hong Kong cash-generating unit as of December 31, 2011 and determined that neither further impairment loss nor a reversal of previous
impairment loss is necessary.
27. Related Party Transactions
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.
Year
Revenue
From
Related
Parties
Purchases
From
Related
Parties
Amounts
Owed by
Related
Parties
Amounts
Owed to
Related
Parties
Parent
Company
2011
2010
2009
P17
3
461
P1,379
1,806
1,172
P30
49
62
P393
527
74
Shareholder
2011
2010
2009
19
11
4
18
105
33
4
2
2
7
San Miguel Yamamura
Packaging Corporation
Under
common
control
2011
2010
2009
87
36
42
2,858
2,909
3,287
24
18
18
737
742
971
San Miguel Rengo Packaging
Corporation
Under
common
control
2011
2010
2009
-
1
28
-
1
8
SMC Shipping and Lighterage
Corporation
Under
common
control
2011
2010
2009
12
4
4
459
449
457
1
1
1
68
87
80
SMITS, Inc. and a subsidiary
Under
Common
control
2011
2010
2009
-
150
199
120
-
41
46
44
San Miguel Yamamura Asia
Corporation
Under
common
control
2011
2010
2009
15
3
5
890
110
175
2
2
408
7
81
Ginebra San Miguel, Inc. and a
Subsidiary
Under
common
control
2011
2010
2009
17
4
3
1
5
6
3
6
9
7
4
5
Relationship
with Related
Parties
SMC
Kirin Holdings Company,
Limited and subsidiaries
Forward
71
Year
Revenue
From
Related
Parties
Purchases
From
Related
Parties
Amounts
Owed by
Related
Parties
Amounts
Owed to
Related
Parties
Under
common
control
2011
2010
2009
2
35
63
-
7
72
6
7
-
San Miguel Pure Foods
Company, Inc. and
Subsidiaries
Under
common
control
2011
2010
2009
68
29
628
11
28
23
25
26
252
24
24
25
Petron Corporation and
Subsidiaries
Under
common
control
2011
2010
2009
140
-
936
392
-
19
-
109
100
-
San Miguel Properties Inc.
Under
common
control
2011
2010
2009
-
46
72
-
1
10
-
-
Others
Under
common
control
2011
2010
2009
2011
2010
2009
3
15
P380
P90
P1,197
50
31
78
P6,861
P6,107
P5,379
55
1
81
P164
P120
P499
15
36
10
P1,808
P1,581
P1,305
Relationship
with Related
Parties
SMIL and subsidiaries
All outstanding balances with these related parties are to be settled in cash within twelve months as of the reporting date. None of the balances
is secured.
a. 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.
b. 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 amounted to P34 as of December 31, 2011.
c. The compensation of key management personnel of the Group, by benefit type, follows:
Short-term employee benefits
Retirement costs
Share-based payments
2011
2010
2009
P128
19
5
P152
P95
12
3
P110
P74
4
7
P85
28. Leasing Agreements
Operating Leases
Group as Lessor
The Group leases some of its 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
Noncancellable
Less than one year
Between one to five years
2011
2010
P2
P11
32
4
36
P38
30
11
41
P52
Rental income recognized as part of other income amounted to P66, P79, and P18 in 2011, 2010 and 2009, respectively.
72
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 seven 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 payments for the lease of the land, buildings and transportation equipment are as follows:
Cancellable
Less than one year
More than five years
Noncancellable
Less than one year
2011
2010
2009
P34
173
8
215
P98
37
50
185
P140
140
7
1
8
P223
10
6
16
P201
P140
Rent expense charged to profit or loss amounted to P559, P709 and P603 in 2011, 2010 and 2009, respectively.
29. Retirement Plan
The Company and some of its subsidiaries have separate funded, noncontributory retirement plan covering all of its permanent employees.
Contributions and costs are determined in accordance with the actuarial studies made for the plan. Annual cost is determined using the projected
unit credit method. The Group’s latest actuarial valuation date is December 31, 2011. Valuations are obtained on a periodic basis.
