balance sheet and consolidated accounts - mahou-san miguel … · the accompanying notes 1 to 23...
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BALANCE SHEET AND
CONSOLIDATED ACCOUNTS
FINANCIAL REPORT
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CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 AND MANAGEMENT REPORT
MAHOU, S.A. AND SUBSIDIARIES
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v Thousands of euros
ASSETS NOTE 2018 2017NON-CURRENT ASSETS 1,071,200 981,841Intangible assets 7 141,509 155,658
Patents, licenses, trademarks and similar 15,128 16,405
Computer applications 10,993 9,862
Goodwill 114,376 128,542
Other intangible assets 1,012 849
Property, plant and equipment 8 536,760 466,760Land and buildings 244,347 232,220
Plant, machinery and other PPE 266,462 216,838
Fixed assets under construction 25,951 17,702
Investment property 9 36,082 24,370Land and buildings 36,082 24,370
Investments in group companies and associates 130,233 119,125Interests in companies consolidated under equity method 6 130,233 119,061
Loans to equity method companies - 64
Long-term financial investments 11,1 148,350 139,510Equity instruments 2,098 261
Loans to third parties 144,863 138,635
Derivatives 12 - 27
Derivatives 1,389 587
Deferred tax assets 17,7 78,266 76,418
CURRENT ASSETS 755,122 695,624Inventories 71,601 75,366
Sales 4,145 4,750
Raw materials and other consumables used 30,282 33,965
Work in progress 10,827 9,260
Finished goods 26,347 27,391
Debtors and other receivables 190,659 197,815Trade receivables for sales and services rendered 179,281 185,568
Sundry receivables 4,179 5,108
Loans to employees 2,491 2,184
Current tax assets 17,1 281 2,087
Other receivables from public administrations 17,1 4,427 2,868
Short-term investments in group companies and associates 160 74Loans to equity method companies 160 74
Short-term financial investments 11,2 255,507 101,946Loans to third parties 32,530 29,481
Derivatives 12 15 380
Deposits, short-term investments 222,477 72,085
Other financial assets 485 -
Short term accruals 18,597 17,297Cash and cash equivalents 218,598 303,126
Cash at bank and in hand 142,755 251,871
Other cash equivalents 75,843 51,255
TOTAL ASSETS 1,826,322 1,677,465The accompanying notes 1 to 23 are an integral part of the balance sheet at 31 December 2018.
MAHOU, S.A. AND SUBSIDIARIESConsolidated Financial Statements for the year ended 31 December 2018
FINANCIAL REPORT
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Thousands of euros
EQUITY AND LIABILITIES NOTE 2018 2017TOTAL EQUITY 1,431,450 1,337,020EQUITY ATTRIBUTED TO THE PARENT COMPANY 1,418,617 1,334,389Shareholders’ equity 13 1,405,528 1,336,402
Share capital 14,028 14,028
Reserves 1,281,640 1,195,984
Legal and statutory reserve 13,1 2,806 2,806
Revaluation reserve Law 16/2012 13,3 21,533 21,533
Capitalisation reserve 13,6 34,390 23,979
Other reserves 13,2/13,4/13,5 1,222,911 1,147,666
Consolidated reserves of subsidiaries 13 15,739 13,485
Reserves in companies consolidated under the equity method 13 20,452 25,253
Interim dividend 4 (50,021) (40,007)
Profit/(loss) for the year 123,690 127,659
Value change adjustments 11,159 (4,580)Hedging transactions 11 (4,115)
Translation differences 11,148 (465)
Grants and legacies received 14 1,930 2,567Minority interests 13,7 12,833 2,631
NON-CURRENT LIABILITIES 127,784 90,883Long-term provisions 15,1 46,052 26,684
Other provisions 46,052 26,684
Deudas a largo plazo 16,1 74,246 55,172Deudas con entidades de crédito 16,014 -
Otros pasivos financieros 58,232 55,172
Deferred tax liabilities 17,8 7,466 9,007Accruals and deferred income 20 20
CURRENT LIABILITIES 267,088 249,562Current payables 16,2 2,450 5,895
Debts with credit institutions 2,450 -
Derivatives 12 - 5,895
Trade and other payables 264,123 243,020Trade payables 166,774 166,392
Sundry payables 26,129 11,991
Loans to employees 20,428 22,062
Current tax liabilities 17,1 5,825 32
Other payables to public administrations 17,1 44,967 42,543
Short term accruals 515 647
TOTAL EQUITY AND LIABILITIES 1,826,322 1,677,465
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Thousands of euros
CONTINUING OPERATIONS NOTE 2018 2017REVENUE 18,1 1,296,628 1,262,158
Difference between opening and closing inventories 124 (245)
Raw materials and other consumables (360,253) (353,618)
Consumption of goods purchased for resale 18,2 (32,530) (32,827)
Consumption of raw materials and other materials 18,2 (327,551) (320,791)
Impairment of merchandise, raw mat. and other supplies (172) -
Other operating income 13,336 12,611
Staff Costs (245,915) (231,246)
Wages, salaries and similar (185,150) (174,320)
Staff welfare charges 18,3 (60,765) (56,926)
Other Operating Charges (446,573) (431,744)
External Services (435,093) (415,235)
Taxes (2,221) (9,148)
Loss, impairment and changes in trade provisions 11,3 (6,527) (6,336)
Other income and expenses (2,732) (1,025)
Fixed asset depreciation 7/8/9 (95,640) (89,448)
Grants related to non-financial non-current assets and other grants
14 1,522 1,267
Impairment and profit/(loss) on fixed asset disposals (579) (1,684)
Impairment and losses 7/9 (166) (310)
Gains/(losses) on disposals and other 8/9 (413) (1,374)
Operating results 164,650 168,051Financial income 18,4 9,025 2,357
Marketable securities and other in third parties 9,025 2,357
Financial expenses 18,4 (3,418) (192)
Payable to third parties (3,418) (192)
Exchange-rate differences 8,066 (448)
Financial result 8,200 1,717Share of results of equity-consolidated companies 6 (2,431) (1,211)
PROFIT/(LOSS) BEFORE TAX 170,419 168,557Corporate income tax 17,5/17,6 (46,001) (40,754)
PROFIT/(LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 124,418 127,803CONSOLIDATED PROFIT FOR THE YEAR 124,418 127,803
Profit/(loss) attributed to Parent Company 123,690 127,659
Profit/(loss) attributed to minority interests 13,7 728 144
The accompanying notes 1 to 23 are an integral part of the Income Statement at 31 December 2018.
MAHOU, S.A. AND SUBSIDIARIESConsolidated Financial Statements for the year ended 31 December 2018
FINANCIAL REPORT
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B) TOTAL STATEMENT OF CHANGES IN EQUITY Thousands of euros
SHARE CAPITAL
PARENT COMPANY
RESERVES
CONSOLIDATED RESERVES
INTERIM DIVIDEND
PROFIT FOR THE YEAR
TRANSLATION DIFFERENCES
ADJUSTMENTSDUE TO
CHANGES IN VALUE
GRANTS DONATIONS
AND LEGACIES
EQUITY OF THE PARENT
COMPANY
MINORITY INTERESTS TOTAL
OPENING BALANCE 2017
14,028 1,091,366 51,789 (40,007) 134,709 17,537 1,086 3,012 1,273,520 2,224 1,275,744
Total recognised income and expenses
- - - - 127,659 - (5,201) (445) 122,013 144 122,157
Operations with shareholders
Distribution of profit
- 104,618 (9,916) 40,007 (134,709) - - - - -
Interim dividend
- - - (40,007) - - - - (40,007) - (40,007)
Other Equity adjustments - - (3,135) - - (18,002) - - (21,137) 263 (20,874)
2017 YEARENDBALANCE
14,028 1,195,984 38,738 (40,007) 127,659 (465) (4,115) 2,567 1,334,389 2,631 1,337,020
Total recognised income and expenses
- - - - 123,690 - 4,126 (637) 127,179 728 127,907
Operations with shareholders
Distribution of profit
- 85,656 1,996 40,007 (127,659) - - - - -
Interim dividend
- - - (50,021) - - - - (50,021) - (50,021)
Other Equity adjustments - - (4,543) - - 11,613 - - 7,070 (15) 7,055
Changes in the scope of consolidation
- - - - - - - - - 9,489 9,489
2018 YEARENDBALANCE
14,028 1,281,640 36,191 (50,021) 123,690 11,148 11 1,930 1,418,617 12,833 1,431,450
The accompanying notes 1 to 23 are an integral part of the Statement of Changes in Equity at 31 December 2018.
A) STATEMENT OF RECOGNISED INCOME AND EXPENSES Thousands of euros
NOTA 2018 2017RESULTS OF THE INCOME STATEMENT (I) 123,690 127,659 INCOME AND EXPENSES ALLOCATED DIRECTLY TO EQUITY (II) 660 (3,556)
Grants, donations and legacies received 681 671
On cash flow hedges 15 (5,488)
Tax effect (cash flow hedges) 17,4 (4) 1,372
Tax effect (grants) 17,4 (32) (111)
TRANSFERS TO THE INCOME STATEMENT (III) 2,830 (2,090)Grants, donations and legacies received (1,522) (1,267)
On cash flow hedges 5,488 (1,447)
On cash flow hedges 17,4 (1,372) 362 On cash flow hedges 17,4 236 262
TOTAL RECOGNISED INCOME AND EXPENSES (I+II+III) 127,180 122,013
MAHOU, S.A. AND SUBSIDIARIESConsolidated statement of changes in equity for the year ended 31 december 2018
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Thousands of euros
NOTA 2018 2017CASH FLOWS FROM OPERATING ACTIVITIES (I) 276,398 226,172 Profit for the year before tax 170,418 168,557 Adjustments to profit/(loss): 118,608 100,414
Fixed asset amortisatio/depreciation 7/8/9 95,640 89,448
Impairment adjustments to property, plant and equipment 166 310
Impairment adjustments due to business transactions 6,527 6,336
Impairment adjustments to inventories 172 -
Change in provisions 15,1 19,837 4,948
Release of grants 14 (970) (1,048)
Profit/(loss) of fixed asset write-offs and disposals 413 1,374
Financial income 18,4 (9,026) (2,357)
Financial expenses 18,4 3,418 192
Results of companies carried by equity method 6 2,431 1,211
Changes in working capital 19,268 1,392 Inventories 5,240 (2,678)
Debtors and other receivables 3,253 (14,345)
Other current assets (1,300) (1,886)
Creditors and other payables 12,075 19,693
Prepayments and accrued income - 607
Other cash flows from operating activities (31,896) (44,190)Interest paid (637) (192)
Dividends collected 18,5 3,470 3,692
Interest collected 7,988 2,168
Corporate income tax income/(expense) (36,968) (46,394)
Other collections (payments) 15,1 (5,749) (3,464)
CASH FLOWS FROM INVESTMENT ACTIVITIES (II) (315,137) (123,714)Amounts paid on investments (318,277) (137,051)
Group companies and associates (40,751) (446)
Intangible assets 7 (8,600) (5,012)
Property, plant and equipment 8 (111,150) (84,789)
Investment property 9 - (1,284)
Financial assets (9,402) (6,998)
Other financial assets 148,374 (38,522)
Receipts from divestments 3,140 13,337 Intangible assets 7 5 -
Property, plant and equipment 8 2,512 2,062
Investment property 9 416 11,275
Other financial assets 207 -
CASH FLOWS FROM FINANCIAL ACTIVITIES (III) (49,229) (41,213)Receipts and payments on equity instruments 142 744
Issue of equity instruments 13 300
Grants, donations and legacies received 129 444
Collections and payments on financial liability instruments 650 (1,950)Other debt issue 2,290 -
Return and amortisation of debts with credit institutions (1,640) -
Return and amortisation of debts - (1,950)
Payment of dividends and remuneration of other equity instruments (50,021) (40,007)Dividends (50,021) (40,007)
EFFECT OF EXCHANGE RATE FLUCTUATIONS (IV) 1,069 (557)
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III+IV) (86,899) 60,688 Cash and cash equivalents at beginning of year 303,126 242,438
Cash and cash equivalents from the inclusion in the scope of consolidation 2,371 -
Cash and cash equivalents at year end 218,598 303,126
The accompanying notes 1 to 23 are an integral part of the Cash Flow Statement in Equity at 31 December 2018.
MAHOU, S.A. AND SUBSIDIARIESConsolidated cash flow shtatement for the year ended 31 december 2018
FINANCIAL REPORT
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MAHOU, S.A. AND SUBSIDIARIES
Mahou, S.A. and subsidiaries (hereinafter, Mahou San Miguel) form a consolidated group of companies that engage primarily in the production and sale of beer. This activity is carried out mainly in Spain from its plants located in Alovera, Lleida, Málaga, Burgos, Tenerife, Córdoba and Granada and, internationally, in India, among other countries.
The Parent Company is Mahou, S.A., which was incorporated in Madrid on 30 December 1957. The corporate purpose of the Parent Company, per its bylaws, is the sale of beer. Its registered office is at Calle Titán No. 15 in Madrid and it files its consolidated annual and individual accounts at the Commercial Registry of Madrid.
1. ACTIVITY
2.1 SUBSIDIARIESThe consolidation was carried out by applying the full consolidation method to all the subsidiaries, which are companies over which the Parent Company exercises or can exercise control, directly or indirectly, with this understood to
mean the power to govern the financial and operating policies of a company to obtain economic benefits from their activities. This is evidenced in general, but not solely, through direct or indirect ownership of 50% or more of the company’s voting rights.
