3rd and 6th Floors, San Miguel Properties Centre ANNUAL REPORT 2014 GINEBRA SAN MIGUEL INC. 7 St. Francis Street, Mandaluyong City 1550 Metro Manila, Philippines www.ginebrasanmiguel.com
A SUBSIDIARY OF SAN MIGUEL CORPORATION
San Miguel Corporation Philippines’ largest diversified conglomerate
Frasco Original version of Façade of La Tondeña, Inc., Cuatro Cantos, 1930s c. 1950s Continued the tradition of excellence, 1924 to 1987
Damajuana 1834 - 1930s
Façade of the Distileria Licorea de Ayala, c. 1900s Producer of first Ginebra San Miguel, 1834 to 1924 IER A IULIC 2014 GINEBRA SAN MIGUEL INC.
CELEBRATING Annual Report 180 YEARS FINANCIAL FINANCIAL HIGHLIGHTS HIGHLIGHTS In Thousands Pesos, Except Per Share Data GINEBRA SAN MIGUEL INC. GINEBRA
TABLE OF 2014 Annual Report CONTENTS
FINANCIAL 1 HIGHLIGHTS MESSAGE TO 2 STOCKHOLDERS PORTFOLIO OF 4 BEVERAGES 180 YEARS OF 8 GINEBRA SAN MIGUEL 10 DISTILLING THE FILIPINO SPIRIT 14 A RAY OF HOPE
16 BOARD OF DIRECTORS
17 CORPORATE GOVERNANCE 22 REPORT OF THE AUDIT COMMITTEE
23 FINANCIAL STATEMENTS
1 Exclusive of discontinued operations 2 Based on the number of shares outstanding at the end of each year
Celebrating 180 years 1 2014 Annual Report GINEBRA SAN MIGUEL INC. third nationwideinstallment. and its on-ground on now by is which Ginumanfest, supported as such was activities promotional and radio, and was TV material on The everyday future. aired better despite a on family his presses give the who to challenges depicted hero It a as Buhay’. Filipino sa ordinary ‘Ganado campaign, thematic the through Filipino hardworking the to homage paid we year, Last top- company’s programs the of both and bottomline. result strengthen to the implemented is we recovery remarkable this Overall, ₱1.3 profit margin rose to 27%―thehighestinmore than five years. about by rose year.this reducedgrosscosts,variable break even With to billion, tax income from before Income year. operations previous continuing the from in increase billion 9% ₱14.9 a reported revenues, and footing our regained we 2014, In MESSAGE TO G STOCKHOLDERS numerous categories,butafterathoroughassessmentofourbusinessandrecent competition inthehardliquormarket,haveallcontributedtoyearsofsuccessive performance, wemadeaconsciousefforttofocusonwinningbackthemarketof inebra SanMiguelInc.finallyturnedthecornerintimeforour180thanniversary. operating lossesforourcompany.Wehavebrandswithstrongmarketsharesin The effectsofhigherexcisetaxes,shiftingconsumerpreference,andgreater our flagship,GinebraSanMiguel.
s n nerl at f h eeya clbain and celebrations everyday the of social gatherings. part integral an ng as “Kabahagi value brand’s our theme, underscored Pilipino”, Sambayanang anniversary our Furthermore, effective an as promotional strategy for ourproducts. Miguel’s doubled San which Ginebra anniversary, of milestone celebration reinforced year-long also our were by efforts strengthening brand Our 4% from prioryear. therebytotaland pushing 9%, byas volumes much liquor increasing volumes for the Ginebra San Miguel brand by as consumers, with well extremely resonatedcampaign The wholesalers who served towholesalers extend whoserved ourreach nationwide. and coverage by entering into partnership with new, roving capability distribution our enhancing on worked also We perform well inMindanaoandotherparts oftheVisayas. to continued meanwhile brand, Wine Chinese via dominant country’s the Kulafu, launched Vino Visayas. the of part was family, Blue GSM Easternthe availabilityin consumptionmainly and drives the to addition improving recent a Flavors, Blue growth, GSM regions. to key in volumes contributedour also brands Other
on thepromise start. ofanew already in place, Ginebra San Miguel is back on familiarstrategy ground, determined togrowth deliver our of phase next the with and us, behind years robust more our one of With years. few past these that exactly doing in succeeded have we believe We the changingtimes. and markets changing the to adapt and transform, recalibrate, constantly to ability Filipinos have identifiedwithitscredos, we know too thatlongevity isborneoutofan wewhile haveAnd always proudbeen brand’sour of heritage howand generations of few companies in thePhilippinestoday can have lasted saythey halfaslongours. very all, After achievement. significant a but milestone, mere a not was anniversary As we close the book on 2014 and look to the future, it’s worth being reminded that our for theirunwavering dedication. employees, our and guidance,steady and trust their for Board, our thank to like also We’dgrowth. our tocommitmentcontinued your for you thank we and support, your Fellow stockholders, our achievements this year would not have been possible without on ourcore strength—liquor. concentrateto us allow will This Inc. Brewery Miguel San transferredto have this and Related to this, we have also divested our stake in the non-alcoholic beverage business product portfolio andfurther growing ourmarkets. our focusing consumers, and customers our with closely more aligning on efforts our the on lie hikes tax of rounds horizon freshand trade borders fall as with the ASEAN integration. intensify As such, we will be furtherfocusing to competition expect We among young consumers. appeal its strengthen to brand Blue GSM the to innovations introducing also are We this year, consumers have rated it highly for its superior taste, aroma and smoothness. Primera gin Light will be our main brandy offering. Since introducing it the to the market early in particularly share, market consumer needs. our changing meet to brands exciting new, growing introduce to continue also will further We category. growth and volume our sustaining protecting to our groundwork replicateby the least, lay very will the We at or performance. outdo, 2014 to steps bolder taking are we year, This Still, ourpath to recovery isclear. deferred of recognition the income taxes incurred in2011and2012. to due realized was million ₱766 about of loss net a results, operating improved Notwithstanding to further improve sought we tax, year. Vigilance inmonitoring sources ofusedbottleswas alsokey, allowing usto excise maintain container cost efficiencies. of the portion valorem ad previous the from 3% down alcohol costs driving the distillery, from yield extract higher worked to operation. We our in from efficiencies arising taxes higher of effects the mitigate To and GMA the in realized were gains modest to as primed Mindanao areas. doubled nearly are hand, and other marketthe competition’son Visayas, the the on in encroachShares to leadership. reclaim continued we Luzon, we where South Luzon In North in especially dominance. country, our the of re-established parts different in position its reassert company the helped efforts These “Our anniversary was notamere milestone, Chairman &CEO EDUARDO M.COJUANGCO, JR. but asignificant achievement.” President BERNARD D.MARQUEZ
VOLUMES prior year LIQUOR 4% increase from
Celebrating 180years NET REVENUES REVENUES NET UP BY SAN MIGUEL SAN VOLUMES GINEBRA prior year 9% increase from
3 MESSAGE TO STOCKHOLDERS TO MESSAGE 2014 Annual Report GINEBRA SAN MIGUEL INC. 4 BEVERAGES PORTFOLIO OF * Alcoholic Frasco (700ml) Frasquito (350ml) Round (350ml) Angelito (250ml) GINEBRA SANMIGUEL Celebrating 180years
5 PORTFOLIO OF BEVERAGES OF PORTFOLIO VINO KULAFU PORTFOLIO OF BEVERAGES Classic (350ml) Long Neck (700ml)
* Alcoholic
G.S.M. BLUE Solo (350ml) GINEBRA SAN MIGUEL INC. GINEBRA Long Neck (700ml) Litro (1000ml) G.S.M. BLUE FLAVORS Solo (350ml) TONDEÑA MANILA RUM Long Neck (700ml) Gold, Silver, Dark Mojito (700ml) Brown Coffee
2014 Annual Report For Export only * Alcoholic * Alcoholic
GINEBRA SAN MIGUEL PREMIUM GIN (750ml)
* Alcoholic
ANTONOV VODKA GRAN MATADOR BRANDY SOLERA MAGNOLIA HEALTHTEA MAGNOLIA PUREWATER (700ml) Solo (350ml) RGB (250ml) PET (355ml, 500ml, 1000ml) Long Neck (700ml) Apple, Lemon, and Strawberry ANTONOV VODKA MIXED DRINK Litro (1000ml) Powdered (35g) Ice (330ml) Apple and Lemon BERRI (NATURAL FRUIT JUICES) Apple, Dark Grape, Orange, GRAN MATADOR LIGHT MAGNOLIA FRUIT DRINK DON ENRIQUE MIXKILA Solo (350ml) Tomato, Cranberry (1000ml) RGB (250ml) (700ml) Long Neck (700ml) Grape and Orange Apple, Orange, Multi V, Dark Grape, Litro (1000ml) Pink Guava (2400ml) * Alcoholic Powdered (35g, 400g) Lemonade, Calamansi, * Alcoholic Orange-Mango and Valencia Orange Mango (400g) For Export only * Non-Alcoholic
6 Celebrating 180 years 7 GINEBRA SAN MIGUEL 180 YEARS OF By 1864, Ginebra’s popularity had trickled down to the working-class. To suit the palate of the masa, Ginebra San Miguel was made stronger and more flavorful. It became an alternative to the colonial version of moonshine, Vino de Nipa. GINEBRA SAN MIGUEL INC. GINEBRA With its strong alcohol content and soothing flavor, Ginebra San Miguel gained new adherents. By the the turn of the 20th century, the brand became the most sought-after liquor drink by Filipinos and the new colonizers, the Americans.
In 1924, Filipino-Chinese businessman Don Carlos Palanca Sr., owner of La Tondeña distillery, acquired the distillery from the
2014 Annual Report Ayalas. Palanca’s success was such that he became known as the “Alcohol King”; La Tondeña became the country’s leading distiller with Ginebra San Miguel as its flagship liquor brand.
On August 1, 1987, San Miguel Corporation (SMC), the country’s largest brewer with interests in food, packaging, and other businesses, acquired La Tondeña Distillery Inc (LTDI) in a bid to expand its beverage business portfolio. In 2003, LTDI was renamed Ginebra San Miguel 180-TAON KABAHAGI NG Incorporated (GSMI) in homage to the flagship brand Under San Miguel Corporation, Ginebra benefitted from access and its roots. SAMBAYANANG PILIPINO to its new parent company’s vast domestic and international distribution network. Ginebra San Miguel became the Ginebra San Miguel is the epitome of excellence, country’s leading liquor brand, cornering over 50% of the reaping accolades both locally and internationally. market, and was heralded as the world’s largest-selling gin. Every bottle of Ginebra San Miguel goes through a Ginebra San Miguel is the Philippines’ pioneering gin. stringent production process to ensure optimal quality.
Ginebra San Miguel de Ayala, as it was previously Today, the brand is synonymous to gin in the Philippines, accounting for over 90% of gin sales known, was first produced on March 10, 1834 by in the country. As a testament to the strength of its brand name, variants such as GSM Blue, GSM the Distileria Licorea de Ayala, a distillery located Blue Flavors, and Ginebra San Miguel Premium Gin, have been introduced to cater to different market along Echague Street in Quiapo, Manila, owned by segments and different tastes. Having just marked its 180th anniversary in 2014, the compatriots Antonio de Ayala and Domingo Roxas. brand endures and continues to weave itself into the fabric of everyday Filipino life. The brand, already an award winner as early as the late 1900s, was a drink for the wealthy ― popular among both peninsulares and insulares.
SAN MIGUEL CORPORATION
8 Celebrating 180 years 9 DISTILLING THE FILIPINO SPIRIT
DISTILLING THE FILIPINO SPIRIT Few brands in the history of philippine business have as strong a connection with their intended market as ginebra san miguel. whether
GINEBRA SAN MIGUEL INC. GINEBRA it’s invoked as the name of the world’s largest selling gin, a pop culture reference, or emblazoned on the jerseys of the country’s most popular basketball team, the iconic ginebra san miguel brand evokes images of hard-working filipinos soldiering on through life’s challenges― persevering, enduring, and emerging triumphant in the end.
This powerful brand equity was crystallized through many decades of brand building. While the product’s 2014 Annual Report world-class taste is and will always be its primary attribute, the consumers’ affinity—or kinship—with Ginebra San Miguel is, to a large extent, built on the brand’s ability to embody the ideals and aspirations of generations of Filipinos and imbue these as its own. It’s virtually impossible to come up with an exhaustive history of a 180-year old brand that has outlived two colonial masters, survived two World Wars, the Japanese occupation, and witnessed much of the political ISANG HIMIG NG INUMIN NG TUNAY upheaval of more recent vintage. But through advertising, we can piece together the story of how PAGSASAMAHAN, 1965 NA LALAKI, 1969 Ginebra San Miguel has become such a part of Filipino culture. Ginebra San Miguel started to build its kinship with its core consumers, the Filipino masses, as shown in these print advertisements.
A HISTORY OF QUALITY A BRAND FINDS ITS VOICE Some of Ginebra San Miguel’s earliest advertisements attest to the product’s In the 60s, Ginebra San Miguel became popular in fishing villages; fishermen became part of the Ginebra quality. Advertising in publications such as Philippine Review tell of its triumphs drinker’s demographic. Ad campaigns from this period highlighted their hard work, in the process cementing in expositions in Amsterdam (1883), Paris (1889), and San Francisco (1899), Ginebra’s status as the perfect drink to celebrate harvests. among others. Today, Ginebra continues to reap awards, particularly from the This theme—which hewed closely to the everyday struggles of common Filipinos would for many decades Monde Selection, one of the most renowned international quality awards for come to define not just Ginebra’s primary market, but serve as a blueprint for the brand’s strategy of the beverage industry. celebrating the masses, their endeavors, and their contributions to their families and society. This consistent focus on quality, coupled perhaps with nationalistic pride after With television and radio becoming the most popular and accessible medium of communication by the the Philippines declared its independence from America in 1946, brought about 1980s, Ginebra San Miguel was able to reach more consumers and cultivate further its already strong bond a major shift in the brand’s advertising. In support of the “Filipino First” policy, with consumers. The brand signed on celebrity endorsers—larger than life personalities that the masa could the brand abandoned Spanish in favor of Tagalog in its brand messaging. identify with—and at the same time stuck to universal themes such as friendship and the value of hard work. From that time on, Ginebra San Miguel gained even more followers among the masa, becoming a focal point of celebrations, big and small. HAGIBIS IN ‘WALANG KATAPAT’, 1980 Hagibis, the hit-making Filipino band of the disco era was Ginebra’s first music act endorsers.
ICONS ENDORSING AN ICON Hagibis, a popular singing group at the time, became one of its early celebrity endorsers. Its ad-tag “Walang Katapat” recognized the industriousness and abilities of the common Filipino – from the hardworking farmers, fisherfolk to laborers and professionals. PHILIPPINE REVIEW, 1916 Early advertisements in Spanish text Personalities who have since become part of Filipino pop culture showcased Ginebra San Miguel as the would continue to carry the torch for Ginebra San Miguel years first gin in the Philippines and the most awarded in quality and taste. later, among them: Nora Aunor, Joey de Leon, Martin Nievera, Gerry Peñalosa, Rosanna Roces, April Boy Regino in the 90s, and more recently, actress Anne Curtis and boxing icon Manny Pacquiao who THE INDEPENDENT, LIWAYWAY MAGAZINE, represented various sectors of Ginebra San Miguel’s expanding JAN. 1, 1927 JAN. 13, 1947 Ginebra San Miguel ads transitioned from use of Spanish text to Tagalog text market. Even Pacquiao’s mother, Mommy Dionisia, the archetypal but still conveying the same message, that Filipino celebrations are never stern but devoted Filipino mom, would figure in one of Manny’s complete without Ginebra San Miguel. Ginebra commercials.
10 Celebrating 180 years 11 DISTILLING THE FILIPINO SPIRIT
Coinciding the celebration of Philippine Independence in 1998, DISTILLING THE “Ginebra ang Hari” tagline was born, reflecting the position of Ginebra San Miguel as “king”, or the undisputed hard liquor FILIPINO SPIRIT drink in the country.
The intense popularity of its basketball team through the 90s, BARANGAY GINEBRA ARISES meanwhile, put the emphasis on brotherhood, unity, resiliency,
GINEBRA SAN MIGUEL INC. GINEBRA and overcoming adversity as one—hence, “Barangay Ginebra, Taga-rito Ka.”
While its advertising adopted a decidedly more modern look BILOG ANG MUNDO, 2003 and flavor in this new century, the brand continued to espouse With a catchy jingle, ‘Bilog Ang Mundo’ highlighted the Filipinos’ innate positivism and his aspiration to succeed. resiliency—promoting a positive outlook—as in “Bilog ang Mundo (2003)”, and champion the Filipino and his endeavors,
2014 Annual Report as seen in “Ang Bida, Naka-Ginebra” (2010), which celebrated everyday heroes as stars or “bidas”.
With the liquor market evolving and changing with the times, Ginebra San Miguel Inc. kicked into high gear a strategy to capture new markets—in particular, female and young adult drinkers.
With the expansion of its product portfolio came a new slogan, “Lahing Ginebra” (2012), which aimed to share Ginebra San ANG BIDA, NAKA-GINEBRA, 2010 Miguel’s heritage with its new brands and more importantly, its Ang Bida, Naka-Ginebra campaign saluted everyday heroes new target markets. as epitomized by sports icons Robert Jaworski and Manny Pacquiao, and featuring Mommy Dionisia. GINEBRA SAN MIGUEL BASKETBALL TEAM, 1987 Having survived through 180 years, Ginebra San Miguel today The 80’s also saw the growth in popularity of the Philippine Basketball Association (PBA). Victories of Philippine teams in the declares that it is “Ganado sa Buhay”. Espousing the same international stage would propel the game to becoming the unofficial national sport and national past time. values it has been known for through the decades—resiliency, perseverance, unity—we remain committed, as we have always As such, for many leading corporations of the era, it was the most powerful and farthest-reaching medium for marketing brands. been, bringing to fore the Filipino’s indomitable spirit.
Reeling from the disbandment of the fabled Toyota and Crispa franchises, basketball fans yearned for a team whose heroic exploits LAHING GINEBRA, they truly could identify with. The answer would come in 1985 when the first Ginebra San Miguel squad, led by legendary playing IKAW NA, 2012 coach Robert “Sonny” Jaworski, debuted in the PBA. Ginebra San Miguel paid homage to the Living Legend, former Ginebra In the years to follow, Ginebra San Miguel, would electrify audiences with feats of hardcourt daring and game-play that dripped basketball team playing coach Robert Jaworski. excitement. Quite often beating the toughest of odds in the dying seconds of a game, Ginebra San Miguel would cement itself as one OH MY GIN, 2011 of the most popular teams in the league. Its trademark “never-say-die” spirit became a credo for the Filipino masses—making the Manny Pacquiao for Ginebra San Miguel and Anne Curtis for G.S.M. Blue teamed up for Oh My Gin promo. brand a symbol of triumph over adversity.
GANADO SA MESSAGING THAT RESONATES BUHAY, 2014 Launched on the occasion of its 180th Ginebra taglines are some of the most memorable in Philippine mass anniversary, Ginebra San Miguel media, partly because they are catchy and colloquial, but to a larger championed the working class with the campaign ‘Ganado sa Buhay’, extent, because they resonate with, and inspire audiences. which features their inspiring stories of resiliency and triumph. In the mid-80s, with the restoration of democracy, the prevailing mood was that of national unity. Ginebra San Miguel declared its loyalty and solidarity with the Filipino nation with a powerful slogan: “Ikaw at Ginebra…Magkasangga!”
GINEBRA ‘TO PARE, 2002 Manny Pacquiao in his first TV advertisement for Ginebra San Miguel.
12 Celebrating 180 years 13 A RAY OF HOPE
GINEBRA SAN MIGUEL INC. GINEBRA Kristin is a mother of four. Her husband, Roldan works as a delivery truck driver. Already struggling to provide for their children, Roldan was laid off. “I felt helpless because I had no skills that could help me find work. Who would hire a mother of four who didn’t even have the chance to go to college?” Kristin shares.
She says the GSMI scholarship was a much-needed lifeline.
2014 Annual Report This is such a blessing. I can help my husband with our expenses, and to have a partner such as Ginebra is really something big!
A RAY OF HOPE Liezl is also raising a family of four on her husband’s meager GSMI gives 180 scholars a chance at a better life paycheck as a messenger. “There are times when I had to go out and offer manicure and pedicure services. It was difficult, but I have to stay strong for my family,” says Liezl. Kristin de Castro, Liezl de La Rosa and Danreb Bacelonia She was determined to complete the program because she also wanted to are like millions of Filipinos who struggle everyday to serve as an example to her eldest daughter who is also a scholar. make ends meet. Instead of losing hope, they view their hardship as a challenge to improve their lives. I want her to see me as a role model ― someone who works hard and doesn’t give up. I want her to see how The three are proud graduates of Ginebra San Miguel much I value education. For my graduation, I invited my Inc.’s Technopreneur program, a special education grant given to 180 scholars from eight different regions, parents to attend. I want them to see me go up the stage to commemorate the company’s 180th anniversary. and be proud of me. Under the program, scholars underwent eight months of training in bartending and entrepreneurship at the Technical Education Skills Development Authority (TESDA), a program partner. Danreb for his part, used to take odd jobs to feed himself. At age eight, The program, while indeed unique to Ginebra San Miguel’s he sold vegetables in the market. He was working as a janitor in a mall when 180th anniversary year, is but part of GSMI’s continuing he learned about GSMI’s program. He saw it as an opportunity to support his advocacy to provide educational opportunities for aunts, siblings and also his mother ― with whom he was reunited with at the underprivileged but deserving students. time of his TESDA training.
What sets this program apart from other GSMI I persevered in my studies because I want to help my scholarship grants is that it has a livelihood component. mother and my siblings. I also want to show my gratitude At the end of the program, the scholars were given to my aunts who raised me, as they are now getting old. mobile bars complete with GSMI products so they I am working hard so that when I have my own family could start their own business and practice using what someday, they won’t have to go through the same they’ve learned. hardships I’ve had to endure. Ginebra San Miguel has always been a brand that hard-working Filipinos can identify with. The company understands the value of education and how it can transform not just the life of one person, but also that of his family. GSMI is committed to provide its scholars the skills and the opportunity to a better future.
14 Celebrating 180 years 15 CORPORATE GOVERNANCE
BOARD OF CORPORATE DIRECTORS GOVERNANCE
GINEBRA SAN MIGUEL INC. GINEBRA Ginebra San Miguel Inc. (the “Company”) recognizes that good governance plays a vital EDUARDO M. COJUANGCO, JR. role in creating and sustaining shareholder value. On August 6, 2002, it institutionalized CHAIRMAN & CEO the principles of good corporate governance in the entire organization by establishing and implementing a Manual on Corporate Governance (the “Manual”). The Manual has been consistently updated in order to make the provisions thereof current and RAMON S. ANG consistent with the issuances, rules and circulars of the Securities and Exchange VICE CHAIRMAN Commission (the “SEC”). In 2014, the Company amended the Manual twice in order to 2014 Annual Report align the provisions thereof with the recent Memorandum Circulars issued by the SEC.
The Board of Directors, Management, Officers, employees and shareholders believe that corporate governance is a necessary BERNARD D. MARQUEZ component of what constitutes sound strategic business management and ultimately in attaining the corporate goals and PRESIDENT objectives of the Company. They undertake every effort to create awareness thereof within the organization.
FERDINAND K. CONSTANTINO BOARD OF DIRECTORS Compliance with the principles of good corporate governance starts with the Company’s Board of Directors (“Board”). The Board JOSEPH N. PINEDA is responsible for promoting the Company’s long-term success and sustaining competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercise in the best interest of the Company, its stockholders and other stakeholders, as LEO S. ALVEZ well as in formulating the Company’s vision, mission, corporate values, strategic objectives, policies and procedures that shall guide its activities. The Board also has oversight responsibilities for ensuring the presence of adequate and effective control GABRIEL S. CLAUDIO mechanisms in the Company.
MINITA V. CHICO-NAZARIO Committed to their obligations set forth in the Manual, all incumbent directors have attended an annual seminar on corporate * governance conducted by SEC-accredited providers in compliance with SEC Memorandum Circular No. 20, Series of 2013, to keep ANGELINA S. GUTIERREZ them updated on the relevant laws, rules, regulations, circulars and issuances of regulatory bodies. FRANCISCO H. VILLARUZ, JR. ** BOARD MEMBERS Board Composition The Board of the Company is composed of nine (9) directors, each elected annually by the stockholders during the Regular Stockholders’ Meeting (“RSM”). They hold office for one (1) year until qualified successors are elected vice their positions in accordance with the Company’s Amended By-Laws (“By-Laws”).
