As filed with the Securities and Exchange Commission on April 29, 2020

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019

 

Commission file number 001-13142

 

Embotelladora Andina S.A.
(Exact name of Registrant as specified in its charter)
Andina Bottling Company
(Translation of Registrant’s name into English)
Republic of Chile
(Jurisdiction of incorporation or organization)

Miraflores 9153, 7th Floor

Renca - Santiago, Chile

(Address of principal executive offices)

Ignacio Morales, Tel. (56-2) 2338-0520 E-mail: ignacio.morales @koandina.com

Miraflores 9153, 7th Floor - Renca - Santiago, Chile

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class Trading Symbol Name of each exchange on which registered
Series A Shares, Series B Shares of Registrant represented by American Depositary Shares

AKO.A

AKO.B

New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

  Series A Shares 473,289,301
  Series B Shares 473,281,303

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes ¨ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨ Yes x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes ¨ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes ¨ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x   Accelerated filer ¨   Non-accelerated filer ¨   Emerging growth company ¨

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨

 

†The term ‘‘new or revised financial accounting standard’’ refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ¨  

International Financial Reporting Standards as issued by the International Accounting Standards Board x

  Other ¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

¨ Item 17 ¨ Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

 

 

 

 

 

TABLE OF CONTENTS

 

INTRODUCTION      2 
         
PART I      5 
         
ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   5 
         
ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE   5 
         
ITEM 3.  KEY INFORMATION   5 
         
ITEM 4.  INFORMATION ON THE COMPANY   26 
         
ITEM 4A.  UNRESOLVED SECURITIES AND EXCHANGE COMMISSION STAFF COMMENTS   59 
         
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS   59 
         
ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   75 
         
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   84 
         
ITEM 8.  FINANCIAL INFORMATION   85 
         
ITEM 9.  THE OFFER AND LISTING   86 
         
ITEM 10.  ADDITIONAL INFORMATION   88 
         
ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   95 
         
ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   97 
         
PART II      99 
         
ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   99 
         
ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   99 
         
ITEM 15.  CONTROLS AND DISCLOSURE PROCEDURES   99 
         
ITEM 16.  [RESERVED]   100 
         
ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT   100 
         
ITEM 16B.  CODE OF ETHICS   100 
         
ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES   100 
         
ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES   101 
         
ITEM 16E.  PURCHASERS OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS   101 
         
ITEM 16F.  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT   101 
         
ITEM 16G.  CORPORATE GOVERNANCE   101 
         
ITEM 16H.  MINE SAFETY DISCLOSURE   101 
         
PART III      104 
         
ITEM 17.  FINANCIAL STATEMENTS   104 
         
ITEM 18.  FINANCIAL STATEMENTS   104 
         
ITEM 19.  EXHIBITS   105 

 

1

 

 

 

INTRODUCTION

 

Certain Definitions

 

Unless the context otherwise requires, as used in this annual report the following terms have the meanings set forth below:

 

·the “Company,” “we,” “Andina” and “Coca-Cola Andina” means Embotelladora Andina S.A. and its consolidated subsidiaries;
·“Andina Argentina” means our subsidiary, Embotelladora del Atlántico S.A., or EDASA;
·“Andina Brazil” means our subsidiary, Rio de Janeiro Refrescos Ltda. and its subsidiaries;
·“AEASA” means our subsidiary, Andina Empaques Argentina S.A;
·“EDASA” means our subsidiary, Embotelladora del Atlántico S.A.;
·“PARESA” means our subsidiary, Paraguay Refrescos S.A;
·“Envases CMF” means our affiliate, Envases CMF S.A.;
·“ECSA” means our subsidiary, Envases Central S.A.;
·“Vital Jugos” means our subsidiary, VJ S.A., previously known as Vital S.A. and subsequently Vital Jugos S.A.;
·“VASA” means our subsidiary, Vital Aguas S.A.;
·“TAR” means our subsidiary, Transportes Andina Refrescos Ltda;
·“TP” means our subsidiary, Transportes Polar S.A;
·“The Coca-Cola Company” means The Coca-Cola Company or any of its subsidiaries, including without limitation Coca-Cola de Chile S.A. (“CC Chile”), which operates in Chile, Recofarma Industrias do Amazonas Ltda. (“CC Brazil”), which operates in Brazil, and Servicios y Productos para Bebidas Refrescantes S.R.L. (“CC Argentina”), which operates in Argentina;
·the “Chilean territory” means the regions of Antofagasta, Atacama, Coquimbo, Metropolitan Region of Santiago, Aysén and Magallanes and the provinces of Cachapoal and San Antonio;
·the “Brazilian territory” means the greater part of the State of Rio de Janeiro, the totality of the State of Espírito Santo and parts of the state of São Paulo and the state of Minas Gerais;
·the “Argentine territory” means the provinces of Córdoba, Mendoza, San Juan, San Luis, Santa Fe, Entre Rios, La Pampa, Neuquén, Río Negro, Chubut, Santa Cruz, Tierra del Fuego as well as the western part of the province of Buenos Aires; and,
·the “Paraguayan territory” means the country of Paraguay.

 

Presentation of Financial and Certain Other Information

 

Unless otherwise specified, references herein to “dollars”, “U.S. dollars” or “US$” are to United States dollars; references to “pesos”, “Chilean pesos”, “Ch$” or “ThCh$” are to Chilean pesos; references to “Argentine pesos” or “AR$” are to Argentine pesos; references to “real”, “reais” or “R$” are to Brazilian reais; and references to “guaraníes”, “guaraní” or “G$” are to Paraguayan guaraníes. References to “UF” are to Unidades de Fomento. The UF is an inflation-indexed Chilean monetary unit with a value in Chilean pesos that is adjusted daily to reflect changes in the official consumer price index of the Instituto Nacional de Estadísticas (the “Chilean National Institute of Statistics”). The UF is adjusted in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean consumer price index during the prior calendar month. Certain percentages and amounts contained in this annual report have been rounded for ease of presentation.

 

The Company’s consolidated financial statements for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 were prepared in accordance with International Financial Reporting Standards (hereinafter “IFRS”) issued by the International Accounting Standards Board (hereinafter “IASB”).

 

Our consolidated financial statements are presented in Chilean pesos. Our consolidated financial statements reflect the results of our subsidiaries located in Brazil, Argentina and Paraguay, converted to Chilean pesos (our functional and presentation currency). IFRS requires assets and liabilities to be converted from the functional currency of our subsidiaries outside Chile to our reporting currency (Chilean peso) at the end of period exchange rates and income and expense accounts to be converted at the average monthly exchange rate for the month in which income or expense is recognized for subsidiaries that do not operate in hyperinflationary economies.

 

In the case of our Argentine subsidiaries, which have been operating in an environment that during 2018 and 2019 was classified as hyperinflationary, the conversion criteria from the functional currency of those subsidiaries to our presentation currency is the following:

 

2

 

 

·The statement of financial position (balance sheet): Non-cash items are expressed in the current currency at the balance sheet date and translated to the presentation currency of the closing exchange rate. Losses and gains are included in net earnings (fiscal year income).
·First adoption of a hyperinflationary economy was in 2018: Losses and gains by correction of current non-monetary items the previous year are recorded in accumulated results as of January 1, 2018.
·The income statement: Income statement items are expressed in the current currency unit at the end of the reporting period, using the variation of the general price index from the date on which the expenses and revenues were accrued, and translated to the presentation currency at closing exchange rate.
·Cash flow statement: Cash flow statement items are expressed in the current currency unit at the end of the reporting period and translated to the presentation currency at closing exchange rate.

 

For more information on the effects of the hyperinflationary environment in Argentina see note 2.5 of our consolidated financial statements included herein.

 

Unless otherwise specified, our financial data is presented herein in Chilean pesos.

 

Forward-Looking Statements

 

This annual report includes forward looking statements, principally under the captions, “Item 4. Information on the Company—Part B. Business Overview,” “Item 3. Key Information—Part D. Risk Factors,” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Examples of such forward-looking statements include:

 

·statements of our plans, objectives or goals, including those related to anticipated trends, competition or regulation;
·statements about our future economic performance and that of Chile or other countries in which we operate;
·statements about our exposure to market risks, including interest rate risks, foreign exchange risk and equity price risk; and

statements of assumptions underlying such statements.

 

Words such as “believes,” “expects,” “anticipates,” “projects,” “intends,” “should,” “could,” “may,” “seeks,” “aim,” “combined,” “estimates,” “probability,” “risk,” “target,” “goal,” “objective,” “future” or similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements may relate to (i) our asset growth and financing plans, (ii) trends affecting our financial condition or results of operations and (iii) the impact of competition and regulations, but are not limited to such topics. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially and adversely from those described in such forward-looking statements included in this annual report as a result of various factors (including, without limitation, the actions of competitors, future global economic conditions, market conditions, foreign exchange rates and operating and financial risks), many of which are beyond our control. The occurrence of any such factors not currently expected by us would significantly alter the results set forth in these statements.

 

You should understand that the following important factors, in addition to those discussed elsewhere in this annual report, could affect our future results and could cause those results or other outcomes to differ materially and adversely from those expressed in our forward-looking statements:

 

·changes in general economic, business, political or other conditions in the regions where we operate;
·changes in the legal and regulatory framework of the beverage sector in the regions where we operate;
·the monetary and interest rate policies of the central banks of the countries in which we operate;
·unanticipated movements or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices;
·changes in, or our failure to comply with, laws and regulations in the countries where we operate;
·changes in taxes;
·our inability to hedge certain risks economically;
·potential effects of weather conditions, earthquakes, tsunamis or other natural disasters;
·the outcome of litigation against us;
·the nature and extent of competition in the beverage industry in Latin America and the effect of competition on the prices we are able to charge for our products;
·volatility and fluctuations in demand for our products and the effect of such changes on the volume that we are able to sell and the price that we are able to charge for our products;
·capital and credit market conditions, including the availability of credit and changes in interest rates;

 

3

 

 

·delays in the development of our projects, changes to our investment plans due to changes in demand, authorizations, expropriations, etc.;
·actions of our shareholders;
·unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms if at all; and
·the factors described under “Risk Factors”.

 

The forward-looking statements contained in this document speak only as of the date of this annual report, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, unless required by law.

 

Market Data

 

We have computed the information contained in this annual report regarding annual volume and per capita growth rates and levels, and market share, product segment, and population data in our bottling territories, based upon accumulated statistics developed by us. Market share information presented with respect to soft drinks, juices, waters and beer is based on data supplied by A.C. Nielsen Company.

 

4

 

 

PART I

 

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.KEY INFORMATION

 

A.       Selected Financial Data

 

The following tables present certain summary consolidated and other financial and operating information of Andina at the dates and for the periods indicated. This information should be read in conjunction with and is qualified in its entirety by reference to our consolidated financial statements.

 

The summary consolidated financial information as of December 31, 2018 and 2019 and for the years ended December 31, 2017, 2018 and 2019 has been derived from our audited consolidated financial statements included in this annual report. The summary consolidated financial information as of December 31, 2015, 2016 and 2017 and for the years ended December 31, 2015 and 2016 has been derived from our audited consolidated financial statements not included herein.

 

Our consolidated financial statements are prepared in accordance IFRS and presented in Chilean pesos. Our consolidated financial statements reflect the results of our subsidiaries located in Brazil, Argentina and Paraguay, converted to Chilean pesos (our functional and reporting currency). IFRS requires assets and liabilities to be converted from the functional currency of our subsidiaries outside Chile to our reporting currency (Chilean peso) at the end of period exchange rates and income and expense accounts to be converted at the average monthly exchange rate for the month in which income or expense is recognized for subsidiaries that do not operate in hyperinflationary economies.

 

Our Argentine subsidiaries have been operating in an environment that in 2018 and 2019 was classified as hyperinflationary. For a description of the conversion criteria from the functional currency to the presentation currency, see “Introduction – Presentation of Financial and Certain Other Information” and note 2.5 of our consolidated financial statements included herein.

 

5

 

 

   For the year ended December 31, 
   2015   2016   2017   2018   2019 
   (in million Chilean pesos) 
INCOME STATEMENT DATA                         
Net sales   1,877,394    1,777,459    1,848,879    1,672,916    1,779,025 
Cost of sales   (1,106,706)   (1,033,910)   (1,069,025)   (968,028)   (1,048,344)
Gross profit   770,688    743,549    779,854    704,888    730,681 
Other income   472    1,761    551    2,609    40,947 
Distribution expenses   (202,491)   (183,677)   (192,928)   (165,775)   (166,996)
Administrative expenses   (352,601)   (346,203)   (348,199)   (313,743)   (325,904)
Other expenses   (21,983)   (22,765)   (16,701)   (16,058)   (26,183)
Other (expense) income, net   (6,301)   (3,387)   (2,537)   (2,708)   3 
Financial income   10,118    9,662    11,194    3,940    45,156 
Financial expenses   (55,669)   (51,375)   (55,220)   (55,015)   (46,209)
Share of (loss) profit of investments accounted for using the equity method   (2,328)   (263)   (80)   1,411    (3,415)
Foreign exchange differences   (2,856)   (68)   (1,370)   (1,449)   (4,131)
Loss from differences in indexed financial assets and liabilities   (7,308)   (6,378)   (3,763)   (5,085)   (7,536)
Net income before income taxes   129,741    140,856    170,798    153,016    236,413 
Income tax expense   (41,643)   (48,807)   (51,797)   (55,565)   (61,167)
Net income   88,098    92,049    119,001    97,451    175,246 
                          
BALANCE SHEET DATA                         
Assets                         
Current assets                         
Cash and cash equivalents   129,160    141,264    136,242    137,539    157,568 
Other financial assets   87,492    60,153    14,138    684    347 
Other non-financial assets   8,686    8,601    5,612    5,949    16,189 
Trade and other accounts receivable, net   176,386    190,524    191,285    174,113    191,078 
Accounts receivable from related parties   4,611    5,789    5,370    9,450    10,836 
Inventories   133,333    144,709    131,363    151,320    147,641 
Current tax assets   7,742    1,702    -    2,532    9,815 
Total current assets   547,410    552,742    484,010    481,586    533,474 
                          
Non-current assets                         
Other financial assets   181,491    80,181    74,259    97,362    110,784 
Other non-financial assets   18,290    35,247    47,349    34,977    125,636 
Trade and other receivables   5,932    3,528    2,396    1,271    524 
Accounts receivable from related parties   15    148    156    74    283 
Investments accounted for under the equity method   54,191    77,198    86,809    102,411    99,867 
Intangible assets other than goodwill   665,666    680,996    663,273    668,823    675,075 
Goodwill   95,836    102,920    93,598    117,229    121,222 
Property, plant and equipment   640,530    666,151    659,750    710,771    722,719 
Deferred tax assets   -    -    3,213    -    1,364 
Total non-current assets   1,661,951    1,646,367    1,630,849    1,732,918    1,857,474 
Total assets   2,209,361    2,199,110    2,114,859    2,214,505    2,390,948 
                          
Liabilities                         
Current liabilities                         
Other financial liabilities   62,218    64,801    67,981    56,115    40,594 
Trade and other accounts payable   212,526    242,836    257,519    238,110    243,701 
Accounts payable to related parties   48,653    44,120    33,961    45,828    53,638 
Provisions   326    683    2,676    3,486    2,069 
Income taxes payable   7,495    10,829    3,185    9,339    6,762 
Employee benefits current provisions   31,791    35,653    35,956    33,211    38,393 
Other non-financial liabilities   17,565    20,613    27,008    33,774    26,502 
Total current liabilities   380,574    419,535    428,287    419,862    411,658 
                          
Non-current liabilities                         
Other long-term current financial liabilities   765,299    721,571    675,767    716,564    743,327 
Trade and other payables   9,303    9,510    1,133    736    620 
Accounts payable to related parties   -    -    -    -    19,778 
Provisions   63,976    72,399    62,948    58,967    67,039 
Deferred income tax liabilities   130,202    125,609    125,205    145,246    169,450 
Post-employment benefit liabilities   8,230    8,158    8,286    9,416    10,173 
Other non-financial liabilities   243    159    -    -    - 
Total non-current liabilities   977,253    937,405    873,339    930,928    1,010,386 
                          
Issued capital   270,738    270,738    270,738    270,738    270,738 
Retained earnings   274,755    295,709    335,523    462,221    600,918 
Other reserves   284,982    254,159    185,049    110,854    76,994 
Equity attributable to equity holders of the parent   830,474    820,606    791,310    843,813    948,650 
Non-controlling interests   21,060    21,564    21,923    19,902    20,254 
Total equity   851,534    842,170    813,233    863,715    968,904 
Total liabilities and equity   2,209,361    2,199,110    2,114,859    2,214,505    2,390,948 

 

6

 

 

   For the year ended December 31, 
   2015   2016   2017   2018   2019 
   (in million Chilean pesos, except share and per share data and other operating data) 
CASH FLOW DATA                         
Net cash flows generated from operating activities   264,909    223,447    247,960    235,279    255,148 
Net cash flows used in investing activities   (103,131)   (113,916)   (168,831)   (118,086)   (110,048)
Net cash flows provided by (used in) financing activities   (98,560)   (98,225)   (78,346)   (114,635)   (127,113)
Net increase in cash and cash equivalents before exchange differences   63,218    11,306    783    2,558    17,988 
Effects of exchange differences on cash and cash equivalents   (13,571)   797    (5,805)   3,574    4,048 
Effects of inflation on cash and cash equivalents in Argentina   -    -    -    (4,836)   (2,007)
Net increase (decrease) in cash and cash equivalents   49,647    12,103    (5,022)   1,296    20,029 
Cash and cash equivalents - beginning of year   79,514    129,161    141,264    136,242    137,539 
Cash and cash equivalents - end of year   129,161    141,264    136,242    137,539    157,568 
                          
OTHER FINANCIAL DATA                         
Depreciation and amortization   100,632    97,334    99,164    99,594    111,087 
Capital expenditures   112,400    128,217    168,858    121,063    110,683 
Dividends paid   53,670    67,584    75,536    85,475    85,475 
                          
Basic and diluted earnings per share:                         
Series A(1)    88.40    91.08    118.56    97.20    174.79 
Series B(1)    97.24    100.19    130.42    106.92    192.27 
                          
Basic and diluted earnings per ADR(2)                          
Series A(2)    530.40    546.48    711.36    583.20    1,048.73 
Series B(2)    583.44    601.14    782.52    641.52    1,153.60 
                          
Capital Stock                         
Series A   473,289,301    473,289,301    473,289,301    473,289,301    473,289,301 
Series B   473,281,303    473,281,303    473,281,303    473,281,303    473,281,303 
Issued Capital   270,738    270,738    270,738    270,738    270,738 
                          
Total dividends declared                         
Total Series A Shares   29,344    33,130    37,153    40,703    41,223 
Total Series B Shares   32,278    36,443    40,868    44,772    45,345 
                          
OTHER OPERATING DATA (unaudited)                         
Sales volume                         
Coca-Cola trade brand soft drinks (millions of UCs)(3)   653.8    613.2    587.9    579.2    570.8 
Other beverages (millions of UCs) (3)(4)    166.1    165.8    168.5    171.3    175.6 

 

 

(1)Calculation of profits per share considers the average amount of outstanding shares existing at each date.
(2)Each ADR represents six shares of common stock of the corresponding series of shares.
(3)UCs or Unit cases refer to 192 ounces of finished beverage product (24 eight-ounce servings) or 5.68 liters.
(4)Includes waters, juices, beer and other spirits.

Note: Totals may not sum due to rounding.

 

7

 

 

 

Exchange Rates

 

Chile

 

Chile has two currency markets, the Mercado Cambiario Formal (the “Formal Exchange Market”) and the Mercado Cambiario Informal (the “Informal Exchange Market”). The Formal Exchange Market is comprised of banks and other entities authorized by the Chilean Central Bank. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Chilean Central Bank is empowered to require that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market. See also “Item 10. Additional Information—D. Exchange Controls— Foreign Investment and Exchange Controls in Chile”.

 

Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulations require that the Chilean Central Bank be informed of certain transactions and that they be effectuated through the Formal Exchange Market.

 

The U.S. dollar observed exchange rate (dólar observado), which is reported by the Chilean Central Bank and published daily in the Official Gazette (Diario Oficial), is the weighted average exchange rate of the previous business day’s transactions in the Formal Exchange Market. The Chilean Central Bank has the power to intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the observed exchange rate within a desired range. During the past few years, the Chilean Central Bank has attempted to keep the observed exchange rate within a certain range only under special circumstances. Although the Chilean Central Bank is not required to purchase or sell dollars at any specific exchange rate, it generally uses spot rates for its transactions. Other banks generally carry out authorized transactions at spot rates as well.

 

The Informal Exchange Market reflects transactions carried out at the informal exchange rate. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the observed exchange rate. In recent years, the variation between the observed exchange rate and the informal exchange rate has not been significant.

 

Argentina

 

Over the last 20 years, Argentina’s monetary policy has fluctuated between extremes. On September 1, 2019, after four years of unrestricted foreign exchange, Argentina reinstated foreign exchange controls as a measure to reduce the amount of Argentine pesos available in the market and reduce the demand for foreign currency, and stabilize the value of the Argentine peso. Among other provisions set forth in such legislation, the most relevant aspects of the new foreign exchange rules provide new regulation that impact the following areas and situations: (i) exports and imports of services; (ii) payments of profits and dividends; (iii) sale of non-produced non-financial assets; (iv) external financial loans disbursed as of September 1, 2019; (v) repayment local notes offerings in dollars; (vi) payment of principal and interest external financial indebtedness; (vii) payments in foreign currency among residents; and (viii) purchase of foreign currency by individuals, entities and non-residents. In addition, the capacity of individuals and companies to exchange Argentine pesos for foreign currencies has been conditioned to prior approval from the Argentine Central Bank. As a consequence, under current Argentine law we are restricted from accessing the official foreign exchange market to make dividend payments to us from our Argentine subsidiaries without prior approval from the Argentine Central Bank.

 

The foreign exchange restrictions and various other government policies have fanned the return to different exchange rates, both “official” and “parallel” (black market). The official exchange rate is fixed by the Argentine government and it currently and historically diverges widely from the parallel exchange rate. Although initially framed as “temporary,” these foreign exchange restrictions have been extended indefinitely. While we cannot predict future government policies, we believe the foreign exchange restrictions are likely to continue for the foreseeable future.

 

Brazil

 

The Central Bank of Brazil allows the real/U.S. dollar exchange rate to float freely and has intervened occasionally to control unstable fluctuations in foreign exchange rates. We cannot predict whether the Central Bank of Brazil or the Brazilian government will continue to let the real float freely or will intervene in the exchange rate market through a currency band system or otherwise.

 

Prior to March 14, 2005, under Brazilian regulations, foreign exchange transactions were carried out on either the commercial rate exchange market or the floating rate exchange market. Rates in the two markets were generally the same. On March 14, 2005, the National Monetary Council of Brazil (Conselho Monetário Nacional) unified the two markets.

 

8

 

 

Paraguay

 

The price of the U.S. currency in Paraguay is determined by the interaction between the supply and demand of this currency, and the Central Bank of Paraguay (BCP) has the ability to intervene in order to minimize the effects of potential large variations.

 

Standing out among foreign exchange income are exports (including border trade mainly with Brazil), foreign direct investment (FDI), remittances from relatives living abroad (in previous periods this impact was more significant). Imports stand out regarding dollar expenditures.

 

Until 2013, the flow of U.S. dollar income and expenditures was characterized by a large influx (income) of U.S. dollars in the first part of the year due to soybean exports. Currently, due to the various investments made, the influx still exists, but income throughout the year is more balanced.

 

B.       CAPITALIZATION AND INDEBTEDNESS

 

Not applicable.

 

C.       REASONS FOR THE OFFER AND USE OF PROCEEDS

 

Not applicable.

 

D.       RISK FACTORS

 

We are subject to various economic, political, social and competitive conditions. Any of the following risks, if they materialize, could materially and adversely affect our business, results of operations, prospects and financial condition.

 

Risks Relating to our Company

 

We rely heavily on our relationship with The Coca-Cola Company, which has substantial influence over our business and operations; and changes in this relationship may adversely affect our business.