Retirement costs charged by the Company to operations amounted to P433, P380 and P168 in 2011, 2010 and 2009, respectively, while those
charged by the subsidiaries amounted to P60 and P54 in 2011 and 2010, respectively. The Group’s annual contribution to the retirement plan
consists of payments covering the current service cost and amortization of past service liability.
The components of retirement cost recognized in profit or loss in 2011, 2010 and 2009 and the amounts recognized in the consolidated statements
of financial position as of December 31, 2011, 2010 and 2009, are as follows:
2011
2010
2009
P492
364
127
(488)
(2)
P493
P187
P493
299
96
(451)
(3)
P434
P492
P342
156
(330)
P168
P337
Note
2011
2010
2009
20
21
P55
438
P493
P57
377
P434
P54
114
P168
Note
Interest cost
Current service cost
Net actuarial loss
Expected return on plan assets
Effect of curtailment
Net retirement cost
Actual return on plan assets
23
The retirement cost is recognized in the following line items in profit or loss:
Cost of sales
Selling and administrative expenses
23
The reconciliation of the assets and liabilities recognized in the consolidated statements of financial position is as follows:
Note
Present value of defined benefit obligation
Fair value of plan assets
Unrecognized actuarial losses
Net retirement liability (asset)
4
2011
P7,955
5,140
2,815
(2,710)
P105
2010
P7,425
5,216
2,209
(2,395)
(P186)
73
The net retirement liability (asset) is recognized in the following line items in the consolidated statements of financial position:
Note
9
14
Other noncurrent assets
2011
2010
P (103)
208
P105
(P221)
(65)
100
(P186)
The movements in the present value of the defined benefit obligation are as follows:
Interest cost
Current service cost
Actuarial losses
Defined benefit obligation of a new subsidiary
Transfer from other plan
Transfer to other plan
Loss on curtailment and settlement
Translation adjustment
Benefits paid
2011
2010
P7,425
492
364
141
(2)
(2)
(463)
P7,955
P5,500
493
299
701
662
116
(34)
(3)
9
(318)
P7,425
2011
2010
P4,024
451
376
547
116
(34)
9
41
(314)
P5,216
The movements in the fair value of the plan assets are as follows:
P5,216
488
196
(2)
(301)
(457)
P5,140
Contributions by employer
Plan assets of a new subsidiary
Transfer from other plan
Transfer to other plan
Translation adjustment
Actuarial gains (losses)
Benefits paid
Plan assets consist of the following:
In Percentages
Fixed income portfolio
Stock trading portfolio
2011
2010
75
25
81
19
As of December 31, 2011 and 2010, the plan assets include marketable securities, investment in bonds, time deposit and shares of stock.
The overall expected rate of return is determined based on historical performance of investments.
The principal actuarial assumptions used to determine retirement benefits are as follows:
In Percentages
Discount rate
Salary increase rate
2011
2010
1.5 - 6.3
2.5 - 7.0
5.0 - 9.0
2.9 - 8.5
2.5 - 9.0
5.0 - 10.0
The historical information of the amounts for the current and previous periods are as follows:
Group
Present value of the defined benefit obligation
Fair value of plan assets
Deficit in the plan
Experience adjustments on plan liabilities
Experience adjustments on plan assets
Company
2011
2010
2009
2008
2007
P7,955
5,140
(2,815)
(141)
(301)
P7,425
5,216
(2,209)
(701)
41
P5,500
4,024
(1,476)
(1,349)
7
P4,000
3,662
(338)
463
(98)
P4,175
3,407
(768)
769
1
The Company expects to contribute P370 to its defined benefit plan in 2012.
74
30. Basic Earnings Per Share
Basic 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)
2011
2010
2009
P11,962
15,410
P0.78
P11,768
15,410
P0.76
P10,033
15,410
P0.65
As of December 31, 2011, 2010 and 2009, the Group has no dilutive debt or equity instruments.
31. 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 a price equal to the weighted average of the daily closing prices for three months prior to the offer period less 15% discount. A
participating employee may acquire at least 100 shares of stock, subject to certain conditions, 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 P56, P24 and P3 in 2011, 2010 and
2009, respectively.
32. Financial Risk 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 Group’s exposure to each of the foregoing risks, the Group’s objectives, policies and processes for
measuring and managing these risks, and the Group’s management of capital.