Independent Directors. By way of compliance with Section 38 of the Securities Regulation Code (SRC) and Article 3(A) of SEC Memorandum Circular No. 6, Series of 2009, the stockholders, during the 2014 RSM of the Company on May 8, 2014, elected two (2) independent and non-executive directors to the Board namely, Justice Minita V. Chico-Nazario (Ret.) and Justice Angelina S. Gutierrez (Ret.). On November 6, 2014, the Board elected Justice Francisco H. Villaruz, Jr. (Ret.) vice Justice Gutierrez who resigned as Independent Director of the Company effective October 8, 2014 by reason of her appointment as member of the Judicial and Bar Council.
The Company’s Independent Directors, apart from their fees and shareholdings, have no business or relationship with the Company, which could, or could reasonably be perceived to, materially interfere with the exercise of their independent judgment in carrying out their responsibilities as directors.
Chairman and President. The Chairman of the Board and Chief Executive Officer is Mr. Eduardo M. Cojuangco, Jr., while Mr. Bernard D. Marquez is the President. Two (2) separate individuals hold these positions with their respective roles clearly defined to ensure independence, accountability and responsibility in the discharge of their respective duties.
* Director Gutierrez resigned as Independent Director effective October 8, 2014. ** Director Villaruz was elected as Independent Director on November 6, 2014 vice Director Gutierrez.
16 Celebrating 180 years 17 CORPORATE GOVERNANCE Board Performance
The Board holds regular meetings at least four (4) times a year. The Corporate Secretary informs the members of the agenda and Performance of the Committees other necessary information to enable the directors to discuss and arrive at intelligent decisions on matters requiring approval. All the Board Committees, with the exception of the Executive Committee and Executive Compensation Committee, held meetings In 2014, the Board had four (4) regular meetings, which were held on March 26, May 8, August 8 and November 6, 2014; one (1) in 2014. The Audit Committee held meetings on March 26, May 8, July 17, August 8 and November 6, 2014. The Nomination organizational meeting on May 8, 2014; and two (2) special meetings on July 17, 2014 and December 5, 2014. The details of the and Hearing Committee met on March 26 and November 6, 2014. attendance of the Directors in the meetings of the Board in 2014 are shown on the table below: The details of the attendance of the Directors in the Board Committees are shown on the tables presented below:
GINEBRA SAN MIGUEL INC. GINEBRA No. of Meetings No. of Percentage Name Held in 2014 Meetings of Attended Attendance (%) Nomination and Hearing Chairman Eduardo M. Cojuangco, Jr. 7 7 100 Audit Committee Committee Member Ramon S. Ang 7 7 100 Member Bernard D. Marquez 7 7 100 No. of Meetings No. of Percentage No. of Meetings No. of Percentage Member Leo S. Alvez 7 7 100 Name Held in 2014 Meetings of Attendance Name Held in 2014 Meetings of Attendance Member Gabriel S. Claudio 7 7 100 Attended (%) Attended (%) Member Ferdinand K. Constantino 7 7 100 2014 Annual Report Member Joseph N. Pineda 7 7 100 Minita V. Chico-Nazario 5 5 100 Leo S. Alvez 2 2 100 Independent Minita V. Chico-Nazario 7 7 100 Leo S. Alvez 5 5 100 Bernard D. Marquez 2 2 100 Independent Angelina S. Gutierrez 1 5 5 100 Independent Francisco H. Villaruz, Jr.2 1 1 100 Ferdinand K. Constantino 5 5 100 Gabriel S. Claudio 2 2 100 Angelina S. Gutierrez 3 4 4 100 Angelina S. Gutierrez 4 1 1 100 The Board has implemented an annual internal self-rating system since its adoption on November 8, 2011, in order to assess and Joseph N. Pineda 2 2 100 improve the performance of the Board in accordance with the best practices in corporate governance and the effectiveness of the Company’s governance process. The said system covers four (4) broad areas of Board performance, namely: Fulfillment of the Board’s Key Responsibilities, Board – Management Relationship, Effectiveness of Board Processes and Meetings and Individual There were no matters that required the Executive Committee and Executive Compensation Committee to convene in 2014. Performance of Board Members. The Nomination and Hearing Committee held separate meetings to discuss and evaluate the qualifications of the nominees for Board Committees the Board of Directors of the Company for 2014, as well as the qualification of Justice Francisco H. Villaruz, Jr. (Ret.). The Audit Committee held meetings to, among others, review and approve the Company’s 2013 Consolidated Audited Financial The Board constituted four (4) committees, namely: 1) Executive Committee; 2) Nomination and Hearing Committee; 3) Executive Statements, as well as the Company’s unaudited financial statements for the first three quarters of 2014. Compensation Committee; and 4) Audit Committee, to ensure strict compliance with the principles of good corporate governance. Each of the Committees, with the exception of the Executive Committee, has approved and adopted its own charter which laid down its role, authority, duties and responsibilities. Board Remuneration The By-Laws of the Company provide that the members of the Board shall receive such compensation as may be approved by a majority The Audit Committee Charter was approved on November 9, 2012 while the respective Charters of the Nomination and Hearing vote of the stockholders at a regular or special meeting duly called, subject to such limitations as may be imposed by law. Committee and Executive Compensation Committee, were approved on November 7, 2013.
Executive Committee. The Committee acts within the power and authority granted upon it by the Board and is called upon In 2014, each director received a per diem of Ten Thousand Pesos (P10,000.00) per attendance at Board and Committee meetings when the Board is not in session to exercise the powers of the latter in the management of the Company, except as specifically of the Company. limited by the Board or by law. Mr. Eduardo M. Cojuangco, Jr. chairs the Executive Committee and the three (3) other members include Mr. Ramon S. Ang, Mr. Ferdinand K. Constantino and Mr. Bernard D. Marquez. ACCOUNTABILITY AND AUDIT Nomination and Hearing Committee. Among others, the Committee pre-screens and shortlists candidates for nomination to become a member of the Board in accordance with the qualifications and disqualifications for directors set out Audit Committee. The Audit Committee performs oversight functions to both external and internal auditors. The role and in the Manual, Amended Articles of Incorporation (“Articles”) and By-Laws, as well as applicable laws, rules and regulations, responsibilities of the Audit Committee are clearly defined in the Company’s Manual and Audit Committee Charter. including the issuances of the SEC. The Nomination and Hearing Committee is chaired by Mr. Leo S. Alvez and currently composed of five (5) members– one (1) of whom is an Independent Director, Justice Francisco H. Villaruz, Jr. (Ret.), and one (1) non-voting External Auditor. The external auditor, whose main function is to facilitate an environment of good corporate governance member in the person of the Corporate Human Resources Head. The other members of the Committee are Mr. Bernard D. as reflected in the Company’s financial records and reports, are selected and appointed by the stockholders uponthe Marquez, Mr. Joseph N. Pineda and Mr. Gabriel S. Claudio. recommendation of the Audit Committee.
Executive Compensation Committee. The Committee advises the Board on the establishment of formal and transparent In 2014, the auditing firm of R.G. Manabat & Co. (formerly Manabat Sanagustin & Co., CPAs) served as the Company’s external policies and practices on remuneration of directors and executives and provides oversight function over remuneration of senior auditor. Representatives of the said firm are expected to be present at the RSM and will be available to respond to appropriate management and other key personnel, ensuring consistency with the Company’s culture, strategy and control environment. questions. They also have the opportunity to make a statement, if they so desire. In instances when the external auditor suspects Four (4) members comprise the Executive Compensation Committee, one(1) of whom is an Independent Director, Justice Chico- fraud or error during its conduct of audit, it is required to disclose and express its findings on the matter. Nazario (Ret.), and the three (3) other members are Mr. Ferdinand K. Constantino, Mr. Bernard D. Marquez and Mr. Leo S. Alvez. Mr. Constantino is the Chairman of the Committee. R.G. Manabat & Co. has been the Company’s external auditor since 2006. Accordingly, the Company complied with the rule on rotation for the signing partner every after five (5) years under Part I (3) (b) (ix) of SRC Rule 68, as amended, with respect to its Audit Committee. The Committee assists the Board in the performance of its oversight responsibility for financial reports re-engagement of the said audit firm. and financial reporting process, internal control system, audit process and in monitoring and facilitating compliance with both the internal financial management handbook and pertinent accounting standards, legal and regulatory requirements. It Fee for the services rendered by the external auditor to the Company and its subsidiaries in connection with the Company’s also performs oversight financial management functions and risk management, approves audit plans, directly interfaces with annual financial statements and other statutory and regulatory filings for 2014 (inclusive of retainer fees and out-of-pocket internal and external auditors, and elevates to international standards the accounting and auditing processes, practices, and expenses) amounted to about P 7 million. methodologies of the Company. The Audit Committee is currently composed of four (4) members with two (2) Independent Directors as members, Justice Chico-Nazario (Ret.), who also sits as Chairperson of the Committee, and Justice Villaruz (Ret.), who replaced Justice Angelina S. Gutierrez (Ret.). The other members of the Committee are Mr. Leo S. Alvez and Mr. Ferdinand K. Constantino.
1 Director Gutierrez resigned as Independent Director effective October 8, 2014. 3 Director Gutierrez resigned as independent director effective October 8, 2014. 2 Director Villaruz was elected on November 6, 2014 vice Director Gutierrez. 4 Director Gutierrez resigned as independent director effective October 8, 2014.
18 Celebrating 180 years 19 CORPORATE GOVERNANCE
Internal Auditor. The Internal Audit Group of the Company, which is referred to as the Ginebra San Miguel Group Audit (“GSM Under the Company’s Articles, stockholders do not have pre-emptive rights to subscribe to the convertible preferred shares or Group Audit”), provides an independent and objective assurance that the risk management, control and governance processes of to subscribe to the common shares to be issued by the Company upon conversion of the preferred shares and the conversion the Company and its subsidiaries are adequate and functioning. It is also responsible for identifying and evaluating significant of any notes issued to redeem such preferred shares. Subject to certain conditions and threshold on the percentage of shares risk exposures of the Company and contributes to the improvement of risk management and control systems by assessing allotted to be issued pursuant to a duly approved stock option, stock purchase, stock subscription or similar plans (collectively, adequacy and effectiveness of controls covering the organization’s governance, operations, and information systems. The GSM the “Plans”), stockholders do not have pre-emptive rights to shares issued, sold or disposed of by the Company to its officers and/ Group Audit has its own Internal Audit Charter which sets forth the policy, purpose, scope of work, responsibility and authority, or employees pursuant to such Plans. independence and standards of audit practice of the said audit group. GINEBRA SAN MIGUEL INC. GINEBRA Regular audits of the businesses of the Company, its subsidiaries, and support units are conducted according to an annual audit Right to Information of Stakeholders and Investor Relations program prepared by the GSM Group Audit and approved by the Audit Committee. Special audits are also undertaken when Stockholders are provided, through the Investor Relations Office of the Company and its parent company, San Miguel Corporation, and as necessary. disclosures, announcements, and upon request, with periodic reports filed with the SEC and PSE.
The Company exercises transparency when dealing with stockholders, customers, employees and trade partners and ensures that these transactions adhere to industry standards and fair business practices in order to establish long-term and mutually DISCLOSURE AND TRANSPARENCY beneficial relationships.
2014 Annual Report The Company adheres to full disclosure and transparency to allow the investment community to appreciate the Company’s true The Company addresses the information requests of the investing community and keeps in touch with minority stockholders financial condition and the quality of its corporate governance. through timely disclosures to the SEC and PSE, regular quarterly investors’ briefings, RSM, Company website, emails and telephone calls. Ownership Structure The top twenty (20) common and preferred stockholders of the Company, including the shareholdings of certain record and The Company holds combined investors’ briefings with SMC and other SMC subsidiaries, and regularly meets with investment beneficial owners who own more than five percent (5%) of its capital stock, its directors and key officers, are disclosed annually and financial analysts. in its Information Statement (“IS”) which is distributed to the stockholders prior to the RSM. Financial Reporting Dividends The Company apprises the investing public on its operating performance and financial information through the timely submission Holders of common shares are entitled to receive dividends as the Board may, in its sole discretion, declare from time to time. of its disclosures and reportorial requirements with the SEC and the Philippine Stock Exchange, Inc. (the “PSE”). As may be The Board, however, is required, subject to certain exceptions, to declare dividends when the Company’s retained earnings equal necessary, it also discloses with the SEC and PSE such other major and market-sensitive information that affects the share or exceeds its paid-up capital stock. Holders of preferred shares are entitled to participate and receive dividends as and when price performance. declared by the Board to common stockholders as such rate or amount as may be fixed by the Board. Such right to receive dividends may be cumulative. No dividends were declared in 2014. The Company’s financial statements conform to Philippine Accounting Standards and Philippine Financial Reporting Standards, which are all in compliance with International Accounting Standards. Consolidated audited financial statements for the latest completed financial year are submitted to the SEC and form part of the IS distributed to the stockholders prior to the RSM. EMPLOYEE RELATIONS On the other hand, quarterly financial results for the first three quarters of the relevant year are released and are duly disclosed to the SEC and PSE within the prescribed period. The results are also presented to financial and investment analysts through a The Company recognizes the importance of its people as shown in its corporate value of “Respect for our People”. This value is quarterly investors’ briefing. summed up in the statement “We are committed to maintain a work environment that encourages trust, openness and mutual respect, regardless of rank or title. We promote a healthy work and life balance and provide opportunities for professional and Securities Dealing personal growth. Our people are our strength.” The Company has adopted a policy that mandates the directors, officers and employees of the Company and its subsidiaries (“GSMI Group”) to exercise extreme caution when dealing in the Company’s securities and ensure that such dealings comply with The Company ensures compliance with general labor standards, inclusive of occupational health and safety standards this policy, as well as the requirements of the Securities Regulation Code. It sets out the conditions and rules under which the in the workplace. directors, officers and employees of the GSMI Group shall deal in securities of the Company. 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 It is also the Company’s policy to promote career advancement and development through the numerous training programs Company’s securities prior to disclosure of such information to the public. The policy likewise prescribes the periods before and and seminars implemented by and/or facilitated by the Company’s Human Resources Department. In this connection, the after public disclosure of structured and non-structured reports during which trading in the Company’s securities by persons Company launched an Employee Education Program (EDPRO) which supports employee efforts on continuous learning and who, by virtue of their functions and responsibilities, are considered to have knowledge or possession of material non-public self-improvement. Subject to certain conditions, the Company through the EDPRO may subsidize the educational expenses of information, is not allowed. qualified employees who are pursuing undergraduate, post-graduate or technical-vocational courses.
CODE OF ETHICS STOCKHOLDERS’ RIGHTS AND STAKEHOLDER RELATIONS The Company adheres to the SMC group-wide Code of Ethics that sets out the fundamental standards of conduct and values Stockholders’ Meeting consistent with the principles of good governance and business practices that shall guide and define the actions and decisions Stockholders are informed of the RSM at least fifteen (15) business days before the scheduled date of the meeting. The notice to of the directors, management, officers and employees of the Company. It also observes the procedures established for the stockholders also sets the date, time and place of the validation of proxies. The notice for the 2014 RSM was approximately sent communication and investigation of concerns regarding the Company’s accounting, internal accounting controls, auditing, and to the stockholders on April 11, 2014. financial reporting matters under a SMC group-wide Whistle Blowing Policy.
Voting Rights and Voting Procedures Each share, whether common or preferred, in the name of the stockholder, entitles such stockholder to one (1) vote, which may COMPLIANCE MONITORING be exercised in person or by proxy at stockholders’ meetings, including the RSM. Stockholders have the right to elect, remove, The Compliance Officer is tasked to ensure adherence to corporate governance principles and best practices and has direct and replace directors as well as vote on certain corporate acts in accordance with the Corporation Code. Voting procedures on reporting responsibilities to the Chairman of the Board. The Company’s Compliance Officer is Atty. Virgilio S. Jacinto. He is matters presented for approval to the stockholders in the RSM are set out in the IS. responsible for monitoring compliance by the Company with the provisions and requirements of good corporate governance, among others. Pre-emptive Rights Stockholders have the right to subscribe to all issues of shares of the Company in proportion to their shareholdings, unless the same is denied in its Articles or an amendment thereto. WEBSITE Additional information on the Company may be viewed at www.ginebrasanmiguel.com.
20 Celebrating 180 years 21 STATEMENT OF MANAGEMENT’S
REPORT OF THE AUDIT COMMITTEE STATEMENT OF MANAGEMENT’S RESPONSIBILITY RESPONSIBILITY For the year ended December 31, 2014 FOR CONSOLIDATED FINANCIAL STATEMENTS The role of the Audit Committee (the “Committee”) as provided in the Company’s Amended Manual on Corporate Governance and Audit Committee Charter is to assist the Board of Directors in fulfilling its oversight responsibility on the Company’s corporate governance processes relating to financial statements
GINEBRA SAN MIGUEL INC. GINEBRA and financial reporting process, risk management, internal control system, audit processes, and compliance with accounting standards, legal and regulatory requirements. In fulfillment of these responsibilities, the The management of Ginebra San Miguel Inc. (the “Company”) is responsible for the preparation and fair Committee performed the following in 2014: presentation of the consolidated financial statements for the years ended December 31, 2014, 2013 and 2012, • Recommended to the Board of Directors and endorsed for approval by the stockholders, the including the additional components attached therein, in accordance with the prescribed financial reporting appointment of R.G. Manabat & Co., as the Company’s independent external auditor for 2014; framework indicated therein. This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of consolidated financial statements that are free from • Reviewed and approved the terms of engagement of the external auditor, including the audit, audit- material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, 2014 Annual Report related and any non-audit services provided by the external auditor to the Company and the fees and making accounting estimates that are reasonable in the circumstances. for such services, and ensured that the same did not impair the external auditor’s independence and objectivity; The Board of Directors reviews and approves the consolidated financial statements and submits the same to the stockholders of the Company. • Reviewed and approved the scope of the audit and audit programs of the external auditor as well as the internal audit group of the Company, and have discussed the results of their respective audit processes R.G. Manabat & Co., the independent auditors appointed by the stockholders, has audited the consolidated and their findings and assessment of the Company’s internal controls and financial reporting systems; financial statements of the Company in accordance with Philippine Standards on Auditing, and in its report to the stockholders has expressed its opinion on the fairness of presentation upon completion of such audit. • Reviewed, discussed and recommended for approval of the Board of Directors the Company’s quarterly and annual 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 that such statements and reports comply with the regulatory requirements of the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange, Inc. (PSE); EDUARDO M. COJUANGCO, JR. • Reviewed, discussed and recommended for approval of the Board of Directors the filing of the Chairman and Chief Executive Officer Company’s Corporate Governance Guidelines for Listed Companies Disclosure Template with the PSE, in compliance with the requirement of the said regulatory agency;
• Reviewed, discussed and recommended for approval of the Board of Directors the amendments to the Company’s Amended Manual on Corporate Governance in order to align the provisions thereof with the prevailing SEC Memorandum Circulars affecting the duties of the Compliance Officer, Corporate CYNTHIA M. BAROY BERNARD D. MARQUEZ Secretary and Directors, requirement relating to Director’s attendance in Board Meetings and to comply Chief Finance Officer President with SEC Memorandum Circular No. 9, Series of 2014, which pertains to the Amendments to the Revised Code of Corporate Governance; and
• Reviewed the adequacy, 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.
The Audit Committee is satisfied with the scope and appropriateness of the Committee’s mandate and that the Committee substantially met its mandate in 2014.
MINITA V. CHICO-NAZARIO Chairperson Independent Director
LEO S. ALVEZ *ANGELINA S. GUTIERREZ FERDINAND K. CONSTANTINO Member M e m b e r – I n d e p e n d e n t D i re c to r Member
* Angelina S. Gutierrez, who was a member of the Audit Committee in 2014, resigned as Independent Director of the Company effective October 8, 2014, in the light of her appointment as member of the Judicial and Bar Council.
22 Celebrating 180 years 23 AUDITORS REPORT OF INDEPENDENT FINANCIAL STATEMENTS R.G. MANABAT & CO. Telephone +63 (2) 885-7000 THE KPMG Center, 9/F Fax +63 (2) 894-1985 6787 Ayala Avenue Internet www.kpmg.com.ph Makati City 1226, Metro Manila, Philippines Email [email protected] GINEBRA SAN MIGUEL INC. AND SUBSIDIARIES Branches: Subic, Cebu, Bacolod, Iloilo CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In Thousands) REPORT OF INDEPENDENT AUDITORS GINEBRA SAN MIGUEL INC. GINEBRA
The Board of Directors and Stockholders December 31 Ginebra San Miguel Inc. Note 2014 2013 Report on the Financial Statements ASSETS We have audited the accompanying consolidated financial statements of Ginebra San Miguel Inc. and Subsidiaries which Current Assets
2014 Annual Report comprise the consolidated statements of financial position as at December 31, 2014 and 2013, and the consolidated Cash and cash equivalents 8, 33, 34 P579,917 P513,312 statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity Trade and other receivables - net 4, 9, 28, 32, 33, 34 3,259,859 3,770,087 and consolidated statements of cash flows for each of the three years in the period ended December 31, 2014, and notes, Inventories 4, 10 2,657,224 3,747,328 comprising a summary of significant accounting policies and other explanatory information. Prepaid taxes and other current assets 11, 33, 34 1,478,152 1,442,769 Management’s Responsibility for the Consolidated Financial Statements 7,975,152 9,473,496 Assets held for sale 7 547,706 - 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 Total Current Assets 8,522,858 9,473,496 is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Noncurrent Assets Investments in joint ventures 12 659,488 720,189 Auditors’ Responsibility Property, plant and equipment - net 4, 13 5,936,826 6,537,944 Goodwill 4, 5 226,863 226,863 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 Deferred tax assets 4, 19 1,116,010 1,510,886 requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial Other noncurrent assets - net 4, 15, 28, 33, 34 1,489,646 1,399,578 statements are free from material misstatement. Total Noncurrent Assets 9,428,833 10,395,460 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated P17,951,691 P19,868,956 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 LIABILITIES AND EQUITY 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 Current Liabilities management, as well as evaluating the overall presentation of the consolidated financial statements. Notes payable 16, 33, 34 P10,084,440 P9,980,800 Trade and other payables 17, 28, 33, 34 2,329,193 2,570,579 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Income and other taxes payable 219,952 234,763 Opinion Current maturities of long-term debt - net of debt issue costs 18, 33, 34 114,286 541,286 In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial Total Current Liabilities 12,747,871 13,327,428 position of Ginebra San Miguel Inc. and Subsidiaries as at December 31, 2014 and 2013, and its consolidated financial performance and its consolidated cash flows for each of the three years in the period ended December 31, 2014,in Noncurrent Liabilities accordance with Philippine Financial Reporting Standards. Retirement liabilities 30 218,776 156,691 R.G. MANABAT & CO. Long-term debt - net of current maturities and debt issue costs 18, 33, 34 342,857 842,262 Deferred tax liabilities 19 - 210 Total Noncurrent Liabilities 561,633 999,163 Total Liabilities 13,309,504 14,326,591
Forward ALICIA S. COLUMBRES Partner CPA Licence No. 069679 SEC Accreditation No. 1181-A, Group A, valid until April 30, 2015 Tax Identification No. 120-964-156 BIR Accreditation No. 08-001987-27-2014 Issue September 26, 2014; valid until September 25, 2017 PTR No. 4748104MC Issue January 5, 2015 at Makati City
March 25, 2015, Makati City, Metro Manila
24 Celebrating 180 years 25 FINANCIAL STATEMENTS
GINEBRA SAN MIGUEL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In Thousands, Except Per Share Data) GINEBRA SAN MIGUEL INC. GINEBRA
December 31 Note 2014 2013 Equity 20 Note 2014 2013 2012 Capital stock P399,063 P399,063 CONTINUING OPERATIONS Additional paid-in capital 2,539,454 2,539,454 2014 Annual Report Reserve for retirement plan (135,675) (86,704) SALES 28 P14,920,577 P13,676,986 P13,340,029 Cumulative translation adjustments (54,040) (59,604) COST OF SALES 21, 35 10,947,315 10,735,408 10,104,187 Retained earnings: Appropriated 2,500,000 2,500,000 GROSS PROFIT 3,973,262 2,941,578 3,235,842 Unappropriated 2,063,358 2,829,565 SELLING AND MARKETING Treasury stock (2,669,973) (2,579,409) EXPENSES 22 (1,840,490) (2,116,413) (2,226,372) Total Equity 4,642,187 5,542,365 GENERAL AND ADMINISTRATIVE P17,951,691 P19,868,956 EXPENSES 23 (1,581,392) (1,467,973) (1,453,736) INTEREST EXPENSE AND OTHER
FINANCING CHARGES 16, 18, 26 (560,313) (657,899) (591,264) See Notes to the Consolidated Financial Statements. EQUITY IN NET LOSSES OF JOINT VENTURES 12 (66,265) (74,763) (53,467)
INTEREST INCOME 22,810 10,944 8,515 OTHER INCOME (CHARGES) - Net 27 (2,065) 30,844 93,661
LOSS BEFORE INCOME TAX (54,453) (1,333,682) (986,821)
INCOME TAX EXPENSE (BENEFIT) 19 578,055 (352,647) (264,515) NET LOSS FROM CONTINUING OPERATIONS (632,508) (981,035) (722,306) DISCONTINUED OPERATIONS
LOSS FROM DISCONTINUED
OPERATIONS - Net of tax 7 (133,699) (120,160) (114,863)
NET LOSS (P766,207) (P1,101,195) (P837,169) Basic and Diluted Loss Per Share 31 (P2.84) (P3.97) (P3.06)
Basic and Diluted Loss Per Share - Continuing Operations 31 (P2.37) (P3.55) (P2.66)
See Notes to the Consolidated Financial Statements.