 

The Coca-Cola Company has substantial influence on the conduct of our business. The interests of The Coca-Cola Company may be different from the interests of our other shareholders. 68% and 70% of our net sales for 2018 and 2019, respectively, were derived from the distribution of soft drinks under The Coca-Cola Company trademarks, while 22% and 23% of our net sales for 2018 and 2019, respectively, were derived from the distribution of other beverages also bearing trademarks owned by The Coca-Cola Company. In addition, The Coca-Cola Company currently owns, directly or through its subsidiaries, 14.65% of our Series A shares (representing 7.3% of our total shares) and benefits from certain rights under a shareholders’ agreement. We produce, market and distribute Coca-Cola products through standard bottler agreements between our bottler subsidiaries and The Coca-Cola Company. The Coca-Cola Company has the ability to exert a substantial influence on the business of the Company through its rights under the bottler agreements. According to the bottler agreements, The Coca-Cola Company unilaterally sets the prices for Coca-Cola concentrate that they sell to us. The Coca-Cola Company may in the future increase the price we pay for the concentrate, increasing our costs. The Coca-Cola Company also monitors our prices and has the right to review and approve our marketing, operating and advertising plans. These factors may impact our profit margins, which could adversely affect our net income and results of operations.

 

Our marketing campaigns for Coca-Cola products are designed and controlled by The Coca-Cola Company. The Coca-Cola Company also makes significant contributions to our marketing expenses, although it is not required to contribute a particular amount. Accordingly, The Coca-Cola Company may discontinue or reduce such contribution at any time. Pursuant to the bottler agreements, we are required to submit a business plan to The Coca-Cola Company for prior approval on a yearly basis. In accordance with our bottler agreements, The Coca-Cola Company may, among other things, require that we demonstrate the financial ability to meet our business plan, and if we are not able to demonstrate our financial capacity, The Coca-Cola Company may terminate our rights to produce, market and distribute Coca-Cola soft drinks or other Coca-Cola beverages in territories where we have such approval. Under these bottler agreements, we are prohibited from producing, bottling, distributing or selling any products that could be substituted for, be confused with or be considered an imitation of soft drinks or other beverages and products under the trademarks of The Coca-Cola Company.

 

9

 

 

We depend on The Coca-Cola Company to renew our bottler agreements, which are subject to termination by The Coca-Cola Company in the event we default or upon expiration of their respective terms. We currently are party to four bottler agreements: one agreement for Chile, which expires in 2023, one agreement for Brazil, which expires in 2022, one agreement for Argentina, which expires in 2022, and one agreement for Paraguay, which expires in September 2020. We cannot provide any assurance that our bottler agreements will be maintained or renewed upon their termination. Even if they are renewed, we cannot provide any assurance that renewal will be granted on the same terms as those currently in effect. Termination, non-extension or non-renewal of any of our bottler agreements would prevent us from selling Coca-Cola trademark beverages in the affected territory, which would have a material adverse effect on our business, financial condition and results of operation.

 

In addition, any acquisition we make of bottlers of Coca-Cola products in other territories may require, among other things, the consent of The Coca-Cola Company under bottler agreements to which such other bottlers are subject. We cannot assure you that The Coca-Cola Company will consent to any future geographic expansion of our Coca-Cola beverage business.

 

We cannot assure you that our relationship with The Coca-Cola Company will not deteriorate or otherwise undergo significant changes in the future. If such changes do occur, our operations and financial results and condition could be materially affected.

 

The beverage business environment is changing rapidly including as a result of epidemic diseases such as the recent outbreak of the COVID-19 pandemic, and increased health and environmental concerns, and if we do not address evolving consumer product and shopping preferences, our business could suffer.

 

The beverage business environment in our territories is dynamic and constantly evolving rapidly as a result of, among other things, changes in consumer preferences, including changes based on health and nutrition considerations and obesity concerns; shifting consumer preferences and needs; changes in consumer lifestyles; concerns regarding location of origin or source of ingredients and raw materials, and the environmental and sustainability impact of the product manufacturing process; consumer shopping patterns that are changing with the digital revolution; consumer emphasis on transparency related to our products and packaging; and competitive product and pricing pressures. While we have reduced the amounts of sugar in multiple beverages across our portfolio and increased availability of low or no-calorie soft drinks, if we are unable to successfully adapt in this environment, our participation in the sales of beverages and financial results in general would be negatively affected.

 

Increased concern about the health effects of sugar and other sweeteners in beverages could result in changes to the beverage business.

 

Consumers, public health officials and government agencies in the majority of our markets, are increasingly concerned with public health consequences associated with obesity, particularly among young people. Additionally, some researchers, health advocates and dietary guidelines are encouraging consumers to reduce consumption of sugar-sweetened beverages and beverages sweetened with nutritive or alternative sweeteners. Increasing public concern about these issues, the possibility of taxes on sugar-sweetened beverages or other sweeteners, additional governmental regulations concerning the marketing, labeling, packaging or sale of our beverages and any negative publicity resulting from actual or threatened legal actions against beverage companies relating to the marketing, labeling or sale of beverages may reduce demand for our products or increase the cost, which could adversely affect our profitability.

 

Our business is highly competitive, including with respect to price competition, which may adversely affect our net profits and margins.

 

The beverage business is highly competitive in each of the territories in which we operate. We compete with bottlers of local and regional brands, including low cost beverages and Pepsi products. This competition in each of the regions where we operate is likely to continue, and we cannot assure you that it will not intensify in the future, which could materially and adversely affect our financial condition and results of operations. If we do not continuously strengthen our capabilities in marketing and innovation to maintain our brand loyalty and market share, our business and results of operations could be negatively affected.

 

If our raw material costs increase, including as a result of U.S. dollar/local currency exchange risk and price volatility, our profitability may be affected.

 

In addition to water, our most significant raw materials are (1) concentrate, which we acquire from affiliates of The Coca-Cola Company, (2) sweeteners and (3) packaging materials. Our most significant packaging raw material costs arise from the purchase of resin and plastic preforms to make plastic bottles and from the purchase of finished plastic bottles, the prices of which are related to crude oil prices and global resin supply. Prices for concentrate are determined by The Coca-Cola Company and The Coca-Cola Company has unilaterally increased concentrate prices in the past and may do so again in the future. We cannot assure you that The Coca-Cola Company will not increase the price of the concentrate for Coca-Cola trademark beverages or change the manner in which these prices will be calculated in the future. The prices for our remaining raw materials are driven by market prices and local availability, the imposition of import duties and restrictions and fluctuations in exchange rates. We may not be successful in negotiating or implementing measures to mitigate the negative effect that increased raw material costs may have in the pricing of our products or our results.

10

 

 

We purchase our raw materials from both domestic and international suppliers, some of which must be approved by The Coca-Cola Company, which may limit the number of suppliers available to us. Because the prices of our main raw materials –except for concentrate– are denominated in U.S. dollars, we are subject to local currency risk with respect to each of our operations. If any of the Chilean peso, Brazilian real, Argentine peso, or Paraguayan guaraní were to depreciate significantly against the U.S. dollar, the cost of certain raw materials in our respective territories could rise significantly, which could have an adverse effect on our financial condition and results of operations. We cannot assure you that these currencies will not lose value against the U.S. dollar in the future. Additionally, some raw material prices are subject to high volatility, which could also have a material adverse effect on our profitability. The supply or cost of specific raw materials could be adversely affected by domestic or global price changes, strikes, weather conditions, taxes, governmental controls or other factors. Any sustained interruption in the supply of these raw materials or any significant increase in their price could have a material adverse effect on our financial performance.

 

Instability in the supply of utility services and oil prices may adversely impact our results of operations.

 

Our operations depend on a stable supply of utilities and fuel in the countries where we operate. Electrical power outages could lead to increased energy prices and possible service interruptions. We cannot assure you that in the future we will not experience energy interruptions that could materially and adversely affect our business. In addition, a significant increase in energy prices would raise our costs, which could materially impact our results of operations. Fluctuations in oil prices have adversely affected our cost of energy and transportation in the regions where we operate, and we expect that they will continue to do so in the future. We cannot assure you that fuel prices will not increase in the future, and that such an increase would not have a significant effect on our financial performance.

 

Water scarcity and poor water quality could adversely impact our production costs and capacity.

 

Water is the main ingredient in substantially all of our products. It is also a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, increasing pollution and poor management. As demand for water continues to increase around the world, and as the quality of available water deteriorates, we may incur increasing production costs or face capacity constraints that could adversely affect our profitability. We obtain water from various sources in our territories, including springs, wells, rivers and municipal and state water companies pursuant to concessions granted by governments in our various territories. We also anticipate future discussions on new regulations in Chile and other countries where we operate relating to future ownership of water resources, including possible nationalization, and stricter controls on water usage. Water scarcity or changes in governmental regulations aimed at rationing water in the regions where we operate could affect our water supply and therefore our business.

 

We cannot assure you that water will be available in sufficient quantities to meet our future production needs or will prove sufficient to meet our current water supply needs.

 

Significant additional labeling or warning requirements may inhibit sales of our products.

 

The countries in which we operate may adopt significant advertising restrictions as well as additional product labeling or warning requirements relating to the chemical content or perceived adverse health consequences of certain of our Coca-Cola products or other products. The Chilean Congress passed Law No. 20,606 with respect to labeling of certain consumer products, including soft drinks and bottled juices and waters such as ours. The law became effective in June 2016 and its implementation has been carried out in stages, with labeling requirements becoming progressively stricter in June 2018 and June 2019. Given the uncertainty surrounding the interpretation of the law, we may occasionally be subject to costs and penalties associated with non-compliance, which are difficult to predict. These requirements may adversely affect sales of our products and our results of operations.

 

Our business may be adversely affected if we are unable to maintain brand image and product quality.

 

Our beverage business is highly dependent on maintaining the reputation of our products in the countries where we operate. If we fail to maintain high standards for product quality, our reputation and ability to remain a distributor of The Coca-Cola Company beverages in the countries where we operate could be jeopardized. Negative publicity or incidents related to our products may reduce their demand and could have a material adverse effect on our financial performance. If any of our products is defective or found to contain contaminants, or causes injury or illness, we may be subject to legal claims filed by consumers, product recalls, business interruptions and/or other liabilities.

 

We take significant precautions in order to minimize any risk of defects or contamination in our products. These precautions include quality-control programs for raw materials, the production process and our final products. We also have established procedures to correct as soon as practicable any problems that are detected. However, the precautions and procedures we implement may not be sufficient to protect us from potential incidents.

 

11

 

 

Trademark infringement could adversely impact our beverage business.

 

A significant portion of our sales derives from sales of beverages branded with trademarks of The Coca-Cola Company, as well as other trademarks. If other parties attempt to misappropriate trademarks we use, we may be unable to protect these trademarks. The maintenance of the reputation of these brands is essential for the future success of our beverage business. Misappropriation of trademarks we use, or challenges thereto, could have a material adverse effect on our financial performance.

 

We may not be able to successfully implement our expansion strategies or achieve the expected operational efficiencies or synergies from potential acquisitions.

 

We have, and we may continue to, acquire businesses and pursue other strategic transactions as part of our expansion strategies. We cannot assure you that we will be successful in identifying opportunities and consummating acquisitions and other strategic transactions on favorable terms or at all. These types of transactions may involve additional risks to our Company, including operating in geographic regions or with beverage categories in which we have less or no operating history. Depending on the size and timing of an acquisition or transaction, we may be required to raise future financing to consummate the acquisition or transaction. Moreover, even if we are able to consummate a transaction, acquisitions and other strategic opportunities may involve significant risks and uncertainties.

 

Key elements to achieving the benefits and expected synergies of our acquisitions are the integration of acquired businesses’ operations into our own in a timely and effective manner and the retention of qualified and experienced key personnel. We may incur in unforeseen liabilities in connection with acquiring, taking control of, or managing beverage operations and other businesses and may encounter difficulties and unforeseen or additional costs in restructuring and integrating them into our operating structure. These difficulties include distraction of management from current operations, difficulties in integration with our existing business and technology, greater than expected liabilities and expenses, inadequate return on capital, and unidentified issues not discovered in our pre-acquisition investigations and evaluations of those strategies and acquisitions. We cannot assure you that these efforts will be successful or completed as expected by us, and our business, financial condition, results of operations could be adversely affected if we are unable to do so.

 

Weather conditions or natural disasters may adversely affect our business.

 

Lower temperatures and higher rainfall may negatively impact consumer patterns, which may result in lower per capita consumption of our beverages. Additionally, adverse weather conditions or natural disasters may affect road infrastructure in the countries in which we operate and limit our ability to sell and distribute our products. For example, in February of 2010 our business experienced a temporary interruption in our production as a result of the 8.8 magnitude earthquake in central Chile; and in March 2015, flash floods in the north of Chile interrupted our production and distribution in such territory.

 

Our business is subject to risks arising from the ongoing COVID-19 pandemic.

 

The recent outbreak of the Novel Coronavirus 2019 (COVID-19), which has been declared by the World Health Organization to be a “public health emergency of international concern”, has spread across most of the world. Countries around the world have adopted extraordinary measures to contain the spread of COVID-19, including imposing travel restrictions and bans, closing borders, establishing restrictions on public gatherings, instructing residents to practice social distancing, requiring closures of non-essential businesses, issuing stay-at-home advisories and orders, implementing quarantines and similar actions. The impact to date of the COVID-19 pandemic on global economic conditions has significantly increased economic uncertainty and is likely to cause a global recession. We cannot predict how long the COVID-19 pandemic will continue or how long current or future governments’ restrictions will remain in place. Furthermore, even if the initial outbreaks of COVID-19 subside, we cannot predict whether subsequent outbreaks will reoccur, or whether governments will implement longer-term measures that continue to affect industries.

 

Given uncertainties regarding the impact of the COVID-19 pandemic, we cannot predict accurately the extent to which the COVID-19 outbreak could affect our business and results of operations. COVID-19 poses the risk that we or our employees, contractors, suppliers and other partners may be limited or prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. While our operations have not been materially disrupted to date, the COVID-19 pandemic and government measures taken to contain the spread of the virus could disrupt our supply chain and the manufacture or shipment of our products, and adversely impact our business or results of operations. Additionally, the COVID-19 pandemic and government measures have disrupted certain of our sales channels, in particular as a result of the temporary mandatory closing of restaurants and bars and prohibition on social gathering events, which adversely affects our sales volumes to these channels. We cannot predict how much of an impact the COVID-19 pandemic and government measures will ultimately have on these sales channels, including whether many channels will be able to resume their operations after the virus is contained. Nor can we predict how much or for how long consumer spending patterns may change as a result of these developments.

 

12

 

 

The COVID-19 pandemic and government measures could in the future adversely affect our business and results of operations, potentially materially. In addition, an outbreak of other epidemics in the future, such as the bird flu, influenza, SARS, the Ebola virus and the Zika virus, could also result in a similar impact.

 

Our insurance coverage may not adequately cover losses resulting from the risks for which we are insured.

 

We maintain insurance for our principal facilities and other assets. Our insurance coverage protects us in the event we suffer certain losses resulting from fire, terrorism and natural disasters, such as earthquake and floods, or from business interruptions caused by such events. In addition, we maintain other insurance policies for general liability and product contamination. We cannot assure you that our insurance coverage will be sufficient or will provide adequate compensation for losses that we may incur.

 

If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.

 

We are increasingly dependent on information technology networks and systems, including over the Internet, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for digital marketing activities and electronic communications among us and our clients, suppliers and also among our subsidiaries and facilities. Security breaches or infrastructure flaws can create system disruptions, shutdowns or unauthorized disclosure of confidential information. If we are unable to prevent such breaches or flaws, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated information.

 

Cyber threats are rapidly evolving and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Cyber threats and cyber-attackers can be sponsored by countries or sophisticated criminal organizations or be the work of single “hackers” or small groups of “hackers”.

 

We are in the process of analyzing the adequacy of our information technology systems and installing new and upgrading existing information technology systems in order to achieve industry standard levels of protection for the Company’s data and business processes against risk of data security breach and cyber-attack. We are working to strengthen the integrity of our data network and expect this process to continue over the coming years. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. Nevertheless, as cyber threats evolve, change and become more difficult to detect and successfully defend against, one or more cyber-attacks might defeat our or a third-party service provider’s security measures in the future and obtain the personal information of customers or employees. Employee error or other irregularities may also defeat of security measures and result in a breach of information systems. Moreover, hardware, software or applications we use may have inherent defects of design, manufacture or operations or could be inadvertently or intentionally implemented or used in a manner that could compromise information security. A security breach and loss of information may not be discovered for a significant period of time after it occurs. While we have no knowledge of a material security breach to date, any compromise of data security could result in a violation of applicable privacy and other laws or standards, the loss of valuable business data, or a disruption of our business. A security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage our customer relationships and reputation, and result in fines or liabilities, which may not be covered by our insurance policies.

 

Perception of risk in emerging economies may impede our access to international capital markets, hinder our ability to finance our operations and adversely affect our financial performance.

 

International investors, as a general rule, consider the countries in which we operate to be emerging market economies. Consequently, economic conditions and the market for securities of emerging market countries influence investors’ perceptions of Chile, Brazil, Argentina and Paraguay and their evaluation of securities of companies located in these countries.

 

During periods of heightened investor concern regarding emerging market economies, in particular in recent years Argentina, the countries where we operate may experience significant outflows of U.S. dollars.

 

In addition, during these periods companies based in the countries where we operate have faced higher costs for raising funds, both domestically and abroad, as well as limited access to international capital markets, which have negatively affected the prices of the aforementioned countries’ securities. Although economic conditions are different in each of the emerging-market countries, investors’ reactions to developments in one of these countries may affect the securities of issuers in the others. For example, adverse developments in emerging market countries may lead to decreased investor interest in the securities of Chilean companies.

 

13

 

 

Our business may be adversely affected if we fail to renew collective bargaining labor agreements on satisfactory terms or experience strikes or other labor unrest.

 

A substantial portion of our employees is covered by collective bargaining labor agreements. These agreements generally expire every year. Our inability to renegotiate these agreements on satisfactory terms could cause work stoppages and interruptions, which may adversely impact our operations. Changes to the terms and conditions of existing agreements could also increase our costs or otherwise have an adverse effect on our operational efficiency. We experience periodic strikes and other forms of labor unrest through the ordinary course of business. We cannot assure you labor interruptions or other labor unrest will not occur in the future. If we experience strikes, work stoppages or other forms of labor unrest at any of our production facilities, our ability to supply beverages to customers could be impaired, which would reduce our net operating revenues and could expose us to customer claims.

 

Our business is subject to extensive regulation, which is complex and subject to change.

 

We are subject to local regulations in each of the territories in which we operate. The main areas of regulation are water, environment, labor, taxation, health, consumer protection, advertising and antitrust. Regulation could affect our ability to set prices for our products. The adoption of new laws or regulations or a stricter interpretation or enforcement thereof in the countries in which we operate may increase our operating costs or impose restrictions on our operations which, in turn, may adversely affect our financial condition, business and results. Further changes in current regulations may result in increased compliance costs, which may have an adverse effect on our results or financial condition.

 

In the past, voluntary price restraints or statutory price controls have been imposed in several of the countries in which we operate. Currently there are no restraints or price controls applicable to our products in any of the territories in which we operate, except with respect to a limited number of products in Argentina. However, we cannot assure you that government authorities in any country in which we operate will not impose statutory price controls, or that we will not be requested to impose voluntary price restraints in the future. The potential imposition of restraints or price controls in the future may have an adverse effect on our results and financial condition.

 

Our business is subject to increasing environmental regulation, which may result in increases in our operating costs or adverse changes in consumer demand.

 

We are subject to various environmental laws and regulations in the countries where we operate, which apply to our products, containers and activities. If these environmental laws and regulations are strengthened or newly established in jurisdictions in which we conduct our businesses, we may be required to incur considerable expenses in order to comply with such laws and regulations. We are also subject to uncertainty regarding the interpretation of the environmental laws and regulations of the countries in which we operate, and any ambiguity or uncertainty regarding the interpretation or application of regulations can result in increased production costs or penalties for non-compliance, which are difficult to predict. Such increased expenses may have a material adverse effect on our results of operations and financial position. To the extent we determine that it is not financially sound for us to continue to comply with such laws and regulations, we may have to curtail or discontinue our activities in the affected business areas.

 

In addition, concerns over the environmental impact of plastic may reduce the consumption of our products sold in plastic bottles or result in additional taxes that could adversely affect consumer demand. In 2019 alone, three bills seeking to restrict the production and sale of single-use plastics in Chile were introduced for consideration by the Chilean Congress. Currently, we cannot predict whether these laws will pass. While the legislative process is still in its early stages, if enacted, these bills may have an adverse effect on our results of operations.

 

If we were to become subject to adverse judgments or determinations in legal proceedings to which we are, or may become, a party, our future profitability could suffer through significant liabilities, a reduction of sales, increased costs or damage to our reputation.

 

In the ordinary course of our business, we become involved in various claims, lawsuits, investigations and governmental and administrative proceedings, some of which are or may be significant. We are currently a party to certain legal proceedings. Adverse judgments or determinations in one or more of these proceedings could require us to change the way we do business or use substantial resources in adhering to the settlements. These could have a material adverse effect on our business, including, among other consequences, by significantly increasing the costs required to operate our business. Ineffective communications during or after these proceedings could amplify the negative effects, if any, of these proceedings on our reputation and may result in a negative market impact on the price of our securities. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and/or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from our current assessments and estimates.

 

14

 

 

In addition, during recent years, the Company has been subject to judicial proceedings and administrative investigations associated with alleged monopolistic practices. In December 2019, the Chilean Supreme Court overturned a dismissal by the Chilean Antitrust Court of an antitrust complaint filed against us and remanded the case to the Antitrust Court for a full decision on the merits. We believe the likelihood of loss remains low. Although these proceedings and investigations have not resulted in any convictions or penalties for the Company, we cannot assure that this will not occur in the future. Antitrust complaints may be submitted in Chile without any prior admissibility test and, as a result, we cannot predict whether unsubstantiated claims against us will be filed. Possible sanctions in matters of competition could have an adverse effect on our business.

 

The countries in which we operate may adopt new tax laws or modify existing laws to increase taxes applicable to our business or reduce existing tax incentives.

 

We cannot assure you that any governmental authority in any country where we operate will not impose new taxes or increase the taxes on our products in the future. The imposition of new taxes, the increases in taxes or the reduction of tax incentives may have a material adverse effect on our business, financial condition and results.

 

For example, in Chile on September 29, 2014 Law No. 20,780 was enacted which was subsequently amended by Law No. 20,899, on February 8, 2016 (the “Tax Reform”). The Tax Reform introduced a new tax regime for corporations, the Semi-Integrated Regime established in article 14(B) of the Chilean Income Law, increasing the tax burden, among other changes.

 

In Argentina in December 2017, a tax reform was passed, which came into force in 2018. The most important consequence for the Company is the reduction in the previous income tax rate from 35% to 30% for the fiscal years 2018 and 2019 and from 2020 onwards the rate decreases to 25%. However, this reduction is only available when profits are reinvested. In addition, a tax of 7% must be paid at the time of distribution of dividends for the first two years and 13% from 2020 onwards. However, as of the date of this annual report, the Argentine government had suspended the corporate income tax rate decrease previously contemplated for fiscal year 2020. As a result, the corporate income tax rate will remain at 30% and the income tax rate on dividends will remain at 7%. In relation to gross income tax, in 2019 there was a 0.5% average reduction in the gross income tax rate for industry activity in provinces of Argentina where Andina has no productive plants, while the 0.5% reduction planned for 2020 has been suspended. Municipal rates in 2019 and so far as of the date of this annual report, remain unchanged, with few insignificant exceptions.

 

Andina enjoys the benefit of a zero-tax rate on gross income in the province of Córdoba, Argentina, until the year 2021 under an industrial promotion. For further information, see also “Risks Relating to Brazil – Changes in tax laws may increase our tax burden and reduce tax incentives, and as a result negatively affect our profitability.”

 

Brazilian tax proceedings may result in a significant tax liability.

 

Our subsidiary Rio de Janeiro Refrescos Ltda. is party in several tax proceedings in which the Brazilian federal tax authorities argue the alleged existence of liabilities associated with value added tax on industrialized products for an approximate total amount of R$ 2 billion (equivalent to approximately US$488 million). These proceedings are at different administrative as well as judicial procedural stages. We disagree with the Brazilian tax authorities’ position and believe that Rio de Janeiro Refrescos Ltda. is entitled to claim Imposto sobre Productos Industrializados (IPI) tax credits in connection with its purchases of certain exempt raw materials from suppliers located in the Manaus Free Trade Zone. We believe that the Brazilian tax authorities’ claims are without merit. Our external Brazilian counsel has advised us that it believes that Rio de Janeiro Refrescos Ltda.’s likelihood of loss in most of these proceedings is classified as possible to remote (i.e., approximately 30%). Despite the foregoing, the outcome of these claims is subject to uncertainty, and it is difficult to predict their final resolution or any other negative repercussions from this dispute with the Brazilian tax authorities to The Coca-Cola Company or its bottling companies in Brazil, including our Brazilian subsidiaries.