The Group’s principal non-trade related financial instruments include cash and cash equivalents, AFS financial assets, short-term and long-term
loans and derivative instruments. These financial instruments, except derivative instruments, are used mainly for working capital management
purposes. The Group’s trade-related financial assets and financial liabilities such as trade and other receivables, noncurrent receivables and
accounts payable and accrued expenses arise directly from and are used to facilitate its daily operations.
The BOD has the overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk
management policies 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
the Group’s 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 Group’s Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and
reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group’s 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 Group’s 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 Group’s
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.
75
In managing interest rate risk, the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term,
however, permanent changes in interest rates would have an impact on profit or loss.
The sensitivity to a reasonably possible 1% increase in the interest rates, with all other variables held constant, would have decreased the Group’s
profit before tax (through the impact on floating rate borrowings) by P132 in 2011 and 2010. A 1% decrease in the interest rate would have had
the equal but opposite effect. These changes are considered to be reasonably possible given the observation of prevailing market conditions in
those periods. There is no impact on the Group’s other comprehensive income.
As of December 31, 2011 and 2010, the terms and maturity profile of the interest-bearing financial instruments, together with its gross amounts,
are shown in the following tables:
December 31, 2011
Fixed rate
Philippine peso-denominated
Interest rate
1 - 3 Years
> 5 Years
Total
P -
P2,810
P38,800
-
10.5%
-
-
13,152
P35,990
13,152
LIBOR +
margin
P13,152
P2,810
P51,952
1 - 3 Years
> 3 - 5 Years
> 5 Years
Total
P35,990
8.25%8.875%
Floating rate
Foreign currency-denominated (expressed in Philippine peso)
Interest rate
December 31, 2010
Fixed rate
Philippine peso-denominated
Interest rate
Floating rate
Foreign currency-denominated (expressed in Philippine peso)
Interest rate
> 3 - 5 Years
-
P13,590
8.25%
P22,400
8.875%
-
13,152
LIBOR +
margin
P35,552
P13,590
P2,810
10.5%
P38,800
-
-
13,152
P2,810
P51,952
Foreign Currency Risk
The Group’s functional currency is the Philippine peso, which is the denomination of the bulk of the Group’s revenues. The Group’s 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 Group’s risk management objective with respect to foreign currency risk is to reduce or eliminate earnings volatility
and any adverse impact on equity.
Short-term currency forward contracts (deliverable and non-deliverable) are entered into to manage foreign currency risks arising 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:
December 31, 2011
US Dollar*
Assets
Noncurrent receivables
Liabilities
Long-term debt
Net foreign currency-denominated
monetary liabilities
Peso
Equivalent
December 31, 2010
US Dollar*
Peso
Equivalent
$110.1
56.4
0.2
P4,825
2,474
11
$93.3
53.6
0.3
P4,093
2,350
11
(42.3)
(55.8)
(300.0)
(1,857)
(2,444)
(13,152)
(37.5)
(61.4)
(300.0)
(1,644)
(2,691)
(13,152)
($231.4)
(P10,143)
($251.7)
(P11,033)
* US dollar equivalent of foreign currency-denominated balances as of reporting date.
76
The Group reported net foreign exchange gains (loss) amounting to (P9), P1,078 and P13 in 2011, 2010 and 2009, respectively, with the translation
of these foreign currency-denominated assets and liabilities (Note 25). These mainly resulted from the movements of the Philippine peso against
the US dollar as shown in the following table:
Peso to US Dollar
December 31, 2009
December 31, 2010
December 31, 2011
46.20
43.84
43.84
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 as of December
31, 2011 and 2010.
Effect on Income
before Income Tax
December 31, 2011
Long-term debt
P1 Decrease in
US dollar
Exchange Rate
Effect on Equity
P1 Increase in
US dollar
Exchange Rate
(P6)
(1)
(7)
5
300
P298
-
P6
1
7
(5)
(300)
(P298)
Effect on Income
before Income Tax
December 31, 2010
Long-term debt
P1 Decrease in
US dollar
Exchange Rate
(P5)
(2)
(7)
2
300
P295
P1 Decrease in
US dollar
Exchange Rate
P1 Increase in
US dollar
Exchange Rate
(P108)
(56)
(164)
42
54
210
P142
P108
56
164
(42)
(54)
(210)
(P142)
Effect on Equity
P1 Increase in
US dollar
Exchange Rate
-
P5
2
7
(2)
(300)
(P295)
P1 Decrease in
US dollar
Exchange Rate
(P92)
(53)
(145)
38
52
210
P155
P1 Increase in
US dollar
Exchange Rate
P92
53
145
(38)
(52)
(210)
(P155)
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 in meeting obligations associated with financial liabilities that are settled
by delivering cash or another financial asset.
