UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15b-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

 

May 2020

Date of Report (Date of Earliest Event Reported)

 

Embotelladora Andina S.A.

(Exact name of registrant as specified in its charter)

 

Andina Bottling Company, Inc.

(Translation of Registrant´s name into English)

 

Avda. Miraflores 9153

Renca

Santiago, Chile

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F x Form 40-F ¨

 

Indicate by check mark if the Registrant is submitting this Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes ¨ No x

 

Indicate by check mark if the Registrant is submitting this Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes ¨ No x

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form 6-K is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934

 

Yes ¨ No x

 

 

 

 

 

 

Consolidated Financial Statements

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Santiago, Chile 

as of March 31, 2020, and December 31, 2019

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Consolidated Financial Statements

 

As of March 31, 2020 and December 31, 2019

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Consolidated Financial Statements

 

      I. Consolidated Interim Statements of Financial Position as of March 31, 2020 and December 31, 2019 1
     II. Consolidated Interim Statements of Income by Function 3
    III. Consolidated Interim Statements of Comprehensive Income 4
    IV. Consolidated Interim Statements of Changes in Equity 5
     V. Consolidated Interim Statements of Direct Cash Flows 6
    VI. Notes to the Consolidated Interim Financial Statements 7
  1. Corporate information 7
  2. Presentation bases of consolidated financial statements and applicable accounting criteria 8
  3. Financial reporting by segment 29
  4. Cash and cash equivalents 32
  5. Other financial assets, current and non-current 32
  6. Other non-financial assets, current and non-current 33
  7. Trade debtors 34
  8. Inventory 35
  9. Tax assets and liabilities 36
  10. Income tax and deferred taxes 36
  11. Property, plant and equipment 40
  12. Related parties 43
  13. Employee benefits, current and non-current 45
  14. Investments accounted for using the equity method 47
  15. Intangible assets other than goodwill 49
  16. Goodwill 50
  17. Other financial liabilities, current and non-current 50
  18. Trade accounts payable and other accounts payable 62
  19. Other provisions, current and non-current 62
  20. Other non-financial liabilities 63
  21. Equity 63
  22. Assets and liabilities for derivative instruments 66
  23. Litigations and contingencies 69
  24. Financial risk management 73
  25. Expenses by nature 77
  26. Other income 77
  27. Other expenses by function 78
  28. Income and financial costs 78
  29. Other (loss) gains 78
  30. Local and foreign currency 79
  31. Environment 83
  32. Subsequent events 83

 

 

 

 

Consolidated Interim Financial Statements

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

As of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Consolidated Interim Statements of Financial Position 

as of March 31, 2020 (unaudited) and December 31, 2019

 

ASSETS  NOTE  03.31.2020   12.31.2019 
      CLP (000’s)   CLP (000’s) 
Current assets:             
              
Cash and cash equivalents  4   382,144,839    157,567,986 
Other financial assets  5   3,703,382    347,278 
Other non-financial assets  6   20,580,449    16,188,965 
Trade and other accounts receivable, net  7   156,446,702    191,077,588 
Accounts receivable from related companies  12.1   10,945,790    10,835,768 
Inventory  8   149,603,422    147,641,224 
Current tax assets  9   6,256,731    9,815,294 
Total Current Assets      729,681,315    533,474,103 
              
Non-Current Assets:             
Other financial assets  5   188,757,433    110,784,311 
Other non-financial assets  6   111,386,424    125,636,150 
Trade and other receivables  7   722,847    523,769 
Accounts receivable from related parties  12.1   198,637    283,118 
Investments accounted for under the equity method  14   95,603,236    99,866,733 
Intangible assets other than goodwill  15   673,629,613    675,075,375 
Goodwill  16   117,297,370    121,221,661 
Property, plant and equipment  11   711,803,641    722,718,863 
Deferred tax assets  10.2   1,566,877    1,364,340 
Total Non-Current Assets      1,900,966,078    1,857,474,320 
              
Total Assets      2,630,647,393    2,390,948,423 

 

The accompanying notes 1 to 32 form an integral part of these Consolidated Financial Statements

 

 1 

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Consolidated Interim Statements of Financial Position 

as of March 31, 2020 (unaudited) and December 31, 2019

 

LIABILITIES AND EQUITY  NOTE  03.31.2020   12.31.2019 
      CLP (000’s)   CLP (000’s) 
LIABILITIES           
Current Liabilities             
Other financial liabilities  17   32,165,790    40,593,878 
Trade and other accounts payable  18   202,081,737    243,700,553 
Accounts payable to related parties  12.2   50,919,402    53,637,601 
Provisions  19   1,581,607    2,068,984 
Income taxes payable  9   8,355,314    6,762,267 
Employee benefits current provisions  13   23,654,774    38,392,854 
Other non-financial liabilities  20   4,294,681    26,502,215 
Total Current Liabilities      323,053,305    411,658,352 
              
Other financial liabilities, non-current  17   1,046,143,169    743,327,057 
Accounts payable, non-current  18   404,146    619,587 
Accounts payable to related companies, non-current  12.2   17,444,941    19,777,812 
Other provisions, non-current  19   60,113,164    67,038,566 
Deferred tax liabilities  10.2   155,690,545    169,449,747 
Employee benefits non-current provisions  13   10,745,637    10,173,354 
Non-Current Liabilities:      1,290,541,602    1,010,386,123 
              
EQUITY:  21          
Issued capital      270,737,574    270,737,574 
Retained earnings      661,236,977    600,918,265 
Other reserves      63,172,314    76,993,851 
Equity attributable to equity holders of the parent      995,146,865    948,649,690 
Non-controlling interests      21,905,621    20,254,258 
Total Equity      1,017,052,486    968,903,948 
Total Liabilities and Equity      2,630,647,393    2,390,948,423 

 

The accompanying notes 1 to 32 form an integral part of these Consolidated Financial Statements

 

 2 

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Consolidated Interim Statements of Income by Function 

as of March 31, 2020 and 2019 (unaudited)

 

      01.01.2020   01.01.2019 
   NOTE  03.31.2020   03.31.2019 
      CLP (000’s)   CLP (000’s) 
Net sales      504,614,612    447,262,807 
Cost of sales  25   (292,631,142)   (261,430,816)
Gross Profit      211,983,470    185,831,991 
Other income  26   597,542    84,771 
Distribution expenses  25   (45,964,550)   (41,787,626)
Administrative expenses  25   (90,062,360)   (76,286,339)
Other expenses  27   (3,518,974)   (2,285,124)
Other (loss) gains  29   855    - 
Financial income  28   2,111,748    1,034,336 
Financial expenses  28   (12,394,064)   (11,025,787)
Share of profit (loss) of investments in associates and joint ventures accounted for using the equity method  14.3   1,035,394    616,432 
Foreign exchange differences      (799,501)   (776,601)
Income by indexation units      (6,378,331)   1,204,917 
Net income before income taxes      56,611,229    56,610,970 
Income tax expense  10.1   (7,622,492)   (9,959,916)
Net income      48,988,737    46,651,054 
              
Net income attributable to             
Owners of the controller      47,990,518    46,114,636 
Non-controlling interests      998,219    536,418 
Net income      48,988,737    46,651,054 
              
Earnings per Share, basic and diluted      CLP    CLP 
Earnings per Series A Share  21.5   48.29    46.40 
Earnings per Series B Share  21.5   53.11    51.04 

 

The accompanying notes 1 to 32 form an integral part of these Consolidated Financial Statements 

 

 3 

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Consolidated Interim Statements of Comprehensive Income 

as of March 31, 2020 and 2019 (unaudited)

 

   01.01.2020   01.01.2019 
   03.31.2020   03.31.2019 
   CLP (000’s)   CLP (000’s) 
Net income   48,988,737    46,651,054 
Other Comprehensive Income:          
Components of other comprehensive income that will not be reclassified to net income for the period, before taxes          
Actuarial losses from defined benefit plans   -    - 
Components of other comprehensive income that will be reclassified to net income for the period, before taxes          
Gain (losses) from exchange rate translation differences   (7,732,833)   (46,245,029)
Gain (losses) from cash flow hedges   (12,369,873)   1,349,666 
Income tax related to components of other comprehensive income that will not be reclassified to net income for the period          
Income tax benefit related to defined benefit plans   -    - 
           
Income tax related to components of other comprehensive income that will be reclassified to net income for the period          
Income tax related to exchange rate translation differences   5,030,139    76,557 
Income tax related to cash flow hedges   1,904,174    (440,130)
Other comprehensive income, total   (13,168,393)   (45,258,936)
Total comprehensive income   35,820,344    1,392,118 
Total comprehensive income attributable to:          
Equity holders of the controller   34,168,981    1,176,568 
Non-controlling interests   1,651,363    215,550 
Total comprehensive income   35,820,344    1,392,118 

 

The accompanying notes 1 to 32 form an integral part of these Consolidated Financial Statements

 

 4 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

Consolidated Interim Statements of Changes in Equity

For the periods ended March 31, 2020 and 2019 (unaudited)

 

         Other reserves                     
    Issued capital    Reserves for exchange rate differences    Cash flow hedge reserve    Actuarial gains or losses in employee benefits    Other reserves    Total other reserves    Retained earnings    Controlling Equity    Non-Controlling interests    Total Equity 
    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s) 
Opening balance as of 01.01.2020   270,737,574    (339,076,340)   (14,850,683)   (2,230,752)   433,151,626    76,993,851    600,918,265    948,649,690    20,254,258    968,903,948 
Changes in equity                                                  
Comprehensive Income                                                  
Earnings   -    -         -    -    -    47,990,518    47,990,518    998,219    48.988.737 
Other Comprehensive Income   -    (3,355,585)   (10,465,952)   -    -    (13,821,537)   -    (13,821,537)   653,144    (13.168.393)
Comprehensive Income   -    (3,355,585)   (10,465,952)   -    -    (13,821,537)   47,990,518    34,168,981    1,651,363    35.820.344 
Dividends   -    -    -    -    -    -    -    -    -    - 
Increase (decrease) from other changes   -    -    -    -    -    -    12,328,194    12,328,194    -    12,328,194 
Total changes in equity   -    (3,355,585)   (10,465,952)   -    -    (13,821,537)   60,318,712    46,497,175    1,651,363    48,148,538 
                                                   
Ending balance as of 03.31.2020   270,737,574    (342,431,925)   (25,316,635)   (2,230,752)   433,151,626    63,172,314    661,236,977    995,146,865    21,905,621    1,017,052,486 

 

The accompanying notes 1 to 32 form an integral part of these Consolidated Financial Statements

 

       Other reserves                 
   Issued capital   Reserves for exchange rate differences   Cash flow hedge reserve   Actuarial gains or losses in employee benefits   Other reserves   Total other reserves   Retained earnings   Controlling Equity   Non-Controlling interests   Total Equity 
    CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)     CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S) 
Opening balance as of 01.01.2019   270,737,574    (306,674,528)   (13,668,932)   (1,954,077)   433,151,626    110,854,089    462,221,463    843,813,126    19,901,617    863,714,743 
Changes in equity                                                  
Comprehensive Income                                                  
Earnings   -    -    -    -    -    -    46,114,636    46,114,636    536,418    46.651.054 
Other Comprehensive Income   -    (45,847,604)   909,536    -    -    (44,938,068)   -    (44,938,068)   (320,868)   (45.258.936)
Comprehensive Income   -    (45,847,604)   909,536    -    -    (44,938,068)   46,114,636    1,176,568    215,550    1.392.118 
Dividends   -    -    -    -    -    -    -    -    -    - 
Increase (decrease) from other changes   -    -    -    -    1,454,800    1,454,800    10,980,204    12,435,004    -    12,435,004 
Total changes in equity   -    (45,847,604)   909,536    -    1,454,800    (43,483,268)   57,094,840    13,611,572    215,550    13,827,122 
                                                   