 

The termination of the Heineken product distribution agreement in Brazil and our potential inability to secure a substitute supplier could adversely affect our profitability.

 

In July 2017 Heineken Brazil unilaterally notified us of the termination of the agreement by virtue of which Rio de Janeiro Refrescos Ltda. commercializes and distributes Heineken-branded beers in Brazil. Rio de Janeiro Refrescos Ltda. understood that the expiration of the agreement was scheduled for 2022 and we submitted the dispute to arbitration. In October 2019, a non-appealable decision was rendered in our favor.

 

We continue distributing Heineken-branded products in Brazil and expect to do so until the termination of the agreement in March 2022. However, if following the termination of the agreement we are unable to secure a substitute supplier of beer in Brazil, our business and results of operations may be adversely affected. Heineken-branded products represent 21.7% of our consolidated net sales in Brazil during 2019.

 

15

 

 

If we do not successfully comply with laws and regulations designed to combat corruption in countries in which we sell our products, we could become subject to fines, penalties or other regulatory sanctions, and our sales and profitability could suffer.

 

Although we are committed to conducting business in a legal and ethical manner in compliance with local and international statutory requirements and standards applicable to our business, there is a risk that our employees or representatives may take actions that violate applicable laws and regulations that generally prohibit the making of improper payments to foreign government officials for the purpose of obtaining or keeping business, including laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or the U.S. Foreign Corrupt Practices Act.

 

We may not be able to recruit or retain key personnel.

 

The implementation of our strategic business plans could be undermined by a failure to recruit or retain key personnel or the unexpected loss of senior employees, including in acquired companies. We face various challenges inherent in the management of a large number of employees over diverse geographical regions. Key employees may choose to leave their employment for a variety of reasons, including reasons beyond our control. The impact of the departure of key employees cannot be determined and may depend on, among other things, our ability to recruit other individuals of similar experience and skill. It is not certain that we will be able to attract or retain key employees and successfully manage them, which could disrupt our business and have an unfavorable material effect on our financial position, income from operations and competitive position.

 

A devaluation of the currencies of the countries where we have our operations, with regard to the Chilean peso, can negatively affect the results reported by the Company in Chilean pesos.

 

The Company reports its results in Chilean pesos, while a large part of its revenues and Adjusted EBITDA comes from countries that use other currencies. During 2018 and 2019, 32% and 35% of the Company’s net sales were generated in Brazil, 25% and 22% in Argentina, and 9% and 9% in Paraguay, while 33% and 34% of Adjusted EBITDA was generated in Brazil, 19% and 16% in Argentina, and 12% and 12% in Paraguay, respectively. If the currencies of these countries depreciate against the Chilean peso, this would have a negative effect on the results and financial condition of the Company, which are reported in Chilean pesos.

 

The imposition of exchange controls could restrict the entry and exit of funds to and from the countries in which we operate, which could significantly limit our financial capacity.

 

The imposition of exchange controls in the countries in which we operate could affect our ability to repatriate profits, which could significantly limit our ability to pay dividends to our shareholders. Additionally, it may limit the ability of our foreign subsidiaries to finance payments of U.S. dollar denominated liabilities required by foreign creditors.

 

Negative information on social media and similar platforms could adversely affect our reputation.

 

Negative or inaccurate information concerning us or The Coca-Cola trademarks may be posted on social media and similar platforms of Internet-based communications at any time. This information may affect our reputation, and adversely impact our business and results of operations.

 

Risks Relating to Chile

 

Our growth and profitability depend to a significant degree on economic conditions in Chile.

 

Our operations in Chile represented 39.4% and 37.7% of our assets as of December 31, 2018 and December 31, 2019, respectively, and 34.1% and 34.2% of our net sales for 2018 and 2019, respectively. Accordingly, our business, financial condition, and results of operations depend, to a considerable extent, upon economic conditions in Chile.

 

International and local economic conditions may adversely affect the Chilean economy, and unfavorable general economic conditions could negatively affect the affordability of and demand for some of our products in the country. In difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of our products or buying low cost brands offered by competitors. Any of these events could have an adverse effect on our business, financial condition and results of operations.

 

16

 

 

According to data published by the Central Bank, the Chilean economy grew at a rate of 2.3% in 2015, 1.3% in 2016, 1.5% in 2017, 4.0% in 2018 and 1.1% in 2019. Our financial condition and results of operations could also be adversely affected by changes over which we have no control, including, without limitation:

 

·political or economic developments in or affecting Chile;
·the economic or other policies of the Chilean government, which has a substantial influence over many aspects of the private sector;
·tax rates and policies;
·regulatory changes or administrative practices of Chilean authorities;
·inflation and governmental policies to combat inflation;
·currency exchange movements; and
·global and regional economic conditions.

 

We cannot assure you that the future development of the Chilean economy will not impair our ability to successfully carry out our business plan or materially adversely affect our business, financial condition or results of operations.

 

Civil unrest in Chile could have a material adverse effect on general economic conditions in Chile and our business, results of operations and financial condition.

 

Beginning on October 18, 2019, widespread protests have taken place in Chile. The protests began over the government’s announcement of an increase in subway fares in Santiago and quickly grew into broader unrest over economic inequality, including claims about transportation costs, funding for education, health care costs and pension amounts, among others. Demonstrations spread across the country and resulted in violent, and sometimes deadly acts, causing significant damage to subway stations in Santiago, shops, houses and other public and private property. The Chilean government imposed a state of emergency and nighttime curfews in Santiago and other cities; however, protests and violence continued. Additionally, the Chilean government announced a reshuffling of the cabinet and a series of social and economic reforms to tackle issues at the heart of the unrest, including cancellation of the increased subway fares, increases in government-subsidized pension, a guaranteed minimum monthly income, affordable medical insurance, lowering the price of medicine and a cancellation of energy price hikes. Chile’s Congress also reached an agreement to reform the country’s constitution. Following an agreement between Chilean political parties, a nationwide plebiscite has now been set for October 25, 2020, to ask Chileans if they want a new constitution and, if so, how the new constitution should be drafted.

 

We cannot predict the extent to which the Chilean economy will be affected by the civil unrest, nor can we predict if government policies enacted as a response to the civil unrest will have a negative impact on the Chilean economy. Changes in government policies may include higher tax rates and other changes in laws and policies that could result in a less favorable environment for private businesses. Despite looting and vandalism at our distribution center in Puente Alto, our operations have not been affected in any material respect to date. We cannot assure you that looting and vandalism will not affect our production and logistics infrastructure in the future. Also, if the protests continue or worsen, future government policies to preempt, or in response to unrest, may materially affect the Chilean economy, and thereby our business, financial condition and results of operation.

 

The Chilean peso is subject to depreciation and volatility, which could adversely affect our business.

 

The Chilean peso has been subject to large nominal devaluations in the past and may be subject to significant fluctuations in the future. The main drivers of exchange rate volatility in past years were the significant fluctuations of commodity prices, as well as general uncertainty and trade imbalances in the global markets. The Chilean peso depreciated 17% during 2015, appreciated 6% and 8% during 2016 and 2017, respectively, and depreciated 13% and 8% during 2018 and 2019, respectively, compared to the closing exchange rate as of the end of the prior period for the U.S. dollar in nominal terms.

 

A significant part of the raw materials used by the Company are in U.S. dollars, therefore a devaluation of the Chilean peso against the U.S. dollar can affect our costs and margins in a significant way.

 

In addition, as we report our results of operations in Chilean pesos, fluctuations in the value of the Chilean peso versus the Brazilian real, the Argentine peso and the Paraguayan guaraní could also impact our reported performance in Chilean pesos.

 

17

 

 

 

Inflation in Chile and government measures to curb inflation may disrupt our business and have an adverse effect on our financial condition and results of operations.

 

Although Chilean inflation has decreased in recent years, Chile has experienced significant levels of inflation in the past. The rates of inflation in Chile, which in, 2015, 2016, 2017, 2018 and 2019 were, 4.4%, 2.7%, 2.3%, 2.6% and 3.0%, respectively, as measured by changes in the consumer price index and as reported by the Chilean National Institute of Statistics, could adversely affect the Chilean economy and have a material adverse effect on our financial condition and results of operations if we are unable to increase our prices in line with inflation. We cannot assure you that Chilean inflation will not increase in the future.

 

The measures taken by the Central Bank in the past to control inflation have often included maintaining a conservative monetary policy with high interest rates, thereby restricting the availability of credit and economic growth. Inflation, measures to combat inflation, and public speculation about possible additional actions by the government have also contributed in the past to economic uncertainty in Chile and to heightened volatility in its securities markets. Periods of higher inflation may also slow the growth rate of the Chilean economy, which could lead to reduced demand for our products and decreased sales. Inflation is also likely to increase some of our costs and expenses, given that the majority of our supply contracts in Chile are UF-denominated or are indexed to the Chilean consumer price index. We cannot assure you that, under competitive pressure, we will be able to carry out price increases, which could adversely impact our operating margins and operating income. Additionally, an important part of our financial debt in Chile is UF-denominated, and therefore the value of the debt reflects any increase of the inflation in Chile.

 

A severe earthquake or tsunami in Chile could adversely affect the Chilean economy and our network infrastructure.

 

Chile lies on the Nazca tectonic plate, one of the world’s most seismically active regions. Chile has been adversely affected by powerful earthquakes in the past, including an 8.0 magnitude earthquake that struck Santiago in 1985 and a 9.5 magnitude earthquake in 1960 which is the largest earthquake ever recorded.

 

In February 2010, an 8.8 magnitude earthquake struck the central and south-central regions of Chile. The quake epicenter was located 200 miles southwest of Santiago and 70 miles north of Concepción, Chile’s second largest city. The regions of Bío Bío and Maule were the most severely affected regions, especially the coastal area, which, shortly after the earthquake, was hit by a tsunami that significantly damaged cities and port facilities. The Valparaíso and Metropolitan regions were also severely affected. At least 1.5 million homes were damaged, and more than 500 people were killed. As a result of these developments, economic activity in Chile was adversely affected in March 2010. Legislation was passed to raise the corporate income tax rate in order to pay for reconstruction following the earthquake and tsunami, which had an adverse effect on our results.

 

A severe earthquake and/or tsunami in Chile in the future could have an adverse impact on the Chilean economy and on our business, financial condition and results of operation, including our production and logistics network.

 

Risks Relating to Brazil

 

Our business operations in Brazil are dependent on economic conditions in Brazil.

 

Our operations in Brazil represented 36.8% and 40.1% of our assets as of December 31, 2018 and December 31, 2019, respectively, and 32.3% and 34.8% of our net sales for 2018 and 2019, respectively. Because demand for soft drinks and beverage products is usually correlated to economic conditions prevailing in the relevant local market, developments in economic conditions in Brazil, and measures taken by the Brazilian government, have had and are expected to continue to have an impact on our business, results of operations and financial condition.

 

The Brazilian economy has historically been characterized by unstable economic cycles and interventions by the Brazilian government. Brazilian GDP contracted by 3.5% and 3.3% in 2015 and 2016, respectively, grew by 1.1%, 1.3% and 1.2% in 2017, 2018 and 2019, respectively, according to the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatistica). The Brazilian government has often changed monetary, taxation and other policies to influence the course of Brazil’s economy. Our business, results of operations and financial condition may be adversely affected by, among others, the following factors:

 

18

 

 

·expansion or contraction of the Brazilian economy;

 

·exchange rate fluctuations;

 

·high inflation rates;

 

·changes in fiscal or tax policies;

 

·changes in monetary policy, including an increase in interest rates;

 

·exchange control policies and restrictions on remittances abroad;

 

·investment levels;

 

·liquidity of domestic capital and credit markets;

 

·employment levels and labor and social security regulations;

 

·energy or water shortages or rationalization;

 

·changes in environmental regulation;

 

·social and political instability; and

 

·other developments in or affecting Brazil.

 

The Brazilian economy is also affected by international economic and market conditions in general, especially economic and market conditions in the United States, the European Union and China.

 

Historically volatile political, social and economic conditions in Brazil could adversely affect our business and results of operations.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crisis have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration.

 

Economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation, known as “Operação Lava Jato,” have negatively impacted the Brazilian economy and political environment. The potential outcome of these investigations is uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. We cannot predict whether the ongoing investigations will result in further political and economic instability, or if new allegations against government officials and/or executives of private companies will arise in the future.

 

Jair Bolsonaro was elected as the President of Brazil in October 2018. His election led to a market recovery and the recovery of the value of the local stock market. However, we cannot assure that this confidence in the market will remain, nor that the policies promoted by the new government will be beneficial to the economy or our business. A failure by the Brazilian government to implement necessary reforms may result in diminished confidence in the Brazilian government’s fiscal condition and budget, which could result in downgrades of Brazil’s sovereign foreign credit rating by credit rating agencies, negatively impact Brazil’s economy, lead to further depreciation of the real and an increase in inflation and interest rates, adversely affecting our business, financial condition and results of operations.

 

Inflation and the Brazilian government’s measures to curb inflation, including by increasing interest rates, may contribute to economic uncertainty in Brazil.

 

Brazil has historically experienced high rates of inflation, including periods of hyperinflation before 1995. Several measures have been implemented by the Brazilian government in an effort to curb rising inflation, but we cannot predict whether these policies will be effective. According to the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or “IPCA”), published by the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, “IBGE”), Brazilian annual rates of inflation for consumer prices were 10.7% in 2015, 6.3% in 2016, 2.9% in 2017, 3.7% in 2018 and 4.1% in 2019.

 

Inflationary pressures may result in governmental interventions in the economy, including policies that could adversely affect the general performance of the Brazilian economy, which, in turn, could adversely affect our business operations in Brazil. Inflation may also increase our costs and expenses, and we may be unable to transfer such costs to our customers, reducing our profit margins and net income. In addition, inflation could also affect us indirectly, as our customers may also be affected and have their financial capacity reduced. Any decrease in our net sales or net income, as well as any reduction in our financial performance, may also result in a reduction in our net operating margin. Our customers and suppliers may be affected by high inflation rates and such effects on our customers and suppliers may adversely affect us.

 

19

 

 

The Brazilian real is subject to depreciation and volatility, which could adversely affect our business, financial condition and results of operations.

 

The Brazilian currency has been subject to significant fluctuations over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and exchange rate policies, including sudden devaluations, periodic mini devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange market and floating exchange rate systems. Although long-term devaluation of the real is generally related to the rate of inflation in Brazil, the devaluation of the real over shorter periods has resulted in significant fluctuations in the exchange rate between the Brazilian currency, the U.S. dollar and other currencies. The Brazilian real depreciated 47% during 2015, appreciated 17% during 2016 and depreciated 2%, 17%, and 4% during 2017, 2018 and 2019, respectively, compared to the closing exchange rate as of the end of the prior period for the U.S. dollar in nominal terms.

 

A significant part of the raw materials we use in Brazil are priced in U.S. dollars, so a depreciation of the Brazilian real against the U.S. dollar has a significant adverse effect in our costs and margins.

 

Any depreciation of the real against the U.S. dollar could create additional inflationary pressure, which might result in the Brazilian government adopting restrictive policies to combat inflation. This could lead to increases in interest rates, which might negatively affect the Brazilian economy as a whole, as well as our results of operations, in addition to restricting our access to international financial markets. It also reduces the U.S. dollar value of our revenues. On the other hand, future appreciation of the real against the U.S. dollar might result in the deterioration of Brazil’s current and capital accounts, as well as a weakening of Brazilian GDP growth derived from exports. We cannot assure you that the real will not again fluctuate significantly against the U.S. dollar in the future and, as a result, have an adverse effect on our business, results of operations and financial condition.

 

Changes in tax laws may increase our tax burden and reduce tax incentives and, as a result, negatively affect our profitability.

 

The Brazilian government regularly implements changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the tax rates and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. In the past, the Brazilian government has presented certain tax reform proposals, which have been mainly designed to simplify the Brazilian tax system, to avoid internal disputes within and between the Brazilian states and municipalities, and to redistribute tax revenues. The tax reform proposals provide for changes in the rules governing the federal Social Integration Program (Programa de Integração Social, or “PIS”) and Social Security Contribution (Contribuição para o Financiamento da Seguridade Social, or “COFINS”) taxes, the state Tax on the Circulation of Goods and Services (Imposto Sobre a Circulação de Mercadorias e Serviços, or “ICMS”) and some other taxes, such as increases in payroll taxes. These proposals may not be approved and passed into law. The effects of these proposed tax reform measures and any other changes that result from enactment of additional tax reforms have not been, and cannot be, quantified. However, some of these measures, if enacted, may result in increases in our overall tax burden, which could negatively affect our overall financial performance. In addition, the Brazilian beverage industry experiences unfair competition arising from tax evasion, which is primarily due to the high level of taxes on beverage products in Brazil. An increase in taxes may lead to an increase in tax evasion, which could result in unfair pricing practices in the industry.

 

Since 2018, the Brazilian government has gradually altered the value-added tax on industrialized products (Imposto sobre Produtos Industrializados or “IPI”) applicable to soft drinks concentrate. This measure has negatively affected our operations, since it significantly reduced the tax credit derived from the purchases of concentrate from the Manaus Free Trade Zone that currently benefits Rio de Janeiro Refrescos, and the soft drinks industry as a whole. Such alterations have been implemented gradually, as follows: (1) 20% IPI rate until September 2018; (2) 4% IPI rate from October to December 2018; (3) 12% IPI rate in the first half of 2019; (4) 8% IPI rate from July 1, 2019 to September 30, 2019; (5) 10% IPI rate from October 1, 2019 to December 31, 2019; (6) 4% IPI rate from January 1, 2020 to May 31, 2020; (7) 8% IPI rate from June 1, 2020 to November 30, 2020; and (8) 4% IPI rate from December 1, 2020 onwards. Any further reductions of the IPI may adversely affect our financial condition and results of operations.

 

Given the high tax burden in Brazil, federal and state authorities of that country offer a series of significant tax incentives to certain territories and/or localities in order to attract investment, particularly for manufacturers and other companies operating and investing in Brazil. Coca-Cola Andina Brazil has received some of these tax incentives and its results have been positively affected by these incentives. Although these incentives have generally been renewed in the past, we cannot assure that they will continue to be renewed in the future. Current tax incentives from the State of Rio de Janeiro in connection with the development and construction of the Duque de Caxias production plant are due to expire in October 2020 and may not be renewed. Termination, non-extension or non-renewal of tax incentives could have a material adverse effect on our business, financial condition and results of operation.

 

20

 

 

Risks Relating to Argentina

 

Our business operations in Argentina are dependent on economic conditions in Argentina.

 

Our operations in Argentina represented 10.9% and 10.1% of our assets as of December 31, 2018 and December 31, 2019, respectively, and 24.7% and 22.2% of our net sales for 2018 and 2019, respectively. Developments in economic, political, regulatory and social conditions in Argentina, and measures taken by the Argentine government, have had and are expected to continue to have an impact on our business, results of operations and financial condition.

 

Historically, the Argentine economy has experienced periods of high levels of instability and volatility, low or negative economic growth and high and variable inflation and devaluation levels. According to the National Statistics and Census Institute (Instituto Nacional de Estadísticas y Censos, or “INDEC”), Argentine GDP grew in real terms 2.6% in 2015, contracted by 2.1% in 2016, grew by 2.7% in 2017 and contracted by 2.5% and 2.2% in 2018 and 2019, respectively.

 

Argentine economic conditions are dependent on a variety of factors, including the following:

 

·domestic production, international demand and prices for Argentina’s principal commodity exports;

 

·the competitiveness and efficiency of domestic industries and services;

 

·the stability and competitiveness of the Argentine peso against foreign currencies;

 

·the rate of inflation;

 

·the government’s fiscal deficits;

 

·the government’s public debt levels;

 

·foreign and domestic investment and financing; and

 

·governmental policies and the legal and regulatory environment.

 

Government policies and regulation—which at times have been implemented through informal measures and have been subject to radical shifts—that have had a significant impact on the Argentine economy in the past have included, among others: monetary policy, including exchange controls, capital controls, high interest rates and a variety of measures to curb inflation, restrictions on exports and imports, price controls, mandatory wage increases, taxation and government intervention in the private sector.

 

We cannot assure you that the future development of the Argentine economy will not impair our ability to successfully carry out our business plan or materially adversely affect our business, financial condition or results of operations.

 

Political and economic instability in Argentina may recur, which could have a material adverse effect on our Argentine operations and on our financial condition and results of operations.

 

Argentina has a history of political and economic instability that often results in abrupt changes in government policies. Argentine governments have pursued different, and often contradictory, policies to those of preceding administrations. In recent decades, succeeding administrations have implemented interventionist policies, which included nationalization, debt renegotiation, price controls, and exchange restrictions, as well as market-friendly policies, such as export tax reductions, elimination of currency controls, deregulation of utility prices, negotiation of free trade agreements and implementation of pro-investor initiatives.

 

In October 2019, Argentine presidential, legislative and certain provincial and municipal governments elections were held and Alberto Fernández was elected president. The new administration took office on December 10, 2019. Certain members of the current government coalition, including president Alberto Fernández and vice president Cristina Fernández de Kirchner, were part of administrations which in the past were characterized by high levels of government intervention and policies at times disadvantageous to investors and the private sector. As a result, there is uncertainty regarding the policies and changes in regulation that the new Argentine government will implement. On December 23, 2019, the new Argentine government passed a law granting emergency powers to the executive branch, among other measures. We cannot predict what policies the new Argentine government will implement under these emergency powers.

 

21

 

 

We cannot provide assurance that the Argentine government will not adopt policies, over which we have no control, that adversely affect the Argentine economy and impair our Argentine operations and our business, financial condition or results of operations.

 

Inflation in Argentina may adversely affect our operations, which could adversely impact our financial condition and results of operations.

 

Argentina has experienced high levels of inflation in recent decades. Argentina’s historically high rates of inflation resulted mainly from its lack of control over fiscal policy and the money supply. Argentina continues to face high inflationary pressures. The INDEC in 2017 reported that the consumer price index (índice de precios al consumidor or “CPI”) increased 24.8%, while the wholesale price index (índice de precios internos al por mayor or “WPI”) increased 18.8%. In 2018, the INDEC registered a variation in the CPI of 47.6% and an increase in WPI of 73.5%. In 2019, the INDEC registered an increase in CPI of 53.7%, while the WPI increased 58.5%.

 

During 2018 and 2019, Argentina met the criteria to be considered a hyperinflationary economy as provided by IAS 29 guidelines, which include, among other characteristics, a cumulative inflation rate over three years that approaches or exceeds 100%. Accordingly, IAS 29 must be applied for financial statements for fiscal years ending on or after July 1, 2018. IAS 29 requires non-monetary assets and liabilities, shareholders’ equity and comprehensive income to be restated in terms of a measuring unit current at the period end. IAS 29 also requires the use of a general price index to reflect changes in purchasing power. As a result, since July 2018, we began to apply IAS 29 in the preparation of our financial statements and report the results of our operations in Argentina as if this economy was hyperinflationary from January 1, 2018. In addition, by application of IAS 29, we had to translate figures in Argentine pesos to Chilean pesos using the period closing exchange rate (and not the average exchange rate), thus reducing our results of operations and net earnings. We cannot predict for how long Argentina will be considered a hyperinflationary economy and we will have to apply IAS 29 to the preparation of our financial statements.

 

In the past, inflation has materially undermined the Argentine economy and the government’s ability to generate conditions that foster economic growth. High inflation or a high level of price instability may materially and adversely affect the business volume of the financial system. This result, in turn, could adversely affect the level of economic activity and employment in the country.

 

High inflation would also undermine Argentina’s foreign competitiveness and adversely affect economic activity, employment, real salaries, consumption and interest rates, thereby materially and adversely affecting economic activity and consumers’ income and their purchasing power, all of which could have a material adverse effect on our financial condition and operating results.

 

Between 2007 and 2015, the INDEC, which is the only institution in Argentina with the statutory authority to produce official national statistics, experienced significant institutional and methodological changes that gave rise to controversy regarding the reliability of the information that it produces, including inflation, GDP and unemployment data, resulting in allegations that the inflation rate in Argentina and the other rates calculated by INDEC could be substantially different than as indicated in official reports. While the previous administration undertook reforms and the credibility of the national statistics systems has since been restored, we cannot assure you that the new or future administrations will not implement policies that may affect the national statistics system undermining consumer and investor confidence, which ultimately could affect our business, results of operations and financial condition.