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.
77
The table below summarizes the maturity profile of the Group’s financial assets and financial liabilities based on contractual undiscounted
payments used for liquidity management as of December 31, 2011 and 2010.
2011
Financial Assets
Derivative assets (included under “Prepaid expenses and other current assets” account in the consolidated statements of financial position)
AFS financial assets (included under “Investments” account in the consolidated statements of financial position)
Noncurrent receivables (included
under “Other noncurrent
assets” account in the
consolidated statements of financial position)
Accounts payable and accrued
expenses
Derivative liabilities (included under “Accounts payable and accrued expenses” account in the consolidated statements of financial position)
Long-term debt
2010
Financial Assets
Derivative assets (included under “Prepaid expenses and other current assets” account in the consolidated statements of financial position)
AFS financial assets (included under “Investments” account in the consolidated statements of financial position)
Noncurrent receivables (included
under “Other noncurrent
assets” account in the
consolidated statements of financial position)
Accounts payable and accrued
expenses
Derivative liabilities (included under “Accounts payable and accrued expenses” account in the consolidated statements of financial position)
Long-term debt
Carrying
Amount
Contractual
Cash Flow
1year
or less
> 1 year 2 years
>2 years 5 years
Over
5 years
P18,279
4,977
P18,279
4,977
P18,279
4,977
P -
P -
P -
41
41
41
-
-
-
132
132
-
-
-
132
45
45
-
-
34
1,857
1,890
1,890
-
-
-
7,278
7,278
7,278
-
-
-
11
51,539
11
59,846
11
16,480
2,602
37,289
3,475
Carrying
Amount
Contractual
Cash Flow
1year
or less
> 1 year 2 years
>2 years 5 years
Over
5 years
P15,076
4,366
P15,076
4,366
P15,076
4,366
P -
P -
P -
54
54
54
-
-
-
135
135
-
-
-
135
11
11
-
-
-
1,644
1,663
1,663
-
-
-
6,811
6,811
6,811
-
-
-
8
51,364
8
63,379
8
3,722
16,479
39,407
11
11
3,771
78
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 the Group’s trade 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. Where appropriate, the
Group obtains collateral or arranges master netting agreements.
Trade and Other Receivables
The Group’s 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. The Group has no significant concentration of credit risk with any counterparty.
The Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Group’s
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 Group’s 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 are 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.
Investments
The Group recognizes provision for impairment losses based on specific and collective impairment tests, when objective evidence of impairment
has been identified either on an individual account or on a portfolio level.
Financial information on the Group’s maximum exposure to credit risk as of December 31, 2011 and 2010, without considering the effects of
collaterals and other risk mitigation techniques, is presented below:
Derivative assets
AFS financial assets
Noncurrent receivables
Note
2011
2010
6
7
9
10
14
P18,279
4,977
41
132
45
P23,474
P15,076
4,366
54
135
11
P19,642
The credit risk for cash and cash equivalents, derivative assets and AFS financial 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 receivables is its 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 trade customers. The Group does not execute any credit guarantee in favor of any counterparty.
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to
support its businesses and maximize shareholder value.
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 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 Group’s
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.
79
33. 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 as of December 31,
2011 and 2010:
2011
Financial Assets
Derivative assets (included under “Prepaid
expenses and other current assets”
account in the consolidated statements of
financial position)
AFS financial assets (included under
“Investments” account in the consolidated
statements of financial position)
Noncurrent receivables (included under
“Other noncurrent assets” account in
the consolidated statements of financial
position)
Derivative liabilities (included under
“Accounts payable and accrued expenses”
account in the consolidated statements of
financial position)
Long-term debt
Carrying
Amount
2010
Fair Value
Carrying
Amount
Fair Value
P18,279
4,977
P18,279
4,977
P15,076
4,366
P15,076
4,366
41
41
54
54
132
132
135
135
45
45
11
11
1,857
7,278
1,857
7,278
1,644
6,811
1,644
6,811
11
51,539
11
56,549
8
51,364
8
57,346
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.