Ending balance as of 03.31.2019   270,737,574    (352,522,132)   (12,759,396)   (1,954,077)   434,606,426    67,370,821    519,316,303    857,424,698    20,117,167    877,541,865 

 

The accompanying notes 1 to 32 form an integral part of these Consolidated Financial Statements

 

5 

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES 

Consolidated Statements of Direct Cash Flows

For the periods ended March 31, 2020 and 2019 (unaudited)

 

      01.01.2020   01.01.2019 
Cash flows provided by (used in) Operating Activities  NOTE  03.31.2020   03.31.2019 
Cash flows provided by Operating Activities      CLP (000’s)    CLP (000’s) 
Receipts from the sale of goods and the rendering of services (including taxes)      744,324,530    679,575,996 
Payments for Operating Activities             
Payments to suppliers for goods and services (including taxes)      (500,259,388)   (470,190,772)
Payments to and on behalf of employees      (64,198,477)   (57,763,597)
Other payments for operating activities (value-added taxes on purchases, sales and others)      (98,933,698)   (84,474,896)
Dividends received           - 
Interest payments      (18,203,609)   (17,176,511)
Interest received      1,646,393    410,545 
Income tax payments      (14,579,451)   (9,443,984)
Other cash movements (tax on bank debits Argentina and others)      (1,270,447)   (945,668)
Cash flows provided by (used in) Operating Activities      48,525,853    39,991,113 
              

Cash flows provided by (used in) Investing Activities

             
Proceeds from sale of Property, plant and equipment      -    1,960 
Purchase of Property, plant and equipment      (30,212,523)   (28,250,509)
Payments on forward, term, option and financial exchange agreements      -    14,094 
Collection on forward, term, option and financial exchange agreements      3,493,069    - 
Other payments on the purchase of financial instruments      (30,747)   - 
Net cash flows used in Investing Activities      (26,750,201)   (28,234,455)
              
Cash Flows generated from (used in) Financing Activities             
Loan payments      (1,306,019)   (215,484)
Lease liability payments      (988,415)   (486,259)
Dividend payments by the reporting entity      (22,471,139)   (21,369,142)
Other inflows (outflows) of cash (Placement and payment of public obligations)      225,028,027    (3,455,681)
Net cash flows (used in) generated by Financing Activities      200,262,454    (25,526,566)
Net increase in cash and cash equivalents before exchange differences      222,038,106    (13,769,908)
Effects of exchange differences on cash and cash equivalents      1,294,477    (1,749,589)
Effects of inflation in cash and cash equivalents in Argentina      1,244,270    (223,727)
Net increase (decrease) in cash and cash equivalents      224,576,853    (15,743,224)
Cash and cash equivalents – beginning of period  4   157,567,986    137,538,613 
Cash and cash equivalents - end of period  4   382,144,839    121,795,389 

 

The accompanying notes 1 to 32 form an integral part of these Consolidated Financial Statements

 

6 

 

 

 

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

Notes to the Consolidated Interim Financial Statements

 

1 - CORPORATE INFORMATION

 

Embotelladora Andina S.A. RUT (Chilean Tax Id. N°) 91.144.000-8 (hereinafter “Andina,” and together with its subsidiaries, the “Company”) is an open stock corporation, whose corporate address and principal offices are located at Miraflores 9153, borough of Renca, Santiago, Chile. The Company is registered under No. 00124 of the Securities Registry and is regulated by Chile’s Financial Market Commission (hereinafter “CMF”) and pursuant to Chile’s Law 18,046 is subject to the supervision of this entity. It is also registered with the U.S. Securities and Exchange Commission (hereinafter “SEC”) and its stock is traded on the New York Stock Exchange since 1994.

 

The principal activity of Embotelladora Andina S.A. is to produce, bottle, commercialize and distribute the products under registered trademarks of The Coca-Cola Company (TCCC). The Company maintains operations and is licensed to produce, commercialize and distribute such products in certain territories in Chile, Brazil, Argentina and Paraguay

 

In Chile, the territories in which it has such a license are the Metropolitan Region; the province of San Antonio, the V Region; the province of Cachapoal including the commune of San Vicente de Tagua-Tagua, the VI Region; the II Region of Antofagasta; the III Region of Atacama, the IV Region of Coquimbo XI Region de Aysén del General Carlos Ibáñez del Campo; XII Region of Magallanes and Chilean Antarctic. In Brazil, the aforementioned license covers much of the state of Rio de Janeiro, the entire state of Espíritu Santo, and part of the states of Sao Paulo and Minas Gerais. In Argentina it includes the provinces of Córdoba, Mendoza, San Juan, San Luis, Entre Ríos, as well as part of the provinces of Santa Fe and Buenos Aires, Chubut, Santa Cruz, Neuquén, Río Negro, La Pampa, Tierra del Fuego, Antarctica and South Atlantic Islands. Finally, in Paraguay the territory comprises the whole country. The bottling agreement for the territories in Chile expires in October 2023; in Argentina it expires in 2022; in Brazil it expires in 2022, and in Paraguay it expires in 2020.

 

Said agreements are renewable upon the request of the licensee and at the sole discretion of The Coca-Cola Company.

 

As of the date of these consolidated financial statements, regarding Andina’s principal shareholders, the Controlling Group holds 45.16% of the outstanding shares with voting rights, corresponding to the Series A shares. The Controlling Group is composed of the Chadwick Claro, Garcés Silva, Hurtado Berger, Said Handal and Said Somavía families, who control the Company in equal parts.

 

These Consolidated Financial Statements reflect the consolidated financial position of Embotelladora Andina S.A. and its subsidiaries, which were approved by the Board of Directors on April 28, 2020.

 

7 

 

 

 

 

2 - BASIS OF PREPARATION OF CONSOLIDATED INTERIM FINANCIAL STATEMENTS AND APPLICATION OF ACCOUNTING CRITERIA

 

2.1            Accounting principles and basis of preparation

 

The Company’s Consolidated Interim Financial Statements for the periods ended March 31, 2020 and December 31, 2019 , have been prepared in accordance with the International Financial Reporting Standards (hereinafter "IFRS") issued by the International Accounting Standards Board (hereinafter "IASB").

 

These Consolidated Interim Financial Statements have been prepared following the going concern principle by applying the historical cost method, with the exception, according to IFRS, of those assets and liabilities that are recorded at fair value.

 

These Consolidated Statements reflect the consolidated financial position of Embotelladora Andina S.A. and its Subsidiaries as of March 31, 2020 and December 31, 2019 and the results of operations for the periods between January 1 and March 31, 2020 and 2019 , together with the statements of changes in equity and cash flows for the same periods .

 

These Consolidated Interim Financial Statements have been prepared based on the accounting records maintained by the Parent Company and by the other entities that are part of the Company and are presented in thousands of Chilean pesos (unless expressly stated) as this is the functional and presentation currency of the Company. Foreign operations are included in accordance with the accounting policies established in Notes 2.5.

 

2.2            Subsidiaries and consolidation

 

Subsidiary entities are those companies directly or indirectly controlled by Embotelladora Andina. Control is obtained when the Company has power over the investee, when it has exposure or is entitled to variable returns from its involvement in the investee and when it has the ability to use its power to influence the amount of investor returns. They include assets and liabilities, results of operations, and cash flows for the periods reported. Income or losses from subsidiaries acquired or sold are included in the Consolidated Financial Statements from the effective date of acquisition through the effective date of disposal, as applicable.

 

The acquisition method is used to account for the acquisition of subsidiaries. The consideration transferred for the acquisition of the subsidiary is the fair value of assets transferred, equity securities issued, liabilities incurred or assumed on the date that control is obtained. Identifiable assets acquired, and identifiable liabilities and contingencies assumed in a business combination are accounted for initially at their fair values at the acquisition date. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

 

Intercompany transactions, balances and unrealized gains on transactions between Group entities are eliminated. Unrealized losses are also eliminated. When necessary, the accounting policies of the subsidiaries are modified to ensure uniformity with the policies adopted by the Group.

 

The interest of non-controlling shareholders is presented in the consolidated statement of changes in equity and the consolidated statement of income by function under "Non-Controlling Interest" and “Earnings attributable to non-controlling interests", respectively.

 

8 

 

 

 

 

The consolidated financial statements include all assets, liabilities, income, expenses, and cash flows of the Company and its subsidiaries after eliminating balances and transaction among the Group’s entities, the subsidiary companies included in the consolidation are the following:

 

      Ownership interest 
      03.31.2020   12.31.2019 
Taxpayer ID  Company Name  Direct   Indirect   Total   Direct   Indirect   Total 
59.144.140-K  Abisa Corp S.A.   -    99.99    99.99    -    99.99    99.99 
Foreign  Aconcagua Investing Ltda.   0.70    99.28    99.99    0.70    99.28    99.99 
96.842.970-1  Andina Bottling Investments S.A.   99.9    0.09    99.99    99.9    0.09    99.99 
96.972.760-9  Andina Bottling Investments Dos S.A.   99.9    0.09    99.99    99.9    0.09    99.99 
Foreign  Andina Empaques Argentina S.A.   -    99.98    99.98    -    99.98    99.98 
96.836.750-1  Andina Inversiones Societarias S.A.   99.98    0.01    99.99    99.98    0.01    99.99 
76.070.406-7  Embotelladora Andina Chile S.A.   99.99    -    99.99    99.99    -    99.99 
Foreign  Embotelladora del Atlántico S.A.   0.92    99.07    99.99    0.92    99.07    99.99 
96.705.990-0  Envases Central S.A.   59.27    -    59.27    59.27    -    59.27 
Foreign  Paraguay Refrescos S.A.   0.08    97.75    97.83    0.08    97.75    97.83 
76.276.604-3  Red de Transportes Comerciales Ltda.   99.9    0.09    99.99    99.9    0.09    99.99 
Foreign  Rio de Janeiro Refrescos Ltda.   -    99.99    99.99    -    99.99    99.99 
78.536.950-5  Servicios Multivending Ltda.   99.9    0.09    99.99    99.9    0.09    99.99 
78.861.790-9  Transportes Andina Refrescos Ltda.   99.9    0.09    99.99    99.9    0.09    99.99 
96.928.520-7  Transportes Polar S.A.   99.99    -    99.99    99.99    -    99.99 
76.389.720-6  Vital Aguas S.A.   66.50    -    66.50    66.50    -    66.50 
93.899.000-k  Vital Jugos S.A.   15.00    50.00    65.00    15.00    50.00    65.00 

 

2.3            Investments in associates and joint ventures

 

Ownership interest held by the Group in joint ventures and associates are recorded following the equity method. According to the equity method, the investment in an associate or joint venture is initially recorded at cost. As of the date of acquisition, the investment in the statement of financial position is recorded by the proportion of its total assets, which represents the Group's participation in its capital, once adjusted, where appropriate, the effect of the transactions made with the Group, plus capital gains that have been generated in the acquisition of the company.