26 Celebrating 180 years 27
FINANCIAL STATEMENTS
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28 Celebrating 180 years 29 FINANCIAL STATEMENTS
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t o T 12,822 93,508 (29,150) (25,039) (54,189) GINEBRA SAN MIGUEL INC. AND SUBSIDIARIES (837,169) (891,358) 7,472,044 P P6,5
CONSOLIDATED STATEMENTS OF CASH FLOWS
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p Discontinued operations 7 (190,998) (171,657) (164,090) o 2,500,000 r P P2,500,000
p (245,451) (1,505,339) (1,150,911) p
A Adjustments for:
s n e Depreciation, amortization and t
v o - - - i n i t t
e impairment 13, 14, 24 720,014 742,214 653,790 a a l l 36,673) m (29,150) (29,150) (29,150) u s t P (P65,823) ( Interest expense and other financing s n m u a j u r charges 16, 18, 26 560,313 657,899 591,264 d T C
A Provision for impairment losses on
r t n
o receivables 9, 22 81,080 - - n
f a - - -
l e e P Write-down of inventories to net m v r e (25,039) (25,039) (25,039) 105,491) r e
i realizable value 10, 21 68,000 - - s P t ( (P130,530) e e
R Equity in net losses of joint ventures 12 66,265 74,763 53,467 R
Net derivative loss (gain) 27 2,459 (1,007) (11,283)
l l n
a a i
t ------Loss (gain) on sale of property and n i d o p i i a t a 12,822 equipment 27 103 (705) (199) i P C d
2,526,625
d Net unrealized foreign exchange gain 27 (2,778) (7,980) (1,785) P P2,539,447 A Interest income (22,810) (10,947) (8,516)
Operating income (loss) before working d
e ------r
r capital changes 1,227,195 (51,102) 125,827
e k f 53,438 c P53,438 P e Decrease (increase) in:
r o t P
S Trade and other receivables 216,329 (148,509) (1,388,803)
l
a n t
i Inventories 797,749 1,974,149 590,495
o ------p a m Prepaid taxes and other current assets 7,074 (287,120) (430,575) C m 345,625 o Increase (decrease) in: P345,625 P C Trade and other payables (154,721) (721,519) 1,275,117
e 2 t 1 Other taxes payable (5,808) 144,998 (37,180) o
N Retirement liabilities (68,951) 45,730 1,339 Cash generated from operations 2,018,867 956,627 136,220 Interest received 22,810 10,947 8,516 Income taxes paid (11,793) (490) (613)
Net cash flows provided by operating
activities 2,029,884 967,084 144,123
plan CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 882 590 150 Additions to property, plant and equipment 13 (212,887) (256,908) (308,470) Acquisition of a subsidiary, net of cash and
cash equivalents acquired 5 - - (142,672) Increase in other noncurrent assets (353,769) (72,330) (135,825) ary 1, 2012 1, ary
Net cash flows used in investing activities (565,774) (328,648) (586,817)
of Janu Forward
joint ventures
As Share in other comprehensive loss of Equity reserve for retirement Other comprehensive loss Net loss Total comprehensive loss options Stock 2012 31, December As of See Notes to Consolidated the Financial Statements.
30 Celebrating 180 years 31 FINANCIAL STATEMENTS
GINEBRA SAN MIGUEL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands, Except Percentages, Per Share Data and Number of Shares)
GINEBRA SAN MIGUEL INC. GINEBRA
1. Reporting Entity
Note 2014 2013 2012 Ginebra San Miguel Inc. (GSMI or the Company), a subsidiary of San Miguel CASH FLOWS FROM FINANCING Corporation (SMC), was incorporated in the Philippines on July 10, 1987. Top ACTIVITIES
2014 Annual Report Frontier Investment Holdings, Inc. (Top Frontier) is the ultimate parent company Proceeds from: of the Group. The accompanying consolidated financial statements comprise Short-term borrowing P100,825,924 P101,992,376 P129,445,172 the financial statements of the Company and its Subsidiaries (collectively referred Issuance of common shares 9,639 33,448 28,978 to as the “Group”) and the Group’s interests in joint ventures. The Company is a Payments of: public company under Section 17.2 of the Securities Regulation Code and its Short-term borrowings (100,722,284) (101,443,776) (127,697,659) Long-term borrowings (928,571) (542,857) (371,429) shares are listed on The Philippine Stock Exchange, Inc. Interest expense and other financing charges (585,041) (665,239) (596,394) The Group is primarily engaged in manufacturing and selling of alcoholic and Cash dividends (55) (456) (117,975) nonalcoholic beverages. Net cash flows provided by (used in) rd th financing activities (1,400,388) (626,504) 690,693 The registered office address of the Company is 3 and 6 Floor, San Miguel Properties Centre, St. Francis Street, Ortigas Center, Mandaluyong City. EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,883 3,877 (5,745) 2. Basis of Preparation NET INCREASE IN CASH AND CASH EQUIVALENTS 66,605 15,809 242,254 Statement of Compliance CASH AND CASH EQUIVALENTS The accompanying consolidated financial statements have been prepared in AT BEGINNING OF YEAR 513,312 497,503 255,249 compliance with Philippine Financial Reporting Standards (PFRS). PFRS are CASH AND CASH EQUIVALENTS based on International Financial Reporting Standards issued by the International AT END OF YEAR 8 P579,917 P513,312 P497,503 Accounting Standards Board (IASB). PFRS consist of PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations issued by the
Financial Reporting Standards Council (FRSC). See Notes to the Consolidated Financial Statements. The consolidated financial statements were authorized for issue by the Board of Directors (BOD) on March 25, 2015.
Basis of Measurement The consolidated financial statements of the Group have been prepared on a historical cost basis of accounting except for the following items which are measured on an alternative basis at each reporting date:
Items Measurement Basis Derivative financial instruments Fair value Defined benefit retirement asset (liability) Fair value of the plan assets less the present value of the defined benefit retirement obligation
32 Celebrating 180 years 33 FINANCIAL STATEMENTS
Functional and Presentation Currency 3. Significant Accounting Policies The consolidated financial statements are presented in Philippine peso, which is the Company’s functional currency. All financial information are rounded off to The accounting policies set out below have been applied consistently to all the nearest thousand (P000), except when otherwise indicated. periods presented in the consolidated financial statements, except for the changes in accounting policies as explained below.
GINEBRA SAN MIGUEL INC. GINEBRA Basis of Consolidation The consolidated financial statements include the accounts of the Company and Adoption of New and Amended Standards and Interpretation the following wholly-owned subsidiaries: The FRSC approved the adoption of a number of new and amended standards and interpretation as part of PFRS. Name of Subsidiary Country of Incorporation Distileria Bago, Inc. (DBI) Philippines Amendments to Standards and Interpretation Adopted in 2014 East Pacific Star Bottlers Phils Inc. (EPSBPI) (a) Philippines 2014 Annual Report Agricrops Industries, Inc. (Agricrops) Philippines The Group has adopted the following PFRS effective January 1, 2014 and Healthy Condiments, Inc. (HCI) Philippines accordingly, changed its accounting policies in the following areas: Ginebra San Miguel International Ltd. (GSMIL) British Virgin Islands (BVI) GSM International Holdings Ltd. (GSMIHL) BVI . Recoverable Amount Disclosures for Non-Financial Assets (Amendments to Global Beverage Holdings Ltd. (GBHL) BVI PAS 36, Impairment of Assets). These narrow-scope amendments to PAS 36 Siam Holdings Ltd. (SHL) BVI address the disclosure of information about the recoverable amount of
(a) Consolidated starting January 27, 2012 (Note 5) impaired assets if that amount is based on fair value less costs of disposal. The amendments clarified that the scope of those disclosures is limited to A subsidiary is an entity controlled by the Group. The Group controls an entity if, the recoverable amount of impaired assets that is based on fair value less and only if, the Group is exposed to, or has rights to, variable returns from its costs of disposal. The adoption of these amendments did not have an effect involvement with the entity and has the ability to affect those returns through its on the consolidated financial statements. power over the entity. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or . Offsetting Financial Assets and Financial Liabilities (Amendments to PAS 32, more of the three elements of control. Financial Instruments). The amendments clarify that: (a) an entity currently has a legally enforceable right to set-off if that right is: (i) not contingent on a When the Group has less than majority of the voting or similar rights of an future event; and (ii) enforceable both in the normal course of business and in investee, the Group considers all relevant facts and circumstances in assessing the event of default, insolvency or bankruptcy of the entity and all whether it has power over an investee, including the contractual arrangement counterparties; and (b) gross settlement is equivalent to net settlement if and with the other vote holders of the investee, rights arising from other contractual only if the gross settlement mechanism has features that: (i) eliminate or arrangements and the Group’s voting rights and potential voting rights. result in insignificant credit and liquidity risk; and (ii) process receivables and payables in a single settlement process or cycle. The financial statements of the subsidiaries are included in the consolidated The adoption of these amendments did not have an effect on the financial statement from the date when the Group obtains control, and continue consolidated financial statements. to be consolidated until the date when such control ceases. . Novation of Derivatives and Continuation of Hedge Accounting The subsidiaries financial statements are prepared for the same reporting period (Amendments to PAS 39, Financial Instruments: Recognition and as the Company, using uniform accounting policies for like transactions and Measurement). The amendments allow hedge accounting to continue in a other events in similar circumstances. Intergroup balances and transactions, situation where a derivative, which has been designated as a hedging including intergroup unrealized profits and losses, are eliminated in preparing instrument, is novated to effect clearing with a central counterparty as a the consolidated financial statements. result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a contract agree to replace their original A change in the ownership interest of a subsidiary, without a loss of control, is counterparty with a new one). The adoption of these amendments did not accounted for as an equity transaction. If the Group loses control over a have an effect on the consolidated financial statements. subsidiary, the Group: (i) derecognizes the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of the cumulative transaction differences recorded in equity; (ii) recognizes the fair value of the consideration received, the fair value of any investment retained and any surplus or deficit in profit or loss; and, (iii) reclassify the Company’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.
34 Celebrating 180 years 35 FINANCIAL STATEMENTS
. Philippine Interpretation IFRIC 21, Levies. The interpretation provides o Scope Exclusion for the Formation of Joint Arrangements (Amendment guidance on accounting for levies in accordance with the requirements of to PFRS 3, Business Combinations). PFRS 3 has been amended to clarify PAS 37, Provisions, Contingent Liabilities and Contingent Assets. The that the standard does not apply to the accounting for the formation of interpretation confirms that an entity recognizes a liability for a levy when, all types of joint arrangements in PFRS 11, Joint Arrangements - i.e., and only when, the triggering event specified in the legislation occurs. An including joint operations - in the financial statements of the joint
GINEBRA SAN MIGUEL INC. GINEBRA entity does not recognize a liability at an earlier date even if it has no realistic arrangements themselves. The amendment is required to be applied opportunity to avoid the triggering event. Other standards should be prospectively for annual periods beginning on or after July 1, 2014. applied to determine whether the debit side is an asset or expense. Outflows within the scope of PAS 12, Income Taxes, fines and penalties and o Disclosures on the Aggregation of Operating Segments (Amendments to liabilities arising from emission trading schemes are explicitly excluded from PFRS 8, Operating Segments). PFRS 8 has been amended to explicitly the scope. The adoption of this interpretation did not have an effect on the require the disclosure of judgments made by management in applying consolidated financial statements. the aggregation criteria. The disclosures include: (i) a brief description of
2014 Annual Report the operating segments that have been aggregated; and (ii) the . Measurement of Short-term Receivables and Payables (Amendment to PFRS economic indicators that have been assessed in determining that the 13, Fair Value Measurement). The amendment clarifies that, in issuing PFRS operating segments share similar economic characteristics. In addition, 13 and making consequential amendments to PAS 39, Financial Instruments: the amendments clarify that a reconciliation of the total of the reportable Recognition and Measurement and PFRS 9, Financial Instruments, the segments’ assets to the entity’s assets is required only if this information intention is not to prevent entities from measuring short-term receivables is regularly provided to the entity’s chief operating decision maker. This and payables that have no stated interest rate at their invoiced amounts change aligns the disclosure requirements with those for segment without discounting, if the effect of not discounting is immaterial. The liabilities. The amendments are required to be applied prospectively for adoption of this amendment did not have an effect on the consolidated annual periods beginning on or after July 1, 2014. financial statements. o Scope of Portfolio Exception (Amendment to PFRS 13). The amendment Additional disclosures required by the amended standards and interpretation clarifies that the scope of the exception for measuring the fair value of a were included in the consolidated financial statements, where applicable. group of financial assets and financial liabilities with offsetting risk positions on a net basis (portfolio exception) applies to contracts within New and Amended Standards and Interpretations Not Yet Adopted the scope of PAS 39 and PFRS 9, regardless of whether they meet the definition of financial assets or financial liabilities under PAS 32 - e.g., A number of new and amended standards and interpretations are effective for certain contracts to buy or sell non-financial items that can be settled net annual periods beginning after January 1, 2014 and have not been applied in in cash or another financial instrument. The amendment required to be preparing these consolidated financial statements. Unless otherwise indicated, applied prospectively for annual periods beginning on or after none of these is expected to have a significant effect on the consolidated July 1, 2014. financial statements. o Definition of ‘Related Party’ (Amendment to PAS 24, Related Parties). The The Group will adopt the following new and amended standards and definition of a ‘related party’ is extended to include a management entity interpretations on the respective effective dates: that provides key management personnel (KMP) services to the reporting entity, either directly or through a group entity. For related party . Annual Improvements to PFRS Cycles 2010-2012 and 2011-2013 contain 11 transactions that arise when KMP services are provided to a reporting changes to nine standards with consequential amendments to other entity, the reporting entity is required to separately disclose the amounts standards and interpretations, of which only the following are applicable to that it has recognized as an expense for those services that are provided the Group. by a management entity; however, it is not required to ‘look through’ the management entity and disclose compensation paid by the management entity to the individuals providing the KMP services. The reporting entity o Meaning of ‘Vesting Condition’ (Amendment to PFRS 2, Share-based Payment). PFRS 2 has been amended to clarify the definition of ‘vesting will also need to disclose other transactions with the management entity condition’ by separately defining ‘performance condition’ and ‘service under the existing disclosure requirements of PAS 24 - condition.’ The amendment also clarifies the following: (i) how to e.g. loans. The amendments are required to be applied prospectively for distinguish between a market and a non-market performance condition; annual periods beginning on or after July 1, 2014. and (ii) the basis on which a performance condition can be differentiated from a non-vesting condition. The amendment is required to be applied prospectively for annual periods beginning on or after July 1, 2014.
36 Celebrating 180 years 37 FINANCIAL STATEMENTS
. Accounting for Acquisitions of Interests in Joint Operations (Amendment to . Annual Improvements to PFRS Cycles 2012-2014 contain changes to four PFRS 11). The amendment require business combination accounting to be standards, of which only the following are applicable to the Group. applied to acquisitions of interests in a joint operation that constitutes a business. Business combination accounting also applies to the acquisition of o Changes in Method for Disposal (Amendments to PFRS 5, Noncurrent additional interests in a joint operation while the joint operator retains joint Assets Held for Sale and Discontinued Operations). PFRS 5 is amended
GINEBRA SAN MIGUEL INC. GINEBRA control. The additional interest acquired will be measured at fair value. The to clarify that: (a) if an entity changes the method of disposal of an asset previously held interests in the joint operation will not be remeasured. The or disposal group - i.e., reclassifies an asset or disposal group from held- amendment place the focus firmly on the definition of a business, because for-distribution to owners to held-for-sale or vice versa, without any time this is key to determining whether the acquisition is accounted for as a lag - the change in classification is considered a continuation of the business combination or as the acquisition of a collection of assets. As a original plan of disposal and the entity continues to apply held-for- result, this places pressure on the judgment applied in making this distribution or held-for-sale accounting. At the time of the change in determination. The amendment required to be applied prospectively for method, the entity measures the carrying amount of the asset or disposal
2014 Annual Report annual periods beginning on or after January 1, 2016. Early adoption is group and recognizes any write-down (impairment loss) or subsequent permitted. increase in the fair value less costs to sell or distribute of the asset or disposal group; and (b) if an entity determines that an asset or disposal . Classification and Measurement of Contingent Consideration (Amendment group no longer meets the criteria to be classified as held-for- to PFRS 3). The amendment clarify the classification and measurement of distribution, then it ceases held-for-distribution accounting in the same contingent consideration in a business combination. When contingent way as it would cease held-for-sale accounting. Any change in method of consideration is a financial instrument, its classification as a liability or equity disposal or distribution does not, in itself, extend the period in which a is determined by reference to PAS 32, rather than to any other PFRS. sale has to be completed. The amendments to PFRS 5 are applied Contingent consideration that is classified as an asset or a liability is always prospectively in accordance with PAS 8, Accounting Policies, Changes in subsequently measured at fair value, with changes in fair value recognized in Accounting Estimates and Errors to changes in methods of disposal that profit or loss. Consequential amendments are also made to PAS 39 and occur on or after January 1, 2016. PFRS 9 to prohibit contingent consideration from subsequently being measured at amortized cost. In addition, PAS 37 is amended to exclude . PFRS 9 (2014) replaces PAS 39 and supersedes the previously published provisions related to contingent consideration. The amendment required to versions of PFRS 9 that introduced new classifications and measurement be applied prospectively for annual periods beginning on or after July 1, requirements (in 2009 and 2010) and a new hedge accounting model (in 2014. 2013). PFRS 9 includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model . Sale or Contribution of Assets between an Investor and its Associate or Joint for calculating impairment of all financial assets that are not measured at fair Venture (Amendments to PFRS 10, Consolidated Financial Statements and value through profit or loss, which generally depends on whether there has PAS 28, Investments in Associates). The amendments address an been a significant increase in credit risk since initial recognition of a financial inconsistency in dealing with the sale or contribution of assets between an asset, and supplements the new general hedge accounting requirements investor and its associate or joint venture between the requirements in PFRS published in 2013. The new model on hedge accounting requirements 10 and in PAS 28. The amendments require that a full gain or loss is provides significant improvements by aligning hedge accounting more recognized when a transaction involves a business whether it is housed in a closely with risk management. The new standard is required to be applied subsidiary or not. A partial gain or loss is recognized when a transaction retrospectively for annual periods beginning on or after January 1, 2018. involves assets that do not constitute a business, even if these assets are Early adoption is permitted. housed in a subsidiary. The amendments are required to be applied prospectively for annual periods beginning on or after January 1, 2016. Early Financial Assets and Financial Liabilities adoption is permitted. 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 as at fair value through profit or loss (FVPL), includes transaction costs.
38 Celebrating 180 years 39 FINANCIAL STATEMENTS
Financial Assets Subsequent to initial measurement, loans and receivables are carried at The Group classifies its financial assets, at initial recognition, in the following amortized cost using the effective interest method, less any impairment loss. categories: financial assets at FVPL, loans and receivables, available-for-sale Any interest earned on loans and receivables is recognized as part of “Interest (AFS) financial assets and held-to-maturity (HTM) investments. The classification income” account in the consolidated statements of income on an accrual basis. depends on the purpose for which the investments are acquired and whether Amortized cost is calculated by taking into account any discount or premium on
GINEBRA SAN MIGUEL INC. GINEBRA they are quoted in an active market. Management determines the classification acquisition and fees that are an integral part of the effective interest rate. of its financial assets and financial liabilities at initial recognition and, where The periodic amortization is also included as part of “Interest income” account in allowed and appropriate, re-evaluates such designation at every reporting date. the consolidated statements of income. Gains or losses are recognized in profit or loss when loans and receivables are derecognized or impaired. Financial Assets at FVPL. A financial asset is classified as at FVPL if it is classified as held for trading or is designated as such upon initial recognition. Financial Cash includes cash on hand and in banks which are stated at face value. assets are designated as at FVPL if the Group manages such investments and Cash equivalents are short-term, highly liquid investments that are readily
2014 Annual Report makes purchase and sale decisions based on their fair value in accordance with convertible to known amounts of cash and are subject to an insignificant risk of the documented risk management or investment strategy of the Group. changes in value. Derivative instruments (including embedded derivatives), except those covered by hedge accounting relationships, are classified under this category. The Group’s cash and cash equivalents, trade and other receivables and noncurrent receivables and deposits are included under this category (Notes 8, Financial assets are classified as held for trading if they are acquired for the 9, 15 and 34). purpose of selling in the near term. The Group has no financial assets classified as HTM investments and AFS Financial assets may be designated by management at initial recognition as at financial assets as of December 31, 2014 and 2013. FVPL, when any of the following criteria is met: ‘Day 1’ Profit. Where the transaction price in a non-active market is different . the designation eliminates or significantly reduces the inconsistent treatment from the fair value of other observable current market transactions in the same that would otherwise arise from measuring the assets or recognizing gains or instrument or based on a valuation technique whose variables include only data losses on a different basis; from observable market, the Group recognizes the difference between the transaction price and the fair value (a ‘Day 1’ profit) in profit or loss unless it . the assets are part of a group of financial assets which are managed and their qualifies for recognition as some other type of asset. In cases where data used is performances are evaluated on a fair value basis, in accordance with a not observable, the difference between the transaction price and model value is documented risk management or investment strategy; or only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the . the financial instrument contains an embedded derivative, unless the appropriate method of recognizing the ‘Day 1’ profit amount. 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. Financial Liabilities The Group classifies its financial liabilities, at initial recognition, in the following The Group carries financial assets at FVPL using their fair values. Attributable categories: financial liabilities at FVPL and other financial liabilities, as transaction costs are recognized in profit or loss as incurred. Fair value changes appropriate. The Group determines the classification of its financial liabilities at and realized gains or losses are recognized in profit or loss. Fair value changes initial recognition and, where allowed and appropriate, re-evaluates this from derivatives accounted for as part of an effective cash flow hedge are designation at each financial year-end. All financial liabilities are recognized recognized in other comprehensive income and presented in the consolidated initially at fair value and, in the case of loans and borrowings, net of directly statements of changes in equity. Any interest earned is recognized as part of attributable transaction costs. “Interest income” account in the consolidated statements of income. Any dividend income from equity securities classified as at FVPL is recognized in Financial Liabilities at FVPL. Financial liabilities are classified under this category profit or loss when the right to receive payment has been established. through the fair value option. Derivative instruments (including embedded derivatives) with negative fair values, except those covered by hedge accounting The Group’s derivative assets are classified under this category (Notes 11 relationships, are also classified under this category. and 34). The Group carries financial liabilities at FVPL using their fair values and reports Loans and Receivables. Loans and receivables are non-derivative financial assets fair value changes in profit or loss. Fair value changes from derivatives with fixed or determinable payments and maturities that are not quoted in an accounted for as part of an effective accounting hedge are recognized in other active market. They are not entered into with the intention of immediate or comprehensive income and presented in the consolidated statements of short-term resale and are not designated as AFS financial assets or financial changes in equity. Any interest expense incurred is recognized as part of assets at FVPL. “Interest expense and other financing charges” account in the consolidated statements of income.