2. CORPORATE GROUP
CONSOLIDATED FINANCIAL STATEMENTS FOR THEYEAR ENDED 31 DECEMBER 2018
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SUBSIDIARIES 2018%
EFFECTIVE OWNERSHIPThousands of euros
INVESTMENT VALUELOCATION DIRECT INDIRECT DIRECT INDIRECT ACTIVITY
Cervezas Mahou, S.L.U. (*) Madrid 100.00 - 55,050 - Beer Brewing
Cervezas San Miguel,S.L.U. (*) Málaga 100.00 - 42,843 - Beer Brewing
Cervecera Independiente, S.A. (-) Madrid 100.00 - 6,013 - Beer Distribution
Cervezas Reina 2000, S.A.U. (*) Tenerife 100.00 - 31,270 - Beer Brewing
TAISA Logistics 1960, S.A.U. (*) Madrid 100.00 - 1,879 - Transport Services
Spain´s Best Beers Inc (-) U.S.A. 100.00 - 302,932 - Beer DistributionAlhambra Distribuidora Meridional, S.L.U. (*)
Granada 100.00 - 5,281 - Beverage Distribution
Penibética de Cervezas y Bebidas, S.L.U. (*)
Córdoba 100.00 - 4,537 - Beer Brewing
Cervezas Alhambra, S.L.U. (*) Granada 100.00 - 7,000 - Beer Brewing
Aguas Solán de Cabras, S.A.U. (*) Cuenca 100.00 - 151,795 - Mineral Water Bottling Distribución Balear Almacenaje y Logística, S.A. (*)
Palma de Mallorca
69.98 - 3,530 - Beverage Distribution
Mahou India private limited (*) India 98.89 1.11 74,663 946 Beer Brewing
La Salve Comercializadora, S.L. (*) Bilbao 75.00 10.73 2,100 300 Beer Distribution
Mahou Andina, S.p.A. (*) Chile 100.00 - 3,176 - Beer Distribution
Cermadis, S.L.U. (*) Valencia 100.00 - 4,609 - Beer Distribution
Espacios Cervecera, S.L. (-) Madrid - 100.00 - 4,300 Catering and Events
Distribución Bebidas Murcia, S.L. (*) Murcia 80.00 - 50 - Beverage Distribution
Basque Experience Gastro, S.L. (-) Bilbao - 85.73 - 171 Catering and Events
Los Rechazos, S.L. (-) Tenerife 100.00 - 18,400 - Holding Company
Aguas del valle de la Orotava, S.L. (̂ ) Tenerife - 75.15 - 14,514 Mineral Water Bottling
Nirgua Solar, S.L.U. (-) Tenerife - 75.15 - 5,743Photovoltaic
Power GenerationFuente Azul compañía de aguas, S.L. (-)
Tenerife - 59.40 - 459Mineral Water
DistributionVoldistribución, S.L. (-) Madrid 100.00 - 13,500 - Inactive(*) Audited by PwC (-) No audit required ..... (^) Audited by other firms
The changes that occurred in 2018 were as follows:
SPAIN´S BEST BEERS INC On 16 May 2018, Mahou S.A approved a capital increase in its investee in the amount of 155,056 thousand euros, of which 30,156 thousand euros corresponded to loan capitalisation and 124,900 thousand euros to a cash investment.
On 20 November 2018, a cash capital contribution in the amount of 59,782 thousand euros was approved.
ALHAMBRA DISTRIBUIDORA MERIDIONAL, S.L.U. On 28 December 2018, Alhambra Distribuidora Meridional, S.L.U. refunded the shareholder investment received in previous years in the amount of 2,000 thousand euros to its Parent Company, Mahou S.A
CERMADIS, S.L.U. On 22 February 2018, Mahou S.A. concluded a purchase agreement by which it agreed to pay 1,300 thousand euros in exchange for a 26% interest previously held by minority shareholders.
The subsidiaries included in the scope of consolidation at 2018 year end are the following:
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SUBSIDIARIES 2017 % effective ownershipThousands of euros
INVESTMENT VALUE
LOCATION DIRECT INDIRECT DIRECT INDIRECT ACTIVITYCervezas Mahou, S.L.U. (*) Madrid 100.00 - 55,050 - Beer Brewing
Cervezas San Miguel,S.L.U. (*) Málaga 100.00 - 42,843 - Beer Brewing
Cervecera Independiente, S.A. (-) Madrid 100.00 - 6,013 - Beer Distribution
Cervezas Reina 2000, S.A.U. (*) Tenerife 100.00 - 31,270 - Beer Brewing
TAISA Logistics 1960, S.A.U. (*) Madrid 100.00 - 1,879 - Transport Services
Spain´s Best Beers Inc (-) U.S.A. 100.00 - 88,094 - Beer DistributionAlhambra Distribuidora Meridional, S.L.U. (*)
Granada 100.00 - 7,281 - Beverage Distribution
Penibética de Cervezas y Bebidas, S.L.U. (*)
Córdoba 100.00 - 4,537 - Beer Brewing
Cervezas Alhambra, S.L.U. (*) Granada 100.00 - 7,000 - Beer Brewing
Aguas Solán de Cabras, S.A.U. (*) Cuenca 100.00 - 151,795 - Mineral Water Bottling Distribución Balear Almacenaje y Logística, S.A. (*)
Palma de Mallorca
69.98 - 3,530 - Beverage Distribution
Mahou India private limited (*) India 98.89 1.11 64,507 832 Beer Brewing
La Salve Comercializadora, S.L. (*) Bilbao 75.00 10.73 2,100 300 Beer Distribution
Mahou Andina, S.p.A. (*) Chile 100.00 - 3,176 - Beer Distribution
Cermadis, S.L.U. (*) Valencia 74.00 - 829 - Beer Distribution
Espacios Cervecera, S.L. (-) Madrid - 100.00 - 300 Catering and Events
Distribución Bebidas Murcia, S.L. (-) Murcia 100.00 - 50 - Inactive
Basque Experience Gastro, S.L. (-) Bilbao - 85.73 - 171 Inactive* Audited by PwC (-) No audit required
On 9 October 2018, Mahou, S.A. subscribed and paid up a capital increase in Cermadis, S.L.U. in the amount of 2,480 thousand euros, maintaining its existing 100% ownership.
ESPACIOS CERVECERA, S.L.On 17 December 2018, Cervecera Independiente, S.A. approved a capital increase of its investee in the amount of 4,000 thousand euros, maintaining the ownership percentage it held at the end of 2017.
MAHOU INDIA PRIVATE LIMITEDOn 23 April 2018, Mahou, S.A. and Cervecera Independiente, S.A.U. increased their equity investment in this company in the amount of 10,156 thousand euros and 114 thousand euros, respectively.
In both transactions, the ownership percentages held by Mahou, S.A. and Cervecera Independiente, S.A.U. at 2017 year end were maintained.
DISTRIBUCIÓN BEBIDAS MURCIA, S.L.On 28 February 2018, a capital increase was
approved in the amount of 12 thousand euros, with the shares fully subscribed by a minority interest. As a result of this transaction, Mahou S.A.’s ownership was diluted to 80%.
LOS RECHAZOS, S.L.On 6 March 2018, Mahou, S.A subscribed a purchase agreement for 100% ownership of Los Rechazos, S.L. in the amount of 18,400 thousand euros. This agreement is subject to conditions precedent. These conditions having been met, the agreement was finalised on 5 June 2018.
As a result of this transaction, Mahou, S.A., in turn, came to hold an indirect interest in Fuente Azul Compañía de Aguas, S.L., Aguas del Valle de la Orotava, S.L. and Nirgua Solar, S.L.U.
VOLDISTRIBUCIÓN, S.L.On 19 December 2018, Voldistribución, S.L. was incorporated with share capital of 13,500 thousand euros, with the shares fully subscribed and paid up by Mahou S.A.
The subsidiaries included in the scope of consolidation at 2017 year end were the following:
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The changes in 2017 are described below:
LA SALVE COMERCIALIZADORA, S.L. On 8 November 2017, Mahou, S.A. subscribed and paid up the share capital increase of its subsidiary La Salve Comercializadora, S.L. in the amount of 900 thousand euros, maintaining the same ownership percentage it held at the end of 2016.
MAHOU INDIA PRIVATE LIMITEDOn 30 August 2017, Mahou, S.A. and Cervecera Independiente, S.A.U. increased their equity investment in this company in the amount of 927 thousand euros and 1 thousand euros, respectively.
In both transactions, the ownership percentages held by Mahou, S.A. and Cervecera Independiente, S.A.U. at 2016 year end were maintained.
DISTRIBUCIÓN BEBIDAS MURCIA, S.L.On 24 November 2017, Distribución Bebidas Murcia, S.L. was incorporated with share capital of 50 thousand euros, with the shares fully subscribed and paid up by Mahou S.A.
BASQUE EXPERIENCE GASTRO, S.L.On 13 September 2017, Basque Experience Gastro, S.L. was incorporated with share capital of 200 thousand euros, with the shares fully subscribed and paid up by La Salve Comercializadora, S.L.
2.2 ASSOCIATESAssociates are accounted for using the equity method. These are companies in which significant influence is exercised over their management, which is understood to mean the power to intervene in the investee company’s financial and operating policy decisions, but without this reaching the level of control or even joint control.
The equity method consists of including on the “Non-current investments in group companies and associates - Investments accounted for using the equity method” line of the balance sheet the value of the net assets and any goodwill corresponding to the percentage of ownership of the investee company. The net profit or loss for each year corresponding to the percentage of ownership of these companies is reflected in the consolidated income statements under “Share of profit (loss) of companies accounted for using the equity method”. The greater value of the net assets and underlying goodwill is reduced in subsequent years with a charge to consolidated income as the corresponding asset items are depreciated, become impaired or are derecognised or disposed of to third parties.
The companies included in the scope of consolidation using the equity method for 2018 are the following:
ASSOCIATES 2018 % effective ownership Thousands of euros INVESTMENT VALUE
LOCATION DIRECT INDIRECT DIRECT INDIRECT ACTIVITYIntermalta, S.A. Navarra 33.34 13.56 5,639 6,613 Malt ProductionLa Salve Bilbao, S.L. Bilbao 42.90 - 846 - Holding CompanyNomada Brewering Company, S.L. Barcelona 40.00 - 75 - Beer BrewingCanal Street Brewing Co, L.L.C. USA - 30.00 - 80,185 Beer BrewingAvery Brewing Co, LLC y soc. dependientes USA - 40.00 - 12,774 Beer Brewing
The changes that occurred in 2018 were as follows:
On 14 March 2018, Spain’s Best Beers, Inc. acquired a 40% interest in the share capital of Avery Brewing Co., L.L.C. through a cash disbursement of 12,774 thousand euros.
FINANCIAL REPORT
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3.1 APPLICABLE REGULATORY FRAMEWORK FOR FINANCIAL REPORTINGThese consolidated financial statements were prepared by the Board of Directors in accordance with the financial reporting regulatory framework applicable to Mahou San Miguel, which is established in:
• The Spanish Commercial Code and other Spanish corporate law.
• The Rules for Preparation of Consolidated Financial Statements approved by Royal Decree 1159/2010 and the Spanish National Chart of Accounts approved by Royal Decree 1514/2007.
• The mandatory rules approved by the Spanish Accounting and Audit Institute in order to implement Spanish National Chart of Accounts and the relevant secondary legislation.
• All other applicable Spanish accounting legislation.
• Royal Decree 602/2016, of 2 December, amending the Spanish National Chart of Accounts, approved by Royal Decree 1514/2007, of 16 November.
3.2 FAIR PRESENTATIONThe consolidated financial statements, which were obtained from the accounting records of
the Parent Company and of its investee companies, are presented in accordance with the applicable financial reporting regulatory framework and, in particular, with the accounting principles and criteria contained therein and, accordingly, present a true and fair view of the equity, financial position, results and cash flows of Mahou San Miguel.
These consolidated financial statements, prepared by the Board of Directors of the Parent Company at its meeting of 27 March 2019, as well as those of the investee companies, will be submitted for approval at the respective Annual General Meetings, with the expectation of approval without changes. The consolidated financial statements for 2017 were approved at the Annual General Meeting of the Parent Company of 16 May 2018 and filed with the Commercial Registry of Madrid.
The figures contained in the documents comprising these consolidated financial statements (consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows, and these notes) are expressed in thousands of euros.
3. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The changes in 2017 were the following:
On 13 October 2017, the Company increased its equity interest in its associated company La Salve Bilbao, S.L. in the amount of 446 thousand euros through the purchase of shares, increasing by 17.9% the interest it held at the end of 2016 to 42.9%.
2.3 CHANGES IN THE SCOPE OF CONSOLIDATIONThe main changes in the scope of consolidation are discussed in Notes 2.1 and 2.2.
ASSOCIATES 2017 % effective ownership Thousands of euros INVESTMENT VALUE
LOCATION DIRECT INDIRECT DIRECT INDIRECT ACTIVITYIntermalta, S.A. Navarra 33.34 13.56 5,639 6,613- Malt ProductionLa Salve Bilbao, S.L. Bilbao 42.90 - 846 - Holding CompanyCanal Street Brewing Co L.L.C. EEUU - 30.00 - 80,185 Beer BrewingNomada Brewing Company, S.L. Barcelona 40.00 - 75 - Beer Brewing
The companies included in the scope of consolidation using the equity method in 2017 are the following:
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4. PROFIT ALLOCATION OF THE PARENT
3.3 ACCOUNTING PRINCIPLES APPLIEDThe Directors of the Parent Company prepared these consolidated financial statements taking into consideration all obligatory accounting principles and standards that have a significant effect on these consolidated financial statements. All mandatory accounting principles have been applied.
3.4 CRITICAL VALUATION ISSUES AND ESTIMATES OF UNCERTAINTYIn preparing the attached consolidated financial statements, estimates made by the directors of the Parent Company were used to value certain assets, liabilities, income, expenses and obligations reported herein. These estimates refer basically to the following:
• The appraisal of possible impairment losses on certain assets.
• The useful life of intangible assets, property, plant and equipment, and investment property.
• The fair value of certain financial instruments.• The calculation of provisions.• The recoverability of deferred tax assets.• The estimate of the term of leases.
Although these estimates were made based on the best information available at 2018 year end, future events may make it necessary to change these estimates (upwards or downwards) in coming years. Changes in accounting estimates would be applied prospectively.
3.5 COMPARISON OF THE INFORMATIONThe information contained in this consolidated report referring to the year 2017 is presented solely for comparison purposes with the information for 2018.
3.6 MATERIALITYIt should be noted that in preparing these consolidated financial statements, the Group omitted any information or detail which, not requiring disclosure due to their qualitative importance, were considered not to be material in accordance with the concept of materiality defined in the applicable conceptual framework
The proposed allocation of the profit of the Parent Company for the year prepared by its directors, which will be submitted for approval at the Annual General Meeting, is as follows:
Thousands of euros
Available for distribution:
Profits and losses (profit) 118,922
Allocation of profit:
To dividends 50,021
To voluntary reserves 60,727
To capitalisation of reserves 8,174
In 2018, the distribution of an interim dividend in the amount of 50,021 thousand euros was approved at the Parent.
The provisional accounting statement used as the basis for the distribution of the interim dividend, based on the closing date of 31 October 2018, in accordance with the legal requirements evidencing the existence of sufficient liquidity for the distribution of dividends, was as follows:
Position of the financial accounts as reflected on the assets side of the Company’s provisional balance sheet at 31 October 2018:
Thousands of euros
Cash and banks 157,990
Temporary financial investments 98,089
Net cash position 256,079
The profit allocation for 2017 is reflected in the consolidated statement of changes in equity.
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The main accounting policies used by Mahou San Miguel in preparing its consolidated financial statements for 2018, in accordance with those established in the Spanish Chart of Accounts and other regulations in force, were the following:
5.1 BASIS OF CONSOLIDATIONA. TTransactions between consolidated
companies The balances and transaction between
fully consolidated companies, and the gains or losses on these transactions, were eliminated on consolidation. The results of operations between group companies and associates were eliminated in proportion to Mahou San Miguel’s percentage of ownership of the latter.
B. Uniformity of items The accounting principles and
procedures used by the Mahou San Miguel companies were unified in order to present the consolidated financial statements on a uniform basis.