 

Dividends received from these companies are recorded by reducing the value of the investment and the results obtained by them, which correspond to the Group according to its ownership, are recorded under the item “Participation in profit (loss) of associates accounted for by the equity method.”

 

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2.3.1            Investments in Associates

 

Associates are all entities over which the Group exercises significant influence but does not have control, significant influence is the power to intervene in the financial and operating policy decisions of the associate, without having control or joint control over it. The results of these associates are accounted for using the equity method. Accounting policies of the associates are changed, where necessary, to ensure conformity with the policies adopted by the Company and unrealized gains are eliminated.

 

2.3.2            Joint arrangements

 

Joint arrangements are those entities in which the Group exercises control through an agreement with other shareholders and jointly with them, that is, when decisions on their relevant activities require the unanimous consent of the parties that share control.

 

Depending on the rights and obligations of the parties, joint arrangements are classified as:

 

-Joint venture: agreement whereby the parties exercising joint control are entitled to the net assets of the entity. Joint ventures are integrated into the consolidated financial statements by the equity method, as described above.

 

-Joint operation: agreement whereby the parties exercising joint control are entitled to the assets and obligations with respect to the liabilities related to the agreement. Joint operations are consolidated by proportionally integrating the assets and liabilities affected by said operation.

 

To determine the type of joint agreement that derives from a contractual agreement, Group Management evaluates the structure and legal form of the agreement, the terms agreed by the parties, as well as other relevant factors and circumstances.

 

Embotelladora Andina does not have joint arrangements that qualify as a joint operation business.

 

2.4            Financial reporting by operating segment

 

“IFRS 8 Operating Segments” requires that entities disclose information on the results of operating segments. In general, this is information that Management and the Board of Directors use internally to assess performance of segments and allocate resources to them. Therefore, the following operating segments have been determined based on geographic location:

 

·Operation in Chile

 

·Operation in Brazil

 

·Operation in Argentina

 

·Operation in Paraguay

 

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2.5            Functional currency and presentation currency

 

2.5.1            Functional currency

 

Items included in the financial statements of each of the entities in the Company are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The functional currency of each of the Operations is the following:

 

Company

Functional currency

 

Embotelladora del Atlántico Argentine Peso (ARS)
Embotelladora Andina Chilean Peso (CLP)
Paraguay Refrescos Paraguayan Guaraní (PYG)
Rio de Janeiro Refrescos Brazil Real (BRL)

 

Foreign currency-denominated monetary assets and liabilities are converted to the functional currency at the spot exchange rate in effect on the closing date.

 

All differences arising from the liquidation or conversion of monetary items are recorded in the income statement, with the exception of the monetary items designated as part of the hedging of the Group's net investment in a business abroad. These differences are recorded in another overall result until the disposal of the net investment, at which point they are reclassified to the income statement. Tax adjustments attributable to exchange differences in these monetary items are also recognized in another overall outcome.

 

Non-monetary items that are valued at historical cost in a foreign currency are converted using the exchange rate in effect at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are converted using the exchange rate in effect at the date on which fair value is determined. Losses or gains arising from the conversion of non-monetary items measured at fair value are recorded in accordance with the recognition of losses or gains arising from the change in the fair value of the respective item (e.g., exchange differences arising from items whose fair value gains or losses are recognized in another overall result or in results are also recognized in another overall result or in results, respectively).

 

Functional currency in hyperinflationary economies

 

Beginning July 2018, Argentina's economy is considered as hyperinflationary, according to the criteria established in the International Accounting Standard No. 29 “Financial information in hyperinflationary economies” (IAS 29). This determination was carried out based on a series of qualitative and quantitative criteria, including an accumulated inflation rate of more than 100% for three years. In accordance with IAS 29, the financial statements of companies in which Embotelladora Andina S.A. participates in Argentina have been retrospectively restated by applying a general price index to the historical cost, in order to reflect the changes in the purchasing power of the Argentine peso, as of the closing date of these financial statements.

 

Non-monetary assets and liabilities were restated since February 2003, the last date an inflation adjustment was applied for accounting purposes in Argentina. In this context, it should be mentioned that the Group made its transition to IFRS on January 1, 2004, applying the attributed cost exemption for Property, plant and equipment.

 

For consolidation purposes in Embotelladora Andina S.A. and as a result of the adoption of IAS 29, the results and financial situation of our Argentine subsidiaries were converted to the closing exchange rate (ARS/CLP) as March 31, 2020, in accordance with IAS 21 "Effects of foreign currency exchange rate variations", when dealing with a hyperinflationary economy.

 

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Whereas the functional and presentation currency of Embotelladora Andina S.A. does not correspond to that of a hyperinflationary economy, according to the guidelines set out in IAS 29, the re-expression of periods is not required in the consolidated financial statements of the Group.

 

Inflation for the periods January to March 2020 and January to December 2019 amounted to 7.37% and 54.85%, respectively.

 

2.5.2            Presentation currency

 

The presentation currency is the Chilean peso, which is the functional currency of the parent company, for such purposes, the financial statements of subsidiaries are translated from the functional currency to the presentation currency as indicated below:

 

a.Translation of financial statements whose functional currency does not correspond to hyperinflationary economies (Brazil and Paraguay)

 

Financial statements measured as indicated are translated to the presentation currency as follows:

 

·The statement of financial position is translated to the closing exchange rate at the financial statement date and the income statement is translated at the average monthly exchange rates, the differences that result are recognized in equity under other comprehensive income.

 

·Cash flow income statement are also translated at average exchange rates for each transaction.

 

·In the case of the disposal of an investment abroad, the component of other comprehensive income (OCI) relating to that investment is reclassified to the income statement.

 

b.Translation of financial statements whose functional currency corresponds to hyperinflationary economies (Argentina)

 

Financial statements of economies with a hyperinflationary economic environment, are recognized according to IAS 29 Financial Information in Hyperinflationary Economies, and subsequently converted to Chilean pesos as follows:

 

·The statement of financial position sheet is translated at the closing exchange rate at the financial statements date;

 

·The income statement is translated at the closing exchange rate at the financial statements date

 

·The statement of cash flows is converted to the closing exchange rate at the date of the financial statements.

 

·In the case of the disposal of an investment abroad, the component of other comprehensive income (OCI) relating to that investment is reclassified to the income statement.

 

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2.5.3Exchange rates

 

Exchange rates regarding the Chilean peso ​​in effect at the end of each period are as follows:

 

Date  USD   BRL   ARS       PGY 
03.31.2020   852.03    163.85    13.22    0.129    852.03 
12.31.2019   748.74    185.76    12.50    0.116    748.74 
03.31.2019   678.53    174.13    15.65    0.110    678.53 

 

2.6Property, plant, and equipment

 

The elements of Property, plant and equipment, are valued for their acquisition cost, net of their corresponding accumulated depreciation, and of the impairment losses they have experienced.

 

The cost of the items of Property, plant and equipment include in addition to the price paid for the acquisition: i) the financial expenses accrued during the construction period that are directly attributable to the acquisition, construction or production of qualified assets, which are those that require a substantial period of time before being ready for use, such as production facilities. The Group defines a substantial period as one that exceeds twelve months. The interest rate used is that corresponding to specific financing or, if it does not exist, the weighted average financing rate of the Company making the investment; and ii) personnel expenses directly related to the construction in progress.

 

Construction in progress is transferred to operating assets after the end of the trial period when they are available for use, from which moment depreciation begins.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset only when it is probable that future economic benefits associated with the items of Property, plant and equipment will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. Repairs and maintenance are charged to the income statement in the reporting period in which they are incurred.

 

Land is not depreciated since it has an indefinite useful life. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives.

 

The estimated useful lives by asset category are:

 

Assets   Range in years
Buildings   30-50
Plant and equipment   10-20
Warehouse installations and accessories   10-30
Furniture and supplies   4-5
Motor vehicles   5-7
Other Property, plant and equipment   3-8
Bottles and containers   2-8

 

The residual value and useful lives of Property, plant and equipment are reviewed and adjusted at the end of each fiscal year, if appropriate.

 

When the value of an asset is greater than its estimated recoverable amount, the value is written down immediately to its recoverable amount.

 

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Gains and losses on disposals of property, plant, and equipment are calculated by comparing the proceeds to the carrying amount and are charged to other expenses by function or other gains, as appropriate in the statement of comprehensive income.

 

If there are items available for sale and comply with the conditions of IFRS 5 "Non-current assets held for sale and discontinued operations" are separated from Property, plant and equipment and are presented within current assets at the lower value between the book value and its fair value less selling costs.

 

2.7Intangible assets and Goodwill

 

2.7.1Goodwill

 

Goodwill represents the excess of the consideration transferred over the Company’s interest in the net fair value of the net identifiable assets of the subsidiary and the fair value of the non-controlling interest in the subsidiary on the acquisition date. Since goodwill is an intangible asset with indefinite useful life, it is recognized separately and tested annually for impairment. Goodwill is carried at cost less accumulated impairment losses.

 

Gains and losses on the sale of an entity include the carrying amount of goodwill related to that entity.

 

Goodwill is assigned to each cash generating unit (CGU) or group of cash-generating units, from where it is expected to benefit from the synergies arising from the business combination. Such CGUs or groups of CGUs represent the lowest level in the organization at which goodwill is monitored for internal management purposes.

 

2.7.2Distribution rights

 

Distribution rights are contractual rights to produce and/or distribute products under the Coca-Cola brand and other brands in certain territories in Argentina, Brazil, Chile and Paraguay that were acquired during Business Combination. Distribution rights are born from the process of valuation at fair value of the assets and liabilities of companies acquired in business combinations. Distribution rights have an indefinite useful life and are not amortized, (as they are permanently renewed by The Coca-Cola Company) and therefore are subject to impairment tests on an annual basis.

 

2.7.3Software

 

Carrying amounts correspond to internal and external software development costs, which are capitalized once the recognition criteria in IAS 38, Intangible Assets, have been met. Their accounting recognition is initially realized for their acquisition or production cost and, subsequently, they are valued at their net cost of their corresponding accumulated amortization and of the impairment losses that, if applicable, they have experienced. The aforementioned software is amortized within four years.

 

2.8Impairment of non-financial assets

 

Assets that have an indefinite useful life, such as intangibles related to distribution rights and goodwill, are not amortized and are tested annually for impairment or more frequently if events or changes in circumstances indicate a potential impairment. Assets that are subject to amortization are tested for impairment whenever there is an event or change in circumstances indicating that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying value of the asset exceeds its recoverable amount. The recoverable amount is the greater of an asset’s fair value less costs to sell or its value in use.

 

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For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units - CGU).

 

Regardless of what was stated in the previous paragraph, in the case of CGUs to which capital gains or intangible assets have been assigned with an indefinite useful life, the analysis of their recoverability is carried out systematically at the end of each fiscal year. These indications may include new legal provisions, change in the economic environment that affects business performance indicators, competition movements, or the disposal of an important part of a CGU.