 

The Argentine peso is subject to depreciation and volatility, which could adversely affect our financial condition and results of operations.

 

Fluctuations in the value of the peso continue to affect the Argentine economy. Since January 2002, the peso has fluctuated significantly in value, often following periods of high inflation and currency controls that artificially appreciated the value of the currency. Frequent devaluations have had an adverse effect on the ability of the Argentine government and Argentine companies to make timely payments on their foreign currency denominated obligations, have significantly reduced wages in real terms, and have adversely impacted the stability of businesses whose success depends on the domestic market demand.

 

In an effort to reduce downward pressure on the value of the Argentine peso, the Argentine government has at times implemented policies aimed at maintaining the level of reserves of the Banco Central de la República Argentina (“BCRA”) that limit the purchase of foreign currency by private companies and individuals. Currently, access to the foreign exchange market is subject to several restrictions and governmental authorizations.

 

In 2015, 2016, 2017, 2018 and 2019, the Argentine peso depreciated 52%, 22%, 17%, 102% and 59%, respectively, compared to the closing exchange rate as of the end of the prior period for the U.S. dollar. A significant part of the raw materials used by the company in Argentina are in U.S. dollars, so a devaluation of the Argentine peso against the U.S. dollar can affect our costs and margins in a significant way.

 

22

 

 

The depreciation of the Argentine peso may have a negative impact on the ability of certain Argentine businesses to service their foreign currency denominated debt, significantly reduce real wages and jeopardize the stability of businesses which success depends on domestic market demand. It may also, adversely affect the Argentine government’s ability to honor its foreign debt obligations. A significant appreciation of the Argentine peso against the U.S. dollar also presents risks for the Argentine economy, including the possibility of a reduction in exports as a consequence of the loss of external competitiveness. Any such appreciation could also have a negative effect on economic growth and employment, and reduce tax revenues.

 

Given the economic and political conditions in Argentina, we cannot predict whether, and to what extent, the value of the Argentine peso may depreciate or appreciate against the U.S. dollar, the euro or other foreign currencies. We cannot predict how these conditions will affect the consumption of our products. Moreover, we cannot predict whether the new Argentine government will continue its monetary, fiscal, and exchange rate policy and, if so, what impact any of these changes could have on the value of the Argentine peso and, accordingly, on our financial condition, results of operations and cash flows, and on our ability to transfer funds abroad in order to comply with commercial or financial obligations.

 

The Argentine government could impose certain restrictions on currency conversions and remittances abroad, which could affect the timing and amount of any dividends or other payment we receive from our Argentine subsidiary.

 

Beginning in December 2015, the Argentine government gradually eased restrictions which significantly curtailed access to the foreign exchange market by individuals and private sector entities and affected our ability to declare and distribute dividends with respect to our Argentine subsidiary. These measures included informal restrictions, which consisted of de facto measures restricting local residents and companies from purchasing foreign currency through the foreign exchange market to make payments abroad, such as dividends and payment for the importation of goods and services.

 

On September 1, 2019, in a response to the weakening of the Argentine peso following the results of the primary elections, the Argentine government temporarily reinstated certain exchange restrictions. The new controls apply with respect to access to the foreign exchange market by residents (both companies and natural persons) for savings and investment purposes abroad, the payment of external financial debts abroad, the payment of dividends in foreign currency abroad, the payment of imports of goods and services, and the obligation to repatriate and settle for Argentine pesos the proceeds from exports of goods and services, among others. Under current Argentine law, we are restricted from accessing the official foreign exchange market to make dividend payments to us from our Argentine subsidiaries without prior approval from the Argentine Central Bank.

 

It is not possible to anticipate whether these measures will be in force after December 31, 2019 or if the new administration which took office on December 10, 2019 will impose additional restrictions. The Argentine government could maintain or impose new exchange control regulations, restrictions and take other measures in response to capital flight or a significant depreciation of the peso, which could limit access to the international capital markets, adversely affect Argentina’s economy, and further impair our ability to declare and distribute dividends from our Argentine subsidiaries.

 

The Argentine government’s ability to obtain financing from international capital markets may be limited or costly, which may impair its ability to implement reforms and foster economic growth.

 

At the end of 2001, the Argentine government defaulted in part of its sovereign debt. In 2005 and 2010, Argentina conducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001. Through these exchange offers, Argentina restructured over 92% of its eligible defaulted debt. In April 2016, after a series of judicial actions by Argentina’s bondholders, the Argentine government settled substantially all of the remaining defaulted debt. Additionally, as a result partially of emergency measures undertaken by the government in response to the crisis of 2001 and 2002, foreign shareholders of several Argentine companies filed claims with the International Centre for Settlement of Investment Disputes (“ICSID”), alleging that those measures diverged from the just and equal treatment standards set forth in bilateral investment treaties to which Argentina is a party. The ICSID ruled against the Argentine government in a number of these proceedings, and the Argentine government has settled some but not all of these claims.

 

In December 2019, the Argentine government delayed payment on roughly US$9 billion in U.S. dollar-denominated short-term debt, postponing payment until August 2020 while announcing to its creditors that it will seek to restructure the country’s debt obligations, including loans from the International Monetary Fund, which extended a US$57 billion bailout program. As a result, rating agency Fitch downgraded Argentina to “restricted default” and Standard & Poor’s changed its country rating to “selective default”.

 

23

 

 

While Argentina had regained access to the international capital markets, actions by the Argentine government, or investor perceptions of the country’s creditworthiness, could curtail access in the future or could significantly increase borrowing costs, limiting the government’s ability to foster economic growth. Limited or costly access to international financing for the private sector could also affect our business, financial condition and results of operations.

 

The government may order salary increases to be paid to employees in the private sector, which could increase our operating costs and affect our results of operations.

 

In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to increase wages and provide specified benefits to employees. On December 23, 2019, the Argentine government passed a law granting emergency powers to the executive branch which, among others, include the ability to mandate increases to private sector wages. Due to persistent high levels of inflation, labor organizations regularly demand significant wage increases. In 2015, 2016, 2017, 2018 and 2019 the increase in the federally-mandated minimum wage was 27%, 35%, 17%, 28% and 48%, respectively, and for these same years the market average salary increase for workers was 32%, 33%, 26%, 32% and 48%, respectively. In addition, the Argentine government has arranged various measures to mitigate the impact of inflation and exchange rate fluctuation in wages. Due to high levels of inflation, both public and private sector employers continue to experience significant pressure to further increase salaries.

 

Labor relations in Argentina are governed by specific legislation, such as Labor Law No. 20,744 and Law No. 14,250 on Collective Bargaining Agreements, which, among other things, dictate how salary and other labor negotiations are to be conducted. In the future, the government could take new measures requiring salary increases or additional benefits for workers, and the labor force and labor unions may apply pressure in support of such measures. Any such increase in wages or worker benefit could result in added costs and reduced results of operations for Argentine companies, including us.

 

Government measures to preempt or respond to social unrest may adversely affect the Argentine economy and our business.

 

In recent decades, Argentina has experienced significant social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Social and political tension and high levels of poverty and unemployment continue. Unions frequently stage nationwide strikes and protests, and riots and lootings of shops and supermarkets in cities around the country have taken place at times of social turmoil.

 

Future government policies to preempt, or in response to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely and materially affect the Argentine economy, and thereby our business, results of operations and financial condition.

 

Risks Relating to Paraguay

 

Our business operations in Paraguay are dependent on economic conditions in Paraguay.

 

Our operations in Paraguay represented 12.9% and 12.1% of our assets as of December 31, 2018 and December 31, 2019, respectively, and 8.9% and 8.9% of our net sales for 2018 and 2019, respectively. Because demand for soft drinks and beverage products is generally related to the economic conditions prevailing in the local market which, in turn, depend on the macroeconomic and political conditions of the country, our financial situation and our results of operations could be adversely affected by changes in these factors over which we have no control.

 

Paraguay has a history of economic and political instability, exchange controls, frequent changes in regulatory policies, corruption and weak judicial security. Paraguayan GDP grew by 3%, 4%, 5% and 3% in 2015, 2016, 2017 and 2018, respectively; and did not grow in 2019, according to the Paraguayan Central Bank. Paraguayan GDP is closely tied to the performance of Paraguay’s agricultural sector, which can be volatile.

 

The situation of the Paraguayan economy is also strongly influenced by the economic situation in Argentina and Brazil. A deterioration in the economic situation of these countries could adversely affect the Paraguayan economy and, in turn, our financial condition and operating results.

 

Inflation in Paraguay may adversely affect our financial condition and results of operations.

 

Although inflation in Paraguay has remained stable at around 4% over the last five years, we cannot assure that inflation in Paraguay will not increase significantly. An increase in inflation in Paraguay could decrease the purchasing power of our consumers in the country, which could adversely affect our volumes and impact our sales income.

 

24

 

 

The Paraguayan guaraní is subject to depreciation and volatility, which could adversely affect our financial condition and results of operations.

 

The exchange rate of Paraguay is free and floating and the Paraguay Central Bank, actively participates in the exchange market in order to reduce volatility. Since a portion of our total costs (30%) in Paraguay for raw material and supplies are denominated in U.S. dollars, a significant depreciation of the local currency could adversely affect our financial situation and results.

 

The Paraguayan guaraní depreciated by 26% in 2015, appreciated by 1% and 3% in 2016 and 2017, respectively, and depreciated by 7% and 8% in 2018 and 2019, respectively, in each case compared to the closing exchange rate as of the end of the prior period of the U.S. dollar.

 

The local currency follows regional and global trends. When the U.S. dollar’s value increases, and raw materials lose value in Paraguay, this directly impacts Paraguay’s generation of foreign exchange which occurs mainly through the export of raw materials. A deterioration in the economic growth of Paraguay as result of a significant depreciation of the Paraguayan guaraní could have an effect on our business, financial condition and results of operations.

 

Risk Factors Relating to the ADRs and Common Stock

 

Preemptive rights may be unavailable to ADR holders.

 

According to the Ley de Sociedades Anónimas No. 18,046 and the Reglamento de Sociedades Anónimas (collectively, the “Chilean Companies Law”), whenever we issue new shares for cash, we are required to grant preemptive rights to holders of our shares (including shares represented by ADRs), giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. However, we may not be able to offer shares to United States holders of ADRs pursuant to preemptive rights granted to our shareholders in connection with any future issuance of shares unless a registration statement under the U.S. Securities Act of 1933, as amended, is effective with respect to such rights and shares, or an exemption from the registration requirements of the U.S. Securities Act of 1933, as amended, is available.

 

Under the procedure established by the Central Bank of Chile, the foreign investment agreement of a Chilean company with an existing ADR program will become subject to an amendment (which will also be deemed to incorporate all laws and regulations applicable to international offerings in effect as of the date of the amendment) that will extend the benefits of such contract to new shares issued pursuant to a preemptive rights offering to existing ADR owners and to other persons residing and domiciled outside of Chile that exercise preemptive rights, upon request to the Central Bank of Chile. We intend to evaluate at the time of any rights offering the costs and potential liabilities associated with any such registration statement as well as the indirect benefits to us of enabling United States ADR holders to exercise preemptive rights and any other factors that we consider appropriate at the time, and then make a decision as to whether to file such registration statement.

 

We cannot assure you that any registration statement would be filed. To the extent ADR holders are unable to exercise such rights because a registration statement has not been filed, the depositary will attempt to sell such holders’ preemptive rights and distribute the net proceeds thereof if a secondary market for such rights exists and a premium can be recognized over the cost of any such sale. If such rights cannot be sold, they will expire, and ADR holders will not realize any value from the grant of such preemptive rights. In any such case, such holder’s equity interest in the Company would be diluted proportionately.

 

Shareholders’ rights are less well-defined in Chile than in other jurisdictions, including the United States.

 

Under the United States federal securities laws, as a foreign private issuer, we are exempt from certain rules that apply to domestic United States issuers with equity securities registered under the United States Securities Exchange Act of 1934, as amended, including the proxy solicitation rules, the rules requiring disclosure of share ownership by directors, officers and certain shareholders. We are also exempt from certain of the corporate governance requirements of the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange, Inc., including the requirements concerning independent directors.

 

Our corporate affairs are governed by the laws of Chile and our estatutos or bylaws. Under such laws, our shareholders may have fewer or less well-defined rights than they might have as shareholders of a corporation incorporated in a U.S. jurisdiction.

 

Pursuant to Law No. 19,705, enacted in December 2000, the controlling shareholders of an open stock corporation can only sell their controlling shares through a tender offer to all shareholders in which the bidder would have to buy all of the offered shares up to the percentage determined by it, where the price paid is substantially higher than the market price (i.e., when the price paid was higher than the average market price for a period starting 90 days before the proposed transaction and ending 30 days before such proposed transaction, plus 10%).

 

25

 

 

The market for our shares may be volatile and illiquid.

 

The Chilean securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The Bolsa de Comercio de Santiago (the “Santiago Stock Exchange”), which is Chile’s principal securities exchange, had a market capitalization of approximately US$205,798 million as of December 31, 2019 and an average monthly trading volume of approximately US$3,369 million for the year. The lack of liquidity is owed, in part, to the relatively small size of the Chilean securities markets and may have a material adverse effect on the trading prices of our shares. Because the market for our ADRs depends, in part, on investors’ perception of the value of our underlying shares, this lack of liquidity for our shares in Chile may have a significant effect on the trading prices of our ADRs.

 

ITEM 4.INFORMATION ON THE COMPANY

 

A.HISTORY AND DEVELOPMENT OF THE COMPANY

 

Overview

 

Our legal name is Embotelladora Andina S.A., and our commercial name is Coca-Cola Andina. We were incorporated and organized under Chilean law as a sociedad anónima on February 7, 1946. An abstract of our bylaws is registered with the Registro de Comercio del Conservador de Bienes Raíces de Santiago (Public Registry of Commerce of the Real Estate Commission Administrator of the City of Santiago) under No. 581 of the year 1946. Pursuant to our bylaws, our term of duration is indefinite.

 

Our common shares are listed and traded on the Santiago Stock Exchange and on the Bolsa Electrónica de Chile (the Chilean Electronic Stock Exchange) and, until October 2018, were listed on the Bolsa de Corredores de Valparaiso (the Valparaiso Brokers Stock Exchange), which closed operations in October 2018.

 

Our Series A and Series B ADRs representing our Series A and Series B shares, respectively, are listed on the New York Stock Exchange. Our principal executive offices are located at Avenida Miraflores 9153, Floor 7, Renca, Santiago, Chile. Our telephone number is +562-2338-0520 and our website is www.koandina.com.

 

Our depositary agent for the ADRs in the United States is The Bank of New York Mellon Corporation, located at 240 Greenwich Street, New York, New York 10286. Our depositary agent’s telephone number is (212) 815-2296. Our authorized representative in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711, United States, and its phone number is (302) 738-6680.

 

History

 

Chile

 

In 1941, The Coca-Cola Company licensed a private Chilean company to produce Coca-Cola soft drinks in Chile and production began in 1943. In 1946, the original licensee withdrew from the license arrangement and a group of U.S. and Chilean investors formed Andina, which became The Coca-Cola Company’s sole licensee in Chile.

 

Between 1946 and the early 1980s, Andina developed the Chilean market for Coca-Cola soft drinks with a system of production and distribution facilities covering the central and southern regions of Chile. In the early 1980s, Andina sold its Coca-Cola licenses for most areas outside the Santiago metropolitan region and concentrated on the development of its soft drink business in the Santiago area. Although we are no longer the sole Coca-Cola bottler in Chile, we have been the principal manufacturer of Coca-Cola products in Chile for an uninterrupted period of 73 years.

 

In 1998, we purchased a 49% stake in Vital S.A. from The Coca-Cola Company. Concurrently, The Coca-Cola Company purchased Vital S.A. mineral water springs located in Chanqueahue, 80 miles south of Santiago. As part of the transaction, the Vital bottler agreement was replaced with a Minute Maid International Inc. juice bottler agreement and a new mineral water bottling agreement with The Coca-Cola Company.

 

The production and packaging business of water, juices and non-carbonated beverages licensed by The Coca-Cola Company in Chile was restructured in 2005. Vital Aguas S.A. (“VASA”) was created in 2005 in order to develop the processing, production and packaging of mineral water and other waters by Agua Mineral de Chanqueahue Vital. Andina and Embonor S.A. continued the development of juices and non-carbonated beverages through their ownership stakes in Vital S.A., holding 66.5% and 33.5%, respectively. In January 2011, the juice production business was restructured to allow the incorporation of the other Coca-Cola bottlers in Chile to the ownership of Vital S.A., which changed its name initially to Vital Jugos S.A. and then to VJ S.A. in 2019. Andina and Embonor hold 65% and 35% stakes in Vital Jugos, respectively.

 

26

 

 

In 2001, we entered into a joint venture with Cristalerías de Chile to produce PET bottles. On January 27, 2012, Coca-Cola Embonor through its subsidiary, Embonor Empaques S.A., acquired Cristalerías de Chile’s stake equivalent to a 50% ownership interest in Envases CMF.

 

On October 16, 2012, in order to reinforce our leadership position among Coca-Cola bottlers in South America, the Company completed its merger with Embotelladoras Coca-Cola Polar S.A. (“Polar”). Polar was a Coca-Cola bottler with operations in Chile, where it serviced territories in the II, III, IV, XI and XII regions, as well as parts of Argentina, as described below, and all of Paraguay. The merger granted former shareholders of Polar a 19.68% ownership interest in the merged entity, however the Company controls its day to day operations. As a result of the transaction, we also acquired additional indirect ownership interests in Vital Jugos, Vital Aguas and Envases Central.

 

On January 28, 2016, the Company incorporated a closed joint-stock company called Coca-Cola Del Valle New Ventures S.A. (“Coca-Cola Del Valle”). Embotelladora Andina S.A. contributed 35% of the capital of Coca-Cola Del Valle, with Embonor S.A. and Coca-Cola de Chile S.A. contributing the remaining 15% and 50%, respectively. The main corporate purpose of Coca-Cola Del Valle is the development and production of juices, waters and non-carbonated beverages under brands owned by The Coca-Cola Company that Andina and Coca-Cola Embonor S.A. are authorized to commercialize and distribute in their respective franchise territories.

 

On August 1, 2016, the Company signed an agreement with Monster Energy Company for the distribution of Monster Energy products in the Chilean territory covered by Andina, which we began distributing in September 2016.

 

On March 28, 2017, The Coca-Cola Company, together with its bottlers in Latin America, announced the closing of the acquisition from Unilever of the AdeS vegetable protein-based beverage business. Andina began distributing AdeS products in Chile in July 2017.

 

In January 2018, the Company, Embonor S.A., Coca-Cola del Valle New Ventures S.A., and Coca-Cola de Chile S.A., as buyers, and Inversiones Siemel S.A. as seller, entered into a stock purchase agreement under which the parties agreed to transfer 100% ownership of the shares of Comercializadora Novaverde S.A. (“Novaverde”), a Chilean company dedicated to the production and distribution of juices, ice cream, and other food, mainly under the brand “Guallarauco” subject to certain conditions precedent. The transaction did not include the acquisition of the avocado sales business line and the General Mills representation. In October 2018, the purchase of 100% of the shares of Novaverde was completed.

 

In May 2018, Diageo Chile Ltda., Embonor S.A. and Embotelladora Andina S.A. signed an agreement for the distribution in Chile of the brands belonging to Diageo, including Johnnie Walker, Baileys, Smirnoff, Guinness, Pampero, among others.

 

In October 2019, Cooperativa Agrícola Pisquera Elqui Ltda. (“Capel”), Embonor S.A. and Andina, signed an agreement for the distribution in Chile of products bearing the brands belonging to Capel, including Capel (brand), Alto del Carmen, Monte Fraile, Brujas de Salamanca, Artesanos del Cochiguaz, among others.

 

Brazil

 

Andina Brazil, our Brazilian subsidiary, began production and distribution of Coca-Cola soft drinks in Rio de Janeiro in 1942. In June 1994, we acquired 100% of the capital stock of Andina Brazil for approximately US$120 million and contributed an additional US$31 million to Andina Brazil’s capital immediately after the acquisition to repay certain indebtedness of Andina Brazil. In 2000, we purchased a Coca-Cola franchise licensee NVG through Andina Brazil for a territory in Brazil comprising the State of Espírito Santo and part of the States of Rio de Janeiro and Minas Gerais, for US$74.5 million.

 

In 2004, Andina Brazil entered into a franchise swap agreement with the Brazilian subsidiary of The Coca-Cola Company, Recofarma Indústria do Amazonas Ltda., for an exchange of franchising rights, goods and other assets of Andina Brazil in the territory of Governador Valadares in the State of Minas Gerais, and other franchise rights of The Coca-Cola Company in the territories of Nova Iguaçu in the state of Rio de Janeiro, which were previously owned by Companhia Mineira de Refrescos S.A.

 

In 2007, The Coca-Cola Company along with the Coca-Cola bottlers in Brazil created a joint venture, Mais Indústria de Alimentos, in order to enhance the non-carbonated business for the entire system in that country, and in 2008 The Coca-Cola system acquired a second company that produces non-carbonated beverages called Sucos del Valle do Brasil Ltda. These two companies merged in 2011 and SABB (Sistema de Alimentos y Bebidas do Brasil) was created.

 

27

 

 

In 2010, The Coca-Cola Company along with its bottlers, acquired in a joint venture the company Leão Junior S.A. with a consolidated presence and market share in Andina Brazil’s region in the category of iced tea. Leão Junior S.A. commercializes the Matte Leão brand, among others. Andina Brazil controls 18.20% of Leão Junior S.A. Andina Brazil holds a 10.74% average ownership interest in Leão Junior S.A. and SABB.

 

In November 2012, Andina Brazil acquired a 40% stake in Sorocaba Refrescos S.A., a Coca-Cola bottler located in the state of São Paulo, for R$146,946,004.

 

On October 11, 2013, Andina Brazil, acquired 100% of the capital stock of Companhia de Bebidas Ipiranga (“Ipiranga”) in an all-cash transaction. Ipiranga is also a Coca-Cola bottler with operations in part of the States of São Paulo and part of the State of Minas Gerais. This acquisition was previously arranged between the parties through an agreement signed on July 10, 2013. The final price paid was R$1,155,445,998.

 

During 2013, there was a restructuring of the juice and mate herb (“yerba mate”) business, pursuant to which the companies in which Andina Brazil held an interest were merged. As a result of the restructuring, Andina Brazil ended up with a 9.57% ownership interest in Leão Alimentos y Bebidas Ltda., the legal successor of these companies. This percentage increased to 10.87% as a result of our acquisition of, and subsequent merger with, Compañía de Bebidas Ipiranga that held an ownership interest in Leão Alimentos y Bebidas Ltda. During 2014, Andina Brazil sold 2.05% of its ownership interest in Leão Alimentos e Bebidas Ltda., remaining with a final ownership interest of 8.82%.

 

During 2015 and 2016, Andina Brazil made two capital increases in Leão Alimentos e Bebidas Ltda. for a total amount of R$ 39.9 million. Andina Brazil’s ownership interest in Leão Alimentos e Bebidas Ltda. did not increase, given that all of the shareholders of Leão Alimentos e Bebidas Ltda. proportionally participated in the capital increase.

 

During 2016, Andina Brazil, along with Coca-Cola Brazil and the other bottlers in Brazil, acquired Laticinios Verde Campo Ltda. The purchase was made through Trop Frutas do Brasil Ltda. a subsidiary of Leão Alimentos e Bebidas Ltda. Andina Brazil acquired 7.5% of Laticinios Verde Campo Ltda. in R$ 29.5 million.

 

In 2016, Andina Brazil signed an agreement with Monster Energy Company for the distribution of Monster Energy products in Andina Brazil’s territory. These products began being distributed on November 1, 2016.

 

In 2016, Andina Brazil closed its production facility in Cariacica, state of Espírito Santo, leaving only two production facilities, in the States of Rio de Janeiro and São Paulo.

 

In 2017, Andina Brazil bought, together with Coca-Cola Brazil and the other Coca-Cola bottlers in Brazil, the company UBI 3 Participações Ltda. The operation was carried out to make the distribution and marketing of AdeS products in Brazil viable. Andina Brazil bought 8.50% of UBI 3 Participações Ltda. for R$21.4 million. Andina Brazil began distributing AdeS products in June 2017.