C. Translation of financial statements in foreign currency
The financial statements of investee companies with a functional currency other than the presentation currency, the euro, have been translated to euros as follows:• The assets and liabilities on their
balance sheets are translated at the exchange rates in effect at the balance sheet date.
• The income and expense items of each of the income statement are translated at the cumulative average for the period in which they arose.
• The net asset items, including the profit or loss for the year, are translated at the historical exchange rate.
All the resulting exchange rate differences are recognised as a separate component of equity under “Translation differences”.
5.2 GOODWILL AND BUSINESS COMBINATIONSThe acquisition by the Parent Company of control over a subsidiary constitutes a business combination, to which the
acquisition method is applied. In subsequent consolidations, the equity investment of the subsidiaries is generally eliminated based on the values resulting from applying the acquisition method described below at the date control is obtained.
Business combinations are accounted for by applying the acquisition method. For this purpose, the acquisition date is determined and the cost of the combination is calculated, and the identifiable assets acquired and the liabilities assumed are valued at their acquisition-date fair values.
The goodwill or negative goodwill of the combination is determined as the difference between the fair values of the assets acquired and liabilities assumed that are recognised and the cost of the combination, all referring to the acquisition date.
The cost of the combination is determined by the sum of:
• Fair values on the acquisition date of the assets assigned, the liabilities incurred or assumed, and the equity instruments issued.
• The fair value of any contingent consideration dependent on future events or compliance with predetermined conditions.
Expenses related to the issuance of equity instruments or financial liabilities handed over in exchange for the assets acquired are not part of the cost of the combination.
Similarly, the cost of the combination does not include the fees paid to legal advisers or other professionals involved in the combination or the expenses generated internally in this regard. These amounts are charged directly to the income statement.
If the business combination is achieved in stages, as in the case of Mahou India Private Limited, in 2014, and Mahou Andina, S.p.A. (formerly Exportaciones e Importaciones de Líquidos, RCR, S.A.), in 2016 (see Note 2.1), such that a prior investment existed before the acquisition date (date of assumption of control), the goodwill or negative goodwill is obtained from the difference between:
• The cost of the business combination plus the fair value at the acquisition date of any equity interest held previously by the acquirer in the acquiree, and,
5. RECORDING AND VALUATION STANDARDS
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• The value of the identifiable assets acquired, less that of the liabilities assumed, determined in accordance with the abovementioned method.
Any gain or loss resulting from the revaluation of the previously held equity interest in the acquiree at its acquisition-date fair value is recognised in the consolidated income statement. If the investment in this investee had previously been valued at fair value, any valuation adjustments not yet recognised in profit or loss for the year will be transferred to the consolidated income statement. Additionally, it is assumed that the cost of the business combination is the best reference for estimating the fair value at the date of acquisition of any previously held equity interest.
Goodwill arising in the acquisition of companies with a functional currency other than the euro is carried in the functional currency of the acquiree and translated to euros at the exchange rate in effect at the balance sheet date.
Goodwill is amortised and subsequently valued at cost less accumulated amortisation and, where applicable, the accumulated amount of the valuation adjustments recognised for impairment. Since 1 January 2016, in accordance with the applicable regulations, the useful life of goodwill is established at ten years and is amortised on a straight-line basis.
Also, the Group analyses whether or not there are any indications of impairment of the aforementioned cash-generating units at least once a year and, if there are, they are tested for impairment according to the methodology described below and, where appropriate, the corresponding valuation adjustment is recognised.
Valuation adjustments due to impairment recognised in goodwill may not be reversed in subsequent years.
In the exceptional circumstance that negative goodwill arises in the combination, this is recognised as income in the consolidated income statement.
If the initial accounting for a business combination is incomplete by the end date of the year in which the combination occurs, the acquirer shall report provisional amounts in its financial statements for the items for which the accounting is incomplete. The provisional amounts may be adjusted in the period required to obtain the necessary information, however, this may in no case exceed one year. The effects of the adjustments made in this period are accounted for on a retroactive
basis, modifying the comparative information if necessary.
Subsequent changes in the fair value of the contingent consideration are adjusted against results, unless such consideration has been classified as equity, in which case the subsequent changes in their fair value are not recognised.
If subsequent to gaining control, there are transactions for the purchase or sale of shares of a subsidiary without loss of control, the effects of such transactions are recorded in equity and the amount of goodwill on consolidation does not change.
5.3 INTANGIBLE ASSETS
As a general rule, intangible assets are initially carried at their acquisition price. They are subsequently valued at cost less accumulated amortisation and, if appropriate, any impairment losses. These assets are amortised based on their useful life. When the useful life of these assets cannot be estimated reliably, they are amortised over a period of ten years.
Intangible assets includ e the amounts paid for title to or for the right to use computer applications and software. Mahou San Miguel only capitalises external costs related to projects for the development of new applications, whereas in-house costs incurred in this regard are charged to expense.
Software maintenance costs are charged directly as expenses in the year in which they occur.
Computer software is recognised at its acquisition cost and is amortised on a straight-line basis over three years.
Trademarks are recognised at the costs incurred in acquiring them from third parties, either through direct purchase or as the result of a business combination. They are amortised on a straight-line basis over 10 or 20 years.
The amortisation rates applied in 2018 and 2017 are as follows:
% Rate
Patents, licenses and trademarks
10
Goodwill 10
Computer software 30
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5.4 PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment items are recognised at their acquisition or production cost, although effective for accounting purposes, since 1 January 2013, the value of certain Mahou San Miguel property, plant and equipment items that existed on that date were revalued pursuant to Law 16/2012, of 27 December (see Note 8). The effect of the asset revaluations made pursuant to Laws 74/1980, 9/1983, and R.D. Law 7/1996 was also included in the value of the assets.
This initial valuation is subsequently adjusted for any accumulated depreciation and, where appropriate, any impairment losses. The revaluation surpluses or net increases in value resulting from revaluations are depreciated over the tax periods in the remaining useful lives of the revalued assets.
Upkeep and maintenance of the different property, plant and equipment items are recognised in the income statement for the year in which they are incurred. However, the costs of improvements leading to increased capacity or efficiency or to a lengthening of the useful lives of the assets are capitalised.
The annual provision for depreciation is calculated using the straight-line method based on the estimated useful lives of the assets. The diminishing-balance depreciation method is used for machinery because it is best suited to the characteristics and purpose of machinery.
The following table shows the depreciation rates applied in the 2018 and 2017:
% Rate
Straight-line method:Buildings 2 – 3
Plant 4 – 20
Other fixtures 10 – 33
Other property, plant and equipment
15 – 30
Diminishing-balance depreciation method:
Machinery 30
The items included under “Property, plant and equipment under construction” continue to be recognised in this account until they come into operation, at which point they are transferred to the appropriate account based on the nature of the asset in question, and depreciation commences.
“Other property, plant and equipment” includes the returnable containers at the Mahou San Miguel warehouses and those delivered to customers and distributors. In accordance with the regulations in force, companies that engage in the sale of beer must charge a deposit for the containers and crates they deliver. This deposit is refunded as these containers are returned. The deposits received and not yet refunded to customers and distributors are recognised under “Non-current payables - Other financial liabilities” on the liability side of the consolidated balance sheet.
Impairment of intangible assets, property, plant and equipment and investment property At each year end, for intangible assets with indefinite useful lives, as well as for property, plant and equipment and investment property, or whenever there are indications of impairment for other assets, Mahou San Miguel tests the tangible and intangible assets for impairment (“impairment test”) to determine whether the recoverable amount of the assets has been reduced to below their book value.
The recoverable amount is the higher of fair value less selling costs and value in use. Mahou San Miguel generally uses discounted cash flow methods to determine this value. The main assumptions of discounted cash flow are detailed in Note 7. The flows take into account past experience and represent the Parent’s best estimate of future market performance.
In 2018, a net impairment loss of 170 thousand euros (310 thousand euros in 2017) was recognised.
5.5 INVESTMENT PROPERTY
Investment property” on the consolidated balance sheet reflects the value of the land, buildings and other structures held to earn rentals or for capital appreciation.
These assets are valued according to the criteria described in Note 5.4 on property, plant and equipment.
For accounting purposes, since 1 January 2013, practically all of the Company’s existing investment properties at that date were subject to revaluation pursuant to Law 16/2012, of 27 December (see Note 9).
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5.6 LEASES Leases are classified as financial leases when their terms and conditions substantially transfer the associated risks and rewards inherent to ownership of the leased asset to the lessee. Other leases are classified as operating leases.
5.6.1 AFINANCE LEASESAt 31 December 2018 and 2017, Mahou San Miguel did not have any finance leases.
5.6.2 OPERATING LEASESThe revenue and expenditures related to operating leasing agreements are recognised in the income statement in the year in which they are accrued.
5.7 FINANCIAL INSTRUMENTS 5.7.1 FINANCIAL ASSETSLoans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. They are included in current assets, except for assets with maturities longer than 12 months from the balance sheet date that are classified as non-current assets. Loans and receivables are included under “Loans to companies” and “Trade and other receivables” on the balance sheet.
These financial assets are initially carried at fair value, including any directly attributable transaction costs, and subsequently valued at amortised cost. Accrued interest is recognised at the effective interest rate, which is the discount rate that brings the instrument’s carrying amount into line with all estimated cash flows to maturity. Nonetheless, trade receivables with a maturity of no more than one year are carried, both initially and subsequently, at their face value, provided that the effect of not discounting the cash flows is not significant.
At year end, at least, value adjustments are made to account for impairment when there is objective evidence that all receivable amounts will not be collected.
The amount of the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the interest rate in effect at the time of the initial recognition. Value adjustments and their reversals, where applicable, are recognised in the income statement.
Held-to-maturity investmentsHeld-to-maturity financial assets are securities representing debt with fixed or determinable payments and fixed maturities that are
negotiated in an active market and which the Company management has the effective intention and capacity to hold to maturity. If the Company were to sell a material portion of its held-to-maturity financial assets, the entire category would be reclassified as available for sale. These financial assets are included in non-current assets, except for those maturing more than 12 months after the balance sheet date that are classified as current assets.
The valuation criteria for these investments are the same as for loans and receivables.
5.7.2 FINANCIAL LIABILITIESAccounts payableThis category includes both trade and non-trade payables. These liabilities are classified as current liabilities, unless the Company has an unconditional right to defer repayment for at least 12 months from the balance sheet date.
These liabilities are initially recognised at fair value, adjusted for directly attributable transaction costs, and subsequently valued at amortised cost using the effective interest rate method. This effective interest is the discount rate that brings the instrument’s carrying value into line with the expected future flow of payments to the maturity date of the liability.
Nonetheless, trade payables with maturities of less than one year without a contractual interest rate are carried at their face value at both initial and subsequent valuation, provided that the effect of not discounting flows is not significant.
Should any existing debt be renegotiated, no substantial modification of the financial liability is deemed to exist when the lender is the same as the party that granted the initial loan and the present value of cash flows, including net commissions, does not differ by more than 10% of the present value of the cash flows pending payment with respect to the original liability calculated using the same method.
5.7.3 DERIVATIVESMahou San Miguel uses derivative financial instruments to hedge the risks to which its future cash flows are exposed. These risks mainly arise from changes in exchange rates. Within the framework of these transactions, Mahou San Miguel arranges certain financial hedging instruments, which are recognised at fair value.
Financial derivatives are valued, both initially and subsequently, at fair value. The method for recognising the resulting gains or losses depends on whether the derivative was designated as a hedging instrument or not, and, if so, on the hedging type. The Company designates certain derivatives as:
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Fair value hedgesChanges in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the income statement along with any changes in the fair value of the hedged asset or liability attributable to the hedged risk.
Cash flow hedgesThe effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges are transitionally recognised in equity. This portion is transferred to the income statement in years in which the forecast hedged transaction affects results, unless the hedge corresponds to a forecast transaction that leads to recognition of a non-financial asset or liability, in which case the amounts reflected in equity include the cost of the asset at the time it is acquired or of the liability at the time it is assumed.
The gain or loss relative to the ineffective portion is recognised immediately in the income statement.
5.8 INVENTORIES Inventories are valued at the lower of purchase price, production cost and net realisable value. Trade discounts, rebates and other similar items and interest included in the face value of the related payables are deducted in determining the acquisition price.
Production cost includes the costs of direct materials, direct labour and production overheads.
Net realisable value represents the estimated selling price less the total estimated costs of completion and the costs to be incurred in marketing, selling and distribution.
In assigning value to its inventories, Mahou San Miguel uses the weighted average cost method.
Mahou San Miguel recognises the appropriate valuation adjustments as expenses in the consolidated income statement when the net realisable value of the inventories is lower than acquisition price (or production cost).
Greenhouse gas emission allowancesSince 1 January 2016, greenhouse gas emission allowances granted to the Company by public bodies for no consideration under the international environmental accords embodied in the Kyoto Protocol are no longer reclassified as intangible assets but rather as inventories. Allowances held for sale were already recognised in this way.
Allowances granted or acquired for consumption in the production process are recognised at their acquisition price.
In the case of allowances received free of charge or acquired at a price substantially below their market value, income is recognised directly in consolidated equity at the beginning of the calendar year to which they correspond, and the related amount is recognised in consolidated income statement at the same rate as the emission expenses associated with the allowances received free of charge.
Mahou San Miguel recognises the appropriate valuation adjustments as an expense in the consolidated income statement when the recoverable amount of these allowances is lower than their carrying amount.
At 31 December 2018, the consolidated balance sheet included the value of the as-yet unused greenhouse gas emission allowances under the heading “Grants, donations and legacies received”. The consumption of emission allowances in 2018 and 2017 is reflected in the consolidated income statement as a period expense under the heading “Other operating expenses”. Recognition of the corresponding deferred income is included under the heading “Grants related to non-financial non-current assets and other grants”.
5.9 FOREIGN CURRENCY TRANSACTIONS
Transactions in currencies other than the euro are recognised at their equivalent euro value by applying the exchange rates prevailing at the date of the transaction. Exchange differences are recognised in the income statement at the time they arise. At year end the accounts payable and receivable denominated in foreign currency are translated to euros at the exchange rates prevailing at that date, and the exchange differences are recognised in the income statement for the year.
5.10 INCOME TAXCorporate income tax expense or income includes the portion relating to the current tax expense or income and the portion corresponding to the deferred tax expense or income.
The current tax is the amount payable by Mahou San Miguel as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and pre-payments, as well as tax loss carryforwards from prior years effectively offset in the current year, reduce the current income tax expense.
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The deferred tax expense or income corresponds to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences valued at the amount expected to be payable or recoverable derived on differences between the carrying amounts of the assets and liabilities and their tax base, as well as tax loss and tax credit carryforwards. These amounts are valued at the tax rates that are expected to apply in the period when the asset is realised or the liability settled.
Deferred tax liabilities are recognised in respect of all taxable temporary differences, except those arising on the initial recognition of goodwill or other assets and liabilities in a transaction that has no effect on the tax or accounting results and is not a business combination.
Deferred tax assets are only recognised to the extent that it is deemed probable that there will be future taxable profits against which the deferred tax assets can be utilised.