 

Management reviews business performance based on geographic segments. Goodwill is monitored at the operating segment level that includes the different cash generating units in operations in Chile, Brazil, Argentina and Paraguay. The impairment of distribution rights is monitored geographically in the CGU or group of cash generating units, which correspond to specific territories for which Coca-Cola distribution rights have been acquired. These cash generating units or groups of cash generating units are composed of the following segments:

 

-Operation in Chile (excluding the Metropolitan Region, Rancagua Province and San Antonio Province);

-Operation in Argentina (North and South region);

-Operation in Brazil (State of Rio de Janeiro and Espirito Santo, Ipiranga territories, investment in the Sorocaba associate and investment in the Leão Alimentos S.A. associate);

-Operation in Paraguay

 

To check if goodwill has suffered a loss due to impairment of value, the Company compares the book value thereof with its recoverable value, and recognizes an impairment loss, for the excess of the asset's carrying amount over its recoverable amount. To determine the recoverable values ​​of the CGU, management considers the discounted cash flow method as the most appropriate.

 

The main assumptions used in the annual test are:

 

a)Discount rate

 

The discount rate applied in the annual test carried out in December 2019 was estimated using the CAPM (Capital Asset Pricing Model) methodology, which allows estimating a discount rate according to the level of risk of the CGU in the country where it operates. A nominal discount rate before tax is used according to the following table:

 

   Discount rates 2019
Argentina  35.3%
Chile  8.5%
Brazil  11.4%
Paraguay  11.5%

 

Management carries out the process of annual goodwill impairment assessments as of December 31 of each year for each CGU.

 

Impairment indicators have not been identified during the present period.

 

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b)Other assumptions

 

The financial projections to determine the net present value of the future cash flows of the CGUs are modeled based on the main historical variables and the respective budgets approved by the CGU. In this regard, a conservative growth rate is used, which reaches 3% for the carbonated beverage category and up to 7% for less developed categories such as juices and waters. Beyond the fifth year of projection, growth perpetuity rates are established per operation ranging from 1% to 2.5% depending on the degree of maturity of the consumption of the products in each operation. In this sense, the variables with greatest sensitivity in these projections are the discount rates applied in the determination of the net present value of projected cash flows, growth perpetuities and EBITDA margins considered in each CGU.

 

In order to sensitize the impairment test, variations were made to the main variables used in the model. Ranges used for each of the modified variables are:

 

-Discount Rate: Increase / Decrease of up to 100 bps as a value in the rate at which future cash flows are discounted to bring them to present value

-Perpetuity: Increase / Decrease of up to 75 bps in the rate to calculate the perpetual growth of future cash flows

-EBITDA margin: Increase / Decrease of 100bps of EBITDA margin of operations, which is applied per year for the projected periods, that is, for the years 2020-2024

 

The Company conducts impairment analyses on an annual basis, as a result of tests conducted, no signs of impairments in any of the CGUs were identified, assuming conservative EBITDA margin projections in line with market history.

 

Despite the deterioration in macroeconomic conditions experienced by the economies of the countries where cash-generating units operate, the impairment test resulted in recovery values higher than the book values including sensitivity calculations to which it was submitted.

 

2.9Financial instruments

 

A financial instrument is any contract that results in the recognition of a financial asset in one entity and a financial liability or equity instrument in another entity.

 

2.9.1Financial assets

 

Pursuant to IFRS 9 “Financial Instruments”, except for certain trade accounts receivable, the Group initially measures a financial asset at its fair value plus transaction costs, in the case of a financial asset that is not at fair value, reflecting changes in P&L.

 

According to IFRS 9, financial assets are subsequently measured at (i) fair value with changes in P&L (FVPL), (ii) amortized cost or (iii) fair value through other comprehensive income (FVOCI). The classification is based on two criteria: (a) the Group's business model for the purpose of managing financial assets to obtain contractual cash flows; and (b) if the contractual cash flows of financial instruments represent "solely payments of principal and interest” on the outstanding principal amount (the “SPPI criterion”).

 

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The subsequent classification and measurement of the Group's financial assets are as follows:

 

-Financial asset at amortized cost for financial instruments that are maintained within a business model with the objective of maintaining the financial assets to collect contractual cash flows that meet the SPPI criterion. This category includes the Group’s trade and other accounts receivable.

 

-Financial assets measured at fair value with changes in other comprehensive income (FVOCI), with gains or losses recognized in P&L at the time of liquidation. Financial assets in this category correspond to the Group's instruments that meet the SPPI criterion and are kept within a business model both to collect cash flows and to sell.

 

Other financial assets are classified and subsequently measures as follows:

 

-Equity instruments at fair value with changes in other comprehensive income (FVOCI) without recognizing earnings or losses in P&L at the time of liquidation. This category only includes equity instruments that the Group intends to keep in the foreseeable future and that the Group has irrevocably chosen to classify in this category in the initial recognition or transition.

 

-Financial assets at fair value with changes in P&L (FVPL) include derivative instruments and equity instruments quoted that the Group had not irrevocably chosen to classify at FVOCI in the initial recognition or transition. This category also includes debt instruments whose cash flow characteristics do not comply with the SPPI criterion or are not kept within a business model whose objective is to recognize contractual cash flows or sale.

 

A financial asset (or, where applicable, a portion of a financial asset or a portion of a group of similar financial assets) is initially disposed (for example, canceled in the Group's consolidated financial statements) when:

 

-The rights to receive cash flows from the asset have expired,

 

-The Group has transferred the rights to receive the cash flows of the asset or has assumed the obligation to pay all cash flows received without delay to a third party under a transfer agreement; and the Group (a) has substantially transferred all risks and benefits of the asset, or (b) has not substantially transferred or retained all risks and benefits of the asset, but has transferred control of the asset.

 

2.9.2Financial Liabilities

 

Financial liabilities are classified as a fair value financial liability at the date of their initial recognition, as appropriate, with changes in results, loans and credits, accounts payable or derivatives designated as hedging instruments in an effective coverage.

 

All financial liabilities are initially recognized at fair value and transaction costs directly attributable are netted from loans and credits and accounts payable.

 

The Group's financial liabilities include trade and other accounts payable, loans and credits, including those discovered in current accounts, and derivative financial instruments.

 

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The classification and subsequent measurement of the Group's financial liabilities are as follows:

 

-Fair value financial liabilities with changes in results include financial liabilities held for trading and financial liabilities designated in their initial recognition at fair value with changes in results. The losses or gains of liabilities held for trading are recognized in the income statement.

 

-Loans and credits are valued at cost or amortized using the effective interest rate method. Gains and losses are recognized in the income statement when liabilities are disposed, as well as interest accrued in accordance with the effective interest rate method.

 

A financial liability is disposed of when the obligation is extinguished, cancelled or expires. Where an existing financial liability is replaced by another of the same lender under substantially different conditions, or where the conditions of an existing liability are substantially modified, such exchange or modification is treated as a disposal of the original liability and the recognition of the new obligation. The difference in the values in the respective books is recognized in the statement of income.

 

2.9.3Offsetting financial instruments

 

Financial assets and financial liabilities are offset with the corresponding net amount presenting the corresponding net amount in the statement of financial position, if:

 

-There is currently a legally enforceable right to offset the amounts recognized, and

 

-It is intended to liquidate them for the net amount or to realize the assets and liquidate the liabilities simultaneously.

 

2.10Derivatives financial instruments and hedging activities

 

The Company and its subsidiaries use derivative financial instruments to mitigate risks relating to changes in foreign currency and exchange rates associated with raw materials, and loan obligations. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at each closing date. Derivatives are accounted as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

 

2.10.1Derivative financial instruments designated as cash flow hedges

 

At the inception of the transaction, the group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

 

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the consolidated income statement within "other gains (losses)”

 

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when foreign currency denominated financial liabilities are translated into their functional currencies). The gain or loss relating to the effective portion of cross currency swaps hedging the effects of changes in foreign exchange rates are recognized in the consolidated income statement within "foreign exchange differences.”  When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the consolidated income statement.

 

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2.10.2Derivative financial instruments not designated for hedging

 

The fair value of derivative financial instruments that do not qualify for hedge accounting pursuant to IFRS are immediately recognized in the consolidated income statement under "Other income and losses".  The fair value of these derivatives is recorded under "other current financial assets" or "other current financial liabilities" in the statement of financial position.”

 

The Company does not use hedge accounting for its foreign investments.

 

The Company also evaluates the existence of derivatives implicitly in contracts and financial instruments as stipulated by IFRS 9 and classifies them pursuant to their contractual terms and the business model of the group. As of March 31, 2020, the Company had no implicit derivatives.

 

2.10.3Fair value hierarchy

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the date of the transaction. Fair value is based on the presumption that the transaction to sell the asset or to transfer the liability takes place;

 

-In the asset or liability main market, or

-In the absence of a main market, in the most advantageous market for the transaction of those assets or liabilities.

 

The Company maintains assets related to foreign currency derivative contracts which were classified as Other current and non-current financial assets and Other current and non-current financial liabilities, respectively, and are accounted at fair value within the statement of financial position. The Company uses the following hierarchy to determine and disclose the fair value of financial instruments with assessment techniques:

 

Level 1:      Quote values (unadjusted) in active markets for identical assets or liabilities

Level 2:      Valuation techniques for which the lowest level variable used, which is significant for the calculation, is directly or indirectly observable

Level 3:      Valuation techniques for which the lowest level variable used, which is significant for the calculation, is not observable.

 

During the reporting periods there were no transfers of items between fair value measurement categories. All of which were valued during the period using Level 2.

 

2.11Inventories

 

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods and work in progress includes raw materials, direct labor, other direct costs and manufacturing overhead (based on operating capacity) to bring the goods to marketable condition, but it excludes interest expense. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Spare parts and production materials are stated at the lower of cost or net realizable value.

 

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The initial cost of inventories includes the transfer of losses and gains from cash flow hedges, recognized under other comprehensive income, related to the purchase of raw materials.

 

Estimates are also made for obsolescence of raw materials and finished products based on turnover and age of the related goods.

 

2.12Trade receivables

 

Trade accounts receivables and other accounts receivable are measured and recognized at the transaction price at the time they are generated pursuant to IFRS 15, since they do not have a significant financial component, less provision for expected credit losses. This provision is made applying a value impairment model based on expected credit losses for the following 12 months. The Group applies a simplified focus for trade receivables, thereby impairment is always recorded referring to expected losses during the whole life of the asset. The carrying amount of the asset is reduced by the provision of expected credit losses, and the loss is recognized in administrative expenses in the consolidated income statement by function.

 

2.13Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, bank balances, time deposits and other short-term highly liquid and low risk of change in value investments and mutual funds with original short-term maturities equal to or less than three months from the date of acquisition.

 

2.14Other financial liabilities

 

Resources obtained from financial institutions as well as the issuance of debt securities are initially recognized at fair value, net of costs incurred during the transaction. Then, liabilities are valued by accruing interests in order to equal the current value with the future value of liabilities payable, using the effective interest rate method.

 

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualified assets, considered as those that require a substantial period of time in order to get ready for their forecasted use or sale, are added to the cost of those assets until the period in which the assets are substantially ready to be used or sold.

 

2.15Income tax

 

The Company and its subsidiaries in Chile account for income tax according to the net taxable income calculated based on the rules in the Income Tax Law. Subsidiaries in other countries account for income taxes according to the tax regulations of the country in which they operate.

 

Deferred income taxes are calculated using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements, using the tax rates that have been enacted or substantively enacted on the balance sheet date and are expected to apply when the deferred income tax asset is realized, or the deferred income tax liability is settled.

 

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized.

 

The Company does not recognize deferred income taxes for temporary differences from investments in subsidiaries in which the Company can control the timing of the reversal of the temporary differences and it is probable that they will not be reversed in the near future.