 

In August 2017, Andina Brazil increased its ownership interest in Leão Alimentos e Bebidas Ltda. from 8.8% to 10.3%. The value of the additional ownership interest acquired was R $26.5 million.

 

In March 2018, Andina Brazil started the production of soft drinks at the new Duque de Caxias plant in the state of Rio de Janeiro, and in January 2019, the production of mineral waters started in the same plant.

 

Argentina

 

Production of Coca-Cola soft drinks in Argentina began in 1943 with operations in the province of Córdoba, Argentina, through Inti S.A.I.C., (“INTI”). In July 1995, we, through an investment company incorporated in Argentina called Inversiones del Atlántico S.A., (“IASA”), acquired a 59% interest in Embotelladoras del Atlántico S.A. (“EDASA”, the parent company of Rosario Refrescos S.A. and Mendoza Refrescos S.A.). These entities were subsequently merged to create Rosario Mendoza Refrescos S.A., (“ROMESA”). In 1996, we acquired an additional 35.9% interest in EDASA, an additional 78.7% interest in INTI, a 100% interest in CIPET (a PET plastic bottle and packaging business located in Buenos Aires) and a 15.2% interest in Cican S.A. During 1997, the operations of ROMESA were merged with INTI. In 1999, EDASA was merged into IASA. In 2000, IASA was merged into INTI, forming Embotelladora del Atlántico S.A. (“EDASA”). In 2002, CIPET merged into EDASA. During 2007, EDASA’s ownership interest in Cican S.A. was sold to FEMSA.

 

28

 

 

 

In 2011, EDASA's shareholders resolved to form Andina Empaques Argentina S.A., through a spin-off of all of EDASA’s Packaging Division, including all tangible and intangible assets related thereto. Accounting and tax effects began on January 1, 2012. Subsequently, EDASA absorbed Coca-Cola Polar Argentina S.A.

 

Additionally, as a result of the Company’s merger with Polar which was completed in October 16, 2012, the Company gained territory serviced by Polar in Argentina, consisting of territories in Santa Cruz, Neuquén, El Chubut, Tierra del Fuego, Río Negro, La Pampa and the western part of the province of Buenos Aires.

 

On December 2, 2015 the National Commission for the defense of Competition in the Republic of Argentina, a non-concentrated organism under the administration of the Undersecretary of Trade of the Secretary of Trade of Ministry of Economy and Public Finances, notified EDASA of Resolution No. 640 issued by the Secretary of Trade of the Ministry of Economy and Public Finances on November 24, 2015, under which it authorized and approved the economic concentration caused by the (i) merger by incorporation between the Chilean company Embotelladora Andina S.A., as surviving entity, and Embotelladoras Coca-Cola Polar S.A., and (ii) the merger by incorporation between EDASA as surviving entity, and Coca-Cola Polar Argentina S.A., respectively, under article 13, inc. a) of Law 25,156 (old Anti-Trust Law).

 

On March 28, 2017, EDASA acquired 13.0% of the shares of the company Alimentos de Soja S.A.U., dedicated to the production of vegetable protein-based beverages marketed under the brand “AdeS”. The sale of Alimentos de Soja S.A.U. shares was carried out within the framework of a global transaction under the terms of which The Coca-Cola Company and certain Coca-Cola bottlers acquired the “AdeS” liquid soy-based food business from the Unilever Group in Brazil, Mexico, Argentina, Colombia, Paraguay, Uruguay, Bolivia and Chile. EDASA began distributing AdeS products in July 2017. In 2018, EDASA acquired shares of Alimentos de Soja S.A.U. (currently Alimentos de Soja S.A.), increasing its ownership interest to 14.3%. The amount of shares transferred was sufficient to provide EDASA a percentage of shares approximately proportional to its market share in the territory.

 

On December 13, 2017, EDASA, together with Monster Energy Company, entered into an agreement in which Monster Energy Company named Embotelladora del Atlántico S.A. as distributor in the franchise territory of Andina Argentina of the products bearing the "Monster" brand for an initial period of 10 years. In February 2018, we began commercializing and distributing Monster products entering the category for energy drinks.

 

Paraguay

 

PARESA is the first authorized Coca-Cola Bottler Company in Paraguay, which started its operations in May 13, 1965. In 1967, Plant 1 was opened with a capacity of 400,000 annual unit cases. In 1980, the Barcequillo Plant - located on Km 3.5 Barcequillo of the Ñemby route, in the City of San Lorenzo- was opened, reaffirming and applying the concept of the highest end technology of bottling. Beginning in 2004, PARESA became property of the Grupo Polar from Chile, continuing its operations in the Paraguayan market. On October 1, 2012, PARESA became part of Grupo Coca-Cola Andina due to the merger of Embotelladoras Coca-Cola Polar S.A. into Embotelladora Andina S.A.

 

On March 28, 2017, The Coca-Cola Company, together with its bottlers in Latin America, announced the closing of the acquisition from Unilever of the AdeS vegetable protein-based beverage business.

 

PARESA began distributing AdeS and Monster products in July 2017 and May 2019, respectively.

 

Capital Expenditures

 

The following table sets forth our capital expenditures by country for the 2017-2019 period:

 

 

   Year ended December 31, 
   2017   2018   2019 
   (in millions of Ch$) 
Chile   50,337    52,094    51,543 
Brazil   81,322    32,536    21,343 
Argentina   29,538    26,749    24,343 
Paraguay   7,661    9,684    13,454 
Total   168,858    121,063    110,683 

 

Our total capital expenditures were Ch$168,858 million in 2017, Ch$121,063 million in 2018 and Ch$110,683 in 2019.

 

29

 

 

In 2019, capital expenditures were principally related to the following:

 

Argentina

 

·Returnable containers (glass and PET bottles) and cases for bottles,
·Coolers - Cold Equipment,
·Can Line Project (Monte Cristo plant – fine tuning),
·Refillable PET (Ref PET) Returnable Labeling Project (Monte Cristo plant and Bahia Blanca plant – fine tuning),
·Ref PET Blowing Project (Monte Cristo plant),
·Front Office project (implementation stage 1 which will be completed in 2020), and
·Purchase of forklifts and transpallets.

 

Brazil

 

·Finalization of the Duque de Caxias plant,
·Production lines and equipment for the Duque de Caxias plant,
·Implementation of returnable labelling project,
·Returnable containers (Ref PET and glass bottles) and plastic bottle cases,
·Cold equipment, post-mix and other equipment for the point of sale,
·Improvements in the management systems,
·Machinery to increase efficiency and productive capacity, and
·Renewal of part of the trucks and forklifts for industrial and logistics areas.

 

Chile

 

·New One-Way (OW) line for soft drinks and water,
·Labelling project central zone,
·Production room adjustment, and
·Renewal distribution fleet.

 

Paraguay

 

·Fructose production facilities,
·Online blowing Line 3,
·Extension of deposits,
·“Front Office” project,
·Returnable bottles and plastic cases, and
·Cold equipment.

 

We have budgeted US$160-170 million for our capital expenditures in 2020, which is expected to be mainly destined to:

 

·Improve our information technologies with a main focus on big data and artificial intelligence,
·Improve our productive capacity (mainly returnable labeling projects, and a production line in Paraguay),
·Improve infrastructure for greater flexibility (mainly in Paraguay and Chile),
·Returnable bottles and containers (optimizing the use of multipurpose bottles), and
·Cold equipment (with energy efficiency savings and better customer service).

 

For 2020, we estimate that internally generated funds will finance a large part of our budgeted capital expenditure. Our capital expenditure plan for 2020 may change based on market conditions and how the economy evolves in the countries where we operate. In particular, we are reviewing our capital expenditures plan for the year 2020 due to the changing conditions resulting from the effects of the COVID-19 crisis.

 

30

 

 

B.BUSINESS OVERVIEW

 

We are the third largest bottler of Coca-Cola trademark beverages in Latin America in terms of sales volume. We are the largest bottler of Coca-Cola trademark beverages in Chile and Argentina and the third largest in Brazil, in each case in terms of sales volume. We are also the only bottler of Coca-Cola trademark beverages in Paraguay.

 

In 2019, we had consolidated net sales of Ch$1,779,025 million and total sales volume of 746.4 million unit cases of beverages.

 

In addition to our soft drinks business, which accounted for 68% of our consolidated net sales during 2019, we also:

 

·produce, sell and distribute fruit juices, other fruit-flavored beverages, sport drinks, flavored waters, mineral and purified water in Chile, Argentina, Brazil and Paraguay under trademarks owned by The Coca-Cola Company;
·manufacture polyethylene terephthalate (“PET”) bottles and preforms, returnable PET bottles, cases and plastic caps, primarily for our own use in the packaging of our beverages in Chile and Argentina;
·produce, sell and distribute ice tea, mate beverages, and sell and distribute lactose free dairy products in Brazil;
·produce, sell and distribute seed-based beverages in Argentina under trademarks owned by The Coca-Cola Company, and sell and distribute these products in Brazil, Chile and Paraguay;
·sell and distribute energy drinks in Argentina, Brazil, Chile and Paraguay under trademarks owned by Monster Energy Company;
·sell and distribute beer in Brazil under the brands Amstel, Bavaria, Heineken, Kaiser, Sol and Xingu;
·distribute beer, wine and cider in the south of Argentina;
·sell and distribute spirits and wine in Chile; and
·distribute ice cream and other frozen products under the Guallarauco brand in Chile.

 

Our Territories

 

The following map shows our territories, estimates of the population to which we offer products, the number of retailers of our beverages and the per capita consumption of our beverages as of December 31, 2019.

 

 

Per capita consumption data for a territory is determined by dividing total beverage sales volume, excluding the sales to other Coca-Cola bottlers within the territory by the estimated population within such territory, and is expressed on the basis of the number of eight-ounce servings of our products. One of the factors we use to evaluate the development of local volume sales in our territories and to determine product potential is the per capital consumption of our beverages.

 

31

 

 

Our Product Overview

 

We produce, market and distribute the following Coca-Cola trademark beverages and brands licensed from third parties throughout our franchise territories. In addition, we distribute Heineken brand beer in Brazil, beer, wine and cider in southern Argentina, and spirits and wine in Chile. The following table sets forth the brands of the products that we distribute by country as of December 31, 2019:

 

   Chile  Brazil  Argentina  Paraguay
Colas            
Coca-Cola  ü  ü  ü  ü
Coca-Cola Light  ü     ü   
Coca-Cola Zero/Sin Azúcar  ü  ü  ü  ü
Coca-Cola Energy  ü         
Coca-Cola Plus Café  ü         
             
Flavored soft drinks            
Cantarina  ü         
Crush        ü  ü
Fanta  ü  ü  ü  ü
Fanta Zero/Sin Azúcar  ü  ü  ü  ü
Inca Kola  ü         
Inca Kola Zero/Sin Azúcar  ü         
Kuat     ü      
Kuat Zero     ü      
Nordic Mist  ü         
Nordic Mist Zero  ü         
Nordic Mist Agua Tónica  ü         
Quatro Zero  ü         
Schweppes     ü  ü  ü
Schweppes Zero        ü   
Schweppes Tónica     ü  ü  ü
Sprite  ü  ü  ü  ü
Sprite Zero/Sin Azúcar  ü  ü  ü  ü
& Nada  ü     ü   
Yas     ü      
             
Juices            
Cepita        ü   
Del Valle     ü      
Andina Del Valle  ü         
Kapo  ü  ü      
Frugos           ü
AdeS  ü  ü  ü  ü
Guallarauco  ü         
             
Waters            
Aquarius  ü     ü  ü
Benedictino  ü         
Bonaqua        ü   
Crystal     ü      
Dasani           ü
Glaceau Vitamin Water  ü         
Kin        ü  ü
Glaceau SmartWater  ü         
Guallarauco  ü         
Vital  ü         
Tropical               ü

 

32

 

 

   Chile  Brazil  Argentina  Paraguay
Other Non-alcoholic Beverages            
Black  ü         
Burn     ü      
Monster  ü  ü  ü  ü
Fuze     ü      
I9     ü      
Matte Leão     ü      
Powerade  ü  ü  ü  ü
Powerade Zero  ü     ü   
Minilac Verde Campo     ü      
Shake Whey Verde Campo     ü      
             
Beer            
Amstel     ü  ü   
Bavaria     ü      
Blue Moon        ü   
Guiness Original  ü         
Grolsch        ü   
Heineken     ü  ü   
Imperial        ü   
Isenbeck        ü   
Kaiser     ü      
Kunstmann        ü   
Miller        ü   
Palermo        ü   
Schneider        ü   
Sol     ü  ü   
Warsteiner        ü   
Xingu     ü      
             
Spirits and Wine            
Baileys  ü         
Bourbon Bulleit  ü         
Gin Tanqueray  ü         
Rum Cacique  ü         
Rum Pampero  ü         
Rum Zacapa  ü         
Sheridan’s  ü         
Tequila Don Julio  ü         
Vodka Ciroc  ü         
Vodka Smirnoff  ü         
Whisky Bell’s  ü         
Whisky Buchanan’s  ü         
Whisky J&B  ü         
Whisky Johnnie Walker  ü         
Whisky Old Parr  ü         
Whisky Sandy Mac  ü         
Whisky Singleton  ü         
Whisky Vat-69  ü         
Whisky White Horse  ü         
Pisco Monte Fraile  ü         
Pisco Hacienda La Torre  ü         
Pisco Alto del Carmen  ü         
Pisco Capel  ü         
Pisco Brujas de Salamanca   ü            

 

33

 

 

    Chile   Brazil   Argentina   Paraguay
Pisco Artesanos del Cochiguaz   ü            
Rum Maddero   ü            
Wine Prólogo Late Harvest   ü            
Sparkling Wine Pkador   ü            
Sparkling Wine Francisco de Aguirre   ü            
Sparkling Wine Sensus   ü            
Sparkling Wine Nola Zero   ü            
Sparkling Wine Myla   ü            
Pisco Sour Estrella del Elqui   ü            
Pisco Sour Nola Zero   ü            
Cocktail Inca de Oro Sour   ü            
Cider 1888           ü    
Cider Real           ü    
Wine Colón           ü    
Wine La Celia           ü    
Wine Eugenio Bustos           ü    
Wine Graffigna           ü    
Wine Grosso   ü            
                 
Ice Creams and Frozen Products                
Guallarauco   ü            

 

In addition, in Chile, through the Koolife business unit, we import and distribute some other Coca-Cola trademark beverages, such as Coca-Cola Caffeine Free, Coca-Cola Zero Cherry, Coca-Cola Zero Vanilla, Aloe Gloe (organic aloe vera), Coca-Cola Plus Espresso, Zico coconut water, among others.

 

We produce, market and distribute Coca-Cola products in our franchise territories through standard bottler agreements between our bottler subsidiaries and the local subsidiary in each jurisdiction of The Coca-Cola Company. We consider our relationship with The Coca-Cola Company to be an integral part of our business strategy.

 

We seek to enhance our business throughout the franchise territories by developing existing markets, penetrating other soft drink, waters and juices markets, forming strategic alliances with retailers to increase consumer demand for our products, increasing productivity, and by further internationalizing our operations.

 

Reporting Segments

 

The following discussion analyzes our product sales and customers by reporting segments.

 

Chile

 

In Chile, we produce, market and distribute our beverages under The Coca-Cola Company trademarks in the metropolitan region of Santiago and the provinces of Cachapoal and San Antonio, as well as the regions of Antofagasta, Atacama, Coquimbo, Aysén and Magallanes.

 

During 2019, Chile accounted for 32.1% and 34.2% of our volume and consolidated net sales, respectively.

 

Soft Drinks: Our Chilean soft drink operations accounted for net sales in 2019 of Ch$408,468 million. We measure sales volume in terms of unit cases (UCs). The following table highlights historical sales and volume of Coca-Cola soft drinks sold in Chile for the periods indicated:

 

34

 

 

 

   Year ended December 31, 
   2017   2018   2019 
   (in millions) 
   Ch$   UCs   Ch$   UCs   Ch$   UCs 
Colas   271,723    110.3    284,155    112.5    305,205    119.3 
Flavored soft drinks   119,906    47.4    106,627    42.2    103,263    38.9 
Total   391,629    157.7    390,782    154.7    408,468    158.2 

 

As of December 31, 2019, we sold our products to approximately 64,000 customers in Chile. The following table highlights the type of customer in Chile for our products:

 

   Year ended December 31, 
   2017   2018   2019 
       (%)     
Mom & Pops (1)   47    46    46 
Supermarkets   29    30    28 
On premise   12    12    15 
Wholesale distributors   12    12    11 
Total   100    100    100 

 

 

 

(1)Mom & Pops are neighborhood stores (grocery stores, minimarkets, kiosks, liquor stores, bakeries, etc.) characterized by providing daily shopping needs, and differentiated because they are nearby, and products are available in smaller formats.

 

Other Beverages: Coca-Cola Andina, through VJ S.A., produces and sells juices, fruit flavored beverages and sports drinks. Juices are manufactured and commercialized under the brands Andina del Valle (juices and fruit nectars), Kapo (juice drink), Glaceau Vitamin Water (water with added vitamins and minerals), Aquarius (juice drink) and Powerade (isotonic). Vital Aguas S.A. is in charge of bottling mineral and mineralized water under the brands Vital and SmartWater (sparkling and still versions). Also, Andina (in Chile) and ECSA produce purified water under the brand Benedictino.

 

In September 2016 and July 2017, the Company began the distribution in Chile of products under the trademarks of Monster and AdeS, respectively. In 2018, the Company began selling and distributing certain Guallarauco products and spirits from the company Diageo, and in 2019 the Company began with the sale and distribution of liquors and wine of the company Capel.

 

In 2019, net sales of waters, juices, seed-based beverages, sports drinks, energy drinks and spirits in Chile were Ch$200,484 million.

 

Brazil

 

In Brazil, we produce, market and distribute our beverages under The Coca-Cola Company trademarks in the majority of the State of Rio de Janeiro and the entirety of the State of Espírito Santo and since October 1, 2013 in part of the state of São Paulo and part of the state of Minas Gerais, as a consequence of the consummation of the Ipiranga acquisition on October 1, 2013. During 2019, Brazil accounted for 34.7% and 34.8% of our volume and consolidated net sales, respectively.

 

Soft Drinks: The Brazilian soft drink operations accounted for net sales of Ch$360,792 million. The following table highlights historical sales and volume of Coca-Cola soft drinks sold in Brazil for the periods indicated:

 

   Year ended December 31, 
   2017   2018   2019 
   (in millions) 
   Ch$   UCs   Ch$   UCs   Ch$   UCs 
Colas   300,804    150.8    245,955    152.0    264,929    145.6 
Flavored soft drinks   86,741    50.9    80,601    49.4    95,862    61.2 
Total   387,545    201.7    326,016    201.4    360,792    206.8 

 

35

 

 

As of December 31, 2019, we sold our products to approximately 85,000 customers in Brazil. The following table highlights the type of customer in Brazil for our products:

 

   Year ended December 31, 
   2017   2018   2019 
        (%)      
Mom & Pops (1)   40    23    24 
Supermarkets   34    34    32 
On premise   18    17    17 
Wholesale distributors   8    26    28 
Total   100    100    100 

 

 

 

(1)Mom & Pops are neighborhood stores (grocery stores, minimarkets, kiosks, liquor stores, bakeries, etc.) characterized by providing daily shopping needs, and differentiated because they are nearby, and products are available in smaller formats.

 

Note: The large difference of figures in the Mom & Pops and Wholesale distributors channels when comparing 2018 and 2019 with 2017 is because in 2017 the volume of Wholesale Distributors and Deposits were considered as part of the Mom & Pops volume, unlike the other years where it is assigned to Wholesale Distributors. If the same criteria had been applied in 2017, the Mom & pops channel mix would be 23.8% in 2017.

 

Other Beverages: We sell and distribute beer under the Amstel, Bavaria, Heineken, Kaiser, Sol and Xingu labels. We sell and distribute water under the labels Crystal and SmartWater, ready-to-drink juices under the labels Del Valle Frut e Fresh, Del Valle Mais, Del Valle 100%, Del Valle Nutri, Del Valle Água de Coco, Del Valle Concentrado, Sabores Caseros and Kapo, energy drinks under the brand names Burn and Monster, isotonic drinks under i9 and Powerade brand names and Fuze Ice Tea, Fuze Matte Leão, Matte Leão and Guaraná Leão ready-to-drink teas. We also sell and distribute seed-based beverages, AdeS Juice and AdeS Milk, under the brand name AdeS and Shake Whey and Minilac lactose-free beverages under the brand name Verde Campo. As of November 2016 and June 2017, the Company began the distribution in its Brazilian franchise territories of products under the trademarks of Monster and AdeS, respectively.

 

In 2019, net sales of beer, waters, juices, ready-to-drink teas, seed-based beverages, sports drinks and energy drinks in Brazil were Ch$258,530 million.

 

Argentina

 

In Argentina, we produce, market and distribute our beverages under The Coca-Cola Company trademarks in the entirety of the provinces of Córdoba, Mendoza, San Juan, San Luis, Entre Rios, western part of the province of Buenos Aires and most of Santa Fe, as well as La Pampa, Neuquén, Río Negro, Chubut, Santa Cruz, and Tierra del Fuego. During 2019, Argentina accounted for 23.9% and 22.2% of our sales volume and consolidated net sales, respectively.

 

Soft Drinks: The Argentine soft drink operations accounted for net sales of Ch$313,866 million in 2019. The following table highlights historical sales and volume of Coca-Cola soft drinks sold in Argentina for the periods indicated:

 

   Year ended December 31, 
   2017   2018   2019 
   (in millions) 
           Ch$   UCs   Ch$   UCs 
Colas   308,462    123.5    235,678    119.0    222,140    108.9 
Flavored soft drinks   136,410    50.9    95,125    48.0    91,726    40.8 
Total   444,872    174.4    330,803    167.0    313,866    149.7 

 

36

 

 

As of December 31, 2019, we sold our products to approximately 59,000 clients in Argentina. The following table highlights the type of client in Argentina for our products:

 

   Year ended December 31, 
   2017   2018   2019 
        (%)      
Mom & Pops (1)   34    33    33 
Supermarkets   33    31    31 
On premise   3    3    4 
Wholesale distributors   30    32    32 
Total   100    100    100 

 

 

 

(1)Mom & Pops are neighborhood stores (grocery stores, minimarkets, kiosks, liquor stores, bakeries, etc.) characterized by providing daily shopping needs, and differentiated because they are nearby, and products are available in smaller formats.

 

Other Beverages: In Argentina, we produce and distribute ready-to-drink juices under the Cepita brand name. We also produce and sell water under the brands Kin, Bonaqua (sparkling and still mineral water), Aquarius (flavored waters), and Powerade (sports drink). During 2017, we incorporated the AdeS brand (ready to drink soy-based beverage) through a Joint Venture with The Coca-Cola Company and the rest of the bottlers (Andina Argentina bills this business on behalf and by order of the AdeS S.A. joint venture). In 2018 we incorporated the Monster brand (energy drink) to our portfolio, through a purchase and sale model. Also, we distribute beer including Palermo, Schneider, Heineken, Amstel, Bieckert, Sol, Imperial, Kunstmann, Miller, Isenbeck, Grolsch and Warsteiner; wine under the brands La Celia, Eugenio Bustos, Graffigna and Colon; and cider under the brands 1888 and Real.

 

In 2019, net sales of juices, waters, seed-based beverages, sports and energy drinks in Argentina were Ch$70,990 million. These values also consider the commission for distribution of beer, wine and cider.

 

Paraguay

 

In Paraguay, we produce, market and distribute our beverages under The Coca-Cola Company trademarks in the entire country. During 2019, Paraguay accounted for 9.3% and 8.9% of our volume and consolidated net sales, respectively.