Likewise, at consolidated level, any differences between the consolidated value of an investment in an investee company and its tax base are taken into account. In general, such differences arise from the undistributed profits generated since the date of acquisition of the investee company, from tax credits associated with the investment and, in the case of investee companies with a functional currency other than the euro, from translation differences. The deferred tax assets and liabilities arising from these differences are recognised, except in the case of taxable differences, when the investor is able to control the time of reversal of the difference and, in the case of deductible differences, if that difference is expected to reverse in the foreseeable future and it is probable that the company will have future tax gains for a sufficient amount.
Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recognised in consolidated equity.
The deferred tax assets recognised are reassessed at the end of each reporting period, and the appropriate adjustments are made to the extent that there are doubts as to their future recoverability. Deferred tax assets not recognised on the consolidated balance sheet are also reviewed at each year end in order to recognise the extent to which it is likely that they will be offset by future taxable profits.
Mahou San Miguel, since 1 January 2010, has filed consolidated tax returns. The head of the tax group is Mahou, S.A., and the subsidiaries are Cervezas Reina 2000, S.A.U., Taisa Logistics 1960, S.A.U., Cervecera Independiente,
S.A., Alhambra Distribuidora Meridional, S.L., Cervezas Alhambra, S.L.U., Penibética de Cervezas y Bebidas, S.L.U., Aguas de Solán de Cabras, S.A.U., Mahou, S.L.U. and Cervezas San Miguel, S.L.U. In 2017 Espacios Cervecera, S.L. was added to the tax group. In 2018 Distribución Bebidas Murcia, S.L. was added to the tax group.
5.11 RECOGNITION OF INCOMERevenue is measured at the fair value of the consideration receivable in exchange for the goods delivered and services rendered in the course of Mahou San Miguel´s ordinary activities, less returns, rebates, discounts and value added tax.
Mahou San Miguel recognises revenue when the amount can be measured reliably, the future economic benefits of the transaction are likely to flow to the Company, and the specific conditions for each of its activities are met, as detailed below. It is not considered that the amount of revenue can be measured reliably until all of the contingencies associated with the sale have been resolved. The Company’s estimates are based on historical results, taking into account customer type, transaction type and the specific terms of each agreement.
A. Sale of goods Sales of goods are recognised when the
products have been delivered to the customer, the customer has complete discretion over the distribution channel, and no outstanding obligation exists that could affect acceptance of the products.
B. Rendering of services Revenues from services are recognised
taking into account the stage of completion of the service at the balance sheet date, provided that the transaction can be reliably estimated. If circumstances arise that alter the initial estimates of ordinary income or costs, such estimates are revised. Revisions may result in increases or decreases of the estimated income or costs, and they are reflected in income statement in the period in which the circumstances giving rise to those revisions are known by management.
C. Interest income Interest income is recognised using the
effective interest rate method. When an account receivable is impaired, Mahou San Miguel reduces the carrying amount to its recoverable amount, discounting estimated future cash flows at the instrument’s original effective interest rate, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the effective interest rate method.
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5.12 PROVISIONS AND CONTINGENCIES
In preparing the consolidated financial statements, the Parent Company’s directors made a distinction between:
A. Provisions: credit balances that cover present obligations arising from past events, when settlement is likely to result in an outflow of resources that are uncertain in terms of their amount and/or timing.
B. Contingent liabilities: possible obligations arising from past events whose future existence will be confirmed only by the occurrence or non-occurrence of one or more future events beyond the control of Mahou San Miguel.
The consolidated financial statements include all provisions with respect to which it is considered likely that the obligation will have to be settled. Contingent liabilities are not recognised in the consolidated financial statements but rather are disclosed in the notes of the consolidated annual report, unless they are considered to be remote.
Provisions are stated at the present value of the best possible estimate of the amount required to settle or transfer the obligation, taking into account the available information on the event and its consequences, and recognising the adjustments that arise from restatement of these provisions as a financial expense as they are accrued.
5.13 ENVIRONMENTAL ASSETS AND LIABILITIESEnvironmental assets are assets used on a lasting basis in Mahou San Miguel’s operations for which the main purpose is minimisation of environmental impact and protection and improvement the environment, including reduction or elimination of future pollution.
In this regard, investments related to environmental activities are valued at cost and capitalised as an addition to fixed assets in the year in which they are incurred, in accordance with the methods described in section 5.4 of this Note.
The expenses incurred in protecting and improving the environment are recognised in the income statement in the year they are incurred, regardless of when the resulting monetary or financial flow arises.
The provisions relative to probable or certain liabilities, or outstanding environmental obligations of undetermined amount not covered by insurance policies are recognised when the liability arises.
5.14 PENSION OBLIGATIONS AND OTHER EMPLOYEE BENEFIT OBLIGATIONSMahou San Miguel has various pension and similar obligations to its employees, the most significant of which are as follows:
1. In August 2001 Mahou, S.A. reached an agreement with its workers’ representatives for creation of an occupational pension plan to which all active employees at 1 January 2001 are entitled. This defined contribution plan covers the following contingencies:
A. Normal or early retirement of the participant..
B. Situation similar to retirement. C. Permanent disability and comprehensive
disability. D. Death of participant.
In accordance with the regulations in force, the pension plan was externalised through an agreement with Banco Bilbao Vizcaya Argentaria, S.A. Financing of this pension plan takes place through annual contributions by the Parent Company, which are recognised in “Employee benefit costs – Pensions and obligations to employees” in the consolidated income statement.
2. The Parent arranged two policies to cover the pre-retirement and supplementary pension payment obligations to employees of the Parent who had retired before the entry into force of the abovementioned pension plan. In 2018 the Parent Company considered that no contingencies or liabilities would occur.
3. Additionally, for managers and executives of Mahou, S.A., defined contribution obligations exist that have been externalised through group insurance policies arranged with B.B.V.A. Insurance.
4. In 2014 Mahou, S.A. transferred the same pension and other employee benefit obligations to a new plan for the employees of Fábrica de Cervezas, S.L.U. (now Cervezas Mahou, S.L.U.).
5. In 2004 San Miguel S.A. entered into an agreement establishing a pension plan, the characteristics of which are similar to those of the plan of the Parent, for the workforce of San Miguel Fábricas de Cerveza y Malta S.A., a company liquidated by the merger in 2014. In 2005 this pension plan was externalised through an agreement with Banco Bilbao Vizcaya Argentaria, S.A. The annual contribution was recognised under “Employee benefit costs - Pensions
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and obligations to employees” in the consolidated income statement for the year. The following changes arose as a consequence of the corporate restructuring in the reporting period:
5.1. In 2014 the merged company transferred the same pension and other employee benefit obligations to the employees of the spun-off company San Miguel Fábricas de Cervezas S.L.U. (now Cervezas San Miguel, S.L.U.).
5.2. The obligations to the employees of San Miguel Fábricas de Cerveza y Malta S.A. who joined the Parent were assumed by Mahou S.A.
6. In 2004 an agreement was entered into with the employees of Taisa Logistics 1960, S.A.U. to create a defined contribution pension plan, the characteristics of which are similar to those of the other Mahou San Miguel companies. This plan does not cover past services and was externalised through a group employee welfare insurance policy. The cost of the premium in 2017 was recognised under “Employee benefit costs - Pensions and obligations to employees”.
7. At 31 December 2018 Alhambra Distribuidora Meridional, S.L.U., Cervezas Alhambra, S.L.U. and Penibética de Cervezas y Bebidas, S.L. had obligations to active employees that may be provisioned, as stipulated in the Collective Labour Agreement. The obligations covered by these provisions are as follows:
A. Active employees: bonus for length of service. Coverage of these obligations has been externalised through an insurance policy taken out with Mapfre Vida, S.A.
B. Other items: These are mainly supplementary benefits for death of a spouse, death of both parents, etc. The calculations were also performed by the related companies by applying actuarial criteria.
8. The subsidiary Aguas de Solán de Cabras, S.A. had certain obligations to the employees assigned to the Los Villares (Jaén) work centre consisting of a retirement bonus. Pursuant to the collective labour agreements in force until 2014, the Company was obliged to pay the aforementioned bonus to the employees in the aforementioned group, provided
that certain conditions were met. This obligation was externalised through an insurance policy taken out with Allianz Vida Mahou San Miguel.
As a result of the new collective labour agreement signed in 2014, the obligation consisting of a retirement bonus ceased to exist, and the contributions made to the aforementioned insurance policy were recouped by the Company in 2015. In addition, a Business Social Welfare Plan was created with a defined annual contribution and an initial extraordinary contribution.
The cost of the annual premium is recognised in “Employee benefit costs - Pensions and obligations to employees” in the consolidated income statement for the year.
9. The subsidiary Distribuidora Balear Almacenaje y Logística, S.A. is governed by the Balearic Island collective labour agreement for the commercial sector and, therefore, employees who retire over the age of 60 and with over 10 years' service at the company have a right to a bonus for termination of the employment relationship that ranges between 6 and 12 months, depending on the employee's age on retirement.
10. The obligations assumed by Mahou San Miguel to cover benefits for death or disability of employees while they are still working are covered by insurance policies.
11. Mahou San Miguel offers some of its employees the possibility of retiring before reaching retirement age, for which it assumes certain obligation, in terms of both salaries and other employee benefits, from the date of their pre-retirement to the date of actual retirement (see Note 15).
5.15 TERMINATION BENEFITS Under current legislation, Mahou San Miguel is required to pay termination benefits to employees terminated under certain conditions. Therefore, termination benefits that can be reasonably quantified are recognised as an expense in the year in which the decision to terminate the employment relationship is taken. The accompanying consolidated financial statements do not include any provision in this regard, as no situations of this nature are expected to arise.
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5.16 GRANTS, DONATIONS AND LEGACIES RECEIVEDIn accounting for grants, donations and legacies received, Mahou San Miguel follows the criteria listed below:
A. Non-reimbursable capital grants, donations and legacies: They are carried at the fair value of the amount or asset granted, on the basis of whether they are monetary or not, and are recognised in the income statement in proportion to the depreciation charged in the period on the subsidised assets or, if appropriate, when there is a disposal or value adjustment for impairment, except for those grants received from shareholders or owners that are recognised directly in shareholders' funds and do not constitute any income.
B. Operating grants: Grants related to income are credited to income when granted, unless their purpose is to finance losses from operations in future years, in which case they are allocated to income in those years. If grants are received to finance specific expenses, they are allocated to income as the related expenses are incurred.
5.17 RELATED PARTY TRANSACTIONSMahou San Miguel carries out all its transactions with related companies at fair market value. Additionally, the transfer prices are adequately supported, and therefore the Parent’s directors consider that there are no material risks in this regard that might give rise to significant liabilities in the future.
5.18 CURRENT/NON-CURRENT CLASSIFICATIONThese are assets associated with the normal operating cycle, which in general is considered to be one year; other assets which are expected to mature, be disposed of or be realised within twelve months from the end of the reporting period; financial assets held for trading, except for financial derivatives that will be settled in a period exceeding one year; and cash and cash equivalents. Assets that do not meet these requirements are classified as non-current.
Likewise, current liabilities are those related to the Company's usual operating cycle, financial liabilities held for trading (except financial
derivatives maturing in more than one year) and, in general, all liabilities maturing or falling due in the short term. Otherwise, they are classified as non-current.
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The changes in this section in 2018 and 2017 were the following:
6. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
2018 Thousands of euros
COMPANYBALANCE
AT 31-12-17
CHANGES IN SCOPE OF CONSOLIDATION
(NOTES 2.1, 2.2 Y 2.3)
2018PROFITS
DIVIDENDS PAID
CONSOLIDATION ADJUSTMENT (A)
TRANSLATION ADJUSTMENT
OTHER ADJUST.
BALANCE AT
31-12-18
Intermalta, S.A. 42,228 - 3,213 (2,345) - - - 43,096
La Salve Bilbao, S.L. 460 - - - (25) - 39 474Nomada Brewering Company, S.L.
(5) - (7) - - - - (12)
Avery Brewing Company,LLC y and subsidiaries
- 12,774 (1,302) - (613) 390 - 11,249
Canal Street Brewing Company, LLC
76,378 - 4,059 (1,125) (7,756) 4,029 (159) 75,426
119,061 12,774 5,963 (3,470) (8,394) 4,419 (120) 130,233
2017 Thousands of euros
COMPANYBALANCE
AT 31-12-16
CHANGES IN SCOPE OF CONSOLIDATION
(NOTES 2.1, 2.2 Y 2.3)
2017PROFITS
DIVIDENDS PAID
CONSOLIDATION ADJUSTMENT (A)
TRANSLATION ADJUSTMENT
OTHER ADJUST.
BALANCE AT
31-12-17
Intermalta, S.A. 41,656 - 2,917 (2,345) - - - 42,228
La Salve Bilbao, S.L. 366 109 - - (25) - 10 460Nomada Brewering Company, S.L.
1 - (6) - - - - (5)
Canal Street Brewing Company, LLC
93,091 - 3,661 (1,347) (7,755) (11,703) 431 76,378
135,114 109 6,572 (3,692) (7,780) (11,703) 441 119,061(A) Includes primarily the amortisation of underlying goodwill.
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The changes in 2018 and 2017 were as follows:
7. INTANGIBLE ASSETS
2018 Thousands of euros
BALANCE AT31-12-17 INCREASES DECREASES TRANSFERS
INCLUSION IN SCOPE OF
CONSOLIDATION
TRANSLATION ADJUSTMENT
BALANCE AT 31-12-18
Trademarks 36,905 - (1) 37 25 - 36,966
Computer software 58,568 6,297 (3) 549 202 (2) 65,611
Goodwill 160,656 2,031 - - 47 - 162,734
Other intangible assets 3,442 272 (2) - 1 - 3,713
Total cost 259,571 8,600 (6) 586 275 (2) 269,024Trademarks (20,500) (1,318) - - (20) - (21,838)
Computer software (48,706) (5,722) 1 - (190) (1) (54,618)
Goodwill (32,114) (16,217) - - (27) - (48,358)
Other intangible assets (2,593) (108) - - - - (2,701)
Total amortisation (103,913) (23,365) 1 - (237) (1) (127,515)
TOTAL NET 155,658 (14,765) (5) 586 38 (3) 141,509
2017 Thousands of euros
BALANCE AT 31-12-16 INCREASES DECREASES TRANSFERS TRANSLATION
ADJUSTMENTBALANCE AT
31-12-17
Trademarks 38,908 - (1,963) (40) - 36,905
Computer software 52,384 5,012 - 1,174 (2) 58,568
Goodwill 159,256 - 1,400 - - 160,656
Other intangible assets 3,442 - - - - 3,442
Total cost 253,990 5,012 (563) 1,134 (2) 259,571Trademarks (19,049) (1,597) 131 15 - (20,500)
Computer software (43,859) (4,834) - (15) 2 (48,706)
Goodwill (16,070) (16,044) - - - (32,114)
Other intangible assets (2,431) (162) - - - (2,593)
Total amortisation (81,409) (22,637) 131 - 2 (103,913)
TOTAL NET 172,581 (17,625) (432) 1,134 - 155,658
Goodwill at 31 December 2018 and 2017 corresponds to the following cash-generating units:
THOUSANDS OF EUROS Carrying amount
GOODWILL 2018 2017Beer 54,063 61,786
Water 56,450 64,113
Distribution 3,863 2,643
114,376 128,542
Additionally, in 2018 and as a result of the increased ownership stake in Cermadis, S.L. U. (see Note 2.1), there was an increase in
goodwill recognised at the consolidated level in the amount of 1,680 thousand euros. And, as a result of the full consolidation of Los Rechazos, S.L and subsidiaries, goodwill was increased to 351 thousand euros (see Note 22).