 

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2.16Employee benefits

 

The Company records a liability regarding indemnities for years of service that will be paid to employees in accordance with individual and collective agreements subscribed with employees, which is recorded at actuarial value in accordance with IAS 19 “Employee Benefits”.

 

Results from updated of actuarial variables are recorded within other comprehensive income in accordance with IAS 19.

 

Additionally, the Company has retention plans for some officers, which have a provision pursuant to the guidelines of each plan. These plans grant the right to certain officers to receive a cash payment on a certain date once they have fulfilled with the required years of service.

 

The Company and its subsidiaries have recorded a provision to account for the cost of vacations and other employee benefits on an accrual basis. These liabilities are recorded under current non-financial liabilities.

 

2.17Provisions

 

Provisions for litigation and other contingencies are recognized when the Company has a present legal or constructive obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.

 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

 

2.18Leases

 

In accordance with IFRS 16 “Leases” Embotelladora Andina analyzes, at the beginning of the contract, the economic background of the agreement, to determine if the contract is, or contains, a lease, evaluating whether the agreement transfers the right to control the use of an identified asset for a period of time in exchange for a consideration. Control is considered to exist if the client has i) the right to obtain substantially all the economic benefits from the use of an identified asset; and ii) the right to direct the use of the asset.

 

The Company when operating as a lessee, at the beginning of the lease (on the date the underlying asset is available for use) records an asset for the right-of-use in the statement of financial position (under Property, plant and equipment) and a lease liability (under Other financial liabilities). This asset is initially recognized at cost, which includes: i) value of the initial measurement of the lease liability; ii) lease payments made up to the start date less lease incentives received; iii) the initial direct costs incurred; and iv) the estimation of costs for dismantling or restoration. Subsequently, the right-of-use asset is measured at cost, adjusted by any new measurement of the lease liability, less accumulated depreciation and accumulated losses due to impairment of value. The right-of-use asset is depreciated in the same terms as the rest of similar depreciable assets, if there is reasonable certainty that the lessee will acquire ownership of the asset at the end of the lease. If such certainty does not exist, the asset depreciates at the shortest period between the useful life of the asset or the lease term.

 

On the other hand, the lease liability is initially measured at the present value of the lease payments, discounted at the incremental loan rate of the Company, if the interest rate implicit in the lease could not be easily determined. Lease payments included in the measurement of the liability include: i) fixed payments, less any lease incentive receivable; ii) variable lease payments; iii) residual value guarantees; iv) exercise price of a purchase option; and v) penalties for lease termination.

 

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The lease liability is increased to reflect the accumulation of interest and is reduced by the lease payments made. In addition, the carrying amount of the liability is measured again if there is a modification in the terms of the lease (changes in the term, in the amount of payments or in the evaluation of an option to buy or change in the amounts to be paid). Interest expense is recognized as an expense and is distributed among the periods that constitute the lease period, so that a constant interest rate is obtained in each year on the outstanding balance of the lease liability.

 

Short-term leases, equal to or less than one year, or lease of low-value assets are excepted from the application of the recognition criteria described above, recording the payments associated with the lease as an expense in a linear manner throughout the lease term. The Company does not act as lessor.

 

2.19Deposits for returnable containers

 

This liability comprises cash collateral, or deposit, received from customers for bottles and other returnable containers made available to them.

 

This liability pertains to the deposit amount that is reimbursed when the customer or distributor returns the bottles and containers in good condition, together with the original invoice. The liability is estimated based on the number of bottles given to clients and distributors, the estimated number of bottles in circulation, and a historical average weighted value per bottle or containers. Deposits for returnable containers are presented as a current liability in other financial liabilities because the Company does not have legal rights to defer settlement for a period in excess of one year. However, the Company does not anticipate any material cash settlements for such amounts during the upcoming year.

 

2.20Revenue recognition

 

The Company recognizes revenue when control over a good or service is transferred to the client. Control refers to the ability of the client to direct the use and obtain substantially all the benefits of the goods and services exchanged. Revenue is measured based on the consideration to which it is expected to be entitled for such transfer of control, excluding amounts collected on behalf of third parties.

 

Management has defined the following indicators for revenue recognition, applying the five-step model established by IFRS 15 “Revenue from contracts with customers”: 1) Identification of the contract with the customer; 2) Identification of performance obligations; 3) Determination of the transaction price; 4) Assignment of the transaction price; and 5) Recognition of revenue.

 

All the above conditions are met at the time the products are delivered to the customer. Net sales reflect the units delivered at list price, net of promotions, discounts and taxes.

 

The revenue recognition criteria of the good provided by Embotelladora Andina corresponds to a single performance obligation that transfers the product to be received to the customer.

 

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  2.21 Contributions of The Coca-Cola Company

 

The Company receives certain discretionary contributions from The Coca-Cola Company (TCCC) mainly related to the financing of advertising and promotional programs for its products in the territories where the Company has distribution licenses. The contribution received from TCCC are recognized in net income after the conditions agreed with TCCC in order to become a creditor to such incentive have been fulfilled, they are recorded as a reduction in the marketing expenses included in the Administration Expenses account. Given its discretionary nature, the portion of contributions received in one period does not imply it will be repeated in the following period.

 

2.22Dividend payments

 

Dividend distribution to Company shareholders is recorded as a liability in the Company’s Consolidated Financial Statements, considering the 30% minimum dividend of the period’s earnings established by Chilean Corporate Law, unless otherwise agreed in the respective meeting, by the unanimity of the issued shares.

 

Interim and final dividends are recorded at the time of their approval by the competent body, which in the first case is normally the Board of Directors of the Company, while in the second case it is the responsibility of General Shareholders’ Meeting.

 

2.23Critical accounting estimates and judgments

 

The Company makes estimates and judgments concerning the future. Actual results may differ from previously estimated amounts.

 

In preparing the consolidated financial statements, the Company has used certain judgments and estimates made to quantify some of the assets, liabilities, income, expenses and commitments.

 

Following is an explanation of the estimates and judgments that might have a material impact on future financial statements.

 

2.23.1 Impairment of goodwill and intangible assets with indefinite useful lives

 

The Company tests annually whether goodwill and intangible assets with indefinite useful life (such as distribution rights) have suffered any impairment. The recoverable amounts of cash generating units are generating units are determined based on value in use calculations. The key variables used in the calculations include sales volumes and prices, discount rates, marketing expenses and other economic factors including inflation. The estimation of these variables requires a use of estimates and judgments as they are subject to inherent uncertainties; however, the assumptions are consistent with the Company’s internal planning end past results. Therefore, management evaluates, and updates estimates according to the conditions affecting the variables. If these assets are considered to have been impaired, they will be written off at their estimated fair value or future recovery value according to the discounted cash flows analysis. Discounted cash flows in the Company's cash generating units in Chile, Brazil, Argentina and Paraguay generated a higher value than the carrying values of the respective net assets, including goodwill of the Brazilian, Argentinian and Paraguayan subsidiaries.

 

2.23.2 Fair Value of Assets and Liabilities

 

IFRS requires in certain cases that assets and liabilities be recorded at their fair value. Fair value is the price that would be received for selling an asset or paid to transfer a liability in a transaction ordered between market participants at the date of measurement.

 

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The basis for measuring assets and liabilities at fair value are their current prices in an active market. For those that are not traded in an active market, the Company determines fair value based on the best information available by using valuation techniques.

 

In the case of the valuation of intangibles recognized as a result of acquisitions from business combinations, the Company estimates the fair value based on the "multi-period excess earning method", which involves the estimation of future cash flows generated by the intangible assets, adjusted by cash flows that do not come from these, but from other assets. The Company also applies estimations over the period during which the intangible assets will generate cash flows, cash flows from other assets, and a discount rate.

 

Other assets acquired, and liabilities assumed in a business combination are carried at fair value using valuation methods that are considered appropriate under the circumstances. Assumptions include the depreciated cost of recovery and recent transaction values for comparable assets, among others. These valuation techniques require certain inputs to be estimated, including the estimation of future cash flows.

 

  2.23.3 Allowances for doubtful accounts

 

The Group uses a provision matrix to calculate expected credit losses for trade receivables. Provisions are based on due days for various groups of customer segments that have similar loss patterns (i.e. by geography region, product type, customer type and rating, and credit letter coverage and other forms of credit insurance).

 

The provision matrix is initially based on the historically observed non-compliance rates for the Group. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For example, if expected economic conditions (i.e. gross domestic product) are expected to deteriorate over the next year, which can lead to more non-compliances in the industry, historical default rates are adjusted. At each closing date, the observed historical default rates are updated and changes in prospective estimates are analyzed. The assessment of the correlation between observed historical default rates, expected economic conditions and expected credit losses are significant estimates.

 

  2.23.4 Useful life, residual value and impairment of property, plant, and equipment

 

Property, plant, and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of those assets. Changes in circumstances, such as technological advances, changes to the Company’s business model, or changes in its capital strategy might modify the effective useful lives as compared to our estimates. Whenever the Company determines that the useful life of Property, plant and equipment might be shortened, it depreciates the excess between the net book value and the estimated recoverable amount according to the revised remaining useful life. Factors such as changes in the planned usage of manufacturing equipment, dispensers, transportation equipment and computer software could make the useful lives of assets shorter. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of any of those assets may not be recovered. The estimate of future cash flows is based, among other factors, on certain assumptions about the expected operating profits in the future. The Company’s estimation of discounted cash flows may differ from actual cash flows because of, among other reasons, technological changes, economic conditions, changes in the business model, or changes in operating profit. If the sum of the projected discounted cash flows (excluding interest) is less than the carrying amount of the asset, the asset shall be written-off to its estimated recoverable value.

 

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  2.23.5 Liabilities for deposits of returnable container

 

The Company records a liability for deposits received in exchange for bottles and containers provided to its customers and distributors. This liability represents the amount of deposits that must be reimbursed if the customer or distributor returns the bottles and containers in good condition, together with the original invoice. This liability is estimated based on the number of bottles given on loan to customers and distributors, estimates of bottles in circulation and the weighted average historical cost per bottle or container. Management uses professional judgment in order to estimate this liability, including the number of bottles in circulation, the amount of deposit that must be reimbursed and the timing of disbursements.

 

  2.24.1 New Standards, Interpretations and Amendments for annual periods beginning on or after January 1, 2020.

 

Standards and interpretations, as well as the improvements and amendments to IFRS, which have been issued, effective at the date of these financial statements, are detailed below.

 

Revised Conceptual Framework

 

The IASB issued a Revised Conceptual Framework in March 2018, incorporating some new concepts, providing updated definitions and recognition criterion for assets and liabilities and clarifying some important concepts. Changes in the Conceptual Framework may affect the application of IFRS when no standard applies to a given transaction or event. Application of the revised Conceptual Framework did not have significant impacts on the financial statements of the Company.

 

Amendments to IFRS which have been issued and are in effect beginning January 1, 2020 are detailed below:

 

   Amendments  Implementation
date
IFRS 3  Definition of a business  January 1,2020
IAS 1 and IAS 8  Definition of material  January 1,2020
IFRS 9, IAS 39 and IFRS 7  Reference Interest Rate Reform  January 1,2020
IFRS 10 and IAS 28  Consolidated Financial Statements - sale or contribution of assets between an investor and its associate or joint venture  To be determined

 

IFRS 3 Business Combinations - Definition of Business

 

The IASB issued amendments to the definition of business in IFRS 3 Business Combinations, to help entities determine whether an acquired set of activities and assets is a business or not. The IASB clarifies the minimum requirements for defining a business, eliminates the assessment of whether market participants are able to replace any missing elements, includes guidance to help entities assess whether a process acquired is substantial, reduces the definitions of a business and products and introduces an optional fair value concentration test.