For debt instruments with no quoted market prices, a reasonable estimate of their fair values is calculated based on the expected cash flows from
the instruments discounted using the applicable discount rates of comparable instruments quoted in active markets. Unquoted equity securities
are carried at cost less impairment.
Drafts and Loans Payable and Accounts Payable and Accrued Expenses. The carrying amount of drafts and loans payable and 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, 2011 and 2010, discount rates used ranged
from 1.66% to 5.28% and from 1.34% to 5.71%, respectively. The carrying amount of floating rate loans with quarterly interest rate repricing
approximates their fair values.
Derivative Financial Instruments
The Group’s derivative financial instruments according to the type of financial risk being managed and the details of freestanding and embedded
derivative financial instruments that are categorized into those accounted for as hedges and those that are not designated as hedges are
discussed below.
Derivative Instruments Accounted for as Hedges
Cash Flow Hedges
As of December 31, 2011, 2010 and 2009, the Group has no outstanding options designated as hedge on the purchase of commodity.
80
Other 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. Details are as follows:
Embedded Currency Forwards
The Group’s embedded derivatives include currency forwards embedded in non-financial contracts.
As of December 31, 2011 and 2010, the total outstanding notional amount of these embedded currency forwards amounted to US$34 and
US$24, 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. As of December 31, 2011
and 2010, the net positive fair value of these embedded currency forwards amounted to P30 and P46, respectively.
For the years ended December 31, 2011, 2010 and 2009, the Group recognized marked-to-market gains (losses) from freestanding and
embedded derivatives amounting to (P4), P118 and P155, respectively (Note 25).
Fair Value Changes on Derivatives
The net movements in fair value of all derivative instruments for the years ended December 31, 2011 and 2010 are as follows:
Net changes in fair value of derivatives:
Not designated as accounting hedges
Less fair value of settled instruments
2011
2010
P46
P20
(5)
41
11
P30
121
141
95
P46
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.
The table below analyzes financial instruments carried at fair value, by valuation method as of December 31, 2011 and 2010. The different levels
have been defined as follows:
Level 1:
Level 2:
Level 3: quoted prices (unadjusted) in active markets for identical assets or liabilities;
inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
inputs for the asset or liability that are not based on observable market data.
2011
Financial Assets
Derivative assets
2010
Financial Assets
Derivative assets
Level 1
Level 2
Total
P 132
P41
-
P41
132
-
11
11
Level 1
Level 2
Total
P 135
P54
-
P54
135
8
8
-
As of December 31, 2011 and 2010, the Group has no financial instruments valued based on Level 3. 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.
34. Cash Dividends
Cash dividends declared and paid for the years ended December 31, 2011 and 2010 amounted to P0.56 and P0.55 per share, respectively.
On February 7, 2012, the Company’s BOD declared cash dividends of P0.14 per share payable on March 5, 2012 to all stockholders of record as of
February 22, 2012.
81
35. Other Matters
a. Commitments
The outstanding purchase commitments of the Group as of December 31, 2011 and 2010 amounted to P4,377 and P4,272, respectively.
Amount authorized but not yet disbursed for capital projects as of December 31, 2011 and 2010 is approximately P608 and P1,980, respectively.
b. Foreign Exchange Rates
The foreign exchange rates used in translating the US dollar accounts of foreign subsidiaries to Philippine peso in 2011 and 2010 were closing rate
of P43.84 and average rates of P43.31, P45.12, and P47.64 in 2011, 2010, and 2009, respectively, for income and expense accounts.
CONTACT US
Corporate Head Office
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
Common Stock
The Company’s common stock is listed and traded on
the Philippine Stock Exchange.
Stockholders 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
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
SAN MIGUEL BREWERY INC.
www.sanmiguelbrewery.com.ph

Your San Miguel Beer. Our Commitment.

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