40 Celebrating 180 years 41 FINANCIAL STATEMENTS
The Group’s derivative liabilities are classified under this category (Notes 17 When the Group has transferred its rights to receive cash flows from an asset or and 34). has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred Other Financial Liabilities. This category pertains to financial liabilities that are nor retained substantially all the risks and rewards of the asset nor transferred not designated or classified as at FVPL. After initial recognition, other financial control of the asset, the Group continues to recognize the transferred asset to
GINEBRA SAN MIGUEL INC. GINEBRA liabilities are subsequently measured at amortized cost using the effective the extent of the Group’s continuing involvement. In that case, the Group also interest method. Amortized cost is calculated by taking into account any recognizes the associated liability. The transferred asset and the associated premium or discount and any directly attributable transaction costs that are liability are measured on the basis that reflects the rights and obligations that the considered an integral part of the effective interest rate of the liability. The Group has retained. effective interest rate amortization is included in interest expense in profit or loss. Gains and losses are recognized in profit or loss when the liabilities are Financial Liabilities. A financial liability is derecognized when the obligation derecognized as well as the amortization process. under the liability is discharged or cancelled, or expires. When an existing
2014 Annual Report financial liability is replaced by another from the same lender on substantially The Group’s liabilities arising from its trade or borrowings such as notes payable, different terms, or the terms of an existing liability are substantially modified, trade and other payables and long-term debt are included under this category such an exchange or modification is treated as a derecognition of the original (Notes 16, 17, 18 and 34). liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss. Derivative Financial Instrument and Hedging Embedded Derivatives Impairment of Financial Assets The Group assesses whether embedded derivatives are required to be The Group assesses, at the reporting date, whether there is objective evidence separated from the host contracts when the Group becomes a party to the that a financial asset or group of financial assets is impaired. contract. A financial asset or a group of financial assets is deemed to be impaired if, and An embedded derivative is separated from the host contract and accounted for only if, there is objective evidence of impairment as a result of one or more as a derivative if all of the following conditions are met: a) the economic events that have occurred after the initial recognition of the asset (an incurred characteristics and risks of the embedded derivative are not closely related to loss event) and that loss event has an impact on the estimated future cash flows the economic characteristics and risks of the host contract; b) a separate of the financial asset or the group of financial assets that can be reliably instrument with the same terms as the embedded derivative would meet the estimated. definition of a derivative; and c) the hybrid or combined instrument is not recognized as at FVPL. Reassessment only occurs if there is a change in the Assets Carried at Amortized Cost. For financial assets carried at amortized cost terms of the contract that significantly modifies the cash flows that would such as loans and receivables, the Group first assesses whether impairment otherwise be required. exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If no objective Derecognition of Financial Assets and Financial Liabilities evidence of impairment has been identified for a particular financial asset that Financial Assets. A financial asset (or, where applicable, a part of a financial asset was individually assessed, the Group includes the asset as part of a group of or part of a group of similar financial assets) is primarily derecognized when: financial assets with similar credit risk characteristics and collectively assesses the group for impairment. Assets that are individually assessed for impairment and o the rights to receive cash flows from the asset have expired; or for which an impairment loss is, or continues to be, recognized are not included in the collective impairment assessment. o the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay them in full without material delay to a Evidence of impairment for specific impairment purposes may include third party under a “pass-through” arrangement; and either: (a) has indications that the borrower or a group of borrowers is experiencing financial transferred substantially all the risks and rewards of the asset; or (b) has difficulty, default or delinquency in principal or interest payments, or may enter neither transferred nor retained substantially all the risks and rewards of the into bankruptcy or other form of financial reorganization intended to alleviate the asset, but has transferred control of the asset. 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.
42 Celebrating 180 years 43 FINANCIAL STATEMENTS
If there is objective evidence of impairment, the amount of loss is measured as Inventories the difference between the asset’s carrying amount and the present value of Finished goods and materials and supplies are valued at the lower of cost and estimated future cash flows (excluding future credit losses) discounted at the net realizable value. 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 Costs incurred in bringing each inventory to its present location and condition are accounted for as follows:
GINEBRA SAN MIGUEL INC. GINEBRA 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 Finished goods - at cost, which includes direct materials and labor collective impairment purposes, impairment loss is computed based on their and a proportion of manufacturing overhead costs respective default and historical loss experience. based on normal operating capacity but excluding borrowing costs; costs are determined using the The carrying amount of the asset is reduced either directly or through the use of moving-average method.
2014 Annual Report an allowance account. The impairment loss for the period is recognized in profit Materials and or loss. If, in a subsequent period, the amount of the impairment loss decreases supplies - at cost, using the moving-average method. and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is Finished Goods. Net realizable value is the estimated selling price in the reversed. Any subsequent reversal of an impairment loss is recognized in profit ordinary course of business, less the estimated costs necessary to make the sale. or loss, to the extent that the carrying amount of the asset does not exceed its amortized cost at the reversal date. Materials and Supplies. Net realizable value is the current replacement cost.
Classification of Financial Instruments between Debt and Equity Any write-down of inventories to net realizable value and all losses of inventories From the perspective of the issuer, a financial instrument is classified as debt are recognized as expense in the year of write-down or loss occurrence. The instrument if it provides for a contractual obligation to: amount of reversals, if any, of write-down of inventories arising from an increase in net realizable value are recognized as reduction in the amount of inventories . deliver cash or another financial asset to another entity; recognized as expense in the year in which the reversal occurs.
. exchange financial assets or financial liabilities with another entity under Containers (i.e., Returnable Bottles and Shells). These are stated at deposit conditions that are potentially unfavorable to the Group; or values less any impairment in value. The excess of the acquisition cost of the containers over their deposit value is presented under deferred containers . satisfy the obligation other than by the exchange of a fixed amount of cash or included under “Other noncurrent assets” account in the consolidated another financial asset for a fixed number of own equity shares. statements of financial position and is amortized over the estimated useful lives of ten years. Amortization of deferred containers is included under “General and If the Group does not have an unconditional right to avoid delivering cash or administrative expenses” account in the consolidated statements of income. another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Assets Held for Sale and Discontinued Operation The Group classifies noncurrent assets, or disposal groups comprising assets and Debt Issue Costs liabilities as held for sale or distribution, if their carrying amounts will be Debt issue costs are considered as an adjustment to the effective yield of the recovered primarily through sale or distribution rather than through continuing related debt and are deferred and amortized using the effective interest rate use. The assets or disposal groups are generally measured at the lower of their method. When a loan is paid, the related unamortized debt issue costs at the carrying amount and fair value less costs to sell or distribute, except for some date of repayment are recognized in profit or loss. assets which are covered by other standards. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and Offsetting Financial Instruments liabilities on pro rata basis, except that no loss is allocated to inventories, Financial assets and financial liabilities are offset and the net amount is reported financial assets and deferred tax assets, which continue to be measured in in the consolidated statements of financial position if, and only if, there is a accordance with the Group’s accounting policies. Impairment losses on initial currently enforceable legal right to offset the recognized amounts and there is classification as held for sale or distribution and subsequent gains and losses on an intention to settle on a net basis, or to realize the asset and settle the liability remeasurement are recognized in profit or loss. Gains are not recognized in simultaneously. This is not generally the case with master netting agreements, excess of any cumulative impairment losses. and the related assets and liabilities are presented gross in the consolidated statements of financial position. The criteria for held for sale or distribution is regarded as met only when the sale or distribution is highly probable and the asset or disposal group is available for immediate sale or distribution in its present condition. Actions required to complete the sale or distribution should indicate that it is unlikely that significant changes to the sale will be made or that the sale will be withdrawn.
44 Celebrating 180 years 45 FINANCIAL STATEMENTS
Property, plant and equipment once classified as held for sale or distribution are The consideration transferred does not include amounts related to the not depreciated. settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss. Costs related to the acquisition, other than those associated Assets and liabilities classified as held for sale or distribution are presented with the issue of debt or equity securities that the Group incurs in connection separately as current items in the consolidated statements of financial position. with a business combination, are expensed as incurred. Any contingent
GINEBRA SAN MIGUEL INC. GINEBRA consideration payable is measured at fair value at the acquisition date. If the A discontinued operation is a component of the Company’s business, the contingent consideration is classified as equity, it is not remeasured and operations and cash flows of which can be clearly distinguished from the rest of settlement is accounted for within equity. Otherwise, subsequent changes to the the Company and which: (1) represent a separate major line of business or fair value of the contingent consideration are recognized in profit or loss. geographic area of operations; (2) is part of a single coordinated plan to dispose a separate major line of business or graphic area of operations; or (3) is a . Goodwill in a Business Combination subsidiary acquired exclusively with a view to re-sale. Goodwill acquired in a business combination is, from the acquisition date,
2014 Annual Report allocated to each of the cash-generating units, or groups of cash-generating Classification as a discontinued operation occurs at the earlier of disposal or units that are expected to benefit from the synergies of the combination, when the operation meets the criteria to be classified as held for sale. When an irrespective of whether other assets or liabilities are assigned to those units operation is classified as a discontinued operation, the comparative consolidated or groups of units. Each unit or group of units to which the goodwill is so statements of income are re-presented as if the operation had been allocated: discontinued from the start of the comparative period.
o represents the lowest level within the Group at which the goodwill is Discontinued operations are excluded from the results of continuing operations monitored for internal management purposes; and and are presented as a single amount as “Loss from discontinued operations - net of tax” in the consolidated statements of income. o is not larger than an operating segment determined in accordance with PFRS 8. Business Combination
Business combinations are accounted for using the acquisition method as at the Impairment is determined by assessing the recoverable amount of the cash- acquisition date. The cost of an acquisition is measured as the aggregate of the generating unit or group of cash-generating units, to which the goodwill consideration transferred, measured at acquisition date fair value and the relates. Where the recoverable amount of the cash-generating unit or group amount of any non-controlling interests in the acquiree. For each business of cash-generating units is less than the carrying amount, an impairment loss combination, the Group elects whether to measure the non-controlling interests is recognized. Where goodwill forms part of a cash-generating unit or group in the acquiree at fair value or at proportionate share of the acquiree’s of cash-generating units and part of the operation within that unit is disposed identifiable net assets. Acquisition-related costs are expensed as incurred and of, the goodwill associated with the operation disposed of is included in the included as part of “General and administrative expenses” account in the carrying amount of the operation when determining the gain or loss on consolidated statements of income. disposal of the operation. Goodwill disposed of in this circumstance is
measured based on the relative values of the operation disposed of and the When the Group acquires a business, it assesses the financial assets and financial portion of the cash-generating unit retained. An impairment loss with liabilities assumed for appropriate classification and designation in accordance respect to goodwill is not reversed. with the contractual terms, economic circumstances and pertinent conditions as
at the acquisition date. Transactions under Common Control If the business combination is achieved in stages, the acquisition date fair value Transactions under common control entered into in contemplation of each other of the acquirer’s previously held equity interest in the acquiree is remeasured at and business combination under common control designed to achieve an overall the acquisition date fair values and any resulting gain or loss is recognized in commercial effect are treated as a single transaction. profit or loss. Transfers of assets between commonly controlled entities are accounted for The Group measures goodwill at the acquisition date as: a) the fair value of the using book value accounting. consideration transferred; plus b) the recognized amount of any non-controlling interests in the acquiree; plus c) if the business combination is achieved in Investments in Joint Ventures stages, the fair value of the existing equity interest in the acquiree; less d) the net A joint venture is a type of joint arrangement whereby the parties that have joint recognized amount (generally fair value) of the identifiable assets acquired and control of the arrangement have rights to the net assets of the joint venture. liabilities assumed. When the excess is negative, a bargain purchase gain is Joint control is the contractually agreed sharing of control of an arrangement, recognized immediately in profit or loss. Subsequently, goodwill is measured at which exists only when decisions about the relevant activities require unanimous cost less any accumulated impairment in value. Goodwill is reviewed for consent of the parties sharing control. impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying amount may be impaired.
46 Celebrating 180 years 47 FINANCIAL STATEMENTS
The considerations made in determining joint control is similar to those The initial cost of property, plant and equipment comprises of its construction necessary to determine control over subsidiaries. cost or purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for The Group’s investments in joint ventures are accounted for using the equity its intended use. Cost also includes any related asset retirement obligation method. (ARO). Expenditures incurred after the asset has been put into operation, such
GINEBRA SAN MIGUEL INC. GINEBRA as repairs, maintenance and overhaul costs, are normally recognized as expense Under the equity method, the investment in joint venture is initially recognized at in the period the costs are incurred. Major repairs are capitalized as part of cost. The carrying amount of the investment is adjusted to recognize the property, plant and equipment only when it is probable that future economic changes in the Group’s share of net assets of the joint venture since the benefits associated with the items will flow to the Group and the cost of the acquisition date. Goodwill relating to the joint venture is included in the carrying items can be measured reliably. amount of the investment and is neither amortized nor individually tested for impairment. Construction in progress (CIP) represents structures under construction and is
2014 Annual Report stated at cost. This includes the costs of construction and other direct costs. The Group’s share in profit or loss of joint venture is recognized as “Equity in net Borrowing costs that are directly attributable to the construction of plant and losses of joint ventures” account in the consolidated statements of income. equipment are capitalized during the construction period. CIP is not Adjustments to the carrying amount may also be necessary for changes in the depreciated until such time that the relevant assets are ready for use. Group’s proportionate interest in the joint venture arising from changes in the joint venture’s other comprehensive income. The Group’s share of those Depreciation and amortization, which commences when the assets are available changes is recognized as “Share in other comprehensive income (loss) of joint for their intended use, are computed using the straight-line method over the ventures” account in the consolidated statements of comprehensive income. following estimated useful lives of the assets: Unrealized gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. Number of Years
Land improvements 5 - 10 When the Group’s share of losses in a joint venture equals or exceeds its interest Buildings and building improvements 20 - 50 in the joint ventures, the Group does not recognize further losses, unless it has Transportation equipment 5 incurred obligation or made payments on behalf of the joint venture. Machinery and equipment 3 - 40 After application of the equity method, the Group determines whether it is Furniture, fixtures and office equipment 2 - 5 necessary to recognize an impairment loss with respect to the Group’s net Other equipment 2 - 5 investment in the joint venture. At each reporting date, the Group determines Leasehold improvements 10 - 30 or whether there is objective evidence that the investment in the joint venture is term of the lease, impaired. If there is such evidence, the Group recalculates the amount of whichever is impairment as the difference between the recoverable amount and carrying shorter amount of the joint venture. Such impairment loss is recognized as part of “Equity in net losses of joint ventures” account in the consolidated statements of The remaining useful lives, residual values, and depreciation and amortization income. methods are reviewed and adjusted periodically, if appropriate, to ensure that such periods and methods of depreciation and amortization are consistent with Upon loss of joint control over the joint venture, the Group measures and the expected pattern of economic benefits from the items of property, plant and recognizes any retained investment at fair value. Any difference between the equipment. carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or The carrying amounts of property, plant and equipment are reviewed for loss. impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the Fully depreciated assets are retained in the accounts until they are no longer in accounting policies in line with those of the Group. use.
Property, Plant and Equipment An item of property, plant and equipment is derecognized when either it has Property, plant and equipment, except land and construction in progress, are been disposed of or when it is permanently withdrawn from use and no future stated at cost less accumulated depreciation and amortization and any economic benefits are expected from its use or disposal. Any gain or loss arising accumulated impairment in value. Such cost includes the cost of replacing part from the retirement and disposal of an item of property, plant and equipment of the property, plant and equipment at the time that cost is incurred, if the (calculated as the difference between the net disposal proceeds and the carrying recognition criteria are met, and excludes the costs of day-to-day servicing. amount of the asset) is included in profit or loss in the period of retirement and Land is stated at cost less any impairment in value. disposal.
48 Celebrating 180 years 49 FINANCIAL STATEMENTS
Investment Property Impairment of Non-financial Assets Investment property consists of property held to earn rentals and/or for capital The carrying amounts of investments in joint venture, property, plant and appreciation but not for sale in the ordinary course of business, used in the equipment, deferred containers and idle assets are reviewed for impairment production or supply of goods or services or for administrative purposes. when events or changes in circumstances indicate that the carrying amount may Investment property, except for land, is measured at cost including transaction not be recoverable. Intangible assets with indefinite useful lives are tested for
GINEBRA SAN MIGUEL INC. GINEBRA costs less accumulated depreciation and amortization and any accumulated impairment annually either individually or at the cash-generating unit level. If any impairment in value. The carrying amount includes the cost of replacing part of such indication exists, and if the carrying amount exceeds the estimated an existing investment property at the time the cost is incurred, if the recognition recoverable amount, the assets or cash-generating units are written down to criteria are met, and excludes the costs of day-to-day servicing of an investment their recoverable amounts. The recoverable amount of the asset is the greater of property. Land is stated at cost less any impairment in value. 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 Depreciation and amortization, which commences when the assets are available between knowledgeable, willing parties, less costs of disposal. In assessing
2014 Annual Report for their intended use, are computed using the straight-line method over the value in use, the estimated future cash flows are discounted to their present following estimated useful lives of the assets: value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that Number of does not generate largely independent cash inflows, the recoverable amount is Years determined for the cash-generating unit to which the asset belongs. Impairment Land improvements 5 - 10 losses are recognized in profit or loss in those expense categories consistent Buildings and building improvements 20 - 50 with the function of the impaired asset. Machinery and equipment 3 - 40 Other equipment 2 - 5 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 The useful lives, residual values and depreciation and amortization method are may have decreased. If such indication exists, the recoverable amount is reviewed and adjusted, if appropriate, at each reporting date. 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 Investment property is derecognized either when it has been disposed of or amount since the last impairment loss was recognized. If that is the case, the when it is permanently withdrawn from use and no future economic benefit is carrying amount of the asset is increased to its recoverable amount. That expected from its disposal. Any gains and losses on the retirement and disposal increased amount cannot exceed the carrying amount that would have been of investment property are recognized in profit or loss in the period of retirement determined, net of depreciation and amortization, had no impairment loss been and disposal. 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 Transfers are made to investment property when, and only when, there is a in future periods to allocate the asset’s revised carrying amount, less any residual change in use, evidenced by ending of owner-occupation or commencement of value, on a systematic basis over its remaining useful life. an operating lease to another party. Transfers are made from investment property when, and only when, there is a change in use, evidenced by Fair Value Measurements commencement of the owner-occupation or commencement of development The Group measures a number of financial and non-financial assets and liabilities with a view to sell. at fair value at each reporting date.
For a transfer from investment property to owner-occupied property or Fair value is the price that would be received to sell an asset or paid to transfer a inventories, the cost of property for subsequent accounting is its carrying amount liability in an orderly transaction between market participants at the at the date of change in use. If the property occupied by the Group as an measurement date. The fair value measurement is based on the presumption owner-occupied property becomes an investment property, the Group accounts that the transaction to sell the asset or transfer the liability takes place either in for such property in accordance with the policy stated under property, plant and the principal market for the asset or liability, or in the absence of a principal equipment up to the date of change in use. market, in the most advantageous market for the asset or liability. The principal or most advantageous market must be accessible to the Group.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
50 Celebrating 180 years 51 FINANCIAL STATEMENTS
All assets and liabilities for which fair value is measured or disclosed in the Preferred shares are classified as a liability if they are redeemable on a specific consolidated financial statements are categorized within the fair value hierarchy, date or at the option of the shareholders, or if dividend payments are not described as follows, based on the lowest level input that is significant to the fair discretionary. Dividends thereon are recognized as interest expense in profit or value measurement as a whole: loss as accrued.
GINEBRA SAN MIGUEL INC. GINEBRA . Level 1: quoted prices (unadjusted) in active markets for identical assets or Treasury Shares liabilities; Own equity instruments which are reacquired are carried at cost and deducted from equity. No gain or loss is recognized on the purchase, sale, reissuance or . Level 2: inputs other than quoted prices included within Level 1 that are cancellation of the Company’s own equity instruments. When the shares are observable for the asset or liability, either directly or indirectly; and retired, the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to additional paid-in capital to the . Level 3: inputs for the asset or liability that are not based on observable extent of the specific or average additional paid-in capital when the shares were
2014 Annual Report market data. issued and to retained earnings for the remaining balance.
For assets and liabilities that are recognized in the consolidated financial Revenue Recognition statements on a recurring basis, the Group determines whether transfers have Revenue is recognized to the extent that it is probable that the economic occurred between levels in the hierarchy by re-assessing the categorization at benefits associated with the transaction will flow to the Group and the amount of the end of each reporting period. revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: For purposes of the fair value disclosure, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the Revenue from Sale of Goods asset or liability and the level of the fair value hierarchy. Revenue from sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade Provisions discounts and volume rebates. Revenue is recognized when the significant risks Provisions are recognized when: (a) the Group has a present obligation (legal or and rewards of ownership of the goods have passed to the buyer, which is constructive) as a result of past events; (b) it is probable (i.e., more likely than not) normally upon delivery and the amount of revenue can be measured reliably. 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 Revenue from Services the obligation. If the effect of the time value of money is material, provisions are Revenue is recognized upon satisfactory performance of services which is determined by discounting the expected future cash flows at a pre-tax rate that manufacturing and bottling of nonalcoholic beverages in favor of the customer reflects current market assessment of the time value of money and the risks where such production inputs are in the name of the customer. 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 Others of the expenditure required to settle a provision is expected to be reimbursed Interest income is recognized as the interest accrues, taking into account the by another party, the reimbursement is recognized as a separate asset only when effective yield on the asset. it is virtually certain that reimbursement will be received. The amount recognized for the reimbursement shall not exceed the amount of the provision. Dividend income is recognized when the Group’s right as a shareholder to Provisions are reviewed at each reporting date and adjusted to reflect the receive the payment is established. current best estimate. Rent income is recognized on a straight-line basis over the term of the lease. Share Capital Common Shares Cost and Expense Recognition Common shares are classified as equity. Incremental costs directly attributable Costs and expenses are recognized upon receipt of goods, utilization of services to the issue of common shares and share options are recognized as a deduction or at the date they are incurred. from equity, net of any tax effects. Expenses are also recognized when a decrease in future economic benefit related to a decrease in an asset or an increase in a liability that can be measured Preferred Shares reliably has arisen. Expenses are recognized on the basis of a direct association Preferred shares are classified as equity if they are non-redeemable, or between costs incurred and the earning of specific items of income; on the basis redeemable only at the Company’s option, and any dividends thereon are of systematic and rational allocation procedures when economic benefits are discretionary. Dividends thereon are recognized as distributions within equity expected to arise over several accounting periods and the association can only upon approval by the BOD of the Company. be broadly or indirectly determined; or immediately when an expenditure
produces no future economic benefits or when, and to the extent that future
economic benefits do not qualify, or cease to qualify, for recognition as an asset.
52 Celebrating 180 years 53 FINANCIAL STATEMENTS
Share-based Payment Transactions Group as Lessor. Leases where the Group does not transfer substantially all the The cost of Employee Stock Purchase Plan (ESPP) is measured by reference to risks and rewards of ownership of the assets are classified as operating leases. the market price at the time of the grant less subscription price. 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 The cost of share-based payment transactions is recognized, together with a lease are added to the carrying amount of the leased asset and recognized as an
GINEBRA SAN MIGUEL INC. GINEBRA corresponding increase in equity, over the period in which the performance expense over the lease term on the same basis as rent income. Contingent rents and/or service conditions are fulfilled, ending on the date when the relevant are recognized as income in the period in which they are earned. employees become fully entitled to the award (the “vesting date”). The cumulative expenses recognized for share-based payment transactions at each Borrowing Costs reporting date until the vesting date reflect the extent to which the vesting Borrowing costs are capitalized if they are directly attributable to the acquisition period has expired and the Company’s best estimate of the number of equity or construction of a qualifying asset. Capitalization of borrowing costs instruments that will ultimately vest. Where the terms of a share-based award are commences when the activities to prepare the asset are in progress and
2014 Annual Report modified, as a minimum, an expense is recognized as if the terms had not been expenditures and borrowing costs are being incurred. Borrowing costs are modified. In addition, an expense is recognized for any modification, which capitalized until the assets are substantially ready for their intended use. increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Research Costs Research costs are expensed as incurred. 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 Employee Benefits recognized immediately. Short-term Employee Benefits Short-term employee benefits are expensed as the related service is provided. However, if a new award is substituted for the cancelled award, and designated A liability is recognized for the amount expected to be paid if the Group has a as a replacement award on the date that it is granted, the cancelled and new present legal or constructive obligation to pay this amount as a result of past awards are treated as if they were a modification of the original award. service provided by the employee and the obligation can be estimated reliably.