 

Soft Drinks: The Paraguayan soft drinks operations accounted for net sales of Ch$124,856 million. The following table highlights historical sales and volume of Coca-Cola soft drinks sold in Paraguay for the periods indicated:

 

   Year ended December 31, 
   2017   2018   2019 
   (in millions) 
           Ch$   UCs   Ch$   UCs 
Colas   68,020    30.8    67,538    32.1    72,303    30.6 
Flavored soft drinks   45,295    23.3    50,557    24.0    52,553    25.6 
Total   113,315    54.1    118,095    56.1    124,856    56.2 

 

37

 

 

As of December 31, 2019, we sold our products to approximately 58,000 customers in Paraguay. The following table highlights the type of customer in Paraguay for our products:

 

   Year ended December 31(1), 
   2017   2018   2019 
        (%)      
Mom & Pops (2)   34    34    36 
Supermarkets   15    16    17 
On premise   14    14    13 
Wholesale distributors   36    36    34 
Total   100    100    100 

 

 

 

(1)In 2019, we changed how we define our types of customer in Paraguay, and as a result we have reclassified our sales volume per type of customer for each of the years shown in the table above.
(2)Mom & Pops are neighborhood stores (grocery stores, minimarkets, kiosks, liquor stores, bakeries, etc.) characterized by providing daily shopping needs, and differentiated because they are nearby, and products are available in smaller formats.

 

Other Beverages: In Paraguay, we produce and distribute juices ready to be consumed under the trademark Frugos and we import and distribute seed-based drinks under the AdeS trademark. We also manufacture and sell water under the trademarks Dasani (purified water), Aquarius (flavored water), Kin (mineral water) and isotonic drinks like Powerade. We also manufacture and sell energy drinks under the trademark Monster (since May 2019).

 

In 2019, net sales of juices, waters, seed-based beverages, isotonic and energy drinks in Paraguay were Ch$34,036 million.

 

Distribution

 

Chile

 

Soft Drinks, Juices and Waters: In Chile, we distribute our products through a distribution system that includes: (i) third-party owned trucks (491 trucks) that provide an exclusive distribution service and (ii) our own trucks (234 trucks). In 2019, 88% was distributed by exclusive third-party transport companies and 12% by companies of the Andina group. Distribution of all of Andina beverages in Chile takes place from distribution centers and production facilities. In most cases, the transport company collects payment from the customer in cash or check. Where applicable, the driver also either collects empty returnable glass or PET bottles of the same type and quantity as the ones being delivered or collects cash deposits for the net returnable bottles delivered. This task is particularly significant in the Chilean territory where returnable containers accounted for approximately 44.7% of total soft drinks volume in 2019. Certain important customers (such as supermarkets), maintain accounts receivables with us, which are settled on average every 41 days after invoices are issued.

 

Brazil

 

Soft Drinks, Juices and Waters: In Brazil, we generally distribute Coca-Cola products through a distribution system that includes: (i) own trucks (ii) trucks operated by independent distributors pursuant to non-exclusive distribution arrangements, and (iii) trucks operated by independent transport companies on an exclusive basis with us. In 2019, 9.6% was distributed by exclusive distributors, 10.5% by independent transport companies and 79.9% by our own trucks. Distribution of all of Andina Brazil’s beverages takes place from distribution centers and production facilities.

 

Other Beverages: Andina Brazil uses its distribution system to distribute beer in the Brazilian territory. Andina Brazil started distributing beer in the 1980s as a result of the acquisition of Cervejarias Kaiser S.A. (“Kaiser”) by a consortium of Coca-Cola bottlers (including Andina Brazil) in Brazil. In March 2002, the Canadian brewing company Molson Inc. acquired Kaiser. In 2006, FEMSA acquired from Molson a controlling ownership interest in Kaiser and in 2010, Heineken acquired a controlling interest in FEMSA’s beer operation. Andina Brazil buys beer from Heineken at a price determined by Heineken and sells it to its customers with a fixed margin. In the case of certain discount sales that have been approved by Heineken, Heineken shares between 50% and 100% of the cost of such discounts. In 2019, Andina Brazil’s net sales of beer were Ch$134,701 million.

 

The Coca-Cola Company and the Brazilian Association of Coca-Cola Manufacturers entered into an agreement regarding the distribution through the Coca-Cola System of beer produced and imported by Heineken. The agreement was signed on March 19, 2002 and is renewable for a period of 20 years.

 

38

 

 

In July 2017 Heineken Brazil unilaterally notified us of the termination of the agreement by virtue of which Andina Brazil commercializes and distributes Heineken-branded beers in Brazil. Andina Brazil understood that the expiration of the agreement was scheduled for 2022 and submitted the dispute to arbitration. On October 31, 2019, a non-appealable decision was rendered in Andina Brazil’s favor. Andina Brazil continues distributing Heineken-branded products in Brazil and expects to do so until the termination of the agreement in March 2022.

 

Andina Brazil is not allowed to produce, bottle, sell or obtain any interest in any bottled or tap beer under any other label or in any bottle or packaging that could be confused with brand beers, except as may be mutually agreed in writing between Andina Brazil and Heineken.

 

Argentina

 

Soft Drinks, Juices and Waters: In 2019, 68% of EDASA’s Coca-Cola soft drinks were distributed by direct distribution and 32% by other distributors and wholesale distribution (indirect distribution). The direct distribution is done by a group of independent transport companies, on an exclusive basis.

 

Other Beverages: Andina Argentina uses its distribution system to distribute beer in the territory composed by the provinces of La Pampa, Neuquén, Río Negro, Chubut, Santa Cruz, Tierra del Fuego and the following parts of the Province of Buenos Aires: Bahía Blanca, Tornquist, Coronel M.L.Rosales, Coronel Dorrego, Villarino, Daireaux, Guamini, Adolfo Alsina, Coronel Suarez, Coronel Pringles, Saavedra, Puán, Saliqueló, Municipio Urbano de Monte Hermoso, Benito Juárez, Gonzalez Chávez, Tres Arroyos, Carmen de Patagones, Olavarría, Azul, Tapalqué, Laprida, Lamadrid, Arrecifes, Chacabuco, Colón, Pergamino, Rojas, Salto, Bartolomé Mitre, Capitán Sarmiento, 9 de Julio, 25 de Mayo, General Alvear, Chivilcoy, Alberti, Bragado, Junín, Viamonte, Arenales, L.N.Alem, Lincoln, General Pinto, Ameghino, Tres Lomas, Pehuajó, Carlos Casares, Hipólito Yrigoyen, Bolívar, Carlos Pellegrini, Trenque Lauquen, Rivadavia, Carlos Tejedor, General Villegas. Andina Argentina began distributing beer in 2012 due to the merger with Coca-Cola Polar. Since mid-2019, wine and cider have been added to the business. Andina Argentina distributes on behalf of and according to an order by CICSA (Compañía Industrial Cervecera S.A.) at a set price which is segmented for each of the regions where the contract operates, and for which Andina Argentina receives a commission.

 

The Coca-Cola Company and two bottlers (ex-Coca-Cola Polar Argentina S.A., today Andina Argentina, and ex Juan Bautista Guerrero S.A., today Salta Refrescos S.A. of the Arca group) executed a master agreement regarding the distribution of beer manufactured or imported by CICSA, through the Coca-Cola distribution system. The distribution master agreement was executed on June 12, 2003 for an initial period of five years, with successive extensions every three years, and the last one agreed on November 29, 2017 for a new five-year term expiring on June 12, 2022. On August 1, 2019, an addendum to this agreement was signed to amend the commissions, and include wine and cider within the scope of the distribution agreement.

 

In addition, on December 13, 2017, EDASA executed an agreement with Monster Energy Company for the distribution and commercialization of energy drinks of the “Monster” trademark for an initial period of 10 years in the territory within the franchise of Andina Argentina, with the consent of The Coca-Cola Company.

 

Paraguay

 

Soft Drinks, Juices and Waters: PARESA distributed 88.3% of its products through direct distribution (independent transport companies), and 11.7% through wholesale distributors.

 

39

 

 

Competition

 

We face intense competition throughout the franchise territories principally from bottlers of competing soft drink brands. See “Item 3. Key Information — Risk Factors — Risks Related to our Company—Our Business is highly competitive including with respect to price competition which may adversely affect our net profits and margins”. Our business is highly competitive including with respect to price competition which may adversely affect our net profits and margins. The following table presents the market share of our main competitors in Chile, Brazil, Argentina and Paraguay for the periods indicated:

 

Soft Drinks Market Share

 

   2017   2018   2019 
   Chile   Brazil   Argentina   Paraguay   Chile   Brazil   Argentina   Paraguay   Chile   Brazil   Argentina   Paraguay 
                           (%)                     
Coca-Cola soft drinks   68    62    62    69    67    62    63    72    67    62    63    73 
Pepsi Bottler soft drinks   28    17    17    9    29    17    16    8    30    17    14    7 
Other soft drinks   4    21    21    22    4    21    21    20    4    21    23    20 
Total   100    100    100    100    100    100    100    100    100    100    100    100 

 

 

 

Source: A.C. Nielsen.

 

Chile

 

Soft Drinks: The soft drink segment of the Chilean beverage industry is highly competitive. The most important areas of competition are product image, pricing, advertising, ability to deliver product in popular bottle sizes, distribution capacity, and the number of returnable bottles held by retailers or by consumers. Returnable bottles can be exchanged at the time of new purchases in lieu of paying a bottle deposit, thereby decreasing the purchase price. Our main competitor in the Chilean franchise territory is Embotelladora Chilenas Unidas or ECUSA, a subsidiary of Compañía Cervecerías Unidas S.A. or CCU, the largest brewer in Chile. ECUSA produces and distributes Pepsi-Cola products and its own brands (soft drinks and bottled water). Based on reports by A.C. Nielsen, we estimate that in 2019, our average soft drink market share within our franchise territories was 66.7%.

 

Other Beverages: Our principal competitor in the water segment is CCU, but there is also competition from low priced brands (“B-brands”). Our principal competitors in the juice segment are, Watt’s-CCU joint venture, Corpora Tres Montes and three of the leading dairy producers in Chile: Soprole S.A., Nestlé Chile S.A. and Loncoleche. The Chilean market for fruit-flavored beverages also includes low-cost, lower-quality fruit juice concentrates and artificially flavored powdered beverage mixes. We do not consider these products competition for our waters and juices business because we believe that these products are of lower quality and value. Based on reports by A.C. Nielsen, we estimate that in 2019, our market share within our Chilean franchise territories reached approximately 37.8% for juices and others segment and approximately 42.2% for waters.

 

Brazil

 

Soft Drinks: The soft drink segment of the Brazilian beverage industry is highly competitive. The most important areas of competition are product image, pricing, advertising and distribution capacity (including the number and location of sales outlets). According to A.C. Nielsen, our main soft drink competitor in the Brazilian territory is American Beverage Company or AmBev, the largest beer producer and distributor in Brazil and also produces soft drinks, including Pepsi-Cola products. Based on reports by A.C. Nielsen, we estimate that in 2019, our average soft drink market share within our Brazilian franchise territories was approximately 61.7%.

 

Other Beverages: In the beer sector, Andina Brazil’s main competitor is AmBev which during 2019 had a very dominant position in the Brazilian market. In Andina Brazil our market share for waters reached 18.3%, where we distribute under the Crystal brand mineral water and SmartWater. In the segment of juices and others our market share was 48.7%.

 

Argentina

 

Soft Drinks: The soft drink segment of the Argentine beverage industry is highly competitive. The most important areas of competition are product image, pricing, advertising, ability to produce bottles in popular sizes and distribution capacity. Our greatest competitor in Argentina is Pepsi, commercialized by InBev. The most significant B-brand competitors are: Pritty, Refresh Now (Manaos), and Produnoa (Secco). Based on reports by A.C. Nielsen, we estimate that in 2019, our average soft drink market share within our Argentine franchise territories reached approximately 62.9%.

 

40

 

 

Other Beverages: We service the market for plain and flavored water through the Bonaqua, Kin and Aquarius brands, through which we have 17.4% of the market. In addition, the market of juices and others is serviced through the Cepita juice brand, Powerade in isotonic and seed-based beverages AdeS, where we have a market share of 45.3%.

 

Paraguay

 

Soft Drinks: The soft drink segment of the Paraguayan beverage industry is highly competitive. The most important areas of competition are product image, pricing, advertising, ability to produce bottles in popular sizes and the number of returnable bottles held by retailers or by consumers.

 

Our greatest competitor, local brand “Niko/De La Costa,” is produced and bottled by Embotelladora Central S.A., which had a 9.1% market share in 2019. B-brands in Paraguay represented 22.7% of the soft drink industry. In 2019, Pepsi had a market share of 7.5%, and is produced and marketed by Vierci Group, a local franchisee. Based on reports by A.C. Nielsen, we estimate that in 2019, our average soft drinks market share within our Paraguayan franchise territories was approximately 73.4%.

 

Other Beverages: We are leaders in all non-carbonated categories. In waters, we have a market share of 47.6% with our Dasani, Aquarius, Tropical and Kin brands. The market for juices and others is serviced through the Frugos and AdeS brands, Powerade in sport drinks, and Monster in energy drinks, where we had a market share of 59.0% in 2019.

 

Seasonality

 

Each of our lines of business are seasonal. Most of our beverage products have their highest sales volumes during the South American spring and summer (October through March), with the exception of nectar products, which have a slightly higher sales volume during the South American winter and autumn (April through September).

 

Packaging

 

Overview

 

Through Envases CMF S.A. in Chile (50% owned by Andina and 50% owned by Embonor), and Andina Empaques Argentina S.A. (“AEASA”) in Argentina we produce PET bottles in both returnable and non-returnable formats and plastic caps. On average, returnable PET bottles can be used up to 12 times. Non-returnable PET bottles also are produced in various sizes and are used by a variety of soft drink producers and, in Chile, by producers of edible oil products, wine and personal hygiene products.

 

Sales

 

Total sales of AEASA reached Ch$18,509 million, of which Ch$8,730 million corresponded to sales to EDASA, Ch$2,668 million corresponded to sales to other related companies of the group and Ch$7,111 million corresponded to sales to third parties.

 

Competition

 

AEASA is the supplier of returnable bottles, preforms, plastic caps and cases for Coca-Cola Bottlers in Argentina, also supplying some formats to Coca-Cola bottlers in Chile, Bolivia and Paraguay. In Argentina, we compete principally with Alpla S.A. and Amcor.

 

CMF is the principal supplier of returnable bottles, non-returnable PET, plastic caps and cases for Coca-Cola bottlers in Chile. The industry in Chile presents few manufacturers of non-returnable PET bottles which are significantly smaller to those of CMF. The second national manufacturer of non-returnable PET bottles is Plasco S.A., which does not compete with CMF as it is the bottle manufacturer of ECUSA (Chilean Pepsi bottler).

 

Raw Materials and Supplies

 

The main raw materials used in the production of Coca-Cola soft drinks are concentrate, sweetener, water and carbon dioxide gas. Production also requires glass and plastic bottles, bottle caps and labels. Water used in soft drink production is treated for impurities and adjusted for taste reasons. All raw materials, especially water, are subjected to continuous quality control.

 

Chile

 

Soft Drinks: Main suppliers of raw materials for the production of soft drinks:

 

41

 

 

·Concentrate: Coca-Cola de Chile S.A.

·Sweetener: Iansa Ingredientes S.A., Sucden Chile S.A. and Comercializadora de Productos Panor Ltda.

·Carbon dioxide gas: Linde Gas Chile S.A.

·Containers (bottles): Envases CMF S.A. (PET and RefPET), Cristalerías de Chile S.A. (glass) and Cristalerías Toro S.A.C.I. (glass).

·Caps: Envases CMF S.A. and Sinea S.A.

 

During 2019, 83% of the variable cost of sales for soft drinks corresponded to main raw materials and acquired finished products by Andina in Chile. The raw material cost mix is divided as follows: concentrate represents 72%; sweeteners 13%; non-returnable bottles 10%; bottle caps 3%, carbon dioxide 1% and other raw material 1%. Water does not constitute an important raw material cost. Additionally, the cost of finished products purchased from our subsidiaries, such as ECSA, is included within the cost of sales of soft drinks. These costs represent 15% of the total costs of sales of soft drinks and correspond mainly to cans, PET bottles and sweeteners.

 

Other Beverages: The principal raw materials used by Vital Jugos in the production of juices and as a percentage of total raw material costs, are sweeteners 2.4%, fruit pulp and juices 8.1%, concentrate 32.4%, containers 20.6%, wrapping material 4.2%, caps 3.1% and other raw material 2.6% all of which during 2019 accounted for 73.4% of total costs for sales of juice, including packaging.

 

The principal raw materials used by Vital Aguas in the production of still and sparkling mineral water and as a percentage of total raw material costs are: packaging 30%, concentrate 26%, caps 6%, wrapping material 4%, carbonation 1%, and other raw materials 2%, all of which during 2019 accounted for 69% of total costs for sales of water, including packaging.

 

Brazil

 

Soft Drinks: Main suppliers of raw materials for the production of soft drinks:

 

·Concentrate: Recofarma Industrias do Amazonas Ltda.
·Sweetener: Usina Alta Mogiana S.A. Açúcar e Alcool.
·Water: Companhia Estadual de Água e Esgotos CEDAE (only Jacarepaguá).
·Preforms: Lorenpet Industria e Comercio de Plásticos Ltda.
·Containers (RefPET): RioPet Embalagens S.A.
·Aluminum cans and aluminum caps: Ball Embalagens Ltda.
·Caps: Bericap do Brasil Ltda.
·Electricity/Gas: Ecogen Rio Solucoes Energeticas S.A.
·Reselling of products: Cervejarias Kaiser Brasil S.A.
·Thermo-contractible: Patena Industria e Comercio de Resinas e Filmes Plasticos Ldta.
·Tetra: Tetra Pak Ltda.
·Juices: Citrus Juice Eireli.

 

In 2019, 75.1% of the variable cost of sales for soft drinks produced by Andina Brazil corresponded to main raw materials. The cost of each raw material within the total of main raw materials is the following: concentrate (including juice used for some flavors) represents 48.0%; sugar and artificial sweeteners 17.9%; non-returnable bottles 14.4%; cans 11.8%; bottle caps 3.3%; carbon dioxide 1.8% and other raw material 2.8%.

 

Argentina

 

Main suppliers of raw materials for the production of soft drinks:

 

·Concentrate: Servicios y Productos para Bebidas Refrescantes S.R.L.
·Sweetener: Complejo Azucarero Concepcion.
·Carbon dioxide gas, Carbonic gas and Nitrogen: Praxair Argentina S.R.L.
·Containers (bottles): Dak Americas Argentina S.A. (PET), Andina Empaques Argentina S.A. (PET and RefPET), and Cattorini Hermanos S.A.C.I.F.E.I. (glass).
·Cans: Ball Beverage Can South America.
·Electric energy: Compañía Administradora del Mercado Mayorista Eléctrico S.A., EPEC (CAMMESA), and Termoandes S.A.
·Thermo-contractible: Rio Chico S.A.

 

42

 

 

In 2019, 63.7% of the variable cost of sales for soft drinks produced by Andina Argentina corresponded to main raw materials. The cost of each raw material as a percentage of the total cost of raw materials is as follows: concentrate 60.8%, sugar and artificial sweeteners 13.9%, non-returnable bottles 16.3%, bottle caps 3.3%, carbon dioxide 0.5%, cans and caps 2.8%, and other raw materials 2.4%. Additionally, the cost of finished products purchased from third parties is included within the cost of sales of soft drinks. These costs represent 1.7% of the total costs of sales of soft drinks and correspond to can formats and other formats of soft drinks which are not produced by Andina Argentina during 2019. At the end of 2018, a canning line was installed at the Monte Cristo plant allowing us to have our own supply of this product since 2019.

 

PET Packaging: The principal raw material required for production of PET bottles is PET resin. During 2019, this raw material was mainly purchased from DAK Americas de Argentina S.A. and Ecopek S.A. In the case of plastic caps and cases, the main raw material required for their production is HDPE resin (high density polyethylene), which during the year 2019 was bought mainly from PBB Polisur S.A.

 

In 2019, AEASA’s costs for PET resin accounted for 39% of the total variable cost of its sales of PET bottles and preforms.

 

Paraguay

 

Main suppliers of raw materials for the production of soft drinks:

 

·Concentrate: Recofarma Industrias do Amazonas Ltda., and Servicios y Productos Argentina.
·Sugar: Industria Paraguaya de Alcoholes S.A., and Azucarera Paraguaya S.A.
·Containers (bottles): Cattorini Hnos. (glass).
·Plastic caps: Andina Empaques Argentina and Sinea S.A.
·Preforms: Industrias PET S.A.
·Electric energy: ANDE-Administración Nacional de Electricidad.
·Resale products: Alimentos de Soja S.A. and Embotelladora del Atlántico S.A. - Monster Energy.
·Tetra: Tetra Pak Ltda.
·Fructose: Ingredion Argentina S.R.L. and Arcor S.A.

 

During 2019, 73% of the variable cost of sales for beverages produced by PARESA corresponded to main raw materials. The composition of this raw material cost is as follows: concentrate represents 48%, sugar and artificial sweeteners 19%, non-returnable bottles 14%, AdeS finished product cost 7%, bottle caps 4%, carbon dioxide 1% and other raw materials 7%.

 

Marketing

 

We and The Coca-Cola Company jointly promote and market Coca-Cola products in our franchise territories, in accordance with the terms of our respective bottler agreements. We advertise in major communications media. We focus our advertising efforts on increasing brand recognition by consumers and improving our customer relations. National advertising campaigns are designed and proposed by The Coca-Cola Company’s local affiliates, with our input at the local or regional level.

 

In 2019, we paid approximately 60% of the advertising and promotional expenses incurred by The Coca-Cola Company in our franchise territories. Nearly all media advertising and promotional materials for Coca-Cola soft drinks are produced and distributed by The Coca-Cola Company. See “Item 4. Information on the Company —Bottler Agreements.” Marketing and promotional programs, including television, radio and print advertising, point-of-sale advertising, sales promotions and entertainment are developed by The Coca-Cola Company for all Vital Jugos’ and Vital Aguas’ products.

 

Pursuant to the existing distribution agreements with Heineken and Monster, these companies are responsible for planning and managing advertising, marketing and promotional activities related to beer and energy drinks, respectively. Andina Brazil, however, is free to undertake marketing or promotional activities with Heineken’s and Monster’s prior approval. The parties have agreed to assume jointly the costs of certain promotional activities (radio or television) and for certain outdoor events which take place in the Rio de Janeiro, Espírito Santo and Ribeirão Preto regions.

 

In Argentina, in accordance with the existing distribution agreement with CICSA, CICSA is responsible for planning and managing advertising, marketing and promotional activities related to beer, wine and cider. Andina Argentina, however, is free to undertake marketing or promotional activities with CICSA’s prior approval. The parties have agreed that CICSA will assume the costs of promotional activities (radio, television, outdoor advertising and media) in the region.

 

43

 

 

In September 2016, November 2016, February 2018 and May 2019, Andina (Chile), Andina Brazil, Andina Argentina and Paraguay Refrescos, respectively, began to commercialize the energy drink, called Monster Energy. This brand is part of the collaboration agreement entered into during 2015 by The Coca-Cola Company and Monster Energy, which included the distribution of its products in the territories of the Coca-Cola System, such as Chile, Brazil, Argentina and Paraguay.

 

Channel Marketing

 

In order to provide more dynamic and specialized marketing of our products, our strategy is to divide our market into distribution channels. Our main channels are small retailers, “on premise” consumption such as restaurants and bars, supermarkets and third-party distributors. Presence in these channels entails a comprehensive and detailed analysis of the purchasing patterns and preferences of various groups of soft drinks and other beverages consumers in each type of location or distribution channel. In response to this analysis, we seek to tailor our product, price, packaging and distribution strategies to meet the particular needs of and exploit the potential of each channel.

 

We believe that the implementation of our channel marketing strategy also enables us to respond to competitive initiatives with channel-specific responses. This focused response capability isolates the effects of competitive pressure in a specific channel, thereby avoiding costlier market-wide responses. Our channel marketing activities are facilitated by our management information systems. We have invested significantly in creating such systems, including providing hand-held computer and data gathering equipment to support the gathering of product, consumer and delivery information, as well as applications that may be used on smartphones enabled to use these applications. All of which is required to implement our channel marketing strategies effectively for most of our sales routes in Chile, Brazil, Argentina and Paraguay. We will continue investing to increase pre-sale coverage in our territories.

 

Our consolidated total advertising expenditures were Ch$29,210 million, Ch$17,346 million and Ch$27,113 million in 2017, 2018 and 2019, respectively.

 

Bottler Agreements

 

General

 

Our status as a The Coca-Cola Company franchisee is based on the bottler agreements that the Company has entered into with The Coca-Cola Company by which it has the license to produce and distribute Coca-Cola brand products within its operating franchise territories in Chile, Brazil, Argentina and Paraguay. The Company’s operations are highly dependent on maintaining and renewing the bottler agreements which provide for the production and distribution of Coca-Cola brand products under certain terms and provisions.