Mahou San Miguel tests goodwill for impairment on an annual basis. The recoverable value is the higher of fair value, less selling costs, and value in use. The Company generally uses discounted cash flow methods to determine this value. The flows take into account past experience and represent management’s best estimate of future market performance.
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CGU
2018 WATER BEER DISTRIBUTOR
Project period (years) 5 10 5
Growth rate in perpetuity 1.7% 2.1%-6% 1.7%
Key variable / CAPEX / CAPEX / CAPEX
Discount rate 5.2% 6.1%-14.2% 5.1%
Software applications includes the development of the IT systems plan carried out by each company in recent years.
At the end of 2018 and 2017, Mahou San Miguel had fully amortised intangible assets that were still in use amounting to 63,109 and 59,322 thousand euros respectively.
The changes in this section of the consolidated balance sheet in 2018 and 2017, as well as the most significant information affecting this heading, were as follows:
8. PROPERTY, PLANT AND EQUIPMENT
2018 Thousands of euros
BALANCE AT31-12-17 INCREASES DECREASES TRANSFERS
INCLUSION IN SCOPE OF
CONSOLIDATION
TRANSLATION ADJUSTMENT
BALANCE AT 31-12-18
Land and buildings 346,797 3,098 (513) 1,434 19,581 (133) 370,264
Plant and machinery 684,052 33,009 (1,324) 14,438 32,200 (289) 762,086
Other fixtures 153,917 35,157 (1,608) 47 1,310 (15) 188,808
Other property, plant and equipment
167,578 16,634 (4,173) 171 988 (9) 181,189
Property, plant and equipment under construction
17,702 23,252 - (16,676) 1,693 (20) 25,951
Total Cost 1,370,046 111,150 (7,618) (586) 55,772 (466) 1,528,298Land and buildings (114,577) (7,526) 387 - (4,063) 21 (125,758)
Plant and machinery (565,316) (30,517) 937 - (14,683) 88 (609,491)
Other fixtures (92,859) (22,656) 35 - (1,009) 4 (116,485)
Other property, plant and equipment
(130,534) (11,522) 3,353 - (820) 6 (139,517)
Total depreciation (903,286) (72,221) 4,712 - (20,575) 119 (991,251)Total impairment losses - (128) - - (159) - (287)
TOTAL NET 466,760 38,801 (2,906) (586) 35,038 (347) 536,760
In 2018 the key assumptions used for discounted cash flows of units with material good will were as follows:
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2017 Thousands of euros
BALANCE AT 31-12-16 INCREASES DECREASES TRANSFERS TRANSLATION
ADJUSTMENTBALANCE AT
31-12-17
Land and buildings 346,514 2,878 (3,396) 1,268 (467) 346,797
Plant and machinery 656,050 17,846 104 10,486 (434) 684,052
Other fixtures 122,678 34,557 (3,325) 28 (21) 153,917
Other property, plant and equipment
158,377 13,610 (4,449) 48 (8) 167,578
Property, plant and equipment under construction
14,793 15,898 59 (12,964) (84) 17,702
Total Cost 1,298,412 84,789 (11,007) (1,134) (1,014) 1,370,046Land and buildings (107,370) (7,261) 15 - 39 (114,577)
Plant and machinery (535,314) (30,003) (135) (16) 152 (565,316)
Other fixtures (75,064) (19,499) 1,700 (3) 7 (92,859)
Other property, plant and equipment
(123,969) (9,941) 3,352 19 5 (130,534)
Total depreciation (841,717) (66,704) 4,932 - 203 (903,286)
TOTAL NET 456,695 18,085 (6,075) (1,134) (811) 466,760
The increases in 2018 and 2017 correspond primarily to investments made in plant and machinery in factories, investments in fixtures at customers (recognised under “Other fixtures”) and replacement investments in the container depot included under “Other property, plant and equipment”. Additionally, these increases correspond to new additions to the scope of consolidation in 2018.
In 2018 Mahou San Miguel derecognised items of property, plant and equipment with a carrying amount of 2,906 thousand euros, obtaining a net loss of 394 thousand euros recognised under “Impairment losses on disposals of non-current assets - Gains or losses on disposals and other” in the accompanying consolidated income statement for 2018 (629 thousand euros in 2017).
The gross value of the investments depreciated using the diminishing-balance method at 31 December 2018 was 203,698 thousand euros. In 2017 it was 256,300 thousand euros.
The diminishing-balance depreciation charge for the year at 31 December 2018 amounted to 11,746 thousand euros and 241,886 thousand euros, respectively. In 2017 these amounted to 11,595 thousand euros and 230,116 thousand euros, respectively.
The breakdown of the net carrying amount of the buildings and land relating to the
properties owned by Mahou San Miguel at the end of 2018 and 2017 is as follows:
Thousands of euros
PROPERTY 2018 2017Land 109,721 98,258
Buildings 134,785 133,962
244,506 232,220
The breakdown of Mahou San Miguel’s fully depreciated items of property, plant and equipment still in use at the end of 2018 and 2017 is as follows:
CARRYING AMOUNTThousands of euros
DESCRIPTION 2018 2017Buildings 33,310 31,117
Other assets 617,664 534,240
650,974 565,357
It is Mahou San Miguel’s policy to arrange insurance policies where deemed necessary to cover possible risks to property, plant and equipment. At 31 December 2018, the Parent Company’s directors consider that there is sufficient insurance cover.
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Thousands of euros
DESCRIPTION INCREASE IN VALUE
DEPRECIATION CHARGE
ACCUMULATED DEPRECIATION
CARRYINGAMOUNT
Land and buildings 25,975 (1,079) (8,727) 17,248
Plant and machinery 16,110 (426) (16,204) (94)
Other fixtures 69 (3) (65) 4Other property, plant and equipment
17 - (17) -
TOTAL 42,171 (1,508) (25,013) 17,158
The changes in “Investment property” on the consolidated balance sheet in 2018 and 2017 were as follows:
9. INVESTMENT PROPERTY
2018 Thousands of euros
BALANCE AT 31-12-17 INCREASES DECREASES
INCLUSION IN SCOPE OF
CONSOLIDATION
BALANCE AT31-12-18
Land and buildings 25,500 254 (499) 13,018 38,273
Total cost 25,500 254 (499) 13,018 38,273Buildings (359) (54) 43 (1,023) (1,393)
Total amortisation (359) (54) 43 (1,023) (1,393)Land and buildings (771) (49) 22 - (798)
Total impairment losses (771) (49) 22 - (798)
TOTAL NET 24,370 151 (434) 11,995 36,082
2017 Thousands of euros
BALANCE AT 31-12-16 INCREASES DECREASES BALANCE AT
31-12-17
Land and buildings 36,556 1,284 (12,340) 25,500
Total cost 36,556 1,284 (12,340) 25,500 Buildings (622) (107) 370 (359)
Total amortisation (622) (107) 370 (359) Land and buildings (416) (460) 105 (771)
Total impairment losses (416) (460) 105 (771)
TOTAL NET 35,518 717 (11,865) 24,370
In 2018 the net cost and carrying amount of the investments revalued pursuant to Royal Decree Law 7/96 amounted to 21,688 and 5,541 thousand euros, respectively. In 2017 they amounted to 21,688 and 5,713 thousand euros, respectively. The effect of the revaluation on the depreciation charge in 2018 was 172 thousand euros. In 2017,
the effect of the revaluation on the depreciation charge was 189 thousand euros.
As indicated in Note 5.4, Mahou San Miguel revalued its property, plant and equipment pursuant to Law 16/2012, with its effect at 31 December 2018 being as follow:
In 2018 the increases correspond primarily to the addition of Aguas del Valle de la Orotava, S.L to the scope of consolidation; decreases are due mainly to the sale of dwellings and land. In 2017 the increases correspond to the acquisition of certain flats and commercial
premises; decreases correspond to the sale of industrial buildings.
“Investment property” includes the land and buildings whose cost is expected to be recovered through the sale or lease thereof.
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In 2018, Mahou San Miguel derecognised items of investment property with a carrying amount of 434 thousand euros, obtaining a loss of 18 thousand euros recognised under “Impairment losses on disposals of non-current assets - Gains or losses on disposals and other” in the accompanying consolidated income statement for 2018 (745 thousand euros in 2017).
At year end, Mahou San Miguel companies did not have any purchase commitments and did not receive any rental income from investment properties.
The breakdown of the value of the buildings and land at 2018 year end is as follows:
Thousands of euros
PROPERTY 2018 2017Land 21,632 21,554
Buildings 14,450 2,816
36,082 24,370
At 2018 and 2017 year end, there were no fully depreciated investment properties.
The carrying amount in 2018 of the investments revalued pursuant to Royal Decree Law 7/96 amounted to 2,651 and 5,541 thousand euros, respectively. The carrying amount in 2017 of the revalued investments pursuant to Royal Decree Law 7/96 amounted to 2,651 thousand euros.
In 2018 and 2017 the gross value of the items of property, plant and equipment revalued pursuant to Law 16/2012, of 27 December, amounted to 3,864 and 3,868 thousand euros, respectively. The depreciation charge for the year and accumulated depreciation at 31 December 2018 amounted to 1 and 4 thousand euros, respectively. The depreciation charge for the year and accumulated depreciation at 31 December 2017 amounted to 1 and 5 thousand euros, respectively.
At the end of each reporting period for the investment properties, Mahou San Miguel uses valuations requested of third parties to determine the existence of impairment losses that reduce the value of the assets to below their carrying value.
10. LEASES 10.1 MAHOU SAN MIGUEL AS A LESSEEAt the end of 2018 and 2017, Mahou San Miguel had the following minimum lease payments contracted with lessors, based on the leases currently in force, without taking into account the charging of common expenses, future increases in the CPI or future contractual lease payment reviews:
FACE VALUEThousands of euros
OPERATING LEASESMINIMUM INSTALMENTS 2018 2017
Within one year 6,545 6,749Between oneand five years
25,938 26,700
32,483 33,449
The most significant operating leases held by Mahou San Miguel correspond to the lease of the warehouses in Leganés and Alovera, and to the just-in-time and bonded warehouses in Antequera, Lleida Park, Alovera and Burgos.
Mahou San Miguel also held several operating leases, mainly for certain machinery items and buildings. In 2018 and 2017 these leases
amounted to 11,549 and 11,286 thousand euros, respectively.
10.2 MAHOU SAN MIGUEL AS A LESSOR At the end of 2018 and 2017, Mahou San Miguel had contracted to receive the following minimum lease payments, based on the leases currently in force, without taking into account the charging of common expenses, future increases in the CPI or future contractual lease payment reviews:
FACE VALUEThousands of euros
OPERATING LEASESMINIMUM INSTALMENTS 2018 2017
Within one year 1,451 1,246Between oneand five years
5,821 4,851
7,272 6,097
As a lessor, the most significant operating leases held by Mahou San Miguel correspond to the lease of various floors and garages of the building at Calle Titán 15, Madrid, where its head office is located.
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11. FINANCIAL INVESTMENTS (LONG- AND SHORT-TERM)
11.1 LONG-TERM FINANCIAL INVESTMENTSThe breakdown of "Long-term financial investments" at the end of 2018 and 2017 is as follows:
Thousands of euros
2018 2017Equity instruments 2,098 261
Loans and receivables 120,237 108,564
Prepayments and accrued income 24,626 30,071
Other financial assets 1,389 587
Derivatives - 27
148,350 139,510
The breakdown, by maturity, of "Loans to third parties" comprising "Long-term investments" for years 2018 and 2017 is as follows:
2018 Thousands of euros
2020 2021 20222023
SUBSEQUENT YEARS
TOTAL
Loans and receivables 30,105 30,100 29,898 30,134 120,237Prepayments and accrued income
13,263 7,578 2,994 791 24,626
43,368 37,678 32,892 30,925 144,863
2017 Thousands of euros
2019 2020 20212022
SUBSEQUENT YEARS
TOTAL
Loans and receivables 27,075 27,075 27,075 27,339 108,564Prepayments and accrued income
13,493 9,939 5,014 1,625 30,071
40,568 37,014 32,089 28,964 138,635
11.2 SHORT-TERM FINANCIAL INVESTMENTSThe breakdown of "Short-term financial investments" at the end of 2018 and 2017 is as follows:
Thousands of euros
2018 2017Loans and receivables 32,530 29,481
Derivatives 15 380
Deposits - short-term investments 222,477 72,085
Other financial assets 485 -
255,507 101,946
"Deposits - short-term investments" mainly includes short-term deposits in foreign currency with maturity in 2019 and remunerated at market interest rates.
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11.3 INFORMATION ON THE NATURE AND LEVEL OF RISK OF FINANCIAL INSTRUMENTSFinancial risk management is delegated to the Finance Department of the Parent Company, Mahou, S.A., which has established the mechanisms required to control exposure to fluctuations in the significant risks, within the parameters approved by the Board of Directors, by appropriately identifying, measuring and managing the risks and ensuring achievement of the targets in the strategic plan, controlling volatility on the basis of the following premises:
A. Credit risk• No significant concentration of risk with
third parties will exist.• Requiring sufficient collateral to cover
credit risks with third parties. • Recognising allowances for credit risk
with third parties in relation to the probability of default.
B. Liquidity risk• Holding cash and cash equivalents in
financial institutions with high credit ratings.
• Holding and maintaining levels of cash appropriate to the level of operations.
• Maintaining a low level of indebtedness in proportion to the volume of operations and EBITDA.
• Placing cash surpluses in accordance with the criteria of utmost security, solvency and assurance.
C. Market risk• Hedging exposure to interest rate risk on
the basis of market performance at all times.
• Hedging exposure to exchange risk according to the performance of currencies at all times, with the euro being the priority currency for any transaction.
Additionally, the Procurement Department, together with the Finance Department, will control exposure to market risk in relation to the volatility of commodity prices on the basis of market performance at all times.
At 31 December 2018, Mahou San Miguel had recognised a provision for customer credit and commercial transaction risk in the amount of 62,074 thousand euros (56,438 thousand euros in 2017). In 2018 a provision in the amount of 6,527 thousand euros (6,336 thousand in 2017) was recognised. In 2018 uncollectible balances with their corresponding provisions were applied in the amount of 1,062 thousand euros (17,069 thousand euros at 31 December 2017).