Leases Retirement Costs The determination of whether an arrangement is, or contains, a lease is based on The Company and DBI have separate funded, noncontributory retirement plans, the substance of the arrangement and requires an assessment of whether the administered by the respective trustees, covering their respective permanent fulfillment of the arrangement is dependent on the use of a specific asset or employees. The cost of providing benefits under the defined benefit retirement assets and the arrangement conveys a right to use the asset. A reassessment is plan is actuarially determined using the projected unit credit method. Projected made after the inception of the lease only if one of the following applies: unit credit method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected (a) there is a change in contractual terms, other than a renewal or extension of salaries. Actuarial gains and losses are recognized in full in the period in the arrangement; which they occur in other comprehensive income. Such actuarial gains and losses are also immediately recognized in equity and are not reclassified to profit (b) a renewal option is exercised or an extension is granted, unless the term of or loss in subsequent period. the renewal or extension was initially included in the lease term; The net defined benefit retirement liability or asset is the aggregate of the (c) there is a change in the determination of whether fulfillment is dependent on present value of the amount of future benefit that employees have earned in a specific asset; or return for their service in the current and prior periods, reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit (d) there is a substantial change to the asset. asset to the asset ceiling. The asset ceiling is the present value of economic benefits available in the form of reductions in future contributions to the plan. 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 Defined benefit costs comprise of the following: scenarios (a), (c) or (d), and at the date of renewal or extension period for . Service costs scenario (b) above. . Net interest on the net defined benefit retirement liability or asset . Remeasurements of net defined benefit retirement liability or asset Operating Lease Group as Lessee. Leases which do not transfer to the Group substantially all the Service costs which include current service costs, past service costs and gains or risks and rewards of ownership of the asset are classified as operating leases. losses on non-routine settlements are recognized as expense in profit or loss. Operating lease payments are recognized as an expense in profit or loss on a Past service costs are recognized when plan amendment or curtailment occurs. straight-line basis over the lease term. Associated costs such as maintenance These amounts are calculated periodically by independent qualified actuary and insurance are expensed as incurred. using the projected unit credit method.
54 Celebrating 180 years 55 FINANCIAL STATEMENTS
Net interest on the net defined benefit retirement liability or asset is the change Foreign currency differences are recognized in other comprehensive income and during the period as a result of contributions and benefit payments, which is presented in the “Cumulative translation adjustments” account in the determined by applying the discount rate based on the government bonds to consolidated statements of changes in equity. When a foreign operation is the net defined benefit retirement liability or asset. Net interest on the net disposed of such that control or joint control is lost, the cumulative amount in the defined benefit retirement liability or asset is recognized as expense or income cumulative translation adjustments related to that foreign operation is
GINEBRA SAN MIGUEL INC. GINEBRA in profit or loss as part of retirement cost. reclassified to profit or loss as part of the gain or loss on disposal.
Remeasurements of net defined benefit retirement liability or asset comprising When the Group disposes of only part of its investment in joint venture that actuarial gains and losses, return on plan assets, and the effect of the asset includes a foreign operation while retaining joint control, the relevant proportion ceiling (excluding net interest) are recognized immediately in other of the cumulative amount is reclassified to profit or loss. comprehensive income in the period in which they arise. When the settlement of a monetary item receivable from or payable to a foreign
2014 Annual Report When the benefits of a plan are changed, or when a plan is curtailed, the operation is neither planned nor likely to occur in the foreseeable future, foreign resulting change in benefit that relates to past service or the gain or loss on exchange gains and losses arising from such a monetary item are considered to curtailment is recognized immediately in profit or loss. The Group recognizes form part of a net investment in a foreign operation and are recognized in other gains and losses on the settlement of a defined benefit retirement plan when the comprehensive income and presented in the “Cumulative translation settlement occurs. adjustments” account in the consolidated statements of changes in equity.
Foreign Currency The functional currency of GSMIL, GSMIHL and SHL is the Philippine peso, while Foreign Currency Translations that of Thai San Miguel Liquor Co. Ltd. (TSML) and Thai Ginebra Trading (TGT) is Transactions in foreign currencies are translated to the respective functional the Thailand Baht (THB). The assets and liabilities of TSML and TGT are currencies of the Group entities at exchange rates at the dates of the translated into the presentation currency of the Company at the rate of transactions. Monetary assets and monetary liabilities denominated in foreign exchange ruling at the reporting date and their income and expenses are currencies at the reporting date are retranslated to the functional currency at the translated at the average exchange rates for the year. exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the Taxes beginning of the year, adjusted for effective interest and payments during the Current Tax. Current tax is the expected tax payable or receivable on the year, and the amortized cost in foreign currency translated at the exchange rate taxable income or loss for the year, using tax rates enacted or substantively at the reporting date. enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Nonmonetary assets and nonmonetary liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional Deferred Tax. Deferred tax is recognized in respect of temporary differences currency at the exchange rate at the date the fair value was determined. between the carrying amounts of assets and liabilities for financial reporting Nonmonetary items in foreign currencies that are measured in terms of historical purposes and the amounts used for taxation purposes. cost are translated using the exchange rate at the date of the transaction. Deferred tax liabilities are recognized for all taxable temporary differences, Foreign currency differences arising on retranslation are recognized in profit or except: loss, except for differences arising on the retranslation of AFS financial assets, a financial liability designated as an effective hedge of the net investment in a . where the deferred tax liability arises from the initial recognition of goodwill foreign operation or qualifying cash flow hedges, which are recognized in other or of an asset or liability in a transaction that is not a business combination comprehensive income. and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and Foreign Operations The assets and liabilities of foreign operations and fair value adjustments arising . with respect to taxable temporary differences associated with investments in on acquisition, are translated to Philippine peso at exchange rates at the subsidiaries and interests in joint ventures, where the timing of the reversal of reporting date. The income and expenses of foreign operations, excluding the temporary differences can be controlled and it is probable that the foreign operations in hyperinflationary economies, are translated to Philippine temporary differences will not reverse in the foreseeable future. peso at average exchange rates for the period.
56 Celebrating 180 years 57 FINANCIAL STATEMENTS
Deferred tax assets are recognized for all deductible temporary differences, Value-added Tax (VAT). Revenues, expenses and assets are recognized net of carryforward benefits of unused tax credits - Minimum Corporate Income Tax the amount of VAT, except: (MCIT) and unused tax losses - Net Operating Loss Carry Over (NOLCO), to the extent that it is probable that taxable profit will be available against which the . where the tax incurred on a purchase of assets or services is not recoverable deductible temporary differences, and the carryforward benefits of MCIT and from the taxation authority, in which case the tax is recognized as part of the
GINEBRA SAN MIGUEL INC. GINEBRA NOLCO can be utilized, except: cost of acquisition of the asset or as part of the expense item as applicable; and . 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 . receivables and payables that are stated with the amount of tax included. not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and The net amount of tax recoverable from, or payable to, the taxation authority is included as part of “Prepaid taxes and other current assets” or “Income and
2014 Annual Report . with respect to deductible temporary differences associated with investments other taxes payable” accounts in the consolidated statements of financial in subsidiaries and interests in joint ventures, deferred tax assets are position. recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be Related Parties available against which the temporary differences can be utilized. 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 The carrying amount of deferred tax assets is reviewed at each reporting date other party in making financial and operating decisions. Parties are also and reduced to the extent that it is no longer probable that sufficient taxable considered to be related if they are subject to common control and significant profit will be available to allow all or part of the deferred tax asset to be utilized. influence. Related parties may be individuals or corporate entities. Transactions Unrecognized deferred tax assets are reassessed at each reporting date and are between related parties are on an arm’s length basis in a manner similar to recognized to the extent that it has become probable that future taxable profit transactions with non-related parties. will allow the deferred tax asset to be recovered. Basic and Diluted Earnings Per Common Share (EPS) The measurement of deferred tax reflects the tax consequences that would Basic EPS is computed by dividing the net income (loss) for the period follow the manner in which the Group expects, at the end of the reporting attributable to equity holders of the Company, net of dividends on preferred period, to recover or settle the carrying amount of its assets and liabilities. shares, by the weighted average number of issued and outstanding common shares during the period, with retroactive adjustment for any stock dividends Deferred tax assets and liabilities are measured at the tax rates that are expected declared. 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 Diluted EPS is computed in the same manner, adjusted for the effects of the reporting date. shares issuable to employees and executives under the ESPP of the Company, which are assumed to be exercised at the date of grant. 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 Where the effect of the assumed conversion of shares issuable to employees and interest may be due. The Group believes that its accruals for tax liabilities are executives under the stock purchase plan of the Company would be anti-dilutive, adequate for all open tax years based on its assessment of many factors, diluted EPS is not presented. including interpretation of tax laws and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about Operating Segments future events. New information may become available that causes the Group to The Group’s operating segments are organized and managed separately change its judgment regarding the adequacy of existing tax liabilities; such according to the nature of the products and services provided, with each changes to tax liabilities will impact tax expense in the period that such a segment representing a strategic business unit that offers different products and determination is made. serves different markets. Financial information on operating segments is presented in Note 6 to the consolidated financial statements. The President (the Current tax and deferred tax are recognized in profit or loss except to the extent chief operating decision maker) reviews management reports on a regular basis. that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. The measurement policies the Group used for segment reporting under PFRS 8 are the same as those used in the consolidated financial statements. There have Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable been no changes in the measurement methods used to determine reported right exists to set off current tax assets against current tax liabilities and the segment profit or loss from prior periods. All inter-segment transfers are carried deferred taxes relate to the same taxable entity and the same taxation authority. out at arm’s length prices.
58 Celebrating 180 years 59 FINANCIAL STATEMENTS
Contingencies Classification of Joint Arrangements. The Group has determined that it has Contingent liabilities are not recognized in the consolidated financial statements. rights only to the net assets of TSML and TGT based on the structure, legal form, They are disclosed in the notes to the consolidated financial statements unless contractual terms and other facts and circumstances of the arrangement. the possibility of an outflow of resources embodying economic benefits is As such, the Group classified its joint arrangements as joint ventures (Note 12). remote. Contingent assets are not recognized in the consolidated financial
GINEBRA SAN MIGUEL INC. GINEBRA statements but are disclosed in the notes to the consolidated financial Distinguishing between Property, Plant and Equipment and Investment Property statements when an inflow of economic benefits is probable. The Group determines whether a property qualifies as an investment property. In making its judgment, the Group considers whether the property generates Events After the Reporting Date cash flows largely independent of the other assets held by an entity. Post year-end events that provide additional information about the Group’s Owner-occupied property generate cash flows that are attributable not only to financial position at the reporting date (adjusting events) are reflected in the the property but also to other assets used in the production or supply process. consolidated financial statements. Post year-end events that are not adjusting
2014 Annual Report events are disclosed in the notes to the consolidated financial statements when Some property comprises a portion that is held to earn rental or for capital material. appreciation and another portion that is held for use in the production and supply of goods and services or for administrative purposes. If these portions can be sold separately (or lease out separately under finance lease), the Group 4. Significant Accounting Judgments, Estimates and Assumptions accounts for the portions separately. If the portion cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is The preparation of the consolidated financial statements in accordance with held for use in the production or supply of goods or services or for administrative PFRS requires management to make judgments, estimates and assumptions that purposes. Judgment is applied in determining whether ancillary services are so affect the application of accounting policies and the amounts of assets, liabilities, significant that a property does not qualify as investment property. The Group income and expenses reported in the consolidated financial statements at the considers each property separately in making its judgment. reporting date. However, uncertainty about these judgments, estimates and assumptions could result in an outcome that could require a material adjustment As a result of the change in use of investment property, from being held to earn to the carrying amount of the affected asset or liability in the future. rental to owner-occupied, the investment property was transferred to property, plant and equipment in 2013. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are Contingencies. The Group is currently involved in various pending claims and believed to be reasonable under the circumstances. Revisions are recognized in lawsuits which could be decided in favor of or against the Group. The Group’s the period in which the judgments and estimates are revised and in any future estimate of the probable costs for the resolution of these pending claims and period affected. lawsuits has been developed in consultation with in-house as well as outside legal counsel handling the prosecution and defense of these matters and is Judgments based on an analysis of potential results. The Group currently does not believe In the process of applying the Group’s accounting policies, management has that these pending claims and lawsuits will have a material adverse effect on its made the following judgments, apart from those involving estimations, which financial position and financial performance. It is possible, however, that future have the most significant effect on the amounts recognized in the consolidated financial performance could be materially affected by the changes in the financial statements: estimates or in the effectiveness of strategies relating to these proceedings. No accruals were made in relation to these proceedings (Note 35). Operating Lease Commitments - Group as Lessor/Lessee. The Group has entered into various lease agreements either as a lessor or a lessee. The Group Estimates and Assumptions had determined that it retains all the significant risks and rewards of ownership of The key estimates and assumptions used in the consolidated financial the property leased out on operating leases while the significant risks and statements are based upon management’s evaluation of relevant facts and rewards for property leased from third parties are retained by the lessors. circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. Rent income recognized in the consolidated statements of income amounted to P8,072 in 2014 (Notes 27 and 29). Fair Value Measurements. A number of the Group’s accounting policies and disclosures require the measurement of fair values for both financial and Rent expense recognized in the consolidated statements of income from non-financial assets and liabilities. continuing and discontinued operations amounted to P153,827, P166,032 and P233,768 in 2014, 2013 and 2012, respectively (Notes 21, 22, 23 and 29).
60 Celebrating 180 years 61 FINANCIAL STATEMENTS
The Group has an established control framework with respect to the Estimates of net realizable value are based on the most reliable evidence measurement of fair values. This includes a valuation team that has overall available at the time the estimates are made of the amount the inventories are responsibility for overseeing all significant fair value measurements, including expected to be realized. These estimates take into consideration fluctuations of Level 3 fair values. The valuation team regularly reviews significant unobservable price or cost directly relating to events occurring after the reporting date to the inputs and valuation adjustments. If third party information is used to measure extent that such events confirm conditions existing at the reporting date. fair values, then the valuation team assesses the evidence obtained to support GINEBRA SAN MIGUEL INC. GINEBRA the conclusion that such valuations meet the requirements of PFRS, including the The write-down of inventories amounted to P137,904 and P69,904 as of level in the fair value hierarchy in which such valuations should be classified. December 31, 2014 and 2013, respectively.
The Group uses market observable data when measuring the fair value of an The carrying amount of inventories amounted to P2,657,224 and P3,747,328 as of asset or liability. Fair values are categorized into different levels in a fair value December 31, 2014 and 2013, respectively (Note 10). hierarchy based on the inputs used in the valuation techniques (Note 3).
2014 Annual Report Estimated Useful Lives of Property, Plant and Equipment and Deferred If the inputs used to measure the fair value of an asset or a liability can be Containers. The Group estimates the useful lives of property, plant and categorized in different levels of the fair value hierarchy, then the fair value equipment and deferred containers based on the period over which the assets measurement is categorized in its entirety in the same level of the fair value are expected to be available for use. The estimated useful lives of property, hierarchy based on the lowest level input that is significant to the entire plant and equipment and deferred containers are reviewed periodically and are measurement. 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 The Group recognizes transfers between levels of the fair value hierarchy at the of the assets. end of the reporting period during which the change has occurred. In addition, estimation of the useful lives of property, plant and equipment and The methods and assumptions used to estimate the fair values for both financial deferred containers is based on collective assessment of industry practice, and non-financial assets and liabilities are discussed in Note 34. internal technical evaluation and experience with similar assets. It is possible, however, that future financial performance could be materially affected by Allowance for Impairment Losses on Trade and Other Receivables. Provisions changes in estimates brought about by changes in factors mentioned above. are made for specific and groups of accounts, where objective evidence of The amounts and timing of recorded expenses for any period would be affected impairment exists. The Group evaluates these accounts on the basis of factors by changes in these factors and circumstances. A reduction in the estimated that affect the collectability of the accounts. These factors include, but are not useful lives of property, plant and equipment and deferred containers would limited to, the length of the Group’s relationship with the customers and increase the recorded cost of sales, selling and marketing expenses, general and counterparties, the current credit status based on third party credit reports and administrative expenses and decrease noncurrent assets. known market forces, average age of accounts, collection experience and historical loss experience. The amount and timing of the recorded expenses for Property, plant and equipment, net of accumulated depreciation and any period would differ if the Group made different judgments or utilized amortization amounted to P6,244,426 and P6,845,544 as of December 31, 2014 different methodologies. An increase in the allowance for impairment losses and 2013, respectively. Accumulated depreciation and amortization of property, would increase the recorded selling and marketing expenses and decrease plant and equipment amounted to P6,885,820 and P6,645,143 as of current assets. December 31, 2014 and 2013, respectively (Note 13).
The allowance for impairment losses on trade and other receivables amounted Deferred containers, net of accumulated amortization, included as part of “Other to P189,274 and P108,194 as of December 31, 2014 and 2013, respectively noncurrent assets” account in the consolidated statements of financial position (Note 9). amounted to P334,548 and P551,217 as of December 31, 2014 and 2013, respectively (Note 15). The carrying amounts of trade and other receivables amounted to P3,259,859 and P3,770,087 as of December 31, 2014 and 2013, respectively (Note 9). Impairment of Goodwill with Indefinite Useful Life. The Group determines whether goodwill is impaired at least annually. This requires the estimation of Write-down of Inventory. The Group writes-down the cost of inventory to net value in use of the cash-generating units to which the goodwill is allocated. realizable value whenever net realizable value becomes lower than cost due to Estimating value in use requires management to make an estimate of the damage, physical deterioration, obsolescence, changes in price levels or other expected future cash flows from the cash-generating unit and to choose a causes. suitable discount rate to calculate the present value of those cash flows.
The carrying amount of goodwill amounted to P226,863 as of December 31, 2014 and 2013 (Note 5).
62 Celebrating 180 years 63 FINANCIAL STATEMENTS
Acquisition Accounting. The Group accounts for acquired businesses using the The Group determines the appropriate discount rate at the end of each acquisition method of accounting which requires that the assets acquired and reporting period. It is the interest rate that should be used to determine the the liabilities assumed are recognized at the date of acquisition based on their present value of estimated future cash outflows expected to be required to respective fair values. settle the retirement obligations. In determining the appropriate discount rate, the Group considers the interest rates on government bonds that are
GINEBRA SAN MIGUEL INC. GINEBRA The application of the acquisition method requires certain estimates and denominated in the currency in which the benefits will be paid. The terms to assumptions concerning the determination of the fair values of acquired maturity of these bonds should approximate the terms of the related retirement intangible assets and property, plant and equipment, as well as liabilities obligation. assumed at the acquisition date. Moreover, the useful lives of the acquired intangible assets and property, plant and equipment have to be determined. Other key assumptions for the defined benefit retirement obligation are based in Accordingly, for significant acquisitions, the Group obtains assistance from part on current market conditions. valuation specialists. The valuations are based on information available at the
2014 Annual Report acquisition date. The Group’s acquisitions have resulted in goodwill. While it is believed that the Group’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in The carrying amount of goodwill arising from business combinations in 2012 assumptions may materially affect the Group’s defined benefit retirement amounted to P226,863 (Note 5). obligation.
Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at The present value of defined benefit retirement obligation amounted to each reporting date and reduces the carrying amount to the extent that it is no P763,688 and P844,432 as of December 31, 2014 and 2013, respectively longer probable that sufficient taxable profit will be available to allow all or part (Note 30). of the deferred tax assets to be utilized. The Group’s assessment on the recognition of deferred tax assets on deductible temporary difference and Asset Retirement Obligation. Determining the ARO requires estimation of the carryforward benefits of MCIT and NOLCO is based on the projected taxable costs of dismantling, installing and restoring leased properties to their original income in the following periods. condition. The Group determined that there are no significant ARO as of December 31, 2014 and 2013. While it is believed that the assumptions used in Deferred tax assets amounted to P1,116,010 and P1,510,886 as of the estimation of such costs are reasonable, significant changes in these December 31, 2014 and 2013, respectively (Note 19). assumptions may materially affect the recorded expense or obligation in future periods. Impairment of Non-financial Assets. PFRS requires that an impairment review be performed on investments in joint ventures, property, plant and equipment, deferred containers and idle assets when events or changes in circumstances 5. Goodwill indicate that the carrying amount may not be recoverable. Determining the recoverable amounts of these assets requires the estimation of cash flows On January 27, 2012, GSMI acquired 100% of the outstanding capital stock of expected to be generated from the continued use and ultimate disposition of EPSBPI for P200,000. EPSBPI, which is considered a CGU, is a company primarily such assets. While it is believed that the assumptions used in the estimation of engaged in the manufacturing and bottling of alcoholic and nonalcoholic fair values reflected in the consolidated financial statements are appropriate and beverages. reasonable, significant changes in these assumptions may materially affect the assessment of recoverable amounts and any resulting impairment loss could Goodwill was recognized as a result of the acquisition as follows: have a material adverse impact on the financial performance. 2012 Accumulated impairment losses on property, plant and equipment amounted to Total consideration transferred P200,000 P307,600 as of December 31, 2014 and 2013 (Note 13). Total identifiable net liabilities at fair value 26,863 Goodwill P226,863 The combined carrying amounts of investments in joint ventures, property, plant
and equipment, deferred containers and idle assets amounted to P6,930,862 and Goodwill arising from the acquisition is attributable to the benefit of expected P7,820,902 as of December 31, 2014 and 2013, respectively (Notes 12, 13 and 15). synergies with the Group’s beverage business, revenue growth and future
development specifically on tolling services with third parties. Present Value of Defined Benefit Retirement Obligation. The present value of the defined benefit retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions are described in Note 30 to the consolidated financial statements and include discount rate and salary increase rate.
64 Celebrating 180 years 65 FINANCIAL STATEMENTS
The recoverable amount of goodwill has been determined based on a valuation Segment Assets and Liabilities using cash flow projections covering a five-year period based on long range Segment assets include all operating assets used by a segment and consist plans approved by management. Cash flows beyond the five-year period are primarily of operating cash, receivables, inventories, assets held for sale and extrapolated using a constant growth rate determined per individual property, plant and equipment, net of allowances, accumulated depreciation cash-generating unit. This growth rate is consistent with the long-term average and amortization, and impairment. Segment liabilities include all operating
GINEBRA SAN MIGUEL INC. GINEBRA growth rate for the industry. The discount rate applied to after tax cash flow liabilities and consist primarily of trade and other payables and income and other projections is 12% in 2014 and 2013. The discount rate also imputes the risk of taxes payable. Segment assets and liabilities do not include deferred taxes. the cash-generating units compared to the respective risk of the overall market and equity risk premium. Major Customer The Group does not have a single external customer from which sales revenue No impairment loss was recognized in 2014 and 2013. generated amounted to 10% or more of the total revenues of the Group.
2014 Annual Report Management believes that any reasonably possible change in the key The Group’s revenue from external customers and noncurrent assets are mainly assumptions on which the recoverable amount is based would not cause its in the Philippines. carrying amount to exceed its recoverable amount.
The calculations of value in use are most sensitive to the following assumptions:
. Gross Margins. Gross margins are based on average values achieved in the period immediately before the budget period. These are increases over the budget period for anticipated efficiency improvements. Values assigned to key assumptions reflect past experience, except for efficiency improvement.
. Discount Rates. The Group uses the weighted-average cost of capital as the discount rate, which reflects management’s estimate of the risk specific to each unit. This is the benchmark used by management to assess operating performance and to evaluate future investments proposals.
. Raw Material Price Inflation. Consumer price forecast is obtained from indices during the budget period from which raw materials are purchased. Values assigned to key assumptions are consistent with external sources of information.
6. Segment Information
Operating Segments The reporting format of the Group’s operating segments is determined based on the Group’s risks and rates of return which are affected predominantly by differences in the products and services produced. The operating businesses are organized and managed separately according to the nature of the products produced and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.
The Group is organized into two major operating segments namely alcoholic and nonalcoholic beverages (NAB).
The alcoholic segment produces and markets alcoholic beverages.
The nonalcoholic segment is involved in the production and marketing of NAB.
For each of the operating segments, the chief operating decision maker reviews internal management reports on at least monthly basis.