 

Amendments have to be applied to business combinations or asset acquisitions that occur on or after the start of the first annual reporting period beginning on or after January 1, 2020. As a result, entities do not have to review transactions that occurred in previous periods. Early application is permitted and must be disclosed.

 

Because the amendments apply prospectively to transactions or other events that occur on or after the date of the first application, most entities will probably not be affected by these amendments in the transition. However, those entities that consider the acquisition of a set of activities and assets after implementing the amendments must first update their accounting policies in a timely manner.

 

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Amendments may also be relevant in other areas of IFRS (e.g. they may be relevant when a controller loses control of a subsidiary and has anticipated the sale or contribution of assets between an investor and its associate or joint venture) (Amendments to IFRS 10 and IAS 28).

 

Company management performs the impact assessment of the previously mentioned amendments once these types of transactions take place.

 

IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Material

 

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, changes in accounting estimates and errors, to align the definition of "material" in all standards and to clarify certain aspects of the definition. The new definition states that information is material if when omitted, misstated, or reasonably hidden could be expected to influence decisions that primary users of general-purpose of the financial statements make based on those financial statements, which provide financial information about a specific reporting entity.

 

Amendments should be applied prospectively. Early application is permitted and must be disclosed.

 

While amendments to the definition of material are not expected to have a significant impact on an entity's financial statements, the introduction of the term "hide" in the definition could impact the way materiality judgments are made, increasing the importance of how information is communicated and organized in the financial statements.

 

Company management performs the impact assessment of the previously mentioned amendments once these types of transactions take place.

 

IFRS 9, IAS 39 and IFRS 7 Reference Interest Rate Reform

 

In September 2019, the IASB issued amendments to IFRS 9, IAS 39 and IFRS 7, which concludes the first stage of its work to respond to the effects of the reform of interbank offer rate (IBOR) in financial information. The amendments provide temporary exceptions that allow hedge accounting to continue during the uncertain period, prior to replacing existing benchmark interest rates with near-risk free alternative interest rates.

 

Amendments should be applied retrospectively. However, any hedge relationship that has previously been discontinued cannot be reinstated with the application of these amendments, nor can a hedge relationship be designated using the retrospect reasoning benefit. Early application is permitted and must be disclosed.

 

The Company will perform an impact assessment of the amendment once it takes effect.

 

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2.24.2 New Accounting Standards, Interpretations and Amendments with effective application for annual periods beginning on or after January 1, 2020.

 

Standards and interpretations, as well as IFRS amendments, which have been issued, but have still not become effective as of the date of these financial statements are set forth below. The Company has not made an early adoption of these standards.

 

   Standards and Interpretations  Mandator y application date
IFRS 17  Insurance Contracts  January 1, 2021

 

IFRS 17 - Insurance Contracts

 

In May 2017, the IASB issued IFRS 17 Insurance Contracts, a new accounting standard for insurance contracts that covers recognition, measurement, presentation and disclosure. Once it enters into force it will replace IFRS 4 Insurance Contracts issued in 2005. The new rule applies to all types of insurance contracts, regardless of the type of entity that issues them.

 

In June 2019, the IASB issued a draft IFRS 17 standard with proposed amendments. The IASB proposed 12 specific amendments in eight areas, which includes deferring the application date of IFRS 17 for two years, including two additional years of deferral for the application of IFRS 9 to qualified insurance entities (i.e. qualified insurers may apply IFRS 17 and IFRS 9 for the first time in periods beginning on or after January 1, 2023).

 

In March 2020, the IASB completed its deliberations on the draft IFRS 17 standard and aims to. issue the amendments by mid-2020.

 

Amendments to IFRS that have been issued to become effective in the near future are detailed below.

 

   Amendments  Date of application
IAS 1  Classification of liabilities as currents or non-current  January 1, 2021
IFRS 10 and IAS 28  Consolidated Financial Statements - sale or contribution of assets between an investor and its associate or joint venture  To be determined

 

IAS 1 Presentation of Financial Statements - Classification of liabilities as current or non-current

 

In June 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify requirements for the classification of liabilities as current or non-current.

 

The amendments are effective for periods beginning on or after January 1, 2022. Entities should carefully consider whether there are any aspects of the amendments suggesting that the terms of their existing loan agreements should be renegotiated. In this context, it is important to stress that amendments must be implemented retrospectively

 

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IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures – sale or contribution of assets between an investor and its associate or joint venture

 

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) address a recognized inconsistency between IFRS 10 requirements and IAS 28 (2011) requirements in the treatment of the sale or contribution of assets between an investor and its associate or joint venture. The amendments, issued in September 2014, state that when the transaction involves a business (whether it is in a subsidiary or not) all gains, or losses generated are recognized. A partial gain or loss is recognized when the transaction involves assets that do not constitute a business, even when the assets are in a subsidiary. The mandatory implementation date of these amendments is yet to be determined because the IASB is awaiting the results of its research project on accounting according to the equity method of accounting. These amendments must be applied retrospectively, and early adoption is allowed, which must be disclosed.

 

Company management will perform an impact assessment of the amendments once they become effective.

 

3 – FINANCIAL REPORTING BY SEGMENT

 

The Company provides financial information by segments according to IFRS 8 “Operating Segments,” which establishes standards for reporting by operating segment and related disclosures for products and services, and geographic areas.

 

The Company’s Board of Directors and Management measures and assesses performance of operating segments based on the operating income of each of the countries where there are Coca-Cola franchises.

 

The operating segments are determined based on the presentation of internal reports to the Company´s chief strategic decision-maker. The chief operating decision-maker has been identified as the Company´s Board of Directors who makes the Company’s strategic decisions.

 

The following operating segments have been determined for strategic decision making based on geographic location:

 

·Operation in Chile

·Operation in Brazil

·Operation in Argentina

·Operation in Paraguay

 

The four operating segments conduct their businesses through the production and sale of soft drinks and other beverages, as well as packaging materials.

 

Expenses and revenue associated with the Corporate Officer were assigned to the operation in Chile in the soft drinks segment because Chile is the country that manages and pays the corporate expenses, which would also be substantially incurred, regardless of the existence of subsidiaries abroad.

 

Total revenues by segment include sales to unrelated customers and inter-segments, as indicated in the consolidated statement of income of the Company.

 

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A summary of the Company’s operating segments in accordance to IFRS is as follows:

 

For the period ended March 31, 2020  Chile
Operation
   Argentina
Operation
  

Brazil

Operation

   Paraguay
Operation
   Intercompany
Eliminations
   Consolidated
total
 
   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s)  
Net sales   174,452,377    114,674,675    170,270,414    46,086,003    (868,857 )  504,614,612  
Cost of sales   (101,040,630)   (57,873,361)   (109,992,850)   (24,593,158)   868,857    (292,631,142 )
Distribution expenses   (16,698,548)   (15,539,806)   (11,229,206)   (2,496,990)   -    (45,964,550 )
Administrative expenses   (32,109,430)   (23,382,672)   (27,512,844)   (7,057,414)   -    (90,062,360 )
Finance income   1,150,486    491,193    441,509    28,560    -    2,111,748  
Financial expense   (4,592,045)   (103,002)   (7,699,017)   -    -    (12,394,064 )
Financial expenses, net  (*)   (3,441,559)   388,191    (7,257,508)   28,560    -    (10,282,316 )
Share of entity in income of associates accounted for using the equity method, total   852,986    -    182,408    -    -    1,035,394  
Income tax expense   2,402,183    (5,880,796)   (3,088,297)   (1,055,582)   -    (7,622,492 )
Other income(expenses)   (2,791,636)   (4,978,611)   (2,209,420)   (118,742)   -    (10,098,409 )
Net income of the segment reported   21,625,743    7,407,620    9,162,697    10,792,677    -    48,988,737  
                                 
Depreciation and amortization   10,816,949    6,940,502    7,723,520    2,521,870    -    28,002,841  
                                 
Current assets   475,399,900    65,905,710    135,272,684    53,103,021    -    729,681,315  
Non-current assets   657,908,435    185,391,958    780,662,815    277,002,870    -    1,900,966,078  
Segment assets, total   1,133,308,335    251,297,668    915,935,499    330,105,891    -    2,630,647,393  
                                 
Carrying amount in associates and joint ventures accounted for using the equity method, total   51,190,176    -    44,413,060    -    -    95,603,236  
                                 
Segment disbursements of non-monetary assets   16,638,455    5,316,975    3,804,654    4,452,439    -    30,212,523  
                                 
Current liabilities   156,312,550    62,001,521    80,855,485    23,883,749    -    323,053,305  
Non-current liabilities   716,976,449    15,367,073    540,246,957    17,951,123    -    1,290,541,602  
Segment liabilities, total   873,288,999    77,368,594    621,102,442    41,834,872    -    1,613,594,907  
                                 
Cash flows (used in) provided by in Operating Activities   32,124,708    3,898,814    (1,052,707)   13,555,036    -    48,525,851  
Cash flows (used in) provided by Investing Activities   (13,176,133)   (5,316,975)   (3,804,654)   (4,452,439)   -    (26,750,201 )
Cash flows (used in) provided by Financing Activities   202,337,657    (242,375)   (1,719,113)   (113,716)   -    200,262,454  

 

(*) Financial expenses associated with external financing for the acquisition of companies, including capital contributions among others, are presented in this item.

 

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For the period ended March 31, 2019  Chile
Operation
   Argentina
Operation
   Brazil
Operation
   Paraguay
Operation
   Intercompany
Eliminations
   Consolidated
total
 
   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s) 
Net sales   156,876,117    96,688,006    155,275,915    38,928,037    (505,268)   447,262,807 
Cost of sales   (93,385,760)   (50,895,066)   (95,399,584)   (22,255,674)   505,268    (261,430,816)
Distribution expenses   (15,414,619)   (13,008,047)   (11,091,257)   (2,273,703)   -    (41,787,626)
Administrative expenses   (30,940,384)   (19,344,863)   (20,559,143)   (5,441,949)   -    (76,286,339)
Finance income   354,925    1,112    644,793    33,506    -    1,034,336 
Financial expense   (3,303,040)   76,541    (7,799,288)   -    -    (11,025,787)
Financial expenses, net  (*)   (2,948,115)   77,653    (7,154,495)   33,506    -    (9,991,451)
Share of entity in income of associates accounted for using the equity method, total   114,254    -    502,178    -    -    616,432 
Income tax expense   (4,209,516)   833,300    (5,692,242)   (891,458)   -    (9,959,916)
Other income(expenses)   399,863    (717,790)   (1,326,974)   (127,136)   -    (1,772,037)
Net income of the segment reported   10,491,840    13,633,193    14,554,398    7,971,623    -    46,651,054 
                               
Depreciation and amortization   11,462,146    5,112,659    7,084,564    2,283,712    -    25,943,081 
                               
Current assets   211,778,902    64,592,109    127,134,325    40,612,383    -    444,117,719 
Non-current assets   656,222,747    148,754,258    663,486,501    232,351,146    -    1,700,814,652 
Segment assets, total   868,001,649    213,346,367    790,620,826    272,963,529    -    2,144,932,371 
                               
Carrying amount in associates and joint ventures accounted for using the equity method, total   50,274,660    -    51,260,363    -    -    101,535,023 
                               
Segment disbursements of non-monetary assets   14,073,847    7,513,939    2,793,957    3,868,766    -    28,250,509 
                               
Current liabilities   166,974,270    55,613,360    104,141,626    16,249,489    -    342,978,745 
Non-current liabilities   482,344,708    11,672,424    415,113,233    15,281,396    -    924,411,761 
Segment liabilities, total   649,318,978    67,285,784    519,254,859    31,530,885    -    1,267,390,506 
         -    -                
Cash flows (used in) provided by in Operating Activities   15,117,688    5,006,662    8,935,499    10,931,264    -    39,991,113 
Cash flows (used in) provided by Investing Activities   (14,058,003)   (7,513,729)   (2,793,957)   (3,868,766)   -    (28,234,455)
Cash flows (used in) provided by Financing Activities   (22,179,514)   -    (3,347,052)   -    -    (25,526,566)

 

(*) Financial expenses associated with external financing for the acquisition of companies, including capital contributions among others, are presented in this item.