 

The bottler agreements are international standard contracts. The Coca-Cola Company enters into with bottlers outside the United States for the sale of concentrates and beverage basis for certain Coca-Cola soft drinks and non-soft drink beverages. These are renewable upon request by the bottler and at the sole discretion of The Coca-Cola Company. We cannot assure you that the bottler agreements will be renewed upon their expiration or that they will be renewed upon the same or better terms.

 

Concentrates and beverage basis

 

The bottler agreements provide that we will purchase our entire requirement of concentrates and beverage basis for Coca-Cola soft drinks and other Coca-Cola beverages from The Coca-Cola Company and other authorized suppliers. Although under the bottler agreements, The Coca-Cola Company, in its sole discretion, may set the price of concentrates and beverage basis, among other terms, we set the price of products sold to retailers at our discretion, subject only to certain price restrictions.

 

As of the date of this annual report, we are the sole producer of Coca-Cola soft drinks and other Coca-Cola beverages in our franchise territories. Although this right is not exclusive, The Coca-Cola Company even though it has the ability to do so, has never authorized any other entity to produce or distribute Coca-Cola soft drinks or other Coca-Cola beverages in such territories, although we cannot assure you that in the future it will not do so. In the case of post-mix soft drinks, the bottler agreements explicitly establish such non-exclusive rights.

 

The bottler agreements include an acknowledgment by us that The Coca-Cola Company is the sole owner of the trademarks that identify the Coca-Cola soft drinks and other Coca-Cola beverages and of any secret formula used in concentrates.

 

44

 

 

Production and Distribution

 

All distribution must be in authorized containers. The Coca-Cola Company has the right to approve, at its sole discretion, any and all kinds of packages and containers for beverages, including their size, shape and any of their attributes. The Coca-Cola Company has the authority at its sole discretion to redesign or discontinue any package of any of the Coca-Cola products, subject to certain limitations, so long as Coca-Cola soft drinks and other Coca-Cola beverages are not all discontinued at the same time. We are prohibited from producing or handling any other beverage products, other than those of The Coca-Cola Company or other products or packages that would imitate, infringe or cause confusion with the products, trade dress, containers or trademarks of The Coca-Cola Company, or from acquiring or holding an interest in a party that engages in such activities. The bottler agreements also impose restrictions concerning the use of certain trademarks, authorized containers, packaging and labeling of The Coca-Cola Company and prohibit bottlers from distributing Coca-Cola soft drinks or other Coca-Cola beverages outside their designated territories.

 

The bottler agreements require us to maintain adequate production and distribution facilities; inventories of bottles, caps, boxes, cartons and other exterior packaging or materials; to undertake adequate quality control measures prescribed by The Coca-Cola Company; to develop, stimulate, and fully satisfy the demand for Coca-Cola soft drinks and other Coca-Cola beverages and that we use all approved means, and spend such funds on advertising and other forms of marketing, as may be reasonably required to meet that objective; and to maintain financial capacity as may be reasonably necessary to assure performance by us and our affiliates of our obligations before to The Coca-Cola Company. All bottler agreements require us to submit, on an annually basis, our business plans for such franchise territories to The Coca-Cola Company, including without limitation, marketing, management and promotional and advertising plans for the following year.

 

Advertising and marketing

 

The Coca-Cola Company has no obligation to contribute to our expenditures for advertising and marketing, but it may, at its discretion, contribute to such expenditures and perform independent advertising and marketing activities, as well as cooperative advertising and sales promotion that would require our cooperation and support. In each of the franchise territories, The Coca-Cola Company has been contributing approximately 40-50% of our advertising and marketing expenses, but no assurances can be given that equivalent contributions or any contributions at all will be made in the future.

 

Assignments and other provisions

 

Each bottler is prohibited from, directly or indirectly, assigning, transferring or pledging its bottler agreement, or any interest therein, whether voluntarily, involuntarily or by operation of law, without the prior consent of The Coca-Cola Company, and each bottler agreement is subject to termination by The Coca-Cola Company in the event of default by us. Moreover, no material change of ownership or control in the bottler may occur without the prior consent of The Coca-Cola Company.

 

Termination

 

The Coca-Cola Company may terminate a bottler agreement immediately by written notice to the bottler in the event that, among other events, (i) the bottler suspends payments to creditors, declares bankruptcy, is declared bankrupt, is expropriated or nationalized, is liquidated, dissolved, changes its legal structure, or pledges or mortgages its assets; (ii) the bottler does not comply with instructions and standards established by The Coca-Cola Company relating to the production of its authorized soft drink products; (iii) the bottler ceases to be controlled by its controlling shareholders (without the prior consent of The Coca-Cola Company); or (iv) the terms of the bottler agreement become contrary to the applicable law.

 

Either party to any bottler agreement may, within 60 days’ notice thereof to the other party, terminate the bottler agreement in case of default of the other party, provided that such default is not remedied during such period.

 

In addition, if a bottler does not wish to pay the required price for concentrate for any Coca-Cola products, it must notify The Coca-Cola Company within 30 days of receipt of The Coca-Cola Company’s new prices. In the case of any Coca-Cola soft drink or other Coca-Cola beverages other than Coca-Cola concentrate, the franchise regarding such product shall be deemed automatically canceled three months after The Coca-Cola Company’s receipt of the bottler’s notice of refusal. In the case of Coca-Cola concentrate, the bottler agreements shall be deemed terminated three months after The Coca-Cola Company’s receipt of the bottler’s notice of refusal.

 

The Coca-Cola Company may also terminate the bottler agreements if the bottler or any individual or legal entity that controls it, engages in the production of any non-Coca-Cola beverage, whether through direct ownership of such operations or through control or administration thereof, provided that, upon request, the bottler shall be given six months to remedy such situation.

 

45

 

 

Chile

 

Our licenses for the territories in Chile expire in January 2023.

 

In 2005 Vital S.A. and The Coca-Cola Company entered into a Juice Bottler Agreement by which The Coca-Cola Company authorized Vital S.A. to produce, prepare and bottle in packaging previously approved by The Coca-Cola Company the previously mentioned trademarks.

 

Andina and Embonor have the right to purchase products from Vital Jugos. This contract was renewed on January 1, 2019 and expires on December 31, 2020. Additionally, Andina, Vital Jugos and Embonor have agreed with The Coca-Cola Company to produce, bottle and commercialize these products at their respective plants.

 

In 2005, Vital Aguas and The Coca-Cola Company entered into a Water Manufacturing and Packaging Agreement for the preparation and packaging of beverages in connection with the Vital, Chanqueahue, Vital de Chanqueahue, and Dasani brands incorporating at the beginning of 2008 the Benedictino brand to the product portfolio manufactured by Vital Aguas under the agreement. This contract was renewed on January 1, 2019 and expires on December 31, 2020.

 

Brazil

 

Our licenses for the territories in Brazil expire in October 2022.

 

Argentina

 

Our licenses for the territories in Argentina expire in September 2022.

 

Paraguay

 

Our licenses for the territories in Paraguay expire in September 2020.

 

Regulation

 

General

 

We are subject to a full range of government regulations generally applicable to companies engaged in business in our franchise territories, including but not limited to labor, social security, public health, consumer protection, environmental, sanitation, employee safety, securities and anti-trust laws. Currently, no material legal or administrative proceedings are pending against us with respect to any regulatory matter in any of our franchise territories except those listed as such in “Item 3. Key Information—Risk Factors” and “Item 8. Financial Information—Contingencies”.

 

We believe that, to the best of our knowledge we are in compliance in all material respects with applicable statutory and administrative regulations relating to our business in each of our franchise territories.

 

Chile: There are no special licenses or permits specifically required to manufacture and distribute soft drinks and juices in the Chilean territory. Food and beverage producers in Chile, however, must obtain authorization from, and are supervised by the Health Ministry’s respective regional offices (Secretaría Regional Ministerial de Salud), which inspects production facilities and takes liquid samples for analysis on a regular basis. Our main plant in Renca obtained its permit to operate on October 6, 2011 which has been granted for an indefinite period. Likewise, the permits we have to operate our other plants in Chile, have also been granted for an indefinite period. In addition, production and distribution of mineral water is subject to special regulations such that mineral water may be drawn only from sources designated for such purpose by supreme decree. Certification of compliance with such decree is provided by the National Health Service, the Undersecretary’s Office of the Ministry of Health (Servicio de Salud Metropolitano del Ambiente). Our mineral water production facilities have received the required certification.

 

Brazil: Labor laws, in addition to mandating employee benefits, include regulations to ensure sanitary and safe working conditions in our production facilities located in Brazil. Food and beverage producers in Brazil must register their products with and receive a ten-year permit from the Ministry of Agriculture and Provisioning and the Ministry of Health. Our permits from said Ministries are valid and in force for a term of ten years for each product we produce. Although we cannot assure you that they will be renewed, we have not experienced any material difficulties in renewing our permits in the past nor do we expect to experience any difficulties in the future. The Ministries do not regularly inspect facilities, but they do send inspectors to investigate any complaints it receives.

 

46

 

 

 

Argentina: While most laws applicable to EDASA are enforced at the federal level, some, such as sanitary and environmental regulations, are primarily enforced by provincial and municipal governments. Licenses or permits are required for the manufacture or distribution of beverages in the Argentine territory, which are evidenced through national records of food establishment and food products. Additionally, our production facilities are subject to registration with federal and provincial authorities and to supervision by municipal health agencies, which certify compliance with applicable laws.

 

Paraguay: PARESA is registered with the Ministry of Industry and Trade in Paraguay, which issues and renews the industrial registry. Food and beverage producers in Paraguay must register with the Ministry of Health, which performs inspections of plants and monitors products in the market. Industries must also have an environmental license issued by the Ministry of Environment and Sustainable Development, which is the main body responsible for monitoring compliance with environmental laws. In addition to establishing the mandatory employee benefits, include safe working and sanitary conditions at industrial installations within Paraguay. PARESA maintains all of its licenses, permits and registrations issued by these institutions and ensures compliance with the regulations and ordinances of the municipalities where its plant is located.

 

Environmental Matters

 

It is our policy to conduct environmentally sound operations on a basis consistent with applicable laws and within criteria established by The Coca-Cola Company. Although regulation of matters relating to the protection of the environment is not as well-developed in the franchise territories as in the United States and other industrialized countries, we expect that additional laws and regulations may be enacted in the future with respect to environmental matters that may impose additional restrictions on us which could materially or adversely affect our results of operations in the future. There are no material legal or administrative proceedings pending against us in any of the franchise territories with respect to environmental matters, and we believe that, to the best of our knowledge, we are in compliance in all material respects with all environmental regulations applicable to us.

 

Chile

 

The Chilean government has several regulations governing environmental matters relating to our operations.

 

Law N° 19,300, addressing general environmental concerns, passed in March 1994, regulates general environmental issues and fundamental aspects applicable to our activities and that could require the hiring of independent experts to conduct studies or environmental impact statements of any future project or activity that may be affected by the provisions of Law N° 19,300. In January 2010, the aforementioned law was amended by Law N° 20,417, which created a new environmental agency, the Environment Ministry, the Environmental Assessment Service and the Environment Superintendence. In January 2012, Law N° 20,600 was published which created the Environmental Tribunals (3), which came into operation on December 2012.

 

Law N° 20,920 passed in June 2016, sets the framework for waste management, the extended liability of the producer and the promotion of recycling, which aims to reduce waste generation and encourage reuse, recycling and other types of valorization, in order to protect people’s health and the environment.

 

Brazil

 

Our Brazilian operations are subject to several environmental laws, none of which currently impose substantial restrictions on us. The Brazilian Constitution establishes the broad guidelines for the new treatment of environmental concerns. Environmental issues are regulated at federal, state and municipal levels. The Brazilian Constitution empowers the public authorities to develop regulations designed to preserve and restore the environment and to control industrial processes that affect human life. Violations of these regulations are subject to criminal, civil and administrative penalties.

 

In addition, Law N° 6,938 of 1981, known as the Brazilian Environmental Policy, introduced an environmental regime under which no environmental damage is exempt from coverage. This legislation is based on the idea that even a polluting waste tolerated under the established standards could cause environmental damage, and therefore subjects the party causing such damage to the payment of an indemnity. Moreover, as mentioned above, activities damaging to the environment lead to criminal and administrative penalties, provided for in Law N° 9,605 of 1998 or the Environmental Crimes Act.

 

Numerous governmental bodies have jurisdiction over environmental matters. At the federal level, the Ministério do Meio Ambiente (Brazilian Ministry of Environment) and the Conselho Nacional do Meio-Ambiente or CONAMA dictate environmental policy, including, without limitation, initiating environmental improvement projects, establishing a system of fines and administrative penalties and reaching agreements on environmental matters with offending industries. The Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis or IBAMA, enforces environmental regulations set by CONAMA, including by developing several activities for the preservation and conservation of natural heritage and controlling and supervising the use of natural resources. In addition, various federal authorities have jurisdiction over specific industrial sectors, but none of these currently affect us.

 

47

 

 

Finally, various state and local authorities regulate environmental matters in the Brazilian territory including the Instituto Estadual do Ambiente or INEA, the main environmental authority in Rio de Janeiro, and the Instituto Estadual de Medio Ambiente e Recursos Hídricos (“IEMA”), the main authority on environmental issues in Espirito Santo, and the Companhia de Tecnologia de Saneamento Ambiental - CETESB, the main environmental authority in São Paulo. FEEMA, IEMA and CETESB periodically inspect industrial sites. We believe that we are in compliance in all material respects with the standards established by all the governmental authorities applicable to our operations in Brazil. We cannot assure you, however, that additional regulations will not be enacted in the future, and that such restrictions would not have a material adverse effect on our results or operations. The operation in Brazil as that of Chile counts with all certifications mentioned in terms of Quality, Environment and Occupational Health and Safety and those associated with Food Safety and Best Practices in Food Processing.

 

Argentina

 

The Argentine Constitution, as amended in 1994, allows any individual who believes a third party may be damaging the environment to initiate an action against it. No action of this nature has been initiated against EDASA, but we cannot ensure that it will not be initiated in the future. Though provincial governments have primary regulatory authority over environmental matters, municipal and federal authorities also have authority competent to enact decrees and laws on environmental issues. Thus, municipalities can set policy on local environmental matters, such as waste management, while the federal government regulates inter-province environmental issues, such as transport of hazardous waste or environmental matters covered by international treaties.

 

In 2002, the National Congress approved federal Law N° 25,612, Comprehensive Management of Industrial Residues and Service Activities (Gestión Integral de Residuos Industriales y de Actividades de Servicios) and Law N° 25,675, General Environmental Law (Ley General del Ambiente) establishing minimum guidelines for the protection of the sustainable environmental management and the protection of biodiversity, applicable throughout Argentina. The law establishes the purposes, principles and instruments of the national environmental policy, the concept of “minimum guidelines,” the judicial purview and the rules governing environmental education and information, citizens’ participation and self-management, among other provisions.

 

Provincial governments within the Argentine territory have enacted laws establishing a framework for the preservation of the environment. Provincial laws that are applicable to industrial facilities at EDASA, among others are Law N° 7,343 of the Province of Córdoba and its supplemental N° 10,208 since 2014, Law N° 11,459 of the Province of Buenos Aires and Environmental Code N° 5,439 of the Chubut province. These laws contain principles on environmental policy and management, as well as rules on environmental impact assessment. They also give certain agencies jurisdiction over environmental issues.

 

Almost all provinces as well as many municipalities have established rules regarding the use of water, the sewage system and the disposal of liquids into underground flows of water or rivers. There are currently no claims pending against EDASA related to these rules, whose violation normally results in a fine.

 

Paraguay

 

The environmental framework comprises several national and local environmental regulations. The Paraguayan Constitution of 1992 states that everyone has the right to live in a healthy and ecologically balanced environment and has the obligation to preserve it. All damage caused to the environment will carry the obligation to repair and compensate.

 

Law 1561/00 chartered the three primary environmental agencies in Paraguay. These are: The Ministry of the Environment and Sustainable Development of Paraguay (Ministerio del Ambiente y Desarrollo Sostenible or “MADES”), National Environmental Council (Consejo Nacional del Ambiente or “CONAM”), and National Environmental System (Sistema Nacional del Ambiente or “SISNAM”). The Law establishes the authority and responsibility of these agencies to develop and oversee the national environmental policy.

 

The Ministry of the Environment and Sustainable Development is the main environmental body responsible for the development and implementation of national environmental laws and it is also the authority responsible for implementing most of the national environmental regulations and for monitoring their compliance. The CONAM is responsible for investigating and establishing the main goals in the environmental policies, which the MADES must then implement. The SISNAM is integrated by several bodies, including governmental and municipal agencies and private sector stakeholders, all interested in solving environmental issues. The SISNAM provides a discussion forum for the public and private sectors to work together collectively, developing ideas and plans to promote a sustainable development.

 

48

 

 

Environmental Impact: Law 294/93 states the rights and obligations that will be triggered by any damage caused to the environment and provides the obligation to restore the environment to its previous state or, if that is technically impossible, to make a payment or provide compensation.

 

Water Resources Act of Paraguay: Law 3239/07 on water resources establishes the sustainable management of all waters (superficial, ground, atmospheric) and the territories that generate such waters, regardless of their location, physical condition or natural occurrence within the Paraguayan territory, in order to make it socially, economically and environmentally sustainable for the people living in the territory of Paraguay. The supervising agency is the Ministry of Environment and Sustainable Development. Superficial and ground waters are property of the State’s public domain. The law establishes the following order of priority for the use of water: i) fulfillment of the needs of aquatic ecosystems; ii) social use within the home environment; iii) use and enjoyment for agricultural activities, including aquaculture; iv) use and utilization for power generation; v) use and enjoyment for other industrial activities and vi) use and enjoyment for other activities. The use of water for productive purposes is subject to the authorization granted by the State through a permit (for the use of small amounts of water) or through concessions (prior public bidding process), in both cases after the payment of applicable fees. Authorizations may be revoked based on the occurrence of situations contemplated under the law. Concessions may be expropriated for public benefit or be terminated in certain situations established by the law. In addition, a National Registry of Water Resources has been created to keep record of all individuals or legal entities that utilize water resources or engage in activities related to them.

 

49

 

 

C.ORGANIZATIONAL STRUCTURE

 

The following chart presents a summary of our direct and indirect ownership interests in our subsidiaries and associated companies:

 

 

 

50

 

 

The following table presents information relating to the main activities of our subsidiaries and associated companies, as well as our direct and indirect ownership interests in them as of the date of this document:

 

Subsidiary  Activity  Country of
Incorporation
Percentage 
of direct and 
indirect 
ownership
 
Embotelladora Andina Chile S.A. (1)............  Manufacture, bottle, distribute, and commercialize non-alcoholic beverages.  Chile  99.99 
VJ S.A. (4)   Manufacture, distribute, and commercialize all kinds of food products, juices, and beverages.  Chile  65.00 
Vital Aguas S.A. (4)   Manufacture, distribute, and commercialize all kinds of waters and beverages in general.  Chile  66.50 
Servicios Multivending Ltda.   Commercialize products through equipment and vending machines.  Chile  99.99 
Transportes Andina Refrescos Ltda.   Provide administrative services and management of domestic and foreign ground transportation.  Chile  99.99 
Transporte Polar S.A. (5)   Provide administrative services and management of domestic and foreign ground transportation.  Chile  99.99 
Envases Central S.A. (4)   Manufacture and packaging of all kinds of beverages and commercialize all kinds of packaging.  Chile  59.27 
Andina Bottling Investments S.A. (12)   Manufacture, bottle and commercialize beverages and food in general. Invest in other companies.  Chile  99.99 
Andina Bottling Investments Dos S.A.   Carry out exclusively foreign permanent investments and lease all kinds of real estate.  Chile  99.99 
Andina Inversiones Societarias S.A.   Invest in all types of companies and commercialize food products in general.  Chile  99.99 
Comercializadora Novaverde S.A  Process and commercialize fruits, ice cream, vegetables and food in general, under the Guallarauco trademark.  Chile  35.00 
Rio de Janeiro Refrescos Ltda. (8)   Manufacture and commercialize beverages in general, powdered juices and other related semi-processed products.  Brazil  99.99 
Embotelladora del Atlántico S.A. (2)   Manufacture, bottle, distribute, and commercialize non-alcoholic beverages.  Argentina  99.99 
Andina Empaques S.A. (2)   Design, produce, and commercialize plastic products mainly packaging.  Argentina  99.98 
Alimentos de SOJA S.A. (11)   Manufacture, commercialize, import, export, transformation, fraction, package and distribute food products and beverages in general, and their raw materials and related products and by-products.  Argentina  14.30 
Paraguay Refrescos S.A. (5)   Manufacture, bottle, distribute, and commercialize non-alcoholic beverages.  Paraguay  97.83 
Abisa Corp.   Invest in financial instruments, for its own account or on behalf of third parties.  British Virgin Islands  99.99 
Aconcagua Investing Ltda. (5)   Invest in financial instruments, for its own account or on behalf of third parties.  British Virgin Islands  99.99 
Red de Transportes Comerciales Ltda. (7)   Provide administrative services and management of domestic and foreign ground transportation.  Chile  99.99 

 

51

 

 

Associates  Activity Country of
Incorporation
Percentage 
of direct and 
indirect 
ownership
 
Envases CMF S.A.   Manufacture, acquire and commercialize all types of containers and packaging; and provide bottling services.  Chile  50.00 
Coca-Cola del Valle New Ventures S.A.(9)   Manufacture, distribute and commercialize all kinds of juices, waters and beverages in general.  Chile  35.00 
Leão Alimentos e Bebidas Ltda. (6)   Manufacture, bottle and commercialize beverages and food in general. Invest in other companies.  Brazil  10.26 
Trop Frutas do Brasil Ltda.(10)   Manufacture, commercialize and export natural fruit pulp and coconut water.  Brazil  7.52 
Sorocaba Refrescos S.A.(3)   Manufacture, bottle and commercialize beverages and food in general. Invest in other companies.  Brazil  40.00 
SRSA Participações Ltda.(3)   Purchase and sale of real estate investments and property management.  Brazil  40.00 
Kaik Participações Ltda.   Invest in other companies with own resources.  Brazil  11.32 
UBI 3 Participações Ltda  Invest in other companies with own resources. Purchase and sale of real estate investments and property management.  Brazil  8.5 
   

(1)At the Special Shareholders’ Meeting held on November 22, 2011, the shareholders of Embotelladora Andina Chile S.A. agreed to increase its capital of the latter from Ch$10,000,000 (divided into 10,000 shares) to Ch$4,778,206,076 (divided into 4,778,206 shares). It was agreed that the capital increase was to be subscribed and paid by the shareholder Embotelladora Andina S.A. through the contribution of movable goods and real estate property, which are identified in the minutes of the Shareholders’ Meeting.
(2)At the extraordinary general shareholders’ meeting held on November 1st, 2011, Embotelladora del Atlántico S.A. decided to divide part of its equity to form a new company, Andina Empaques Argentina S.A., for the purpose of developing the design, manufacture and sale of all kinds of plastic products or products derived from the industry for plastics, primarily in the packaging division. Accounting and tax effects began on January 1, 2012.
(3)In October 2012, 40% of the Brazilian company Sociedad Brasilera Sorocaba Refrescos S.A. was acquired for a total price of R$146.9 million.
(4)Vital Aguas, Vital Jugos, and Envases Central, modified their percentage interests, due to the merger with Embotelladoras Coca-Cola Polar in 2012.
(5)Companies incorporated during 2012, due to the merger with Embotelladoras Coca-Cola Polar S.A.
(6)During the first quarter of 2013, there was a reorganization of the companies that manufacture juice products and mate in Brazil, with the merger of Holdfab2 Participações Ltda. and Sistema de Alimentos de Bebidas Do Brasil Ltda. into a single company that is the legal continuing entity, namely Leão Alimentos e Bebidas Ltda. According to the current business scheme in Brazil for this company, during 2014 a 2.05% ownership interest held by Rio de Janeiro Refrescos Ltda. in Leão Alimentos e Bebidas Ltda. was sold to the rest of the bottlers’ system in Brazil.
(7)Companies created to facilitate the restructuring of the distribution process in Chile.
(8)During the fourth quarter of 2013 Rio de Janeiro Refrescos Ltda. acquired Companhia de Bebidas Ipiranga, which was legally merged into this entity.
(9)Coca-Cola del Valle New Ventures S.A. was incorporated during 2016.
(10)As a result of company restructuring in 2016, Trop Frutas do Brasil Ltda, began to depend on the group of bottlers from The Coca-Cola System in Brazil, Rio de Janeiro Refrescos Ltda, holds a 7.52% direct ownership interest in that company.
(11)At the end of the fiscal year 2017, Embotelladora Andina S.A., indirectly through Embotelladora del Atlántico S.A. (EDASA) held an ownership interest of 12.96% (76,507,211 shares) in the stock capital of Alimentos de Soja S.A. On August 23, 2018, the capitalization of contributions made by the shareholders in 2017 was approved. As a result of such capitalization, EDASA maintained its ownership percentage (84,692,875 shares). On August 24, 2018, EDASA acquired 8,849,363 shares from the shareholder Salta Refrescos S.A., according to the volume quotas, and as a result the ownership interest of EDASA increased to 14.30% (93,542,238 shares). Additionally, on August 28, 2018 and December 3, 2018, two capital increases were approved for which EDASA's holding increased to 113,431,590 and then 130,449,895 shares, respectively, maintaining its ownership interest of 14.30%.
(12)In November 2019, Inversiones Los Andes Ltda. (ILA) was merged into Andina Bottling Investments S.A. (ABISA) for corporate purposes. As a consequence of the merger, ILA was absorbed by ABISA, which became the owner of the shares issued by Embotelladora del Atlántico S.A. (EDASA), Aconcagua Investing Limitada and Paraguay Refrescos S.A. (PARESA), previously held by ILA.