66 Celebrating 180 years 67 FINANCIAL STATEMENTS
7. Discontinued Operation 419 2012 8,516
(1,785) 78,877 (53,467) 101,626 788,732 226,863 653,790 616,322) (591,264) (313,742) P308,470 1,064,181 1,015,735 9,432,200 1,924,834 (P837,169) (P On December 5, 2014, the BOD of GSMI authorized the sale and transfer of P3,660,506 P18,594,833 P14,002,195 P21,690,344 P15,096,836 certain NAB assets of the Company to a related party to dispose the NAB assets
consisting of property, plant and equipment as of December 31, 2014 and 3 8 40 GINEBRA SAN MIGUEL INC. GINEBRA 4 210 finished goods and other inventories as of March 31, 2015 (“Transaction”). l 2013 a (7,980) t 10,947 42,40
(74,763) The sale of these assets is expected to be completed in the second quarter of 720,189 226,863 234,763 742,214 o (657,899) (404,144) P256,908 T 1,399,57 1,510,886 9,980,800 1,383,548 (P826,027)
P2,727,270 2015. (P1,101,195) P14,399,076 6 P19,868,95 P14,326,591 P16,011,
) ) ) ) 8 6 2 9 4 7 4 0 1 4 1 4 6 3 0 3 2 4 0 7 5 7 3 As of December 31, 2014, the NAB segment was classified as a disposal group
0 6 8 1 7 1 8 9 0 5 8 6 4 1 4 5 1 0 4 8 0 6 1
- 0 9 8 6 6 6 5 0 8 6 0 7 4 8 1 9 0 3 4 6 2 2 3 , , , , , , , , , , , , , , , , , , , , , ,
2 held for sale and as discontinued operations. 0 7 2 0 9 1 9 2 9 6 0 9 6 7 9 0 6 4 1 6 6 0 ( 6 4 1 1 5 5 0 2 2 5 2 8 1 5 1 2 4 8 6 6 6 ( 3 5 2 5 4 9 3 4 1 5 6 2 4 2 7 1 0 7 5 ,
, , , , , , , ( P P P 2 2 5 4 7 3 1 1 0 2014 Annual Report 1 1 1 1 1 1 P The NAB segment was not previously classified as held-for-sale or as a 0 P 2
d discontinued operation. The comparative consolidated statements of income P P
P ( n a
has been restated to show the discontinued operation separately from 3 2012 1
0 continuing operations. P69,248 2 P662,208 P113,908 , (P172,189) 4 P1,357,522 1
0 2014 2013 2012 *
* 2 )
, c
i 1 d l Sales P590,094 P722,090 P662,166 e o 3 r u h 2013 e n o
i Cost of sales 413,173 496,920 456,970 b t c l n P86,213 a m o P761,396 P152,974 n e (P158,957) Gross profit 176,921 225,170 205,196 c c P1,549,759 o s i e N
d Selling and marketing expenses (323,149) (362,792) (330,006) ( D
d
) General and administrative e 3 1 1 5 4 5 5 3 5 5 1 7 d 2 9 6 8 0 0 n expense (45,148) (45,597) (47,246) , , , , , 2 5 4 6 9 6 E 3 2 1 2 6 s Other income - net 378 11,562 7,966 r 6 7 1 1 P a P P P ( e Loss before income tax (190,998) (171,657) (164,090) Y
e h
Income tax benefit (57,299) (51,497) (49,227)
P t r o
F Net loss (P133,699) (P120,160) (P114,863) 2012
P239,222 Basic and Diluted Loss Per (P444,133) P3,546,598 P17,237,311 P13,339,987 Share (P0.47) (P0.42) (P0.40)
1 s: s:
c i l
2013 The major classes of NAB assets classified as held for sale as of o 0,695 h
o December 31, 2014 are as follows: P17 c (P667,070) l P2,574,296 A P14,461,68 P13,637,680 Note 2014
4 8 4 9 6 3 1 7 1 3 1 5 0 0 3 0 4 7 Property, plant and equipment - net 13 P193,941 , , , , , 2 6 1 3 5 4 2 3 8 7 3 Finished goods and other inventories 353,765 5 4 1 8 7 , , , P P 2 4 3 1 1 P Assets held for sale P547,706 P P
costs The net cash flows provided by (used in) operating activities of NAB segment
amounted to (P2,756), (P2,084) and P4,895 in 2014, 2013 and 2012, respectively.
s
e
) i
t
s i l net t i
e - b s net
a s - i
benefit
L A
l l
a a
n net of debt issue t t
and other financing - o o o i
t
T T a
d d m expense ( e e r t t o a a
f s d d n i i s l l
I term debt o t
o o r - l s s s e L u e t n n h s l t e o o charges impairment e a S R Segment result Interest expense Interest income Equity in net losses of joint ventures Other income (losses) Income tax N O Segment assets Investments in joint ventures Goodwill Other noncurrent assets assets tax Deferred C liabilities Segment payable Notes Long taxDeferred liabilities Income and other taxes payable C Capital expenditures Depreciation, amortization and Noncash items other than depreciation Financial information about operating followsegments ** see Note 7
68 Celebrating 180 years 69 FINANCIAL STATEMENTS
8. Cash and Cash Equivalents The aging of receivables is as follows:
Cash and cash equivalents consist of: Amounts Owed by Related Note 2014 2013 December 31, 2014 Trade Non-trade Parties Total GINEBRA SAN MIGUEL INC. GINEBRA Cash in banks and on hand P289,731 P472,949 Current P1,755,719 P7,526 P17,770 P1,781,015 Short-term investments 290,186 40,363 Past due: 33, 34 P579,917 P513,312 Less than 30 days 567,311 3,595 18,859 589,765 30 - 60 days 114,324 8,068 10,040 132,432 61 - 90 days 59,355 2,296 22,632 84,283 Cash in banks earns interest at the respective bank deposit rates. Short-term Over 90 days 491,548 183,064 187,026 861,638 investments include demand deposits made for varying periods up to three P2,988,257 P204,549 P256,327 P3,449,133
2014 Annual Report months which can be withdrawn at anytime depending on the immediate cash requirements of the Group and earn interest at the respective short-term investment rates. Amounts Owed by Related December 31, 2013 Trade Non-trade Parties Total 9. Trade and Other Receivables Current P1,865,949 P55,615 P51,156 P1,972,720 Past due: Trade and other receivables consist of: Less than 30 days 669,900 6,864 75,811 752,575 30 - 60 days 138,259 7,907 34,022 180,188 Note 2014 2013 61 - 90 days 38,966 33,848 1,433 74,247 Trade P2,988,257 P3,177,490 Over 90 days 464,416 354,484 79,651 898,551 Non-trade 32 204,549 458,718 P3,177,490 P458,718 P242,073 P3,878,281 Amounts owed by related parties 28 256,327 242,073 3,449,133 3,878,281 Various collaterals for trade receivables such as bank guarantees, time deposit Less allowance for impairment losses 189,274 108,194 and real estate mortgages are held by the Group for certain credit limits. 33, 34 P3,259,859 P3,770,087 The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible based on historical payment behavior and Trade receivables are non-interest bearing and are generally on a 60 to 90-day analyses of the underlying customer credit ratings. There are no significant term. changes in their credit quality.
Non-trade receivables consist of advances to supplier amounting to P1,252 and The Group has settlement arrangements with various terminated dealers for the P458 as of December 31, 2014 and 2013, respectively, subscription receivables collection of the outstanding trade receivables over a period from four to fifteen amounting to P4,975 and P105,195 as of December 31, 2014 and 2013, years. The noncurrent portion amounting to P3,192 and P3,751 as of respectively, receivable from employees amounting to P26,452 and P20,778 as December 31, 2014 and 2013, respectively, is included in trade receivables from of December 31, 2014 and 2013, respectively, sale of raw materials amounting to terminated dealers under the “Other noncurrent assets” account in the P130,781and P107,880 as of December 31, 2014 and 2013, respectively and consolidated statements of financial position (Note 15). miscellaneous receivables amounting to P41,089 and P224,407 as of December 31, 2014 and 2013, respectively. These are generally collectible on demand. 10. Inventories
The movement in allowance for impairment losses is as follows: Inventories consist of:
Note 2014 2013 2014 2013 Balance at beginning of year P108,194 P108,194 Finished goods at NRV P863,650 P1,072,365 Provision for impairment losses 22 81,080 - Materials and supplies at NRV 1,793,574 2,591,354 Balance at end of year P189,274 P108,194 Containers - net - 83,609 P2,657,224 P3,747,328
70 Celebrating 180 years 71 FINANCIAL STATEMENTS
The cost of finished goods and materials and supplies amounted to P2,795,128 Summarized financial information of TSML, as included in its own financial and P3,733,623 as of December 31, 2014 and 2013, respectively. statements, and reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below: Containers at deposit value amounted to P83,609 as of December 31, 2013. 2014 2013 2012 Current assets (including cash and cash equivalents - GINEBRA SAN MIGUEL INC. GINEBRA The write-down of inventories to net realizable value amounted to P68,000 in 2014 and is included as part of “Cost of Sales” account in the consolidated 2014: P103,873, 2013: P141,673 and 2012: P237,556) P1,282,143 P1,319,308 P1,372,279 statements of income (Note 21). No inventories were written down to net Noncurrent assets 1,510,106 1,612,052 1,636,099 Current liabilities (including current financial realizable value in 2013 and 2012. liabilities excluding trade and other payables and provisions - 2013: P660,479 and 2012: P648,988) 29,659 718,254 719,787 The accumulated value of inventory write-down amounted to P137,904 and Noncurrent liabilities (including noncurrent P69,904 as of December 31, 2014 and 2013, respectively. financial liabilities excluding trade and other payables and provisions - 2014: P1,292,950, 2014 Annual Report 2013: P607,815 and 2012: P530,213) 1,293,798 609,122 531,949
Net assets 1,468,792 1,603,984 1,756,642 11. Prepaid Taxes and Other Current Assets Percentage of ownership 44.9% 44.9% 44.9% Carrying amount of investment in joint venture P659,488 P720,189 P788,732 Prepaid taxes and other current assets consist of:
Note 2014 2013 2014 2013 2012 Prepaid taxes P1,426,224 P1,390,863 Sales P847,596 P1,124,174 P1,220,334 Derivative assets 33, 34 52 768 Cost of sales (including depreciation - Others 51,876 51,138 2014: P114,843, 2013: P115,788 and 2012: P114,036) 866,195 1,171,279 1,192,124 P1,478,152 P1,442,769 Operating expenses (including depreciation - 2014: P4,630, 2013: P4,783 and 2012: P5,053) 72,070 101,628 91,216 Other charges (including interest expense - Prepaid taxes represent prepayments of excise taxes on alcohol and income 2014: P58,054, 2013: P47,492 and 2012: P57,883) 56,914 17,777 56,074 taxes. Net loss (147,583) (166,510) (119,080) Percentage of ownership 44.9% 44.9% 44.9% Share in net loss (66,265) (74,763) (53,467) 12. Investments in Joint Ventures Share in other comprehensive income (loss) 5,564 6,219 (29,150) Total comprehensive loss (P60,701) (P68,544) (P82,617) a. TSML b. TGT GSMI, through GSMIL, has an existing joint venture with Thai Life Group of Companies (Thai Life) covering the ownership and operations of TSML. GSMI, through GSMIHL, also has an existing 40% ownership interest in TGT, TSML is a limited company organized under the laws of Thailand in which which was formed as another joint venture with Thai Life. TGT functions as GSMIL owns 40% ownership interest. TSML holds a license in Thailand to the selling and distribution arm of TSML. engage in the business of manufacturing alcohol and manufacturing, selling and distributing brandy, wine and distilled spirits products both for domestic Through the acquisition of SWL of the 10% ownership interest in TGT, GSMI and export markets. group’s share in TGT increased from 40% to 44.9%. The acquisition was funded through advances made by GSMI to GBHL which has an existing Through the acquisition by SHL of the 49% ownership interest in Siam Wine loan agreement with SWL for the same amount.
Liquor Co., Ltd. (SWL) and SWL’s acquisition of shares representing 10% ownership of the outstanding capital stock of TSML, the Group’s share in TSML increased from 40% to 44.9%. The acquisition was funded through advances made by GSMI to GBHL, which has an existing loan agreement with SWL for the same amount.
72 Celebrating 180 years 73 FINANCIAL STATEMENTS
0 6 6 0 l 4 0 2 2 a t 6 2 8 8 , , , Summarized financial information of TGT, as included in its own financial , o 7 0 6 5 38,000 0 3 3 8 256,908 686,255 212,887 624,810 628,626 616,065 269,600 1 9 8
statements, and reconciliation with the carrying amount of the investment in (154,184) (419,144) (150,185) (225,203) , , , 5,391,707 6,645,143 3 5 13,490,687 P6,537,944
the consolidated financial statements are set out below: P12,547,524
1 P
T
2 2 s n
s 1 1 - 2014 2013 2012 6 3 ------o - - 9 e 9 i , , r t 1 1 c g 8 8
Current assets (including cash and cash equivalents - u o GINEBRA SAN MIGUEL INC. GINEBRA 256,908 266,683 135,313 r r (324,156) (320,084) t P333,931 P266,683
2014: P80,571, 2013: P61,904 and 2012: P38,674) P95,262 P105,156 P97,639 s P n n i Noncurrent assets 5,634 5,781 179 o Current liabilities 857,947 838,907 744,726 C
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0 2 Noncurrent liabilities (including noncurrent financial 2 s d
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liabilities excluding trade and other payables and (342) , , , e h 2,705 7,224 6,668 5 6 1 e 11,705 18,587 m 1 2 provisions - 2014: P136, 2013: P219 and 2012: P188) 136 219 188 4 s 141,389 1 e a P138,684 P122,802 v e o
Net liabilities (757,187) (728,189) (647,096) L r
Percentage of ownership 44.9% 44.9% 44.9% p 2014 Annual Report m I
1 P
t r 3 2 Carrying amount of investment in joint venture (P339,977) (P326,957) (P290,546) 1 n e
3 5 2
- - - - e h 9 0 9 t , , , m 6 4 2
Sales P174,908 P268,140 P252,220 O 81,020 64,303 60,839 72,386 4 2 p 2 (14,465) (43,702) i 786,190 556,845 603,219 2 (103,540) (108,982) u P705,170 Cost of sales 157,805 237,871 234,978 P182,971 q
Operating expenses (including depreciation - E
7 P
2014: P158, 2013: P229 and 2012: P1,320) 41,314 110,610 86,139 5 , t s 7 4 7 e e n e 86
c 5 4 8 - r i - - - - - Other income (including interest expense - 2012: P5) 695 1,223 20,475 r e 815 2 7 4 f u , , , u f t t 2,366 m i 9 9 0 (3,944) x 15,961 82,346 15,574 98,735 15,696 p 2 n 1 1
Net loss (23,516) (79,118) (48,422) i O i 127,292 r P28,557 F d u P111,331 u
Percentage of ownership 44.9% 44.9% 44.9% n q F a E
Share in net loss (10,559) (35,524) (21,741)
- P
1 1
t y 0 8 5 7 Share in other comprehensive income (loss) 2,463 887 (10,365) d r n
0 6 8 1 n - e e 6 7 1 8 a , , , , n i
Total comprehensive loss (P8,096) (P34,637) (P32,106) m 7 2 2 1 75,236 38,000 h 0 7 p 6 8 (12,527) i 130,146 102,262 449,370 560,086 430,437 269,600 c 2 5 9 (297,544) (171,822) , u , , a
8,682,231 3,726,273 4,735,729 3 8 4 q P8,552,085 P3,638,902 M The Group discontinued recognizing its share in the net liabilities of TGT E
P
t 4 7 3
since the cumulative losses including the share in other comprehensive loss n
n 4 0 6 3 - - - o - 7 i 9 1 e , , , t 7,238 2,242 9 already exceed the cost of investment. If TGT reports profits subsequently, 2 3 m a (9,679) 33,302 33,076 t 3 1 7 (19,800) (18,060) (10,190) (24,853) p r 248,525 151,507 174,619 P73,906 i o P241,287 the Group resumes recognizing its share of those profits after its share of the u p q s E
profits equals the share of net losses not recognized. As of n a r
December 31, 2014, 2013 and 2012, unrecognized share in net liabilities T
2 1 P
6 1 5 s d g
t 67 10 88
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amounted to P339,977, P326,957 and P290,546, respectively. n n ------n i 1 0 0 , , , e a d 7 5 2 l s i 16,451 53,195 75,073 53,833 m 2 9 3 g 753,718 712,902 841,170 u 5 8 6 e , , n B v i 2,510,685 2 1 o P1,756,9 P1,669,515 d r l i p u B m I
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- - - - n n - n 6 7 0 , a , , e a 5,306 3,969 L 0 7 7 27,692 d 19,623 17,649 m 5 2 7 7 150,129 173,084 n 5 e 7 1 P708,069 P554,608 a v P L o r
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C 2013 1, January Additions Disposals/reclassifications 2013 31, December Additions Disposals/reclassifications to a Reclassification D A 2013 1, January Additions Disposals/reclassifications 201 31, December Additions Disposals/reclassifications t Reclassification D A 2013 1, January Additions D C 2013 31, December D areasThe follows equipment movements in property, plant: and p o r P . 3 1
74 Celebrating 180 years 75 FINANCIAL STATEMENTS
Additions in 2014 amounting to P212,887 pertain to the new production facility 14. Investment Property and improvements of concrete perimeter fence in Cabuyao, new building and blending facility in Mandaue, acquisition of pallets and software upgrade. This account consists of a bottling plant, which includes land and land improvements, buildings and building improvements, machinery and equipment Additions in 2013 amounting to P256,908 pertain to the new blending and and other equipment leased by a third party under an operating lease
GINEBRA SAN MIGUEL INC. GINEBRA packaging facility in Mandaue, acquisitions of NAB crates and software upgrade. agreement.
Property, plant and equipment include unutilized machinery and equipment The movements in investment property are as follows: consisting of distillation equipment of the Company stored in DBI plant. In 2014, unutilized machinery and equipment amounting to P67,586 was used in current Buildings and Machinery Land and Land Building and Other year’s operations. Impairment loss amounting to P38,000 was provided for these Improvements Improvements Equipment Equipment Total unutilized machinery and equipment in 2013. The carrying amounts of unutilized Cost
2014 Annual Report machinery and equipment, net of accumulated impairment losses of P307,600 in January 1, 2013 P49,297 P116,300 P633,837 P9,247 P808,681 2014 and 2013, amounted to P68,630 and P145,565 as of December 31, 2014 and Reclassifications (49,297) (116,300) (633,837) (9,247) (808,681) 2013, respectively. December 31, 2013 and 2014 - - - - -
The recoverable amount was determined by the independent property appraiser Accumulated Depreciation and Amortization having appropriate recognized professional qualifications and recent experience January 1, 2013 17,589 74,126 558,793 9,247 659,755 in the category of the property being valued. The fair value of the property Additions 65 2,892 5,895 - 8,852 being appraised was determined using the replacement cost model. This Reclassifications (17,654) (77,018) (564,688) (9,247) (668,607) approach considers the cost to reproduce or replace in new condition the assets December 31, 2013 and appraised in accordance with current market prices of materials, labor, 2014 - - - - - contractor’s overhead, profit and fees, and all other attendant’s costs associated Carrying Amount with its acquisition and installation in place. Adjustment is then made for December 31, 2013 and 2014 P - P - P - P - P - accrued depreciation as evidenced by the observed condition and present and prospective serviceability in comparison with the new similar units. There are no other direct general and administrative expenses other than The fair value of the distillation equipment has been categorized as Level 3 in the depreciation and amortization and real property taxes arising from investment fair value hierarchy based on the inputs used in the valuation techniques. property that generated income in 2013.
In December 2013, the Company’s bottling plant had been transferred from The fair value of investment property was determined by external, independent investment property to property, plant and equipment since the property was no property appraisers having appropriate recognized professional qualifications longer held to earn rentals and the Company is not actively searching for any and recent experience in the location and category of the property being valued. lessee. Further, the bottling plant is currently used by the Company as a The independent appraisers provide the fair value of the Group’s investment warehouse. Amount transferred was measured at cost less accumulated property annually. depreciation (Note 14). Valuation Technique and Significant Unobservable Inputs Depreciation, amortization and impairment loss recognized in profit or loss The valuation of investment property applied one or more or a combination of amounted to P616,065, P662,810 and P596,737 in 2014, 2013 and 2012, the two approaches below: respectively. These amounts include annual amortizations of capitalized interest amounting to P11,841, P11,637 and P11,034 in 2014, 2013 and 2012, respectively. Cost Approach. This approach is based on the principle of substitution, which holds that an informed buyer would not pay more for a given property than the Interest amounting to P2,310, P2,042 and P9,038 were capitalized to machinery cost of an equally desirable alternative. The methodology of this approach is a and equipment in 2014, 2013 and 2012, respectively (Note 26). The capitalization set of procedures that estimate the current reproduction cost of the rate used to determine the amount of interest eligible for capitalization was improvements, deducts accrued depreciation from all sources, and adds the 4.88% in 2014, 5.69% in 2013 and 5.65% in 2012. As of December 31, 2014 and value of investment property. 2013, the unamortized capitalized borrowing costs amounted to P63,237 and P73,467, respectively. Sales Comparison Approach. The market value was determined using the Sales Comparison Approach. The comparative approach considers the sale of similar or substitute property, registered within the vicinity, and the related market data. The estimated value is established by process involving comparison. The property being valued is then compared with sales of similar property that have been transacted in the market. Listings and offerings may also be considered.
76 Celebrating 180 years 77 FINANCIAL STATEMENTS
The observable inputs to determine the market value of the property are the 17. Trade and Other Payables following: location characteristics, size, time element, quality and prospective use, bargaining allowance and marketability. Trade and other payables consist of:
The fair value of investment property amounting to P235,100 as of Note 2014 2013
GINEBRA SAN MIGUEL INC. GINEBRA December 31, 2012, has been categorized as Level 3 in the fair value hierarchy Trade P1,679,576 P1,751,254 based on the inputs used in the valuation techniques (Note 3). Amounts owed to related parties 28 649,257 818,298 Derivative liabilities 33, 34 360 1,027
P2,329,193 P2,570,579 15. Other Noncurrent Assets
Other noncurrent assets consist of: Trade payables are non-interest bearing and are generally on a 30-day term.
2014 Annual Report Note 2014 2013 18. Long-term Debt Deferred containers - net P334,548 P551,217 Trade receivables referred to legal Long-term debt consists of: counsel - net 33, 34 32,166 32,707 Trade receivables from terminated 2014 2013 dealers - net of current portion 9, 33, 34 3,192 3,751 Fixed interest rate of 7.89% and 7.25% maturing Advances 33, 34 122,915 122,915 in 2015 (a) P - P812,119 Deposits and others 28, 33, 34 996,825 688,988 Floating interest rate based on PDST-F plus P1,489,646 P1,399,578 margin or BSP overnight rate, whichever is higher, with maturities up to 2018 (b) 457,143 571,429 Advances represent outstanding amounts granted to external suppliers. 457,143 1,383,548 Less current maturities 114,286 541,286 Deposits and others include: (a) idle assets with carrying amount of P11,552 as of P342,857 P842,262 December 31, 2013 was fully depreciated in 2014; (b) input taxes on the acquisition of capitalizable assets amounting to P33,240 and P65,367 as of December 31, 2014 and 2013, respectively; (c) advances by the Company to a. On May 25, 2010, the Company entered into unsecured long-term, interest TSML amounting to P663,941 and P316,778 as of December 31, 2014 and 2013, bearing loans from a local bank amounting to P1,500,000 for the purpose of respectively (Note 28); (d) advances for a project that is temporarily put on hold funding its permanent working capital requirements. On May 31 and amounting to P264,146 as of December 31, 2014 and 2013 and (e) security August 25, 2010, P300,000 and P1,200,000, respectively, were drawn down deposits of EPSBPI to related parties on lease of land amounting to P485 as of from the said credit facility. The loans are payable in equal semi-annual December 31, 2014 and 2013. installments which commenced in 2012 and was fully paid in December 2014.
b. GSMI, through EPSBPI, has an unsecured, long-term interest bearing loan with the Development Bank of the Philippines amounting to P800,000. The 16. Notes Payable proceeds of the loan was used to finance the construction of the bottling
facilities in Ligao, Albay and Cauayan, Isabela. This account consists of unsecured short-term peso-denominated borrowings
obtained from local banks for working capital requirements. These loans mature The loan is payable up to nine years from and after the initial date of in three months or less and bear annual interest rates ranging from 3% to 5.75% borrowing, but in no case later than September 30, 2018 (expiry date of and 1.25% to 5.75% in 2014 and 2013, respectively. memorandum of agreement), inclusive of a grace period of two years on principal repayment. The loan is payable in equal quarterly installments on Interest expense and other financing charges on notes payable amounted to the Principal Repayment Dates which commenced on February 18, 2012. P495,963, P556,641 and P457,447 in 2014, 2013 and 2012, respectively (Note 26). EPSBPI agrees to pay interest on the outstanding principal amount of The Group’s exposure to interest rate and liquidity risks are discussed in borrowings on each interest payment date ending per annum equivalent to Note 33. the higher of benchmark rate plus a spread one percent or the overnight rate. Benchmark rate is the three-month PDST-F rate as displayed in the Philippine Dealing and Exchange Corporation page on the first day of each interest period. While overnight rate means the Bangko Sentral ng Pilipinas overnight reverse repo rate on interest rate settling date.