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13. EQUITY AND SHAREHOLDERS’ EQUITY At 2018 year end, the share capital of the Parent Company amounted to 14,028 thousand euros, represented by 2,334,152 fully subscribed and paid up shares of 6.01 euros par value each, issued in two series called A and B, which carry
the same rights and obligations.
At the end of 2018, the shareholders of the Parent Company were the following:
NO. OF SHARES % INTEREST
Las Tejoneras, S.L. 1,167,076 50,00
Sdad. Gala de Inversiones, S.L. 633,800 27,15
I.P.L. Gala Internacional, S.L. 529,576 22,69
Other Shareholders 3,700 0,16
2,334,152 100
12. DERIVATIVE FINANCIAL INSTRUMENTS
Mahou San Miguel uses derivative financial instruments to hedge the risks to which its future cash flows are exposed. Within the framework
of these operations, Mahou San Miguel has contracted certain financial hedging instruments.
The breakdown of the fair value of these hedging instruments is as follows:
2018 Thousands of euros
CLASSIFICATION TYPEAMOUNT
CONTRACTED IN CURRENCY
MATURITY DATE (*)
FAIR VALUE
ASSETS LIABILITIES
Exchange rate hedge GBP sale 5,290 2019 15 -
15 -
2017 Thousands of euros
CLASSIFICATION TYPEAMOUNT
CONTRACTED IN CURRENCY
MATURITY DATE (*)
FAIR VALUE
ASSETS LIABILITIES
Exchange rate hedge GBP sale 7,000 2018 175 -
Exchange rate hedge GBP sale 4,000 2019 27 -
Exchange rate hedge INR purchase 250,000 2018 28 -
Exchange rate hedge INR purchase 621,000 2018 - 134
Exchange rate hedge USD purchase 70,000 2018 177 -
Exchange rate hedge USD purchase 160,000 2018 - 5,761
407 5,895
(*) The hedging instrument expires in the year in which the cash flows affecting the income statement will foreseeably occur.
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The breakdown of “Reserves” is as follows:
Thousands of euros
2018 2017Legal reserve 2,806 2,806
Revaluation Reserve Law 16/2012 21,533 21,533
Reserve for retired capital 7,007 7,007
Merger reserves (56,244) (56,244)
Capitalisation reserves 34,390 23,979
Voluntary reserves 1,268,874 1,193,629
Restricted voluntary reserves 3,274 3,274
Total reserves of the Parent Company 1,281,640 1,195,984
Reserves of subsidiaries 15,739 13,485
Reserves in equity method companies 20,452 25,253
Total consolidated reserves 36,191 38,738
TOTAL RESERVES 1,317,831 1,234,722
13.1 LEGAL RESERVEUnder the Consolidated Spanish Limited Liability Companies Law, the Company must transfer 10% of net profit for each year to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount. Except for the foregoing purpose, and provided it does not exceed 20% of the share capital, this reserve may only be used to offset losses when there are no sufficient other reserves available for this purpose.
At the end of 2018 and 2017, the balance of this reserve had reached the legally required minimum at the Parent Company.
13.2 RESERVE FOR RETIRED CAPITALIn accordance with Article 335 of the Spanish Limited Liability Companies Law, this reserve of 7,007 thousand euros may only be used if the same requirements as those for the reduction of share capital are met.
13.3 REVALUATION RESERVEThe surplus resulting from the revaluation of property plant and equipment by the Parent Company at 1 January 2013, pursuant to Law 16/2012, of 27 December, adopting various tax measures aimed at consolidating public finances and promoting economic activity (see Notes 8 and 9), was credited to “Revaluation Reserve” for 21,533 thousand euros, net of the related tax (5%) (1,133 thousand euros).
From the date on which the tax authorities have reviewed and approved the balance of this account, or once the three-year period for review has expired, this balance can be used, free of tax, to offset accounting losses and to increase share capital. From 1 January 2023 (after ten years have elapsed from the date of the balance sheet in which the revaluations were recognised), the balance of the “Revaluation Reserve” may be allocated to “Unrestricted Reserves”, although it may only be distributed when the revalued assets have been fully depreciated, transferred or derecognised.
If this balance were used in a manner other than that provided for in Law 16/2012, it would be subject to tax.
13.4 OTHER RESERVES - RESERVE FOR GOODWILL Until the year ended 31 December 2015 and in accordance with the Spanish Limited Liability Companies Law, when distributing the profit for each year, an appropriation of at least 5% of the goodwill recognised on the asset side of the balance sheet had to be made to a restricted reserve for that goodwill. If a company did not report a profit or the amount was insufficient, unrestricted reserves were used for this purpose
In accordance with amendments to the Spanish Limited Liability Companies Law, approved by Spanish Audit Law 22/2015, of 20 July, as from the years starting at 1 January 2016, the Company will discontinue contributions to this reserve for goodwill. Its amount must be reclassified to voluntary reserves and will
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be available starting that year in the amount that exceeds the goodwill recognised on the assets side of the balance sheet. The amount reclassified to voluntary reserves in 2016 amounted to EUR 3,274 thousand. At 31 December 2018 and 2017, the reserve was unavailable for distribution.
13.5 MERGER RESERVESThese reserves originate in the merger by absorption by Mahou, S.A., in 2014, of San Miguel Fábricas de Cerveza y Malta, S.A.U., Grupo Alhambra Alimentaria, S.A., Cervezas Alhambra, S.A.U., and Mahou MSM Comercializador, S.A..
13.6 CAPITALISATION RESERVESIn 2018 and 2017, the Parent recognised a capitalisation reserve for the purpose of reducing the tax base by 10% of the amount of the increase in its equity, as permitted under Article 25 of Law 27/2014 on Corporate Income Tax.
This increase in equity must be maintained for five years from the end of the tax period to which the reduction corresponds, unless the organisation incurs accounting losses.
The amount recognised in 2018 in capitalisation reserves amounted to 34,390 thousand euros. This reserve will be unavailable for distribution during the five-year period.
13.7 MINORITY INTERESTSThe changes in 2018 and 2017, by item, in “Minority interests” was as follows:
2018 Thousands of euros
BALANCEAT
31-12-17
INCLUSION IN SCOPE OF
CONSOLIDATION
SHARE OFPROFIT OR LOSS
FOR THE YEAR
OTHER CHANGES
BALANCEAT
31-12-18
Distribución Balear Almacenaje y Logística, S.A.
2,600 - 422 (15) 3,007
La Salve Comercializadora, S.L. 534 - (79) - 455
Cermadis, S.L.U. (503) 503 - - -
Basque Experience Gastro, S.L.U. - - (27) - (27)
Distribución Bebidas Murcia, S.L. - 13 (109) - (96)
Aguas del valle de la Orotava, S.L. - 8,191 375 - 8,566
Nirgua Solar, S.L.U. - 261 106 - 367
Fuente Azul compañía de aguas, S.L. - 521 40 - 561
2,631 9,489 728 (15) 12,833
2017 Thousands of euros
BALANCEAT
31-12-16
INCLUSION IN SCOPE OF
CONSOLIDATION
SHARE OFPROFIT OR LOSS
FOR THE YEAR
OTHER CHANGES
BALANCEAT
31-12-17
Distribución Balear Almacenaje y Logística, S.A. 2,251 356 - (7) 2,600
La Salve Comercializadora, S.L. 323 (89) 300 - 534
Cermadis, S.L.U. (350) (123) - (30) (503)
2,224 144 300 (37) 2,631
FINANCIAL REPORT
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2018 Thousands of euros
BALANCEAT
31-12-17ALLOCATIONS APPLICATIONS REVERSALS TRANSLATION
ADJUSTMENT
BLANCEAT
31-12-18
Employee benefit obligations 6,706 8,169 (2,600) (200) (8) 12,067
Contingencies and charges 19,978 17,258 (3,149) (90) (12) 33,985
TOTAL 26,684 25,427 (5,749) (290) (20) 46,052
2017 Thousands of euros
BALANCEAT
31-12-16ALLOCATIONS APPLICATIONS REVERSALS TRANSLATION
ADJUSTMENT
BLANCEAT
31-12-17
Employee benefit obligations 7,014 3,970 (3,764) (500) (14) 6,706
Contingencies and charges 18,204 2,225 153 (600) (4) 19,978
TOTAL 25,218 6,195 (3,611) (1,100) (18) 26,684
2018 Thousands of euros
AMOUNTGRANTED
BALANCE AT31-12-17 ADDITION APLICATIÓN /
DECREASEBALANCE AT
31-12-18Institute for Energy Diversification and Saving
12,312 3,304 129 (918) 2,515
Junta Castilla y León 90 82 - (26) 56
Gas emission allowances - 27 552 (578) 1
Total 12,402 3,413 681 (1,522) 2,572Tax effect - (846) (32) 236 (642)
TOTAL GRANTS 12,402 2,567 649 (1,286) 1,930
2017 Thousands of euros
AMOUNTGRANTED
BALANCE AT31-12-16 ADDITION APLICATIÓN /
DECREASEBALANCE AT
31-12-17Institute for Energy Diversification and Saving
12,183 3,990 354 (1,040) 3,304
Junta Castilla y León 90 - 90 (8) 82
Gas emission allowances - 20 227 (220) 27
Total 12,273 4,010 671 (1,268) 3,413Tax effect - (997) (111) 262 (846)
TOTAL GRANTS 12,273 3,013 560 (1,006) 2,567
14. GRANTS “Grants” includes non-refundable capital grants received and gas emission allowances.
The most salient information in this section of the consolidated balance sheet is as follows:
The grant provided in 2013 by the Institute for Energy Diversification and Saving (IDAE) is intended to support the financing of investment projects in energy saving and efficiency.
At 31 December 2018 and 2017, all obligations associated with these grants received by Mahou San Miguel were being met.
15. PROVISIONS AND CONTINGENCIES 15.1 PROVISIONSThe breakdown of the provisions on the consolidated balance sheet at the end of 2018 and 2017, as well as the main changes recorded during the year, are as follows:
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15.1.1 EMPLOYEE BENEFIT OBLIGATIONSThe Mahou San Miguel companies have acquired various obligations to their employees.
The balance of “Employee benefit obligations”, in the amount of 11,777 thousand euros (6,157 thousand euros at 31 December 2017), is to meet the overall obligations to employees, which include covering early retirement pension obligations (see note 5.14).
15.1.2 CONTINGENCIES AND CHARGES“Provisions for contingencies and charges” includes mainly provisions to meet probable or certain contingencies in relation to tax assessments that are being appealed by Mahou San Miguel. These provisions were recognised in accordance with the accounting principle of prudence in valuation. The balances of the provisions recognised in prior years were adjusted based on the most recent available information (see Note 5.12).
15.2 GUARANTEE COMMITMENTS TO THIRD PARTIES AND OTHER CONTINGENT LIABILITIESIn 2018, the guarantees received from licensees and other debtors as security for Mahou San Miguel’s commercial operations amounted to 272,349 thousand euros (257,284 thousand euros in 2017).
The guarantees received from banking institutions in 2018 and 2017 by Mahou San Miguel suppliers as security for the proper functioning of machinery purchased from third parties amounted to 2,262 thousand euros (4,562 thousand euros in 2017).
The guarantees provided by Mahou San Miguel to third parties, mainly to the Economic-Administrative Tribunals for the tax assessments under appeal, amounted to 9,329 thousand euros (14,943 thousand euros in 2017), and no losses are expected to arise for Mahou San Miguel for which provisions have not been recognised.
16. NON-CURRENT AND CURRENT LIABILITIES
16.1 NON-CURRENT FINANCIAL LIABILITIESThe breakdown of "Non-current payables" at the end of 2018 and 2017 is as follows:
Thousands of euros
2018 2017Accounts payable 4,576 4,056
Long-term guarantees 53,656 51,116
Debts with credit institutions 16,014 -
74,246 55,172
“Creditor and payables” includes loans granted by the Centre for Industrial and Technological Development to finance projects related to nutritional health. No interest rate was set for these loans and they are repaid as certain pre-established conditions are met.
“Long-term guarantees” includes the amounts billed to customers for container deposits. To the extent that the amount of this income remains the same from the beginning of the commercial relationships with customers until the eventual
settlement of the balances, the deposit amounts are classified as non-current.
16.2 CURRENT FINANCIAL LIABILITIESThe balance under “Current liabilities” at the end of 2018 amounted to 2,450 thousand euros for the item “Debts with financial institutions”. At the end of 2017, the balance under “Debts with financial institutions” amounted to 5,895 thousand euros.
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16.3 DEBTS WITH FINANCIAL INSTITUTIONSThe breakdown of this section, both in its current and non-current portions, is as follows:
Thousands of euros
2018 2017Debts with financial institutions s/t 2,450 -
Debts with financial institutions l/t 16,014 -
18,464 -
For the majority of the financial debts, the fair values are not materially different from their carrying amounts, given that the interest rates for
these debts are close to current market rates or the debts are short-term in nature.
The maturity schedule for the principle of the debt with financial institutions is as follows:
2018 Thousands of euros
2019 2020 2021 20222023
AND SUBSEQUENT
YEARS
TOTAL
Aguas del Valle de la Orotava, S.L. 1,661 1,496 1,157 1,112 5,666 11,092
Fuente Azul Compañía de Aguas, S.L. 140 132 116 54 - 442
Nirgua Solar, S.L. 649 542 546 580 4,613 6,930
TOTAL 2,450 2,170 1,819 1,746 10,279 18,464
Variable interest loans accrue interest at a reference interest rate plus a differential agreed upon with the corresponding financial institutions under normal market conditions.
All loans with financial institutions are subscribed in euros.
At 31 December 2018, Aguas del Valle de la Orotava, S.L. holds a series of mortgage loans for buildings and property.
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17. PUBLIC AUTHORITIES AND TAX SITUATION Mahou, S.A. is the head of the consolidated tax group which at the end of 2018 was made up of the following companies: Cervezas Reina 2000, S.A.U., Taisa Logistics 1960 S.A., Cervecera Independiente, S.A., Alhambra Distribuidora Meridional, S.L., Cervezas Alhambra, S.L.U., Penibética de Cervezas y Bebidas, S.L., Aguas de Solán de Cabras, S.A, Cervezas San Miguel, S.L.U., Cervezas Mahou, S.L.U., Espacio
Cervecera, S.L. and Distribución Bebidas Murcia, S.L.
Additionally, the Mahou San Miguel companies have filed consolidated VAT returns, except for Reina Fábrica de Cervezas, S.A. and Espacios Cervecera, S.L., as they are not part of the VAT group.