 

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4 – CASH AND CASH EQUIVALENTS

 

The composition of Cash and cash equivalents is as follows:

 

By item  03.31.2020   12.31.2019 
    CLP (000’s)    CLP (000’s) 
Cash   268,514    2,331,714 
Bank balances   63,512,875    51,176,617 
Time deposits   11,970    - 
Other fixed rate instruments   318,351,479    104,059,655 
Total cash and cash equivalents   382,144,839    157,567,986 

 

Time deposits expire in less than three months from their acquisition date and accrue market interest for this type of short-term investment. Other fixed-income instruments mainly correspond to purchase transactions with the resale of debt instruments with a maturity of less than 90 days, from the date of investment. There are no restrictions for significant amounts available to cash.

 

By currency  03.31.2020   12.31.2019 
    CLP (000’s)    CLP (000’s) 
USD   23,368,571    16,733,249 
EUR   65,698    9,722 
ARS   5,021,080    3,830,199 
CLP   302,632,625    78,420,966 
PGY   16,286,215    12,383,873 
BRL   34,770,650    46,189,977 
Cash and cash equivalents   382,144,839    157,567,986 

 

5 – OTHER CURRENT AND NON-CURRENT FINANCIAL ASSETS

 

The composition of other financial assets is as follows:

 

   Balance 
   Current   Non-current 
Other financial assets  03.31.2020   12.31.2019   03.31.2020   12.31.2019 
   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s) 
Financial assets measured at amortized cost (1)   21    30,073    1,216,865    1,216,865 
Financial assets at fair value (2)   3,703,361    317,205    175,384,309    98,918,457 
Other financial assets measured at amortized cost (3)   -    -    12,156,259    10,648,989 
Total   3,703,382    347,278    188,757,433    110,784,311 

 

(1)   Financial instrument that does not meet the definition of cash equivalents as defined in Note 2.13.

 

(2)   See detail in Note 22

 

(3)   Correspond to the rights in the Argentinean company Alimentos de Soya S.A., which are framed in the purchase of the "AdeS" brand managed by The Coca-Cola Company at the end of 2016.

 

32

 

 

 

6 – OTHER CURRENT AND NON-CURRENT NON-FINANCIAL ASSETS

 

The composition of other non-financial assets is as follows:

 

   Balance 
   Current   Non-current 
Other non-financial assets   03.31.2020     12.31.2019    03.31.2020    12.31.2019 
    CLP (000’s)    CLP (000’s)    CLP (000’s)    CLP (000’s) 
Prepaid expenses   15,454,430    11,242,456    491,271    595,045 
Tax credit remainder (1)   -    180,695    91,128,287    103,540,639 
Guaranty deposit   60,889    422    -    - 
Deposit in courts   -    -    17,297,681    19,226,030 
Others (2)   5,065,146    4,765,392    2,469,185    2,274,436 
Total   20,580,449    16,188,965    111,386,424    125,636,150 

 

(1)   In November 2006, Rio de Janeiro Refrescos Ltda. ("RJR") filed a court order No. 0021799-23.2006.4.02.5101 seeking recognition of the right to exclude ICMS (Tax on Commerce and Services) from the PIS (Program of Social Integration) and COFINS (Contribution for the Financing of Social Security) calculation base, as well as recognition of the right to obtain reimbursement of amounts unduly collected since November 14, 2001, duly restated using the Selic interest rate. On May 20, 2019, the ruling favoring RJR became final, allowing the recovery of amounts overpaid from November 14, 2001 to August 2017. It is worth noting that in September 2017, RJR had already obtained a Security Mandate, which granted it the right to exclude, from that date, the ICMS from the PIS and COFINS calculation base.

 

The company took steps to assess the total amount of the credit at issue for the period of unduly collection of taxes from November 2001 to August 2017, totaling CLP 103,540 million (BRL 567 million, of which BRL 357 million corresponds to capital and BRL 210 million to interest and monetary restatement. These amounts were recorded as of December 31, 2019. In addition, the company acknowledged the indirect costs (attorneys' fees, consulting, auditing, indirect taxes and other obligations) resulting from the recognition of the right acquired in court, totaling BRL 161 million.

 

The payment of income tax occurs when liquidating the credit, thus the respective deferred tax liability recorded was CLP 25,200 million (BRL 138 million).

 

Compañía de Bebidas Ipiranga ("CBI") acquired in September 2013, also filed a court order No. 0014022-71.2000.4.03.6102 in order to recognize the same issue as the one previously described for RJR. In September 2019, the ruling favoring CBI became final, allowing the recovery of the amounts overpaid from September 12, 1990 to December 1, 2013 (date when CBI was incorporated by RJR). CBI's credit will be generated in the name of RJR, however, pursuant to the contractual clause ("Subscription Agreement for Shares and Exhibits"), as soon as collected by RJR, this payment should be immediately paid to former CBI shareholders (supervention favoring former CBI shareholders).

 

In addition, RJR has an associate called Sorocaba Refrescos SA ("Sorocaba"), where it has a 40% shareholding in the capital, which also filed a court order seeking recognition of the right to the same issue as RJR's action. On June 13, 2019, the ruling favoring Sorocaba became final, allowing the recovery of the amounts overpaid from July 5, 1992 until the date on which the decision became final. The amount of this credit will be calculated and the respective impacts on RJR’s results derived from its participation in Sorocaba will be recognized in the fiscal year ended December 31, 2020.

 

33

 

 

 

Based on the information available for the CBI and Sorocaba lawsuits, the Company concluded that there was not enough documentary support to say that the credit is almost certain for the tax authorities and therefore, did not record the respective asset in the booking accounts.

 

(2)  Other non-financial assets are mainly composed of advances to suppliers

7 – TRADE AND OTHER RECEIVABLES

 

The composition of trade and other receivables is as follows:

 

   Balance 
Trade debtors and other accounts  Current   Non-current 
receivable, Net   03.31.2020    12.31.2019    03.31.2020    12.31.2019 
    

CLP

(000’s)

    

CLP

(000’s)

    

CLP

(000’s)

    CLP
(000’s)
 
Trade debtors   112,160,528    150,509,528    -    - 
Other debtors   42,718,068    39,620,246    659,003    466,007 
Other accounts receivable   1,568,106    947,814    63,844    57,762 
Total   156,446,702    191,077,588    722,847    523,769 

 

   Balance 
Trade debtors and other accounts  Current   Non-current 
receivable, Gross   03.31.2020    12.31.2019    03.31.2020    12.31.2019 
    

CLP

(000’s) 

    

CLP

(000’s) 

    

CLP

(000’s)

    CLP
(000’s)
 
Trade debtors   116,825,696    153,654,549    -    - 
Other debtors   45,732,898    42,719,679    659,003    466,007 
Other accounts receivable   1,954,800    1,196,347    63,833    57,762 
Total   164,513,394    197,570,575    722,836    523,769 

 

The stratification of the portfolio is as follows:

 

   Balance 
Current trade debtors without impairment impact  03.31.2020
CLP (000’s)
   12.31.2019
CLP (000’s)
 
Less than one month   107,768,863    148,150,717 
Between one and three months   4,101,661    1,872,144 
Between three and six months   1,972,663    838,277 
Between six and eight months   414,748    482,596 
Older than eight months   2,567,761    2,310,815 
Total   116,825,696    153,654,549 

 

34

 

 

 

The Company has approximately 266,000 clients, which may have balances in the different sections of the stratification. The number of clients is distributed geographically with 64,000 in Chile, 85,000 in Brazil, 59,000 in Argentina and 58,000 in Paraguay.

 

The movement in the allowance for expected credit losses is presented below:

 

   03.31.2020   12.31.2019 
   CLP (000’s)   CLP (000’s) 
Opening balance   6,492,987    6,298,208 
Increase (decrease)   1,464,493    1,762,246 
Provision reversal   (78,479)   (1,184,953)
Increases (decrease) for changes of foreign currency   187,692    (382,514)
Sub – total movements   1,573,705    194,779 
Ending balance   8,066,692    6,492,987 

 

8 – INVENTORIES

 

The composition of inventories is detailed as follows:

 

Details  03.31.2020   12.31.2019 
   CLP (000’s)   CLP (000’s) 
Raw materials (1)   91,505,192    93,524,911 
Finished goods   35,226,247    32,337,670 
Spare parts and supplies   20,889,455    20,769,626 
Work in progress   695,941    567,973 
Other inventories   4,062,498    3,625,488 
Obsolescence provision (2)   (2,775,911)   (3,184,444)
Total   149,603,422    147,641,224 

 

The cost of inventory is recognized as cost of sales which amounts to CLP 255,758,386 thousand and 228,320,016 thousand as of March 31, 2020 and 2019, respectively.

 

(1)Approximately 80% is composed of concentrate and sweeteners used in the preparation of beverages, as well as caps and PET supplies used in the packaging of the product.

 

(2)The obsolescence provision is related mainly with the obsolescence of spare parts classified as inventories and to a lesser extent to finished products and raw materials. The general standard is to provision all those multi-functional spare parts without utility in rotation in the last four years prior to the technical analysis technical to adjust the provision. In the case of raw materials and finished products, the obsolescence provision is determined according to maturity.

 

35

 

 

 

9 – TAX ASSETS AND LIABILITIES

 

The composition of current tax accounts receivable is the following:

 

Tax assets  03.31.2020   12.31.2019 
    CLP (000’s)    CLP (000’s) 
Tax credits (1)   6,256,731    9,815,294 
Total   6,256,731    9,815,294 

 

(1) Tax credits correspond to income tax credits on training expenses, purchase of Property, plant and equipment, and donations.