78 Celebrating 180 years 79 FINANCIAL STATEMENTS
The movements in debt issue costs are as follows: The above amounts are reported in the consolidated statements of financial position as follows: 2014 2013 2014 2013 Balance at beginning of year P2,166 P3,737 Deferred tax assets P1,116,010 P1,510,886 Amortization (2,166) (1,571) Deferred tax liabilities - (210) GINEBRA SAN MIGUEL INC. GINEBRA Balance at end of year P - P2,166 P1,116,010 P1,510,676
Repayment Schedule The movements of the net deferred tax assets are accounted for as follows: As of December 31, 2014, the annual maturities of this long-term debt are as follows: 2014 2013 Amount charged to profit or loss (P415,653) P514,143 Amount charged to other comprehensive 2014 Annual Report Year Gross Amount income 20,987 (18,783) 2015 P114,286 2016 114,286 (P394,666) P495,360 2017 114,286 2018 114,285 As of December 31, 2014, deferred tax asset has not been recognized in respect of NOLCO and MCIT amounting to P498,441 and P123,788, respectively, as P457,143 management believes it is not probable that future taxable income will be available against which the Group can utilize the benefit therefrom. Contractual terms of the Group’s interest-bearing loans and exposure to interest rate and liquidity risks are discussed in Note 33. As of December 31, 2014, the NOLCO and MCIT of the Group that can be claimed as deduction from future taxable income and deduction from corporate income tax due, respectively, are as follows:
19. Income Taxes Carryforward Year Incurred/Paid Benefits Up To NOLCO MCIT Deferred tax assets and liabilities arise from the following: 2012 December 31, 2015 P1,216,544 P66,215 2013 December 31, 2016 1,508,367 57,903 2014 2013 2014 December 31, 2017 18,085 78,128 Items recognized in profit or loss P2,742,996 P202,246 NOLCO P673,367 P1,116,381 MCIT 78,458 185,788 The components of income tax expense (benefit) from continuing operations are Impairment losses on non-operating shown below: machinery and equipment 94,848 94,848 Various accruals 85,594 - 2014 2013 2012 Allowance for impairment losses on trade and Current P105,102 P109,999 P94,254 other receivables 76,561 52,237 Deferred 472,953 (462,646) (358,769) Allowance for write-down of inventories 41,371 20,971 P578,055 (P352,647) (P264,515) Past service costs 19,890 17,799 Net defined benefit retirement obligation 7,486 9,848 The income tax expense in continuing operations exclude the Group’s share of Derivative liabilities - net 93 78 the income tax benefit from the discontinued operation of P57,299, P51,497 and Unrealized foreign exchange gain - net (833) (2,393) P49,227 in 2014, 2013 and 2012, respectively, which have been included in loss Unamortized capitalized borrowing costs (18,971) (22,040) from discontinued operation, net of tax (Note 7).
Items recognized directly in other comprehensive income Equity reserve for retirement plan 58,146 37,159 P1,116,010 P1,510,676
80 Celebrating 180 years 81 FINANCIAL STATEMENTS
The reconciliation between the statutory income tax rate on income before The movements in the number of issued and outstanding shares of preferred income tax and the Group’s effective income tax rate is as follows: stock are as follows:
2014 2013 2012 2014 2013 Statutory income tax rate 30.00% 30.00% 30.00% Issued and outstanding shares at beginning
GINEBRA SAN MIGUEL INC. GINEBRA Decrease in income tax rate resulting from: of year 53,437,585 53,437,585 Interest income subject to final tax (0.10%) (0.10%) (0.10%) Less treasury shares 20,650,700 20,650,700 Nondeductible expenses and others (1,091.47%) (3.46%) (3.10%) Issued and outstanding shares at end of year 32,786,885 32,786,885 Effective income tax rate (1,061.57%) 26.44% 26.80% b. Treasury Shares
2014 Annual Report 20. Equity Treasury shares consist of:
a. Capital Stock 2014 2013 Common 59,297,491 55,549,391 Common Shares Preferred 20,650,700 20,650,700 As of December 31, 2014 and 2013, the Company has 460,000,000 authorized 79,948,191 76,200,091 common shares with par value of P1 per share. The holders of common shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. The movements in the number of common shares held in treasury are as follows: As of December 31, 2014 and 2013, the Company offer price is P15.88 and P23.00, respectively. The Company has a total of 738 and 762 stockholders in 2014 2013 2014 and 2013, respectively. Number of shares at beginning of year 55,549,391 55,549,391 Cancellation of ESPP 3,748,100 - The movements in the number of issued and outstanding shares of common 59,297,491 55,549,391 stock are as follows:
2014 2013 c. Unappropriated Retained Earnings
Issued and outstanding shares at beginning No dividends were declared in 2014 and 2013. of year 345,625,332 345,625,332 Less treasury shares 59,297,491 55,549,391 The Group’s unappropriated retained earnings includes the accumulated Issued and outstanding shares at end of year 286,327,841 290,075,941 earnings in subsidiaries and equity in net losses of joint ventures amounting to P272,329, P307,296 and P314,627 in 2014, 2013 and 2012, respectively. Preferred Shares Such amounts are not available for declaration as dividends until declared by As of December 31, 2014 and 2013, the Company has 100,000,000 authorized the respective investees. preferred shares with par value of P1 per share. The holders of preferred shares are entitled to participate and receive annual dividends of P1.50 per The unappropriated retained earnings of the Company is restricted in the share which shall be cumulative and payable in arrears on December 31 of amount of P2,669,973 in 2014 and P2,579,409 in 2013 and 2012, respectively, each year. In addition, the holders of preferred shares shall receive a special representing the cost of common and preferred shares held in treasury. annual dividend equal to the excess of the aggregate dividends paid or to be paid to common shareholders over P1.50 per preferred share per annum. d. Appropriated Retained Earnings
The holders of preferred shares are entitled to vote in the same manner as As of December 31, 2014 and 2013, the Company has appropriated retained the holders of common shares. earnings amounting to P2,500,000 for the purpose of capital investment for the expansion of the plant facilities, including but not limited to equipment rehabilitation, to accommodate new product line and the increase in volume requirements in the next three to five years.
82 Celebrating 180 years 83 FINANCIAL STATEMENTS
21. Cost of Sales 23. General and Administrative Expenses
Cost of sales consists of: General and administrative expenses consist of:
Note 2014 2013 2012 Note 2014 2013 2012
GINEBRA SAN MIGUEL INC. GINEBRA Inventories P9,439,825 P9,140,314 P8,283,204 Personnel 25, 30 P571,237 P543,938 P646,566 Utilities and supplies 615,674 538,438 835,091 Depreciation, amortization Depreciation, amortization and impairment 13, 14, 24 296,933 188,144 204,620 and impairment 13, 14, 24 300,250 430,521 340,114 Outside services 28 272,915 367,706 237,084 Outside services 35 223,614 205,385 229,497 Taxes and licenses 146,571 108,056 84,814 Personnel 25, 30 145,209 179,445 182,503 Insurance 84,035 70,329 76,661 Repairs and maintenance 96,480 105,573 121,154 Rent 29 52,255 16,870 55,093 2014 Annual Report Write-down of inventories to Corporate special program 37,163 71,198 37,653 net realizable value 10 68,000 - - Utilities and supplies 34,896 31,523 33,462 Rent 29 35,956 83,878 76,994 Research 30,443 15,726 5,408 Research 5,458 6,548 6,417 Repairs and maintenance 25,916 31,195 43,447 Insurance 4,203 4,428 5,600 Travel and transportation 19,947 20,903 19,018 Others 12,646 40,878 23,613 Others 9,081 2,385 9,910 P10,947,315 P10,735,408 P10,104,187 P1,581,392 P1,467,973 P1,453,736
22. Selling and Marketing Expenses 24. Depreciation, Amortization and Impairment
Selling and marketing expenses consist of: Depreciation, amortization and impairment from continuing operations consist of: Note 2014 2013 2012 Advertising and promotions P727,348 P943,373 P1,137,130 Note 2014 2013 2012 Delivery and marketing 544,831 531,082 463,149 Property, plant and Personnel 25, 30 181,475 203,473 200,512 equipment P566,648 P634,224 P566,849 Outside services 94,198 121,335 106,183 Pallets 45,982 24,265 1,654 Provision for impairment Computer software 1,266 - - losses on receivables 9 81,080 - - Investment property 14 - 8,852 9,072 Rent 29 58,258 61,206 85,745 Others 11,552 1,240 1,240 Utilities and supplies 54,205 60,461 72,679 P625,448 P668,581 P578,815 Depreciation, amortization
and impairment 13, 14, 24 28,265 49,916 34,081 Depreciation, amortization and impairment from continuing operations are Repairs and maintenance 24,078 25,067 26,695 distributed as follows: Travel and transportation 19,863 26,016 31,232
Corporate special program 15,859 84,227 22,489 Note 2014 2013 2012 Research - 557 38,764 Others 11,030 9,700 7,713 Cost of sales 21 P300,250 P430,521 P340,114 Selling and marketing P1,840,490 P2,116,413 P2,226,372 expenses 22 28,265 49,916 34,081 General and administrative expenses 23 296,933 188,144 204,620 P625,448 P668,581 P578,815
84 Celebrating 180 years 85 FINANCIAL STATEMENTS
25. Personnel Expenses 28. Related Party Disclosures
Personnel expenses from continuing operations consist of: The Group, in the normal course of business, purchase products and services from and sells products to related parties. An assessment is undertaken at each Note 2014 2013 2012 financial year by examining the financial position of the related party and the
GINEBRA SAN MIGUEL INC. GINEBRA Salaries and wages P587,382 P603,306 P607,267 market in which the related party operates. Employee benefits 252,043 259,859 358,613 Retirement costs 30 58,496 63,691 63,701 The following are the transactions with related parties and the outstanding balances as of December 31: P897,921 P926,856 P1,029,581 Revenue Purchases Amounts Amounts Personnel expenses from continuing operations are distributed as follows: from from Owed by Owed to Related Related Related Related
2014 Annual Report Year Parties Parties Parties Parties Terms Conditions Note 2014 2013 2012 Parent Company 2014 P10,913 P263,184 P23,399 P95,998 On demand; Unsecured; Cost of sales 21 P145,209 P179,445 P182,503 2013 20,805 193,568 31,487 123,911 Non-interest No impairment Selling and marketing expenses 22 181,475 203,473 200,512 2012 28,059 189,355 27,306 81,714 bearing General and administrative Under 2014 249,456 3,088,207 233,413 553,259 On demand; Unsecured; expenses 23 571,237 543,938 646,566 Common 2013 480,192 2,817,997 211,071 694,387 Non-interest No impairment Control 2012 118,852 3,749,977 132,932 1,082,247 bearing P897,921 P926,856 P1,029,581 Joint Venture 2014 - - 663,941 - On demand; Unsecured; 2013 - - 316,778 - Interest No impairment 2012 - - 214,870 - bearing Retirement 2014 - - - - On demand; Unsecured; 26. Interest Expense and Other Financing Charges Plan 2013 - - - - Non-interest No impairment 2012 - - 77,025 - bearing Interest expense and other financing charges consist of: Associates 2014 - - - - On demand; Unsecured of the Parent 2013 - - - - Non-interest Company 2012 - 21,837 - - bearing Note 2014 2013 2012 2014 - - - 3,047,665 3 months; Unsecured 2013 - - - 2,177,200 Interest Interest on notes payable 16 P495,963 P556,641 P457,447 2012 - - - 2,600,000 bearing Interest on long-term debt 66,660 103,300 142,855 2014 P260,369 P3,351,391 P920,753 P3,696,922 Capitalized borrowing costs 13 (2,310) (2,042) (9,038) 2013 P500,997 P3,011,565 P559,336 P2,995,498 P560,313 P657,899 P591,264 2012 P146,911 P3,961,169 P452,133 P3,763,961
a. The Group, in the normal course of business, has significant transactions with 27. Other Income (Charges) related parties pertaining to purchases of containers, bottles and other
packaging materials and sale of liquor and by-products. The sales to and Other income (charges) consist of: purchases from related parties are made at market prices. There have been
no guarantees provided or received for any amounts owed by and owed to Note 2014 2013 2012 related parties. The Group has not made any provision for impairment losses Gain on sale of scrap P29,360 P27,864 P88,435 relating to amounts owed by related parties for the years ended Rental income 29 8,072 - - December 31, 2014, 2013 and 2012. Foreign exchange gain (loss) 2,778 3,441 (3,391) Loss on sale of molasses and b. Management fees for the years ended December 31, 2014, 2013 and 2012 alcohol (46,343) - - amounting to P181,825, P170,567 and P164,237, respectively, are included in Gain (loss) on derivatives 34 (2,459) 1,007 11,283 outside services account under “General and administrative expenses” Gain (loss) on sale of property (Note 23). and equipment (89) 512 129 Loss on sale of cassava chips and ENA crystalline - - (2,828) Others 6,616 (1,980) 33 (P2,065) P30,844 P93,661
86 Celebrating 180 years 87 FINANCIAL STATEMENTS
c. Security deposits for the years ended December 31, 2014 and 2013 b. In 2013, the Company leased out a portion of its parcel of land in Sta. amounting to P485 are included in deposit and others account under “Other Barbara, Pangasinan to a related party for a period of three years from noncurrent assets” (Note 15). July 1, 2013 to June 30, 2016. Rental fee amounted to P200 per month.
d. TSML executed various promissory notes in favor of the Company. The Rent income recognized in the consolidated statements of income amounted to
GINEBRA SAN MIGUEL INC. GINEBRA details of which are as follows: P8,072 in 2014 (Note 27).
o Principal sum of THB250,000,000 together with interest of 5.5% per Group as Lessee annum, which interest shall accrue on March 13, 2014. a. The Company leases various warehouse facilities under operating leases. o Principal sum of THB50,000,000 together with interest of 5.0% per annum, These leases typically run for a period of one year. The Company has the which interest shall accrue on September 2, 2013. option to renew the lease after expiration of the lease term. o Principal sum of THB25,000,000 together with interest of 5.0% per annum,
2014 Annual Report which interest shall accrue on June 14, 2013. b. EPSBPI has various lease agreements with related parties to lease parcels of o Principal sum of THB75,000,000 together with interest of 3.0% per annum, land located in Ligao City, Albay and Cauayan, Isabela for a period ranging which interest shall accrue on September 6, 2011. from five to ten years and renewable at the option of EPSBPI upon mutual o Principal sum of THB75,000,000 together with interest of 3.0% per annum, agreement of both parties. Rental fees are payable monthly and subject to which interest shall accrue on April 7, 2011. 5% escalation every year.
The principal sum shall be due and payable in full on demand of the c. In 2011, EPSBPI entered into lease agreements to use various equipments for Company and the stipulated interest shall be payable every 3 months. a period of three years with the option to renew after expiration of the lease term. Rental fees are payable on a monthly basis. In 2014, the lease Amounts owed by TSML are included in the “Other noncurrent assets” agreements were extended for another period ranging from nine months to account in the consolidated statements of financial position (Note 15). one year.
Interest income from amounts owed by TSML recognized in the consolidated Rent expense recognized in the consolidated statements of income from statements of income amounted to P19,796, P6,658 and P5,205 in 2014, 2013 continuing and discontinued operations amounted to P153,827, P166,032 and and 2012, respectively. P233,768 in 2014, 2013 and 2012, respectively (Notes 7, 21, 22 and 23).
e. Amounts owed to Bank of Commerce are included in the “Notes payable” The future minimum non-cancellable lease payables are as follows: account in the consolidated statements of financial position (Note 16). 2014 2013 f. The compensation of key management personnel of the Group, by benefit Within one year P4,032 P4,490 type, follows: After one year but not more than five years 11,654 15,391 More than five years - 295 2014 2013 2012 P15,686 P20,176 Short-term employee benefits P35,874 P31,689 P34,499 Retirement costs 6,215 5,283 7,778 Share-based payments - 371 576 30. Retirement Plans P42,089 P37,343 P42,853
The Company and DBI have funded, noncontributory, defined benefit retirement plans (collectively, the Retirement Plans) covering all of their permanent 29. Leasing Agreements employees. The Retirement Plans of the Group pay out benefits based on final pay. Contributions and costs are determined in accordance with the actuarial Operating Leases studies made for the Retirement Plans. Annual cost is determined using the projected unit credit method. The Group’s latest actuarial valuation date is Group as Lessor December 31, 2014. Valuations are obtained on a periodic basis. a. In 2013, the Company leased out a portion of its parcel of land in Cabuyao, Laguna to a related party for a period of three years from February 1, 2013 to January 31, 2016. Rental fee amounted to P194 per month.
88 Celebrating 180 years 89 FINANCIAL STATEMENTS
The Retirement Plans are registered with the Bureau of Internal Revenue as tax- The retirement costs from continuing and discontinued operations are qualified plans under Republic Act No. 4917, as amended. The control and recognized in the following line items in the consolidated statements of income: administration of the Group’s Retirement Plans are vested in the Board of Trustees (BOT) of each Retirement Plan. The BOT of the Group’s Retirement Note 2014 2013 2012 Plans exercises voting rights over the shares and approve material transactions. Cost of sales 21 P8,173 P17,039 P8,338
GINEBRA SAN MIGUEL INC. GINEBRA The Retirement Plans’ accounting and administrative functions are undertaken by Selling and marketing expenses 22 12,494 13,462 12,359 the Retirement Funds Office of the Company. General and administrative expenses 23 40,411 35,945 45,380
P61,078 P66,446 P66,077 The following table shows a reconciliation of the net defined benefit retirement liability and its components: Retirement liabilities recognized by the Company amounted to P203,533 and Fair Value Present Value of Defined Net Defined Benefit P142,091 as of December 31, 2014 and 2013, respectively, while those of Plan Assets Benefit Obligation Retirement Liability
2014 Annual Report recognized by DBI amounted to P15,243 and P14,600 as of December 31, 2014 2014 2013 2014 2013 2014 2013 and 2013, respectively. Balance at beginning of year P687,741 P625,705 P844,432 P876,300 P156,691 P250,595 Recognized in profit The carrying amounts of the Group’s retirement fund approximate fair values as or loss of December 31, 2014 and 2013. Service costs - - 51,375 51,401 51,375 51,401 Interest expense - - 37,888 48,228 37,888 48,228 Interest income 28,185 33,183 - - (28,185) (33,183) The Group’s plan assets consist of the following: 28,185 33,183 89,263 99,629 61,078 66,446 Recognized in other In Percentages comprehensive 2014 2013 income Remeasurements: Fixed income portfolio 38 26 Actuarial losses (gains) Stock trading portfolio 30 26 arising from: Marketable securities 29 33 Experience adjustments - - 36,756 965 36,756 965 Others 3 15 Changes in financial assumptions - - (2,910) 11,239 (2,910) 11,239 100 100 Changes in demographic assumptions - - (16,416) (2,522) (16,416) (2,522) Investments in Marketable Securities Return on plan assets excluding interest (52,528) 72,291 - - 52,528 (72,291) As of December 31, 2014 and 2013, the plan assets include 9,943,321 common (52,528) 72,291 17,430 9,682 69,958 (62,609) shares of the Company with fair market value per share of P15.88 and P23.00, Others respectively. Contributions 68,951 97,741 - - (68,951) (97,741) Benefits paid (187,437) (136,418) (187,437) (136,418) - - Transfers to other The fair market value per share of the above marketable securities is determined plans - (4,761) - (4,761) - - based on quoted market prices in active markets as of the reporting date (118,486) (43,438) (187,437) (141,179) (68,951) (97,741) (Note 4). Balance at end of year P544,912 P687,741 P763,688 P844,432 P218,776 P156,691 The Company’s Retirement Plan recognized gains (losses) on the investment in marketable securities of SMC and its subsidiaries amounting to P70,796 and The Group’s annual contribution to the Retirement Plans consists of payments (P51,705) in 2014 and 2013, respectively. covering the current service cost plus amortization of unfunded past service liability. There was no dividend income recognized in 2014 and 2013.
Retirement costs recognized in the consolidated statements of income by the Investments in Pooled Funds Company amounted to P56,697, P63,010 and P62,323 in 2014, 2013 and 2012, respectively, while those charged by DBI amounted to P4,381, P3,436 and P3,754 Investments in pooled funds were established mainly to put together a portion in 2014, 2013 and 2012, respectively. of the funds of the Retirement Plans of the Group to be able to draw, negotiate and obtain the best terms and financial deals for the investments resulting from big volume transactions.
90 Celebrating 180 years 91 FINANCIAL STATEMENTS
The BOT approved the percentage of asset to be allocated to fixed income The overall expected rate of return is determined based on historical instruments and equities. The Retirement Plan has set maximum exposure limits performance of the investments. for each type of permissible investments in marketable securities and deposit instruments. The BOT may, from time to time, in the exercise of its reasonable The principal actuarial assumptions used to determine retirement benefits are as discretion and taking into account existing investment opportunities, review and follows:
GINEBRA SAN MIGUEL INC. GINEBRA revise such allocation and limits. In Percentages Approximately 7.93% and 11.86% of the Retirement Plan’s investments in pooled 2014 2013 funds in stock trading portfolio include investments in shares of stock of SMC Discount rate 4.31 - 4.80 4.07 - 4.52 and its subsidiaries as of December 31, 2014 and 2013, respectively. Salary increase rate 7 7
Approximately 10.06% and 12.79% of the Retirement Plan’s investments in Assumptions for mortality and disability rates are based on published statistics 2014 Annual Report pooled funds in fixed income portfolio include investments in shares of stock of and mortality and disability tables. SMC and its subsidiaries as of December 31, 2014 and 2013, respectively. The weighted average duration of defined benefit retirement obligation is Others 2.4 years and 2.45 years as of December 31, 2014 and 2013, respectively.
Others include the Retirement Plan’s cash and cash equivalents and receivables As of December 31, 2014 and 2013, the reasonably possible changes to one of which earn interest. the relevant actuarial assumptions, while holding all other assumptions constant, would have affected the defined benefit retirement obligation by the amounts The Retirement Plans Trustee has no specific matching strategy between the below, respectively: plan assets and the plan liabilities. Defined Benefit The Group is not required to pre-fund the future defined benefits payable under Retirement Obligation the Retirement Plans before they become due. For this reason, the amount and Increase (Decrease) timing of contributions to the Retirement Funds are at the Group’s discretion. 2014 2013 However, in the event a benefit claim arises and the Retirement Funds are 1 Percent 1 Percent 1 Percent 1 Percent insufficient to pay the claim, the shortfall will then be due and payable from the Increase Decrease Increase Decrease Group to the Retirement Funds. The Group is not expected to contribute to its defined benefit retirement plan in 2015. Discount rate (P9,949) P10,775 (P11,122) P12,062 Salary increase rate 9,064 (8,574) 9,944 (9,383) The Retirement Plans expose the Group to actuarial risks such as investment risk, interest rate risk, longevity risk and salary risk as follows: For the years ended December 31, 2014 and 2013, the Group’s transaction relating to pension plans pertain to the contributions for the period. There are Investment and Interest Rate Risks. The present value of the defined benefit no other transaction or outstanding receivables and payables with the plan retirement obligation is calculated using a discount rate determined by reference assets. to market yields to government bonds. Generally, a decrease in the interest rate of a reference government bond will increase the defined benefit retirement obligation. However, this will be partially offset by an increase in the return on the Retirement Plan’s investments and if the return on plan asset falls below this rate, it will create a deficit in the Retirement Plan. Due to the long-term nature of the defined benefit retirement obligation, a level of continuing equity investments is an appropriate element of the long-term strategy of the Group to manage the Retirement Plans efficiently.
Longevity and Salary Risks. The present value of the defined benefit retirement obligation is calculated by reference to the best estimates of: (1) the mortality of the plan participants both during and after their employment, and (2) to the future salaries of the plan participants. Consequently, increases in the life expectancy and salary of the plan participants will result in an increase in the plan obligation.