17.1 CURRENT TAX RECEIVABLES AND PAYABLESThe breakdown of current balances with public authorities is as follows:
2018 Thousands of euros
BALANCEPAYABLE
BALANCERECEIVABLE
VAT 2,762 12,429
Canary Islands General Tax (IGIC) 197 5Tax refunds 281 -
Personal Income Tax - 4,478
Corporate Income Tax - 5,825
Special Taxes - 24,131
Accrued social security taxes - 3,768
Other items 1,468 156
4,708 50,792
2017 Thousands of euros
BALANCEPAYABLE
BALANCERECEIVABLE
Canary Islands General Tax (IGIC) 25 66
Tax refunds 801 -VAT 2,019 10,764
Personal Income Tax - 4,136
Corporate Income Tax 2,087 32
Special Taxes - 24,033
Accrued social security taxes - 3,544
Other items 23 -
4,955 42,575
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17.2 BREAKDOWN OF THE INCOME TAX EXPENSE OF MAHOU SAN MIGUEL
Thousands of euros
2018 2017Parent Company 45,452 38,642Subsidiaries:
Cervezas Mahou, S.L. 1,000 1,480
Cervezas Reina 2000, S.A.U. (897) 36
Cervecera Independiente, S.A. (409) (428)
Taisa Logistics 1960, S.A. 678 860
Distribución Balear Almacenaje y Logística, S.A. 409 361
Alhambra Distribuidora Meridional, S.L. 262 114
Cervezas San Miguel, S.L. 1,223 554
Penibética de Cervezas y Bebidas, S.L. 50 121
Distribución Bebidas Murcia, S.L. (182) -
Cervezas Alhambra, S.L. 148 (88)
Aguas de Solán de Cabras, S.A. (550) (414)
Spain’s Best Beers Inc. 15 -
Mahou Andina, S.p.A. (768) -
Espacios Cervecera, S.L. (524) (214)
La Salve Comercializadora, S.L. (222) (131)
Cermadis, S.L.U. (146) (113)
Basque Experience Gastro, S.L. (39) -
Los Rechazos, S.L. (10) -
Aguas del Valle de la Orotava, S.L. 505 -
Nirgua Solar, S.L.U. 36 -
Consolidation adjustments (30) (26)
46,001 40,754
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17.3 RECONCILIATION OF ACCOUNTING PROFIT TO TAXABLE PROFIT The reconciliation of the accounting profit to the taxable profit for income tax purposes in 2018 and 2017 is as follows:
2018 Thousands of euros
INCREASES DECREASES TOTAL
Profit before tax 170,419Permanent differencesFines and penalties 755 - 755
Donations 3,470 - 3,470
Capitalisation reserve - (8,296) (8,296)
Exemption for double taxation - (3,744) (3,744)
Canary Islands investment reserve - (800) (800)
Goodwill 5,865 - 5,865
Consolidation adjustments 7,093 - 7,093
Others 388 (14) 374
Temporary differences Arising in the year:
Pensions 4,041 - 4,041
Provisions 16,142 - 16,142
Fixed assets 5 - 5
Arising in prior years:
Pensions - (1,250) (1,250)
Provisions - (1,407) (1,407)
Fixed assets 2,908 (10,115) (7,207)
Others 1,998 (55) 1,943
Tax base 187,403
OFFSET OF RECOGNISED TAX LOSSES (150)
2017 Thousands of euros
INCREASES DECREASES TOTAL
Profit before tax 168,557Permanent differencesFines and penalties 10 - 10
Donations 2,069 - 2,069
Capitalisation reserve - (10,503) (10,503)
Goodwill 5,865 - 5,865
Consolidation adjustments 4,385 - 4,385
Temporary differences Arising in the year:
Pensions 3,964 - 3,964
Provisions 5,304 - 5,304
Arising in prior years:
Pensions - (1,164) (1,164)
Provisions - (13,452) (13,452)
Fixed assets 3,853 (10,139) (6,286)
Others 2,016 (55) 1,961
Tax base 160,710
OFFSET OF RECOGNISED TAX LOSSES (751)
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17.4 TAX RECOGNISED IN EQUITY The breakdown of the tax recognised directly in equity is as follows:
17.5 RECONCILIATION BETWEEN ACCOUNTING PROFIT AND CORPORATE INCOME TAX EXPENSEThe reconciliation between accounting profit and corporate income tax expense in 2018 and 2017 is as follows:
2018 Thousands of euros
Profit before tax 170,419Tax charge at 25% 42,605
Effect of permanent differences 1,179
Differences due to tax rate (*) (25)
Deductions (2,937)
Adjustments to prior year income tax (227)
Other adjustments (-) 5,406
TOTAL INCOME TAX EXPENSE 46,001
(*) Corresponds to those generated by La Salve Comercializadora, S.L and Basque Experience Gastro, S.L. for maintaining their activity in the Basque Country.(-) This section mainly reflects an expense in the amount of 5,300 thousand euros as a result of settlement of the income tax audit closed in 2018 (see Note 17.9).
2018 Thousands of euros
INCREASES DECREASES TOTAL
Deferred tax liabilities:Arising in the year
Grants, donations and legacies received (32) 236 204
Revaluation of other financial assets (4) - (4)
Arising in prior years:
Revaluation of other financial assets (1,474) 102 (1,372)
TOTAL TAX RECOGNISED DIRECTLY IN EQUITY (1,510) 339 (1,172)
2017 Miles de euros
INCREASES DECREASES TOTAL
Deferred tax liabilities:Arising in the year
Grants, donations and legacies received (111) 262 151
Revaluation of other financial assets - 1,372 1,372
Arising in prior years:
Revaluation of other financial assets - 362 362
TOTAL TAX RECOGNISED DIRECTLY IN EQUITY (111) 1,996 1,885
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The deferred tax assets indicated above were recognised on the consolidated balance sheet because the Parent Company’s directors considered that, based on their best estimate
of the Group’s future earnings, it is probable that these assets will be recovered.
Among other deductions, the Deductions item reflects those corresponding to sponsorship of events of special interest.
2017 Thousands of euros
Profit before tax 168,557Tax charge at 25% 42,139
Effect of permanent differences 457
Tax credits earned in the year (1,450)
Adjustments to prior year income tax (630)
Other adjustments 238
TOTAL INCOME TAX EXPENSE 40,754
17.6 BREAKDOWN OF TOTAL INCOME TAX EXPENSE The breakdown of the income tax expense is as follows:
Thousands of euros
2018 2017Current tax:
From continuing operations 46,851 40,178
Deductions (2,937) (1,450)
Differences due to tax rate 299 -
Deferred tax:From continuing operations (3,067) 2,418
Differences due to tax rate (324) -
Prior year’s and other income tax adjustmentsDeferred tax for continuing operations (134) (850)
Current tax for continuing operations (93) 458
Other adjustments 5,406 -
TOTAL INCOME TAX EXPENSE 46,001 40,754
17.7 DEFERRED TAX ASSETS RECOGNISEDThe breakdown of the balance of this heading at the end of 2018 and 2017 is as follows:
Thousands of euros
2018 2017Temporary differences:
Pensions 12,845 12,059
Fixed assets 37,848 40,110
Provisions for contingencies and liability 12,337 8,718
Deductions pending and other 7,433 7,309
Tax loss carryforwards 6,177 5,971
Others 1,626 2,251
TOTAL DEFERRED TAX ASSETS 78,266 76,418
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At 31 December 2018, the Mahou San Miguel companies had tax loss carryforwards totalling 25,055 thousand euros (23,920 thousand in 2017), according to the following breakdown:
Likewise, as a result of the merger by absorption of its subsidiary San Miguel, Fábricas de Cerveza y Malta, S.A. in 2014, the Parent Company has unused tax assets amounting to 7,305 thousand euros, according to the following breakdown:
YEAR ARISINGAMOUNT INthousands of
euros
DEADLINE OF
APPLICATION2005 913 2020
2006 1,158 2021
2007 359 2022
2008 2,436 2023
2009 2,439 2024
7,305
Thousands of euros
YEARINCURRED
AGUAS DE SOLAN DE
CABRAS, S.A.
CERVEZAS REINA
2000, S.A.
DISTRIBUCIÓN BALEAR A.L,
S.A.
LA SALVE COMERCIALIZADORA,
S.L.
CERMADIS, S.L.U.
REST OF COMPANIES
BASQUE EXPERIENCE GASTRO, S.L.
LOS RECHAZOS,
S.L.TOTAL
2001 1,753 - - - - - - - 1,753
2002 2,556 - - - - - - - 2,556
2003 367 - - - - - - - 367
2004 58 1,214 - - - - - - 1,272
2005 40 - - - - - - - 40
2006 104 - - - - - - - 104
2007 57 - - - - - - - 57
2008 5,102 - - - - - - - 5,102
2009 4,027 - - - - - - 202(*) 4,229
2010 3,815 - - - - - - - 3,815
2011 - - 646 - - - - - 646
2012 - - 131 - - - - - 131
2013 - - 275 - - - - 76(*) 351
2015 - - - 269 1,933 - - - 2,202
2016 - - - 132 370 48 - 9(*) 550
2017 475 371 13 - 1(*) 860
2018 - - - 537 278 17 147 41 1,020
TOTAL 17,879 1,214 1,052 1,404 2,952 78 147 329 25,055(*) Please note that these tax loss carryforwards are not recognised on the consolidated balance sheet.
17.8 DEFERRED TAX LIABILITIES The breakdown of the balance of this heading at the end of 2018 and 2017 is as follows:
Thousands of euros
2018 2017Assets in which reinvestment was made
Fixed assets 2,793 3,053
Goodwill 2,004 3,113
Others 2,669 2,841
TOTAL DEFERRED TAX LIABILITIES 7,466 9,007
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17.9 YEARS OPEN TO INSPECTION In March 2013, the Parent was notified of the commencement of tax audits of income tax from 2008 to 2011, Value Added Tax, personal income tax withholdings and prepayments of employees and professionals, withholdings on income from movable capital and real estate and for non-resident income tax withholdings from 2009 to 2012, and also of the annual statement of transactions from 2010 to 2012. The tax audit of income tax for 2010 and 2011 encompassed the consolidated tax group headed in those years by Mahou S.A., formed on 1 January 2010, and the tax audit of VAT encompassed the VAT group formed on 1 January 2009, also headed by Mahou, S.A.
In 2014 the aforementioned tax audits were concluded and the assessments were signed on a contested basis for each of the items open for review.
With regard to the tax assessments signed on a contested basis relating to income tax (2008 to 2011) and personal income tax (2009 to 2012), which were settled in full in 2014 and appealed in the same year to the Central Economic-Administrative Tribunal (TEAC), on 25 May 2018 and 16 July 2018, respectively, a ruling unfavourable to the interests of the company has been handed down. In respect thereof, the company not being in agreement with same or sharing the criteria applied by the Tribunal, a proceeding was filed to pursue the corresponding economic-administrative claims before the National Appellate Court, on 17 July and 18 September 2018, respectively. At the date of preparation of these consolidated financial statements, no ruling had been handed down in relation to these claims.
With regard to the tax assessments signed on a contested basis relating to VAT (years 2009 to 2012), also settled in full in 2014 and appealed before the Central Economic-Administrative Tribunal, in July 2015 the company received notification of a ruling by the Tribunal against the company's appeal. In November 2015 the company filed an administrative appeal before the National Appellate Court, which on 4 September 2017 ruled in favour of the company. On 13 October 2017 the state attorney filed a preliminary notice of appeal with the Supreme Court. Ultimately, the state attorney’s failure to appear at the appeal resulted in return of the case to the National Appellate Court for enforcement of the ruling. On 14 September 2018, the Technical Office of the Tax Authority has repaid to the company, with the corresponding interest on arrears, the
amounts originally paid to the authority in this respect.
As regards San Miguel Fábricas de Cervezas y Malta, S.A. (company absorbed by Mahou, S.A., as indicated in Note 1), in 2013 it was notified of the commencement of tax audits of income tax for 2008 and 2009, withholdings on income from movable capital and on real estate, non-resident income tax withholdings, the annual statement of transactions and declaration of intra-Community supplies and acquisitions of goods for 2009, and of personal income tax withholdings on account of earned and professional income from 2009 to 2012. The income tax audits for 2008 and 2009 encompassed the consolidated tax group, headed in those years by San Miguel Fábricas de Cerveza y Malta, S.A., which was dissolved on 1 January 2010
The tax assessments signed on a contested basis relating to income tax (2008 and 2009) were settled in full by San Miguel Fábricas de Cerveza y Malta, S.A. in 2014 and appealed in the same year at the TEAC. On 8 March 2018 a ruling against the interests of the company was received. In this regard, on 4 May 2018, the Company filed a claim before the National Appellate Court. When these financial statements were prepared, no ruling had been handed down.
The tax audit initiated in 2014 of excise taxes on alcohol and beer for the periods 2011 to 2012 of the absorbed company San Miguel Fabricas de Cervezas y Malta, S.A. was concluded in April 2015 with the signing on a contested basis of the tax assessment. The Company settled the amount arising from the tax assessment in full in May 2015, having filed an economic-administrative appeal at the TEAC. During the preparation of these consolidated financial statements, an unfavourable ruling for the interests of the Company was received. In respect thereof, the company not being in agreement with same or sharing the criteria applied by the Tribunal, the corresponding economic-administrative claim is being prepared for presentation to the National Appellate Court.
On 17 March 2017 income tax audits commenced of the Company and subsidiaries of Tax Group 612/09 and of VAT Group 513/08, whose head is Mahou, S.A., for the years 2012 to 2015, as well as of VAT for the years 2013 to 2015. Likewise, tax audits commenced of the Company regarding withholdings and payments on account of earned income, income from movable capital and on real estate, non-resident income tax withholdings, annual statement of transactions
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18. INCOME AND EXPENSES
and declaration of intra-community supplies and acquisitions for the years 2013 to 2015. On 6 September 2018, uncontested tax assessments, with no contingencies of any kind, were signed regarding withholdings and payments on account of earned income, income from movable capital and on real estate, non-resident income tax withholdings, annual statement of transactions and declaration of intra-community supplies and acquisitions for the years 2013 to 2015. As regards the assessments relating to income tax and those relating to VAT, which were carried out in the head of Tax Group 612/09 and VAT Group 513/08, which is Mahou S.A., two assessments were signed on a contested basis, to which the corresponding pleadings were filed with the Technical Office of the Tax Agency.
At the date of preparation of these consolidated financial statements and on 31 January 2019, notification was received from the Technical Office of the AEAT confirming settlement of VAT for 2013-15, while that relating to income tax for 2012-15 is still being considered by the AEAT Technical Office and is pending resolution.
The Parent's directors and advisers consider that the final outcome of these proceedings will not give rise to any contingencies for
which provisions have not been recognised on the accompanying consolidated balance sheet at 31 December 2018.
In general and as a result of the aforementioned tax reviews that were ongoing at the date of formal presentation of the consolidated financial statements, the following years are open for review by the tax authorities for the various companies composing Mahou San Miguel:
EJERCICIOImpuesto sobre Sociedades 2016 a 2017
I.R.P.F. 2016 a 2018
I.V.A. 2016 a 2018
I.G.I.C. 2015 a 2018
Impuestos Especiales 2015 a 2018
17.10 CODE OF GOOD TAX PRACTICESMahou, S.A. is adhered to the Code of Good Tax Practices promoted by the Large Companies Forum and the Spanish State Tax Agency, and complies with the provisions thereof.