 

The composition of current tax accounts payable is the following:

 

Tax liabilities  03.31.2020   12.31.2019 
    CLP (000’s)    CLP (000’s) 
Income tax expense   8,355,314    6,762,267 
Total   8,355,314    6,762,267 

 

10 – INCOME TAX EXPENSE AND DEFERRED TAXES

 

10.1 Income tax expense

 

The current and deferred income tax expenses are detailed as follows:

 

Details  03.31.2020   12.31.2019 
   CLP (000’s)   CLP (000’s) 
Current income tax expense   (15,726,757)   (10,558,680)
Current tax adjustment previous period   220,137    - 
Foreign dividends withholding expense   (1,786,688)   (815,345)
Other current tax expense (income)   52,797    336,814 
Current income tax expense   (17,240,511)   (11,037,211)
Expense (income) for the creation and reversal of temporary differences of deferred tax and others   9,618,019    1,077,295 
Expense (income) for deferred taxes   9,618,019    1,077,295 
Total income tax expense   (7,622,492)   (9,959,916)

 

36

 

 

 

The distribution of national and foreign tax expenditure is as follows:

 

Income taxes  03.31.2020   03.31.2019 
   CLP (000’s)   CLP (000’s) 
Current taxes          
Foreign   (14,302,003)   (6,911,910)
National   (2,938,508)   (4,125,301)
Current tax expense   (17,240,511)   (11,037,211)
Deferred taxes          
Foreign   4,277,328    1,161,510 
National   5,340,691    (84,215)
Deferred tax expense   9,618,019    1,077,295 
Income tax expense   (7,622,492)   (9,959,916)

 

The reconciliation of the tax expense using the statutory rate with the tax expense using the effective rate is as follows:

 

Reconciliation of effective rate  03.31.2020   03.31.2019 
   CLP (000’s)   CLP (000’s) 
Net income before taxes   56,611,229    56,610,970 
Tax expense at legal rate (27.0%)   (15,285,032)   (15,284,962)
Effect of a different tax rate in other jurisdictions   753,388    (201,406)
Permanent differences:          
Non-taxable revenues   4,992,486    1,316,716 
Non-deductible expenses   512,065    (1,476,889)
Tax effect of excess tax provisioned in previous periods   199,870    (992,874)
Effect of monetary tax restatement Chilean companies   (2,491,749)   (17,568)
Foreign subsidiaries tax withholding expense and other legal tax debits and credits   3,696,481    6,697,067 
Adjustments to tax expense   6,909,152    5,526,452 
Tax expense at effective rate   (7,622,492)   (9,959,916)
Effective rate   13.5%   17.6%

 

The applicable income tax rates in each of the jurisdictions where the Company operates are the following:

 

   Rate 
Country  2020   2019 
Chile   27.0%   27.0%
Brazil   34.0%   34.0%
Argentina   30.0%   30.0%
Paraguay   10.0%   10.0%

 

37

 

 

10.2Deferred income taxes

 

The net cumulative balances of temporary differences that give rise to deferred tax assets and liabilities are detailed as follows:

 

   03.31.2020   12.31.2019 
Temporary differences  Assets   Liabilities   Assets   Liabilities 
   CLP (000’s)   CLP (000’s)   CLP (000’s)   CLP (000’s) 
Property, plant and equipment   5,824,121    46,603,232    5,445,810    51,414,971 
Obsolescence provision   1,510,461    -    1,588,563    - 
ICMS exclusion credit   -    22,626,305    -    25,651,794 
Employee benefits   2,164,125    12,454    5,418,561    12,157 
Post-employment benefits   172,307    770,415    148,853    787,576 
Tax loss carry forwards (1)   12,754,798    -    7,607,813    - 
Tax goodwill Brazil   7,527,930    -    10,341,033    - 
Contingency provision   31,271,945    -    34,109,458    - 
Foreign Exchange differences (2)   8,120,725    -    9,284,450    - 
Allowance for doubtful accounts   793,407    -    756,895    - 
Assets and liabilities for placement of bonds   389,111    2,621,431    390,163    1,187,649 
Lease liabilities   1,913,402    -    2,242,439    - 
Inventories   447,192    -    447,192    - 
Distribution rights   -    157,673,460    -    163,107,412 
Hedging derivatives   7,685,417    -    -    - 
Others   3,895,083    8,286,395    -    3,705,078 
Subtotal   84,470,024    238,593,692    77,781,230    245,866,637 
Total assets and liabilities net   1,566,877    155,690,545    1,364,340    169,449,747 

 

(1)Tax losses mainly associated with the subsidiary Embotelladora Andina Chile S.A. Tax losses have no expiration date in Chile

 

(2)Corresponds to differed taxes for exchange rate differences generated on the translation of debt expressed in foreign currency in the subsidiary Rio de Janeiro Refrescos Ltda. and which for tax purposes are recognized in Brazil then incurred.

 

The movement in deferred income tax accounts is as follows:

 

Movement   03.31.2020     12.31.2019  
    CLP (000’s)     CLP (000’s)  
Opening Balance     168,085,407       145,245,948  
Increase (decrease) in deferred tax     (9,618,019 )     20,905,005  
Increase (decrease) due to foreign currency translation (*)     (4,343,720 )     1,934,454  
Total movements     (13,961,739 )     22,839,459  
Ending balance     154,123,668       168,085,407  

 

(*) Includes IAS 29 effect, due to inflation in Argentina

 

39 

 

 

 

 

11 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are detailed below at the end of each period:

 

Property, plant and equipment, gross  03.31.2020   12.31.2019 
   CLP (000’s)   CLP (000’s) 
Construction in progress   29,291,155    27,290,581 
Land   102,263,633    104,196,754 
Buildings   293,317,015    299,282,674 
Plant and equipment   580,376,927    571,154,695 
Information technology equipment   24,580,759    23,912,963 
Fixed installations and accessories   48,947,351    46,062,659 
Vehicles   51,176,099    55,128,493 
Leasehold improvements   187,331    214,886 
Rights of use (1)   38,513,616    40,498,400 
Other properties, plant and equipment (2)   446,618,900    452,600,945 
Total Property, plant and equipment, gross   1,615,272,786    1,620,343,050 

 

Accumulated depreciation of Property, plant and equipment   03.31.2020      12.31.2019  
    CLP (000’s)     CLP (000’s)  
Buildings     (88,354,785 )     (87,308,899 )
Plant and equipment     (399,453,319 )     (385,801,471 )
Information technology equipment     (19,798,627 )     (18,911,118 )
Fixed installations and accessories     (28,871,763 )     (26,219,378 )
Vehicles     (31,035,649 )     (33,167,346 )
Leasehold improvements     (149,558 )     (144,865 )
Rights of use (1)     (9,983,435 )     (8,254,568 )
Other properties, plant and equipment (2)     (325,822,009 )     (337,816,542 )
Total accumulated depreciation     (903,469,145 )     (897,624,187 )
                 
Total Property, plant and equipment, net     711,803,641       722,718,863  

 

(1) For adoption of IFRS 16. See details of underlying assets in Note 11.1

 

(2) The net balance of each of these categories is presented below:

 

Other Property, plant and equipment, net  03.31.2020   12.31.2019 
    CLP (000’s)    CLP (000’s) 
Bottles   45,634,934    44,071,742 
Marketing and promotional assets   57,830,361    57,442,154 
Other Property, plant and equipment   17,331,596    13,270,507 
Total   120,796,891    114,784,403 

 

40 

 

 

 

 

11.1Movements

 

Movements in Property, plant and equipment are detailed as follows:

 

   Construction
in progress
   Land   Buildings,
net
   Plant and
equipment,
net
   IT
equipment,
net
   Fixed
facilities
and
accessories,
net
   Vehicles, net   Leasehold
improvements,
net
   Others   Right-of-
use, net
   Property, plant
& equipment, net
 
    CLP (000’S)    CLP (000’S)    CLP (000’S)   CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)    CLP (000’S)  
Opening balance at January 1, 2020   27,290,581    104,196,754    211,973,775   185,353,224    5,001,845    19,843,281    21,961,147    70,021    114,784,403    32,243,832   722,718,863  
Additions   5,997,662    -    2,897   2,916,462    14,080    -    133,276    -    12,304,443    -   21,368,820  
Additions right-of-use (1)   -    -    -   -    -    -    -    -    -    327,538   327,538  
Divestitures   -    -    -   (1,842)   -    -    (13,086)   -    (2,319,813)   -   (2,334,741 )
Transfers between items of Property, plant and equipment   (5,432,167)   -    628,055   1,059,793    54,405    -    536,923    -    3,152,991    -   -  
Right-of-use transfers   -    -    -   -    -    -    -    -    -    -   -  
Depreciation expense   -    -    (1,962,587)  (9,420,221)   (541,935)   (814,119)   (1,552,319)   (27,981)   (10,946,943)   -   (25,266,105 )
Amortization   -    -    -    -    -    -    -    -    -    (2,196,801)  (2,196,801 )
Increase (decrease) to due foreign currency translation differences   1,435,079    (1,911,184)   (5,922,607)  3,182,656    (21,864)   1,046,427    (930,670)   (4,267)   3,283,184    (1,838,934)  (1,682,180)  
Other increases (decreases) (2)   -    (21,937)   242,697   (2,166,464)   275,601    (1)   5,179    -    538,626    (5,454)  (1,131,753 )
Total movements   2,000,574    (1,933,121)   (7,011,545)  (4,429,616)   (219,713)   232,307    (1,820,697)   (32,248)   6,012,488    (3,713,651)  (10,915,222 )
Ending balance al 03.31.2020   29,291,155    102,263,633    204,962,230   180,923,608    4,782,132    20,075,588    20,140,450    37,773    120,796,891    28,530,181   711,803,641  

 

(1)For IFRS 16 adoption. See detail of underlying assets in Note 11.1

 

(2)Corresponds mainly to the effect of adopting IAS 29 in Argentina

 

Right of use assets as of March 31, 2020 is composed as follows:

 

Right-of-use  Gross asset   Accumulated
depreciation
   Net asset 
   CLP (000’s)   CLP (000’s)   CLP (000’s) 
Buildings   1,447,183    (454,762)   992,421 
Plant and Equipment   28,007,910    (6,832,680)   21,175,230 
IT Equipment   256,673    (84,989)   171,684 
Motor vehicles   3,840,998    (1,064,456)   2,776,542 
Others   4,960,852    (1,546,548)   3,414,304 
Total   38,513,616    (9,983,435)   28,530,181 

 

Lease liabilities interest expense at the closing of the period reached CLP 572,406 thousand

 

41 

 

 

 

   Construction
in progress
   Land   Buildings, net   Plant and
equipment,
net
   IT
equipment,
net
   Fixed
facilities
and
accessories,
net
   Vehicles, net   Leasehold
improvements,
net
   Others   Right-of-
use, net
  Property, plant 
& equipment, net
 
   CLP (000’S)   CLP (000’S)   CLP (000’S)   CLP (000’S)   CLP (000’S)   CLP (000’S)   CLP (000’S)   CLP (000’S)   CLP (000’S)   CLP (000’S)  CLP (000’S) 
Opening balance at January 1, 2019   26,048,670    100,479,196    214,160,351    207,403,985    5,184,721    21,057,169    21,798,601    32,177    114,606,098    -   710,770,968 
Additions   49,134,461    -    749,800    11,582,259    675,974    7,271    (342,001)   1,309    32,640,210    -   94,449,283 
Additions right-of-use (1)   -    -    -    -    -    -    -    -    -    21,721,728   21,721,728 
Divestitures   (8,761)   -    (5,902)   (352,204)   (977)   (8,911)   (52,095)   (155)   (1,135,304)   -   (1,564,309)
Transfers between items of property, plant and equipment   (48,358,902)   2,268,316    430,971    20,735,065    1,019,048    1,379,012    7,650,847    65,250    14,810,393    -   - 
Right-of-use transfers (1)