92 Celebrating 180 years 93 FINANCIAL STATEMENTS
32. Share-Based Transactions Total
49,180 ESPP Under the ESPP, 3,000,000 shares (inclusive of stock dividends declared) of the
Company’s unissued shares have been reserved for the employees of the
-
GINEBRA SAN MIGUEL INC. GINEBRA Company. All permanent Philippine-based employees of the Company, who have been employed for a continuous period of one year prior to the 2012 (P114,863) (P837,169) (P114,863) (P886,349) Operation Operation subscription period, will be allowed to subscribe at 15% discount to the market Discontinued
price equal to the weighted average of the daily closing prices for three months
prior to the offer period. A participating employee may acquire at least 100
(P2.66) (P0.40) (P3.06) shares of stock through payroll deductions. 49,180
Continuing Operations Operations 2014 Annual Report The ESPP requires the subscribed shares and stock dividends accruing thereto to
be pledged to the Company until the subscription is fully paid. The right to subscribe under the ESPP cannot be assigned or transferred. A participant may Total 01,195) 01,195) (P722,306) 49,180 sell his shares after the second year from the exercise date.
(P1,1 Subscriptions receivable as of December 31, 2014 and 2013 amounted to P4,975
2) 2) (P3.97) and P105,195, respectively, presented as part of “Trade and other receivables”
- account in the consolidated statements of financial position (Note 9). (P0.4 2013 (P120,160) (P120,160) (P1,150,375) (P771,486) Operation Operation The ESPP also allows subsequent withdrawal and cancellation of participants’ Discontinued
subscriptions under certain terms and conditions. The shares pertaining to
withdrawn or cancelled subscriptions shall remain issued shares and shall revert to the pool of shares available under the ESPP. 49,180 Continuing Operations Operations There were no shares offered under the ESPP in 2014 and 2013. (P981,035) (P1,030,215) (P3.55) ) ) 290,076 290,076 290,076 290,076 290,076 290,076 ) l 7 7 0 7 4 a 7 0 8 8 8 t
. 5 2 1 3 o , , , , 2 : : 7 6 9 5 P 8 6 4 1 33. Financial Risk and Capital Management Objectives and Policies 7 8 P P
( lows Objectives and Policies ( ( ) ) T 2 )
7 9 9 n d 7 The Group has significant exposure to the following financial risks primarily from 7 9 9
o 4 e i - . 5 6 6 t u
, , , 0 a n 4 3 7 3 its use of financial instruments: i P r ( 1 t 3 8 3 e 0 1 1 n
p 2 P P o ( ( c O
s . Interest Rate Risk i D
. Foreign Currency Risk
) ) 2 ) s 7 0 8 8 7 g
n . 7 8 0 8 Commodity Price Risk is computed as fol asis computed 3 n . i o 5 1 5 6 i , , , , 2
u t 1 7 2 9 . Liquidity Risk P n e a ( i 8 8 3 4 r r t 2 6 6 e a n . Credit Risk P P p ( o h C O S r
e This note presents information about the exposure to each of the foregoing
P risks, objectives, policies and processes for measuring and managing these risks, s s (
o and for management of capital.
L d basic and and basic e
t The principal non-trade related financial instruments of the Group include cash iluted Loss Per Share Per Loss iluted -
u l
i and cash equivalents, short-term and long-term loans and derivative instruments. /b)
D ividends on ividends These financial instruments, except derivative instruments, are used mainly for D d
:
n working capital management purposes. The trade-related financial assets and a preferred shares shares preferred common (a) shares common of number shares outstanding (in thousands) diluted (b) (a Share financial liabilities of the Group such as trade and other receivables, noncurrent c lossNet Less available to loss Net average Weighted Basic and Diluted Loss Per i Basic and D s receivables and deposits and trade and other payables arise directly from and a
B are used to facilitate its daily operations. .
1 3
94 Celebrating 180 years 95 FINANCIAL STATEMENTS
The BOD has the overall responsibility for the establishment and oversight of the In managing interest rate risk, the Group aims to reduce the impact of short-term risk management framework of the Group. The BOD has established the Risk fluctuations on the earnings. Over the longer term, however, permanent Management Committee, which is responsible for developing and monitoring changes in interest rates would have an impact on profit or loss. the risk management policies. The committee reports regularly to the BOD on its activities. The management of interest rate risk is also supplemented by monitoring the sensitivity of the Group’s financial instruments to various standard and non-
GINEBRA SAN MIGUEL INC. GINEBRA The risk management policies of the Group are established to identify and standard interest rate scenarios. Interest rate movements affect reported analyze the risks faced by the Group, to set appropriate risk limits and controls, retained earnings arising from increases or decreases in interest income or and to monitor risks and adherence to limits. Risk management policies and interest expense as well as fair value changes reported in profit or loss, if any. systems are reviewed regularly to reflect changes in market conditions and activities. The Group, through its training and management standards and The sensitivity to a reasonably possible 1% increase in the interest rates, with all procedures, aims to develop a disciplined and constructive control environment other variables held constant, would have decreased the Group’s profit before tax (through the impact on floating rate borrowings) by P5,221 and P6,380 in 2014 Annual Report in which all employees understand their roles and obligations. 2014 and 2013, respectively. A 1% decrease in the interest rate would have had The Audit Committee oversees how management monitors compliance with the the equal but opposite effect. These changes are considered to be reasonably risk management policies and procedures of the Group and reviews the possible given the observation of prevailing market conditions in those periods. adequacy of the risk management framework in relation to the risks faced by the There is no impact on the Group’s other comprehensive income. Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
The BOD constituted the Audit Committee to assist the BOD in fulfilling its oversight responsibility of the Group’s corporate governance process relating to the: a) quality and integrity of the financial statements and financial reporting process and the systems of internal accounting and financial controls; b) performance of the internal auditors; c) annual independent audit of the financial statements, the engagement of the independent auditors and the evaluation of the independent auditors’ qualifications, independence and performance; d) compliance with legal and regulatory requirements, including the disclosure control and procedures; e) evaluation of management’s process to assess and manage the enterprise risk issues; and f) fulfillment of the other responsibilities set out by the BOD. The Audit Committee shall also prepare the reports required to be included in the annual report of the Group.
The accounting policies in relation to derivatives are set out in Note 3 to the consolidated financial statements.
Interest Rate Risk Interest rate risk is the risk that future cash flows from a financial instrument (cash flow interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of changes in market interest rates. The Group’s exposure to changes in interest rates relates primarily to the long-term borrowings. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. On the other hand, borrowings issued at variable rates expose the Group to cash flow interest rate risk.
The Group manages its interest cost by using an optimal combination of fixed and variable rate debt instruments. Management is responsible for monitoring the prevailing market-based interest rate and ensures that the mark-up rates charged on its borrowings are optimal and benchmarked against the rates charged by other creditor banks.
96 Celebrating 180 years 97 FINANCIAL STATEMENTS
Foreign Currency Risk
l The functional currency is the Philippine peso, which is the denomination of the 3 3 a 4 4
t
1 1 bulk of the Group’s revenues. The exposure to foreign currency risk results from o , , Total T 7 7
5 5 significant movements in foreign exchange rates that adversely affect the foreign 571,429 4 4 P814,285
P currency-denominated transactions of the Group. The risk management P1,385,714 objective with respect to foreign currency risk is to reduce or eliminate earnings GINEBRA SAN MIGUEL INC. GINEBRA
volatility and any adverse impact on equity. s r
P F+ a - - - e -
P Information on the Group’s foreign currency-denominated monetary assets and Y P P 5 Years 5 114,285
- P114,285 PDST - their Philippine peso equivalents is as follows:
4
>4 > margin or BSP BSP or margin
overnight rate, December 31, 2014 December 31, 2013
Peso Peso 2014 Annual Report
whichever is higher US Dollar Equivalent US Dollar Equivalent
, r s s 5 5 P +
r e e i 8 8 Assets S F+ t F a r h - - 2 2 a
, , e e B - g T Cash and cash equivalents US$2,440 P109,137 US$875 P38,842 r i v 4 4 r t S Y h e 1 1 4 Years h 4 114,286 o
Trade and other receivables 580 25,954 520 23,084 P 1 D 1 h
- P114,286 n PDST g - c P P i i
i n 3 g h Foreign currency-denominated r >3 r > w a e monetary assets US$3,020 P135,091 US$1,395 P61,926 v margin or BSP BSP or margin overnight rate,
m o whichever is higher
The Group reported net foreign exchange gains from continuing and P
, r s s 6 6 6 P + r e e i
8 8 S F+
t discontinued operations amounting to P2,778, P7,980 and P1,785 in 2014, 2013 F - a r h - - 2 2 a , , e e B g T r i v 4 4 r and 2012, respectively, with the translation of its foreign currency-denominated P t S Y h e 1 1 3 Years h 3 114,28 o
1 D 1 h
- assets (Notes 7 and 27). These mainly resulted from the movements of the P114,286 n PDST g - c P P i i
i n 2 g h Philippine peso against the US dollar as shown in the following table: r >2 r > w a e v margin or BSP BSP or margin overnight rate,
m o US Dollar
whichever is higher to Philippine Peso
P
, - r s s 6 6 P + r e e i 8 8 S F+ t F December 31, 2014 44.720 a r h - - 2 2 a , e , e B g T r i v 4 4 r December 31, 2013 44.395 7.89% t S Y h e 1 1 2 Years 7.25% h 2 114,286 o
1 D 1 h
- December 31, 2012 41.050 P500,000 P385,714 n PDST g - c P P i i
i 1 n 1 g h r
r w a e v margin or BSP BSP or margin
overnight rate, The management of foreign currency risk is also supplemented by monitoring
m o the sensitivity of the Group’s financial instruments to various foreign currency whichever is higher
exchange rate scenarios. Foreign exchange movements affect reported retained
P
, - r r s 6 6 P + e a e bearing financial instruments, together with its gross amounts, are shown in the following in are the tables:amounts, together financialwith its shown gross bearing instruments, i earnings arising from increases or decreases in unrealized and realized foreign 8 8 S F+ t F - r e h - - 2 2 a , , e B g T
Y exchange gains or losses. r i v 4 4 r 7.89% t S 1 h e 1 1 7.25% h 114,286 o <1 Year<1 1 D 1 h < P542,857 P428,571 n PDST g c P P P i i i
n g h r r w a e v margin or BSP BSP or margin overnight rate,
m o whichever is higher
4 1 0 2 denominated denominated denominated , - - - 1
e 3
t r a
e R b g m n i e t c a e o l D F Philippine peso rate Interest December 31, 2013 Fixed Rate Philippine peso rate Interest Floating Rate Philippine peso rate Interest InterestTable Risk Rate of theThe andprofile terms interest maturity
98 Celebrating 180 years 99 FINANCIAL STATEMENTS
The following table demonstrates the sensitivity to a reasonably possible change The Group’s objectives to manage its liquidity risk are as follows: a) to ensure in the US dollar exchange rate, with all other variables held constant, of the profit that adequate funding is available at all times; b) to meet commitments as they before tax (due to changes in the fair value of monetary assets) and the Group’s arise without incurring unnecessary costs; c) to be able to access funding when equity. needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities. December 31, 2014 P1 Decrease in the P1 Increase in the GINEBRA SAN MIGUEL INC. GINEBRA US Dollar Exchange Rate US Dollar Exchange Rate The Group constantly monitors and manages its liquidity position, liquidity gaps Effect on Effect on and surplus on a daily basis. A committed stand-by credit facility from several Income before Effect on Income before Effect on Income Tax Equity Income Tax Equity local banks is also available to ensure availability of funds when necessary.
Cash and cash equivalents (P2,440) (P1,708) P2,440 P1,708 Trade and other receivables (580) (406) 580 406 The table below summarizes the maturity profile of the Group’s financial assets and financial liabilities based on contractual undiscounted receipts and (P3,020) (P2,114) P3,020 P2,114
2014 Annual Report payments used for liquidity management.
December 31, 2014 December 31, 2013 P1 Decrease in the P1 Increase in the Carrying Contractual 1 Year > 1 Year - > 2 Years - US Dollar Exchange Rate US Dollar Exchange Rate Amount Cash Flow or Less 2 Years 5 Years Effect on Effect on Financial Assets Income before Effect on Income before Effect on Cash and cash equivalents P579,917 P579,917 P579,917 P - P - Income Tax Equity Income Tax Equity Trade and other Cash and cash equivalents (P875) (P613) P875 P613 receivables - net 3,259,859 3,259,859 3,259,859 - - Trade and other receivables (520) (364) 520 364 Derivative assets (included under (P1,395) (P977) P1,395 P977 “Prepaid taxes and other current assets” account) 52 52 52 - - Exposures to foreign exchange rates vary during the year depending on the Noncurrent receivables volume of overseas transactions. Nonetheless, the analysis above is considered and deposits (included to be representative of the Group’s foreign currency risk. under “Other noncurrent assets - net” Commodity Price Risk account) 853,923 853,923 - 189,498 664,425 Commodity price risk is the risk that future cash flows from a financial instrument Financial Liabilities Notes payable 10,084,440 10,152,613 10,152,613 - - will fluctuate because of changes in commodity prices. The Group, through Trade and other payables SMC, enters into various commodity derivatives to manage its price risks on (excluding dividends strategic commodities. Commodity hedging allows stability in prices, thus payable) 2,323,555 2,323,555 2,323,555 - - offsetting the risk of volatile market fluctuations. Through hedging, prices of Derivative liabilities commodities are fixed at levels acceptable to the Group, thus protecting raw (included under “Trade and other payables” material cost and preserving margins. For hedging transactions, if prices go account) 360 360 360 - - down, hedge positions may show marked-to-market losses; however, any loss in Long-term debt (including the marked-to-market position is offset by the resulting lower physical raw current maturities) 457,143 494,165 130,524 125,924 237,717 material cost.
SMC enters into commodity derivative transactions on behalf of the Group to reduce cost by optimizing purchasing synergies within the SMC Group and managing inventory levels of common materials.
Commodity Forwards. The Group enters into forward purchases of various commodities. The prices of the commodity forwards are fixed either through direct agreement with suppliers or by reference to a relevant commodity price index.
Liquidity Risk Liquidity risk pertains to the risk that the Group will encounter difficulty to meet payment obligations when they fall under normal and stress circumstances.
100 Celebrating 180 years 101 FINANCIAL STATEMENTS
December 31, 2013 The Group has established a credit policy under which each new customer is Carrying Contractual 1 Year > 1 Year - > 2 Years - analyzed individually for creditworthiness before the standard payment and Amount Cash Flow or Less 2 Years 5 Years delivery terms and conditions are offered. The Group ensures that sales on Financial Assets account are made to customers with appropriate credit history. The Group has Cash and cash equivalents P513,312 P513,312 P513,312 P - P - Trade and other detailed credit criteria and several layers of credit approval requirements before
GINEBRA SAN MIGUEL INC. GINEBRA receivables - net 3,770,087 3,770,087 3,770,087 - - engaging a particular customer or counterparty. The review includes external Derivative assets ratings, when available, and in some cases bank references. Purchase limits are (included under established for each customer and are reviewed on a regular basis. Customers “Prepaid taxes and that fail to meet the benchmark creditworthiness may transact with the Group other current assets” account) 768 768 768 - - only on a prepayment basis. Noncurrent receivables and deposits (included The Group establishes an allowance for impairment losses that represents its under “Other 2014 Annual Report estimate of incurred losses in respect of trade and other receivables. The main noncurrent assets - net” components of this allowance include a specific loss component that relates to account) 507,297 507,297 - 190,034 317,263 individually significant exposures, and a collective loss component established Financial Liabilities Notes payable 9,980,800 10,045,171 10,045,171 - - for groups of similar assets in respect of losses that have been incurred but not Trade and other payables yet identified. The collective loss allowance is determined based on historical (excluding dividends data of payment statistics for similar financial assets. payable) 2,564,219 2,564,219 2,564,219 - - Derivative liabilities Financial information on the Group’s maximum exposure to credit risk without (included under “Trade and other payables” considering the effects of collaterals and other risk mitigation techniques is account) 1,027 1,027 1,027 - - presented below. Long-term debt (including current maturities) 1,383,548 1,513,754 613,829 538,882 361,043 Note 2014 2013
Credit Risk Cash and cash equivalents 8 P579,917 P513,312 Credit risk is the risk of financial loss to the Group if a customer or counterparty Trade and other receivables - net 9 3,259,859 3,770,087 to a financial instrument fails to meet its contractual obligations, and arises Derivative assets 11 52 768 principally from the trade and other receivables. The Group manages its credit Noncurrent receivables and deposits 15 853,923 507,297 risk mainly through the application of transaction limits and close risk monitoring. P4,693,751 P4,791,464 It is the Group’s policy to enter into transactions with a wide diversity of creditworthy counterparties to mitigate any significant concentration of credit The credit risk for cash and cash equivalents and derivative assets is considered risk. negligible, since the counterparties are reputable entities with high quality external credit ratings. The Group has regular internal control reviews to monitor the granting of credit and management of credit exposures. The credit qualities of trade and other receivables are based on a combination of credit standing or rating of the counterparty, historical experience and specific Trade and Other Receivables and collective credit risk assessment. Trade and other receivables that are The exposure to credit risk is influenced mainly by the individual characteristics neither past due no impaired are of standard grade. Deposits are high-grade of each customer. However, management also considers the demographics of financial instruments with satisfactory financial capability and credit standing. the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on the credit The Group’s exposure to credit risk arises from default of counterparty. risk. Generally, the maximum credit risk exposure of trade and other receivables and noncurrent receivables and deposits is its carrying amount without considering Goods are subject to retention of title clauses so that in the event of default, the collaterals or credit enhancements, if any. The Group has no significant Group would have a secured claim. Where appropriate, the Group obtains concentration of credit risk since the Group deals with a large number of collateral or arranges master netting agreements. homogenous counterparties. The Group does not execute any credit guarantee in favor of any counterparty.
Capital Management The Group maintains a sound capital base to ensure its ability to continue as a going concern, thereby continue to provide returns to stockholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce cost of capital.
102 Celebrating 180 years 103 FINANCIAL STATEMENTS
The Group manages its capital structure and makes adjustments in the light of The following methods and assumptions are used to estimate the fair value of changes in economic conditions. To maintain or adjust the capital structure, the each class of financial instruments: Group may adjust the dividend payment to shareholders, pay-off existing debts, return capital to shareholders or issue new shares. Cash and Cash Equivalents, Trade and Other Receivables and Noncurrent Receivables and Deposits. The carrying amount of cash and cash equivalents The Group defines capital as paid-in capital stock, additional paid-in capital and GINEBRA SAN MIGUEL INC. GINEBRA and trade and other receivables approximates fair value primarily due to the retained earnings, both appropriated and unappropriated. Other components relatively short-term maturities of these financial instruments. In the case of of equity such as treasury stock and cumulative translation adjustments are noncurrent receivables and deposits, the fair value is based on the present value excluded from capital for purposes of capital management. of expected future cash flows using the applicable discount rates based on current market rates of identical or similar quoted instruments. The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital ratios are set in the light of changes in the external Derivatives. The fair values of forward exchange contracts are calculated by 2014 Annual Report environment and the risks underlying the Group’s business, operation and reference to current forward exchange rates. Fair values for embedded industry. derivatives are based on valuation models used for similar instruments using observable inputs. 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 Notes Payable and Trade and Other Payables. The carrying amount of notes current liabilities and total noncurrent liabilities, while equity is total equity as payable and trade and other payables approximates fair value due to the shown in the consolidated statements of financial position. relatively short-term maturities of these financial instruments.
The Group is not subject to externally imposed capital requirements. 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 instruments as of reporting date. Discount rates used 34. Financial Assets and Financial Liabilities for Philippine peso-denominated loans range from 0.45% to 1.61% as of December 31, 2013. The carrying amounts of floating rate loans with quarterly The table below presents a comparison by category of carrying amounts and fair interest rate repricing approximate their fair values. values of the Group’s financial instruments: Derivative Financial Instruments December 31, 2014 December 31, 2013 Carrying Carrying The Group’s derivative financial instruments according to the type of financial Amount Fair Value Amount Fair Value risk being managed and the details of embedded derivative financial instruments Financial Assets are discussed below. Cash and cash equivalents P579,917 P579,917 P513,312 P513,312 Trade and other receivables - net 3,259,859 3,259,859 3,770,087 3,770,087 Derivative Instruments not Designated as Hedges Derivative assets (included under The Group enters into certain derivatives as economic hedges of certain “Prepaid taxes and other current assets” account) 52 52 768 768 underlying exposures. These include embedded derivatives found in host Noncurrent receivables and contracts, which are not designated as accounting hedges. Changes in fair value deposits (included under “Other of these instruments are accounted for directly in profit or loss. Details are as noncurrent assets - net” account) 853,923 853,923 507,297 507,297 follows: Financial Liabilities Notes payable 10,084,440 10,084,440 9,980,800 9,980,800 Embedded Currency Forwards Trade and other payables (excluding dividends payable) 2,323,555 2,323,555 2,564,219 2,564,219 The total outstanding notional amount of currency forwards embedded in non- Derivative liabilities (included financial contracts amounted to US$828 and US$1,020 as of December 31, 2014 under “Trade and other and 2013, respectively. These non-financial contracts consist mainly of foreign payables” account) 360 360 1,027 1,027 currency denominated purchase orders and sales agreements. The embedded Long-term debt (including current maturities) 457,143 457,143 1,383,548 1,427,909 forwards are not clearly and closely related to their respective host contracts. The net negative fair value of these embedded currency forwards amounted to P308 and P259 as of December 31, 2014 and 2013, respectively.
The Group recognized marked-to-market gains (losses) from embedded derivatives amounting to (P2,459), P1,007 and P11,283 in 2014, 2013 and 2012, respectively (Note 27).
104 Celebrating 180 years 105 FINANCIAL STATEMENTS
Fair Value Changes on Derivatives . The outstanding purchase commitments of the Company as of The net movements in fair value of all derivative instruments are as follows: December 31, 2014 and 2013 amounted to US$19,837 (P887,113) and US$80,534 (P3,575,294), respectively. 2014 2013 Balance at beginning of year (P259) P875 b. Contingencies
GINEBRA SAN MIGUEL INC. GINEBRA Net changes in fair value of non-accounting hedges (2,459) 1,007 (2,718) 1,882 The Group is a party to certain lawsuits or claims (mostly labor related cases) Less fair value of settled instruments (2,410) 2,141 filed by third parties which are either pending decision by the courts or are subject to settlement agreements. The outcome of these lawsuits or claims Balance at end of year (P308) (P259) cannot be presently determined. In the opinion of management and its legal counsel, the eventual liability from these lawsuits or claims, if any, will not Fair Value Hierarchy have a material effect on the consolidated financial statements of the Group.
2014 Annual Report Financial assets and financial liabilities measured at fair value in the consolidated No provision was recognized in 2014, 2013 and 2012. statements of financial position are categorized in accordance with the fair value hierarchy. This hierarchy groups financial assets and financial liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and financial liabilities (Note 3).
The table below analyzes financial instruments carried at fair value, by valuation method:
2014 Level 1 Level 2 Level 3 Total Financial Assets Derivative assets P - P52 P - P52 Financial Liabilities Derivative liabilities - 360 - 360
2013 Level 1 Level 2 Level 3 Total Financial Assets Derivative assets P - P768 P - P768 Financial Liabilities Derivative liabilities - 1,027 - 1,027
The Group has no financial instruments valued based on Level 1 and Level 3 as of December 31, 2014 and 2013. During the year, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
35. Other Matters
a. Commitments
. The Company has a Toll Manufacturing Agreement with third parties for the production of its alcoholic and nonalcoholic products. Toll manufacturing expense amounting to P245,368, P286,962 and P239,492 in 2014, 2013 and 2012, respectively, were included as part of outside services under the “Cost of sales” account (Note 21).
106 Celebrating 180 years 107 CORPORATE HEAD OFFICE Ginebra San Miguel Inc. 3rd and 6th Floors San Miguel Properties Centre 7 St. Francis St., Mandaluyong City 1550 Metro Manila, Philippines Telephone: (632) 841-5100 Fax: (632) 841-5240
SHAREHOUSE SERVICES AND ASSISTANCE The SMC Stock Transfer Services 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 certificate, please write or call:
SMC STOCK TRANSFER SERVICE CORPORATION 2nd Floor, SMC Head Office 40 San Miguel Avenue, Mandaluyong City 1550 Metro Manila, Philippines Telephone: (632) 632-3450 to 52 Email Address: [email protected]
CUSTOMER CARE For inquiries, orders and suggestions on our products and services, please write or call:
SAN MIGUEL CUSTOMER CARE CENTER San Miguel Properties Centre 7 St. Francis St., Mandaluyong City 1550 Metro Manila, Philippines Telephone: (632) 632-BLOG (2564) Fax: (632) 632-3299 Mailbox No. 2005# Email: [email protected]