 

52

 

 

D.PROPERTY, PLANTS AND EQUIPMENT

 

We own production plants in each of the principal population centers that comprise the franchise territories. In addition, we own distribution centers and administrative offices in each of the franchise territories. We also use (i) facilities owned by third parties through lease agreements and (ii) facilities owned by third parties through contracts other than lease agreements, such as distribution contracts. The following table sets forth our principal real property (in square meters) and other facilities that we use in each of the franchise territories:

   MAIN USE   Square
meters
  Property
ARGENTINA         
Embotelladora del Atlántico S.A.         
Azul  Distribution Centers / Warehouses  600  Third Parties
Bahía Blanca*  Offices / Production of Soft Drinks / Distribution Center / Warehouses  102,708  Own
Bahía Blanca  Warehouses (Don Pedro)  6,000  Leased
Bahía Blanca  Commercial Offices  903  Leased
Bahía Blanca*  Real Estate (parking lot)  73,150  Own
Bahía Blanca  Warehouses (M&F Palletizer -EDF deposit)  1,400  Leased
Bariloche  Offices / Distribution Centers / Warehouses  1,870  Leased
Bialet Masse*  Real Estate**  880  Own
Bolivar  Commercial Logistic Operations  700  Third Parties
Bragado  Commercial Offices  38  Leased
Carlos Casares  Commercial Logistic Operations  345  Third Parties
Carlos Paz  Commercial Offices  270  Leased
Carmen de Patagones  Commercial Offices / Warehouses / Crossdocking  1,600  Leased
Chacabuco*  Offices / Distribution Centers / Warehouses  25,798  Own
Chivilcoy  Distribution Centers / Warehouses  1,350  Third Parties
Chivilcoy  Commercial Offices  72  Leased
Comodoro Rivadavia  Offices / Distribution Centers / Warehouses  7,500  Leased
Concepcion del Uruguay  Crossdocking  n/a  Third Parties
Concepcion del Uruguay  Commercial Offices  118  Leased
Concordia  Commercial Offices / Third party Distribution Centers / Warehouses  1,289  Leased
Córdoba*  Offices /Production of soft drinks and other still beverages / Distribution Centers / Warehouses / Real estate  959,585  Own
Córdoba (H.Primo)  Commercial Offices / parking lot / Deposit  1,173  Leased
Córdoba (San Isidro)*  Deposit and Offices  8,808  Own
Córdoba  Deposit (Cencosud)  n/a  Leased
Córdoba  Deposit (Rigar)  8,800  Leased
Córdoba  Deposit (Ricardo Balbín)  2,500  Leased
Córdoba  Deposit (Agnolon)  6,000  Leased
Coronel Pringles  Commercial Logistic Operations  675  Third Parties
Coronel Suarez  Offices / Third party Distribution Centers / Warehouses / Deposit  1,000  Leased
Embalse  Commercial Logistic Operations  600  Third Parties
General Pico*  Offices / Distribution Centers / Warehouses  15,525  Own
General Roca  Distribution Centers / Warehouses  2,548  Third Parties
Gualeguaychu  Commercial Offices / Warehouses  2,392  Leased

 

53

 

 

Junin (Buenos Aires)  Cross Docking  995  Third Parties
Junin (Buenos Aires)  Commercial Offices  108  Leased
Junin (Mendoza)  Commercial Offices  234  Leased
Mendoza*  Offices / Distribution Centers / Warehouses  36,452  Own
Monte Hermoso*  Real Estate**  300  Own
Neuquén*  Offices / Distribution Centers / Warehouses  10,157  Own
Olavarria  Offices / Distribution Centers / Warehouses  3,065  Leased
Paraná  Commercial Offices  318  Leased
Pehuajo  Offices / Distribution Centers / Warehouses  1,060  Leased
Pergamino*  Offices / Cross Docking  15,700  Own
Puerto Madryn  Commercial Offices  115  Leased
Rafaela  Commercial Logistic Operations  1,000  Third Parties
Rio Gallegos  Distribution Centers / Warehouses  2,491  Leased
Rio Grande  Offices / Distribution Centers / Warehouses  2,460  Leased
Río IV*  Housing  1,914  Own
Río IV*  Private Passageway  5,170  Own
Río IV*  Cross Docking  7,482  Own
Río IV  Commercial Offices  93  Leased
Rio Tercero  Commercial Logistic Operations  600  Third Parties
Rivadavia (Mendoza)*  Deposit**  800  Own
Rosario*  Offices / Distribution Centers / Warehouses / Parking Lot / Real Estate  27,814  Own
San Francisco  Commercial Offices  63  Leased
San Francisco  Crossdocking  800  Third Parties
San Juan*  Offices / Distribution Centers / Warehouses  48,036  Own
San Luis*  Commercial Offices / Distribution Centers / Warehouses  5,205  Own
San Martin de Los Andes  Offices / Distribution Center / Warehouses  1,500  Third Parties
San Nicolas  Crossdocking  1,320  Third Parties
San Nicolas  Commercial Offices  50  Leased
San Rafael  Commercial Offices  58  Leased
Santa Fe  Commercial Offices  238  Leased
Santa Rosa  Distribution Centers / Warehouses  1,200  Third Parties
Santo Tomé*  Administrative Offices / Distribution Centers / Warehouses  88,309  Own
Trelew*  Offices / Production of Soft Drinks / Distribution Centers / Warehouses  51,000  Own
Trelew  Warehouses  1,500  Leased
Trenque Lauquen  Distribution Center / Warehouses / Commercial Offices  1,185  Third Parties
Tres Arroyos  Offices / Crossdocking / Warehouses  1,548  Leased
Ushuaia  Offices / Distribution Centers / Warehouses  1,360  Leased
Ushuaia  Commercial Offices  94  Leased
Venado Tuerto  Commercial Offices / Distribution Centers / Warehouses  2,449  Leased
Villa Maria  Commercial Offices  125  Leased

 

54

 

 

Villa Maria  Crossdocking  1,200  Third Parties
Villa Mercedes  Commercial Offices  70  Leased
Villa Mercedes  Crossdocking  600  Third Parties
Andina Empaques Argentina S.A.         
Buenos Aires*  Production of bottles, PET Preforms, Plastic Caps and Cases  27,043  Own
Buenos Aires  Deposit adjoining the production plant  1,041  Leased
Buenos Aires  Deposit adjoining the production plant  940  Leased
BRAZIL         
Rio de Janeiro Refrescos Ltda.         
Jacarepaguá  Offices / Production of Soft Drinks / Distribution Center / Warehouses  249,470  Own
Duque de Caxias*  Offices / Production of Soft Drinks / Distribution Center / Warehouses  2,243,953  Own
Nova Iguaçu*  Distribution Centers / Warehouses  82,618  Own
Bangu*  Distribution Centers  44,389  Own
Campos*  Distribution Centers  36,083  Own
Cabo Frio*  Distribution Centers**  1,985  Own
São Pedro da Aldeia 1*  Distribution Centers  10,139  Concession
Itaperuna*  Crossdocking  2,500  Leased
Caju 1*  Distribution Centers  4,866  Own
Caju 2*  Distribution Centers  8,058  Own
Caju 3*  Parking Lot  7,400  Leased
Vitória (Cariacica)*  Distribution Centers  93,320  Own
Cachoeiro do Itapemirim *  Crossdocking  8,000  Leased
Linhares*  Crossdocking  1,500  Leased
Ribeirão Preto  Offices / Production of Soft Drinks / Distribution Center / Warehouses  238,096  Own
Ribeirão Preto*  Real Estate  279,557  Own
Franca*  Distribution Centers  32,500  Own
Mococa*  Distribution Centers  33,669  Leased
Araraquara*  Distribution Centers  11,658  Own
São Paulo*  Apartment  69  Own
São Joao da Boa Vista, Araraquara,São Paulo*  Crossdocking  20,773  Own
São Pedro da Aldeia 2*  Parking Lot  6,400  Concession
Itaipu*  Commercial Offices  750  Leased
Nova Friburgo*  Commercial Offices / Crossdocking  350  Leased
CHILE         
Embotelladora Andina S.A.         
Renca*  Offices / Production of Soft Drinks / Distribution Center / Warehouses  380,833  Own

 

55

 

 

Renca*  Warehouses  55,562  Own
Renca*  Warehouses  11,211  Own
Renca*  Warehouses  46,965  Own
Carlos Valdovinos*  Distribution Centers / Warehouses  106,820  Own
Puente Alto *  Distribution Centers / Warehouses  68,682  Own
Maipú*  Distribution Centers / Warehouses  45,833  Own
Demetrop (Metropolitan Region)  Warehouses  n/a  Leased
Trailerlogistic (Metropolitan Region)  Warehouses    n/a  Leased
Monster (Metropolitan Region)  Warehouses    n/a  Leased
Rancagua*  Distribution Centers / Warehouses  25,920  Own
San Antonio*  Distribution Centers / Warehouses  19,809  Own
Antofagasta *  Offices / Production of Soft Drinks / Distribution Center / Warehouses  34,729  Own
Antofagasta *  Offices / Production of Soft Drinks / Distribution Center / Warehouses  8,028  Own
Calama*  Distribution Centers / Warehouses  10,700  Own
Tocopilla*  Distribution Centers / Warehouses  562  Own
Coquimbo*  Offices / Production of Soft Drinks / Distribution Center / Warehouses  31,383  Own
Copiapó*  Distribution Centers / Warehouses  26,800  Own
Ovalle*  Distribution Centers / Warehouses  6,223  Own
Vallenar*  Distribution Centers / Warehouses  5,000  Own
Illapel  Distribution Centers / Warehouses  n/a  Leased
Punta Arenas*  Offices / Production of Soft Drinks / Distribution Center / Warehouses  109,517  Own
Coyhaique*  Distribution Centers / Warehouses  5,093  Own
Puerto Natales  Distribution Centers / Warehouses  850  Leased
VJ S.A.         
Renca*  Offices / Production of Juices  40,000  Own
Vital Aguas S.A.         
Rengo*  Offices / Production of Waters  573,620  Own
Envases Central S.A.         
Renca*  Offices / Production of Soft Drinks  51,907  Own
PARAGUAY         
Paraguay Refrescos S.A.         
San Lorenzo*  Offices / Production of Soft Drinks / Warehouses  275,292  Own
Coronel Oviedo*  Offices / Warehouses  32,911  Own
Encarnación*  Offices / Warehouses  12,744  Own
Ciudad del Este*  Offices / Warehouses  14,620  Own

* Free of encumbrance properties.

**Inactive: facilities that are not being use currently by the Company.

Leased: facilities owned by third parties, used by the Company through a lease agreement.

Third Parties: facilities owned by third parties, used by the Company through contracts other than lease agreements, such as distribution contracts.

Own: facilities owned by the Company.

 

56

 

 

Capacity by Line of Business

 

Set forth below is certain information concerning the installed capacity and approximate average utilization of our production facilities, by line of business.

 

   Year Ended December 31, 
   2018   2019 
   Annual
Total
Installed
Capacity(1)
   Average
Capacity
Utilization
(%)
   Capacity
Utilization
During
Peak Month
(%)
   Annual
Total
Installed
Capacity(1)
   Average
Capacity
Utilization
(%)
   Capacity
Utilization
During
Peak Month
(%)
 
Soft drinks (millions of UCs):                              
Andina Chile    298    50    60    337    45    63 
Andina Brazil    449    51    56    430    58    62 
Andina Argentina    305    51    62    344    44    55 
Paraguay Refrescos    114    46    63    118    45    59 
Other beverages (millions of UCs)                               
Andina Chile    22    43    54    22    50    72 
Andina Brazil    39    49    52    45    47    42 
Andina Argentina    92    47    56    105    25    36 
Paraguay Refrescos    30    34    40    29    40    54 
ECSA/VJSA/VASA…………….   103    55    60    115    49    54 
PET packaging (millions of bottles) (2)    67    54    66    46    42    60 
Preforms (millions of preforms) (2)    978    82    99    968    67    93 
Plastic caps (millions of caps) (2)    1,000    60    94    1,000    54    88 
Cases(2)    0.7    92    100    0.7    68    100 

 


(1)Annual Total Installed Capacity assumes production of the mix of products and containers produced in 2018 and 2019. Capacity calculation was standardized for all operations. Thus, calculation considers Overall Equipment Effectiveness budgeted for the years 2018 and 2019.
(2)Andina Empaques Argentina only. The annual capacity for PET packaging decreased in 2019 because a blower machine was transferred to the Córdoba plant.

 

In 2019, we continued to modernize and renovate our manufacturing facilities in order to maximize efficiency and productivity. We also made significant improvements to our auxiliary services and complementary processes such as water treatment plants and effluent treatment stations. We believe we have the capacity in each of the franchise territories to meet consumer demand for each product format. Because bottling is a seasonal business with significantly higher demand during the South American summer and spring and because soft drinks are perishable, it is necessary for bottlers to carry significant over-capacity in order to meet the substantially greater seasonal demand. We assure the quality of our products through worldwide class practices and procedures maintaining quality control laboratories and structures in each production facility where raw materials are tested and where we analyze samples of our products.

 

As of December 31, 2019, we had total installed annual production capacity, including soft drinks, fruit juices, and water, of 1,545 million unit cases. Our primary facilities include:

 

·through Coca-Cola Andina, in the Chilean territory, four soft drink and other beverages production facilities with 23 production lines, with total installed annual capacity of 359 million unit cases (23.2% of our total installed annual capacity);
·through Vital Jugos in the Chilean territory, one fruit juice production facility, with 15 production lines, with total installed annual capacity of 38 million unit cases (2.5% of our total installed annual capacity);
·through Envases Central in the Chilean territory, one fruit juice production facility, with 3 production line, with total installed annual capacity of 36 million unit cases (2.3% of our total installed annual capacity);
·through Vital Aguas in the Chilean territory, one mineral water production facility, with 2 production lines, with total installed annual capacity of 42 million unit cases (2.7% of our total installed annual capacity);
·through Rio de Janeiro Refrescos in the Brazilian territory, three soft drink production facilities with 18 production lines with total installed annual capacity of 430 million unit cases (27.8% of our total installed annual capacity); and 10 production lines for juices, tea and water which satisfy the franchise’s needs and re-sales to other Bottlers in Brazil, with total installed annual capacity of 45 million unit cases (2.9% of our total installed annual capacity);
·through Embotelladora del Atlántico in the Argentine territory, three soft drink production facilities with 17 production lines with a total installed annual capacity of 344 million unit cases (22.3% of our total installed annual capacity); three production lines for juices that covers the needs of our franchise with a total installed annual capacity of 70 million unit cases (4.5% of our total installed annual capacity), and one production line for waters and sensitive products with a total installed annual capacity of 35 million unit cases (2.3% of our total installed annual capacity);

·through Andina Empaques Argentina S.A. in the Argentine territory, one production facility for bottles, preforms and plastic caps that covers the needs of the Coca-Cola system in that country. It has 13 preform injectors, two bottle blowers, two injectors for plastic caps and one production line for cases, with a total installed annual capacity of 2,015 million units considering PET bottles, preforms, plastic caps and cases;
·through PARESA in the Paraguayan territory, one production facility located in San Lorenzo, with seven production lines with a total installed annual capacity of 132 million unit cases (8.5% of our total installed annual capacity); and three tetra pack lines with a total installed annual capacity of 15 million unit cases (1.0% of our total installed annual capacity).

 

57

 

 

  

ITEM 4A.UNRESOLVED SECURITIES AND EXCHANGE COMMISSION STAFF COMMENTS

 

Not applicable.

 

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

A.OPERATING RESULTS 2019

 

Results of operation

 

Set forth below is a discussion and analysis of our results of operation for the years ended December 31, 2019, 2018 and 2017.

 

Our consolidated financial results for the years ended December 31, 2019, 2018 and 2017 include the results of our subsidiaries in Chile, Brazil, Argentina and Paraguay. Our consolidated financial statements reflect the results of the subsidiaries outside Chile, converted into Chilean pesos (our functional and reporting currency).

 

IFRS requires that assets and liabilities of our subsidiaries outside of Chile be converted from the functional currency to the presentation currency (Chilean peso) at year-end exchange rates, and that income and expense accounts are converted at monthly average exchange rates for the month in which they are recognized for those subsidiaries that do not operate in hyperinflationary economies.

 

In the case of our Argentine subsidiaries, which have been operating in an environment that during 2018 and 2019 was classified as hyperinflationary, the conversion criteria from the functional currency of those subsidiaries to our presentation currency is the following:

 

·The statement of financial position (balance sheet): Non-cash items are expressed in the current currency at the balance sheet date and translated to the presentation currency at the closing exchange rate. Losses and gains are included in net earnings (fiscal year income).
·First adoption of a hyperinflationary economy was in 2018: Losses and gains by correction of current non-monetary items the previous year are recorded in accumulated results as of January 1, 2018.
·The income statement: Income statement items are expressed in the current currency unit at the end of the reporting period, using the variation of the general price index from the date on which the expenses and revenues were accrued, and translated to the presentation currency at closing exchange rate.
·Cash flow statement: Cash flow statement items are expressed in the current currency unit at the end of the reporting period and translated to the presentation currency at closing exchange rate.

 

For more information on the effects of the hyper-inflationary environment in Argentina, see note 2.5 of our consolidated financial statements included herein.

 

The Impact of the Ongoing COVID-19 Pandemic

 

As a result of the impact that the ongoing COVID-19 pandemic is having across the world, including its more recent outbreak in the countries where we operate, we have taken measures necessary to protect the health and safety of our employees and to ensure the continuity of our operations. Among the measures we have taken are the following:

 

58

 

 

·the launch of a campaign to educate our employees on actions to be taken to avoid the spread of the virus;
·sending home any employee that has been exposed to the virus;
·implementation of additional cleaning protocols for our facilities;
·modifying certain work practices and activities, without affecting our operational standards; for instance, home office has been implemented for those employees whose work can be performed remotely, and domestic and international traveling has been canceled; and
·providing personal protection and cleaning products (including face masks and sanitizers) to those employees who need to keep working at our plants and distribution centers or in the transportation of our products.

 

Beginning mid-March 2020, governments around the world, including in the countries where we operate, have adopted extraordinary measures to contain the spread of COVID-19 and reduce infection rates, including, in some cases, the closing of schools, universities, shopping centers, restaurants and bars, prohibiting social gathering events, issuing stay-at-home orders and establishing quarantine requirements, imposing additional sanitary requirements on exports and imports, and limiting international travel and closing borders. Governments in the countries where we operate have also announced economic stimulus programs for families and businesses, including in Argentina a temporary restriction on workforce reductions. These government measures are affecting our Company and our customers. As these measures become more restrictive or are extended in time, our Company’s priority will continue to be to protect the health and safety of our employees and to continue operating to serve our customers and communities in the best way we can. To date, our operations have not been required to close and we are not aware of the virus affecting any significant part of our workforce.

 

Since mid-March 2020, as a result of the ongoing COVID-19 pandemic and government measures to contain the virus, we have experienced volatility in our sales volume across our channels. During this period, we have experienced, on a consolidated basis, a sharp decline in sales volumes in our on premise channel, which primarily consists of restaurants, bars and similar establishments that have been temporarily shut down by government measures. We have also experienced a decline in our wholesale channel and more moderate overall declines in our supermarkets and traditional channels. These changes in our sales volumes, however, have varied significantly across the four countries where we operate. Because these changes in sales volumes are very recent, and the pandemic and government measures are evolving rapidly, we believe it is too soon to draw conclusions about longer term trends in consumer spending patterns and how they may affect our future operating and financial results.

 

Due to uncertainties regarding the COVID-19 pandemic and the above-mentioned government restrictions, including how long these conditions may persist, and uncertainties regarding the effects they will have on our sales volumes and our business in general, we cannot predict accurately the ultimate financial impact from these new trends. In any event, we estimate that we will not face liquidity constraints, or difficulties in complying with covenants under our debt instruments. We do not anticipate any significant provisions or impairments at this time. In addition, we are reviewing our investment and expense plan for the year to adapt it to these new trends.

 

Factors affecting comparability

 

The comparability of our consolidated financial statements for 2018 and 2019 versus prior periods is influenced by the adoption of IFRS conversion rules for subsidiaries operating under a hyperinflationary economy in Argentina. This standard requires that the results of operations in Argentina be presented as if this economy were hyperinflationary from January 1, 2018 and, as a result, requires a restatement of accumulated results as of that month. In addition, due to the adoption of IAS 29, we had to translate figures from Argentinean pesos to Chilean pesos, using the closing exchange rate of the period. The IFRS standard does not require that the comparative financial information for 2017 to be restated as of the closing of 2019, since the functional currency of the reporting company is the Chilean peso.

 

Except as expressed in the preceding paragraph, there are no events during the periods presented that significantly affect the comparability of the figures presented.

 

59

 

 

Summary of Results of Operations for the Years ended December 31, 2017, 2018 and 2019

 

The following tables set forth our sales volume, net sales and gross profit for the years ended December 31, 2017, 2018 and 2019:

 

   Year ended December 31, 
   2017   2018   2019 
   (millions of unit cases (1)) 
Sales volume:               
Chile               
Soft drinks   157.7    154.7    158.2 
Mineral water   39.0    40.5    44.6 
Juices   34.3    36.0    36.1 
Beer & Spirits   -    0.2    0.6 
Total   231.0    231.4    239.6 
                
Brazil               
Soft drinks   201.7    201.5    206.8 
Mineral water   6.0    7.7    11.5 
Juices   22.2    24.0    22.3 
Beer   19.0    16.0    18.7 
Total   248.9    249.2    259.3 
                
Argentina               
Soft drinks   174.4    167.0    149.7 
Mineral water   26.1    23.2    18.5 
Juices   10.9    11.7    10.0 
Total   211.4    201.9    178.2 
                
Paraguay               
Soft drinks   54.1    56.1    56.2 
Mineral water   6.6    7.0    7.9 
Juices   4.3    5.0    5.2 
Total   65.0    68.2    69.3 

 

 

(1)Unit cases refer to 192 ounces of finished beverage product (24 eight-ounce servings) or 5.68 liters.

Note: Totals may not sum due to rounding.

 

   Year ended December 31, 
   2017   2018   2019 
   Ch$ millions   % of Total   Ch$ millions   % of Total   Ch$ millions   % of Total 
Net sales:                              
Chile   551,873    29.8    570,939    34.1    608,952    34.2 
Brazil   603,898    32.7    540,510    32.3    619,321    34.8 
Argentina   553,788    30.0    413,561    24.7    394,636    22.2 
Paraguay   141,277    7.6    149,588    8.9    158,892    8.9 
Inter-country eliminations (1)    (1,957)   (0.1)   (1,682)   (0.1)   (2,776)   (0.2)
Total net sales   1,848,879    100.0    1,672,916    100.0    1,779,025    100.0 

 

 

(1)Eliminations represent intercompany sales.

Note: Totals may not sum due to rounding.

 

60

 

 

The following tables set forth our results of operations for the years ended December 31, 2018 and 2019.