18.1 REVENUESubstantially all sales were made in Spanish territory, while our international business represents 4% of total sales in 2018 (4% of the total in 2017).
Similarly, revenue may be analysed by business unit as follows:
%
UNIT 2018 2017Beer 87.56 88.59
Water 7.43 6.38
Logistics services 5.01 5.03
100 100
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18.2 PROCUREMENTSThe breakdown of “Cost of goods held for resale sold" and “Cost of raw materials and other consumables used" in 2018 and 2017 is as follows:
Thousands of euros
2018 2017Cost of goods held for resale sold:
Purchases 31,925 32,936
Changes in inventories 605 (109)
32,530 32,827Cost of raw materials and other consumables used
Purchases 323,868 323,604
Changes in inventories 3,683 (2,813)
327,551 320,791
The breakdown of purchases made by Mahou San Miguel in 2018 and 2017, by origin, is as follows:
Thousands of euros
2018 2017Spain 332,064 298,552
EU Countries 22,374 55,813
Imports 1,355 2,175
355,793 356,540
18.3 EMPLOYEE BENEFIT COSTSThe breakdown of “Employee benefit costs” in 2018 and 2017 is as follows:
Thousands of euros
EMPLOYEE WELFARE EXPENSES: 2018 2017Employers social security costs 39,359 37,196
Pension plan contribution 8,903 8,495
Other employee benefit costs 12,503 11,235
60,765 56,926
18.4 FINANCE COSTS AND FINANCE INCOMESubstantially all the Group’s finance income and finance costs, with the exception of dividends, are calculated using the effective interest method.
18.5 RELATED PARTY TRANSACTIONSThe breakdown of the transactions with related parties in 2018 and 2017 is as follows:
Thousands of euros
ASSOCIATED COMPANIES: 2018 2017Dividends received 3,470 3,692
Provision of services 23 -
Purchases (45,116) (40,570)
Services received (177) (174)
Royalty expenses (111) (95)
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19. INFORMATION ON THE ENVIRONMENT
20. OTHER INFORMATION
18.6 COMPENSATION PAID TO THE BOARD OF DIRECTORS AND SENIOR MANAGEMENTIn 2018 and 2017, the Parent Company’s Board of Directors and senior executives received total remuneration of EUR 3,900 and EUR 3,977 thousand, respectively. All the senior executives are also members of the Board of Directors.
In 2018 and 2017, the company had 12 directors: six legal-entity directors (represented by three men and three women) and six natural-person directors (three men and three women).
No advances or loans have been granted to members of the Board of Directors. Likewise, no obligations assumed on the behalf of the board members existed at year end.
Mahou, S.A., the Parent of Mahou San Miguel, arranged a third-party civil liability insurance policy to cover the directors of the Mahou San Miguel companies for damage caused by acts or
omissions. The total premium paid in connection with this policy in 2018 amounted to 37 thousand euros (40 thousand at 31 December 2017).
18.7 INFORMATION REGARDING SITUATIONS OF CONFLICT OF INTEREST INVOLVING THE DIRECTORSPursuant to Article 229, paragraph 3, of the Spanish Limited Liability Companies Law, at the end of 2018 neither the members of the Board of Directors of the Parent nor persons related to them as defined in the Spanish Limited Liability Companies Law had notified the other members of the Board of Directors of any direct or indirect conflict with the interests of Mahou San Miguel.
Mahou San Miguel, in line with its environmental policy, has been undertaking various actions and projects related to management in this area.
Over the course of the 2018 and 2017 reporting periods, Mahou San Miguel incurred environmental costs amounting to 2,217 thousand and 2,094 thousand euros, respectively.
With respect to any possible environmental contingencies that might arise, Mahou San Miguel considers that these are sufficiently covered by the third-party civil liability insurance policies and by the provisions recognised relating to liability.
20.1 EMPLOYEESThe average number of employees at Mahou San Miguel, by professional category, was as follows:
2018 2017Executives and middle managers 528 479
Line, administrative and retail personnel 1,529 1,432
Manual workers 1,093 1,064
3,150 2,975
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At 31 December 2018 and 2017, the Group had 3,177 and 3,005 employees, respectively, the breakdown by gender being as follows:
2018 2017Men 2,473 2,376
Women 704 629
3,177 3,005
The average number of employees at the Group with a disability equal to or greater than 33% in 2018 and 2017 was as follows
2018 2017Executives and middle managers 4 3
Line, administrative and retail personnel 10 8
Manual workers 30 35
44 46
20.2 FEES PAID TO AUDITORS
In 2018, the fees for financial audit and other services provided by the auditor of the Mahou San Miguel's consolidated and separate financial statements, PricewaterhouseCoopers Auditores, S.L., and by firms in the PwC network, were as follows:
Thousands of euros
2018(PWC) 2017(PWC)Audit services 349 342
Audit services of the PwC network 32 32
Other services 15 4
Audit-related services 396 378Other services 105 106
TOTAL PROFESSIONAL SERVICES 501 484
In 2018 services rendered by other auditors amounted to 17 thousand euros.
20.3 DISCLOSURES ON THE AVERAGE PERIOD OF PAYMENT TO SUPPLIERSThe information required by Additional Provision Three, “Disclosure requirements, of Law 15/2010, of 5 July, is set out below:
31/12/2018 31/12/2017Average period of payment to suppliers 59 59
Ratio transactions paid 61 60
Ratio transactions pending payment 40 40
AMOUNT Thousands of euros
Total payments made 810,054 789,113
Total payments pending 101,988 111,541
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21. SEGMENT REPORTING
2018 Thousands of euros
BEER AND OTHER WATER
LOGISTICS SERVICES
CONSOLIDATION ADJUSTMENTS GRUPO MSM
Revenue 1,405,093 96,433 65,090 (267,988) 1,298,628
Raw materials and other consumables (542,303) (30,959) (53,563) 266,696 (360,129)
Other operating income 20,908 917 323 (8,812) 13,336
Personnel costs (230,905) (11,613) (3,423) 26 (245,915)
Other operating expenses, amortisations and others (490,076) (53,948) (5,747) 8,501 (541,270)
Operating profit 162,717 830 2,680 (1,577) 164,650Financial result 6,249 968 31 952 8,200
Results of companies accounted for using the equity method - - - (2,431) (2,431)
Profit before tax 168,966 1,798 2,711 (3,056) 170,419Corporate Income Tax (45,373) 19 (678) 31 (46,001)
Consolidated profit for the year 123,593 1,817 2,033 (3,025) 124,418Result attributed to the Parent Company 123,593 1,817 2,033 (3,753) 123,690Result attributed to Minority Interests - - - 728 728
Mahou San Miguel identifies its operating segments on the basis of internal reports on the components of Mahou San Miguel, which are reviewed, discussed and assessed regularly by the Board of Directors as the authority ultimately responsible for taking decisions and for allocating
funds to the segments and evaluating their performance.
The breakdown of the financial information by operating segment during 2018 is as follows:
“Average period of payment to suppliers” expresses the payment time or delay in payment of trade payables. This “Average period of payment to suppliers” is calculated as a quotient in which the numerator is the sum of the ratio of transactions paid multiplied by the total amount of payments, plus the ratio of outstanding payment transactions multiplied by the total amount of outstanding payments, and the denominator is the sum of the total amount of payments made, plus outstanding payments
The ratio of paid transactions is calculated as the quotient in which the numerator is the sum of the products corresponding to the amounts paid multiplied by the number of days until payment (difference between the calendar days elapsed from the end of the maximum legal payment period to effective payment of the transaction), and the denominator is the total amount paid.
Likewise, the ratio of outstanding payment transactions corresponds to the quotient in which the numerator is the sum of the products corresponding to the outstanding payments, multiplied by the number of days during which payment is outstanding (difference between the calendar days elapsed from the end of the maximum legal payment period to the closing date of the consolidated financial statements or annual accounts, as applicable), and the denominator is the total outstanding payment amount.
The maximum period of payment applicable to the Parent in 2018 was 30 days under Law 11/2013, of 26 June, (unless the requirements established therein, which enable the aforementioned maximum period of payment to be extended to 60 days, are satisfied).
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2017 Thousands of euros
BEER AND OTHER WATER LOGISTICS
SERVICESCONSOLIDATION
ADJUSTMENTS GRUPO MSM
Revenue 1,373,207 80,583 63,520 (255,152) 1,262,158
Raw materials and other consumables (534,618) (24,757) (51,991) 257,503 (353,863)
Other operating income 20,375 397 89 (8,250) 12,611
Personnel costs (217,142) (9,369) (3,447) (1,288) (231,246)
Other operating expenses, amortisations and others (471,394) (48,567) (4,752) 3,104 (521,609)
Operating profit 170,428 (1,713) 3,419 (4,083) 168,051Financial result (222) 33 20 1,886 1,717Results of companies accountedfor using the equity method - - - (1,211) (1,211)
Profit before tax 170,206 (1,680) 3,439 (3,408) 168,557Corporate Income Tax (40,354) 414 (860) 46 (40,754)
Consolidated profit for the year 129,852 (1,266) 2,579 (3,362) 127,803Result attributed to the Parent Company 129,852 (1,266) 2,579 (3,506) 127,659Result attributed to Minority Interests - - - 144 144
The breakdown of the financial information by operating segment in 2017 is as follows:
22. BUSINESS COMBINATION
23. SUBSEQUENT EVENTS
Thousands of euros
ITEM: LOS RECHAZOS, S.L. AND SUBSIDIARIES
VOLDISTRIBUCIÓN, S.L.
Fixed assets 47,072 -
Non-current assets 1,181 -
Net deferred tax assets 240 -
Current assets 10,575 13,500
Non-current liabilities (27,211) -
Current liabilities (4,819) -
Separate net assets and liabilities 27,038 13,500Fair value 18,049 13,500
Goodwill 351 -
Inversión Mahou, S.A. 18,400 13,500Minority interests 8,974 -
CHANGES TO CONSOLIDATION SCOPEIn 2018 the inclusion of Los Rechazos, S.L. and subsidiaries and of Distribución Bebidas Murcia, S.L. in the consolidated financial statements gave
rise, upon first-time consolidation, to the following impacts, after having carried out the different purchase price allocations:
At the date of preparation of these consolidated accounts, Mahou San Miguel has the intention to increase its stake in Avery Brewing until a controlling interest is obtained.
Apart from this, from year end to the date of
preparation of these consolidated financial statements, there have been no subsequent events that could have a significant effect on them.
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MAHOU, S.A. AND SUBSIDIARIESMANAGEMENT REPORT FOR THE YEAR ENDED31 DECEMBER 2018
COMPANY PERFORMANCE IN 2018 AND OUTLOOK FOR 2019In 2018, Mahou, S.A. and its subsidiaries have continued the positive trend started in 2014, supported by the diversification projects undertaken by the Company and by the sound performance of the Spanish economy, which grew by 2.5%, driving consumption and thereby contributing to the positive results of the beer and water business in Spain.
The robust health of our brands, promoted by innovation, premiumisation and generation of new experiences around our products, made it possible for our revenue to grow by 2.9% compared to 2017, to 1,299 million euros from 1,262 million euros in 2017.
Internationally, we continued to diversify our geographic risk, gaining value in the majority of countries where we are present, which enabled us to offset negative trends in certain developing markets affected by instabilities inherent to those regions.
Additionally, the procurement management strategy and the efficiency projects undertaken by the Company have led to significant savings, which have contributed to improving our margins.
All of this with the goal of leading development of the brewing sector, which has made it possible for us to start growing again in terms of profit before tax (1.1%).
The Company continued to implement its investment plan at our nine breweries and four water bottling plans, both in Spain and abroad. Likewise, it undertook important logistics optimisation projects that are making us more efficient, productive, sustainable and, therefore, more competitive.
Our business success would not be possible without our most important asset: a great team of people who breathe life into our products. Accordingly, at 31 December 2018, we surpassed 3,175 employees, consolidating our commitment to stable, quality employment, to which we contribute year after year with new hires, adding value to the Spanish economy.
We want to be even closer to our customers, and thus our diversification strategy has led us to continue increasing our weight in our shared distribution and in our water business through the acquisition of a majority interest in Aguas del Valle de la Orotava, S.L. In addition, we are aware of consumers’ growing interest in local and craft beer, which fits in perfectly with our philosophy of innovation and product quality. In 2018, we finalised our agreement with the North American craft brewer Avery Brewing, by which we became shareholders with a 40% interest, consolidating our position as the most advanced Spanish brewer in promoting the craft segment.
In 2019, we will continue following consumption trends, and we will have to be agile and disruptive to respond to market demands. We will also continue to promote any and all initiatives aimed at contributing to developing our business in collaboration with our customers in the on-trade and food sectors, especially initiatives related to innovation, premiumisation and creating a consumption and purchasing experience that adds value, thereby fulfilling our commitment to sustainability and adapting to the local reality. To do so, we will invest heavily in the market with a long-term vision and, therefore, do not expect to see an improvement over this year’s results.
The main risks facing the Company are those inherent to its activity.
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RESEARCH AND DEVELOPMENT ACTIVITIESIn continuance of its policy of prioritising research and development, the Company continues to make significant efforts to improve its industrial processes and launch new products.
TREASURY SHARESAt 31 December 2018, the Company held no treasury shares.
FINANCIAL RISK MANAGEMENTManagement of financial risk is coordinated by the Finance Department of Mahou, S.A., which has established the necessary mechanisms to control exposure to interest rate and exchange rate fluctuations, as well as credit and liquidity risks.
INFORMATION ON THE ENVIRONMENTThe Company, in line with its environmental policy, has been undertaking various actions and projects related to management in this area.
With respect to any possible environmental contingencies that might arise, Mahou San Miguel considers that these are sufficiently covered by the third-party civil liability insurance policies and by the provisions recognised relating to liability.
AVERAGE PAYMENT PERIOD TO SUPPLIERSThe average period of payment to suppliers is 59 days. Mahou, S.A. has a policy of observing the maximum period of payment established by law and has been adapting this policy to the cases where it exceeds those periods due to historic agreements. Furthermore, measures are being
taken to reduce administrative processing times and strengthen electronic and technological payment methods.
NON-FINANCIAL INFORMATION STATEMENTThe non-financial information statement is presented in a separate report, which can be found at the following URL: www.mahou-sanmiguel.com.
SUBSEQUENT EVENTSAt the date of preparation of these consolidated accounts, Mahou San Miguel has the intention to increase its stake in Avery Brewing until a controlling interest is obtained.
Apart from this, from year end to the date of preparation of these consolidated financial statements, there have been no subsequent events that could have a significant effect on them.
As in previous years, we wish to express our appreciation for the excellent work done by the Company’s entire team and for their contributions to achieving all we have achieved this year.
BOARD OF DIRECTORSMadrid, 27 March 2019
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AUDIT REPORT
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