NOTE 14 — INTANGIBLE ASSETS AND GOODWILL
14.1Intangible assets other than goodwill
Intangible assets other than goodwill as of the end of each reporting period are detailed as follows:
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12.31.2017 |
|
12.31.2016 |
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||||||||
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|
|
Gross |
|
Cumulative |
|
Net |
|
Gross |
|
Cumulative |
|
Net |
|
|
Detail |
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
|
|
|
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
|
Distribution rights (1) |
|
656,411,004 |
|
(116,387 |
) |
656,294,617 |
|
674,920,063 |
|
— |
|
674,920,063 |
|
|
Software |
|
27,595,084 |
|
(21,087,741 |
) |
6,507,343 |
|
24,954,998 |
|
(19,349,917 |
) |
5,605,081 |
|
|
Water rights |
|
511,470 |
|
(40,552 |
) |
470,918 |
|
522,748 |
|
(51,830 |
) |
470,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
684,517,558 |
|
(21,244,680 |
) |
663,272,878 |
|
700,397,809 |
|
(19,401,747 |
) |
680,996,062 |
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|
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(1) |
Correspond to the contractual rights to produce and distribute Coca-Cola products in certain parts of Argentina, Brazil, Chile and Paraguay. Distribution rights result from the valuation process at fair value of the assets and liabilities of the companies acquired in business combinations. Production and distribution contracts are renewable for periods of 5 years with Coca-Cola. The nature of the business and renewals that Coca-Cola has permanently done on these rights, allow qualifying them as indefinite contracts. These production and distribution rights, and in conjunction with the assets that are part of the cash-generating units, are annually subjected to the impairment test. Such distribution rights are composed in the following manner and are not subject to amortization: except for the Monster rights that are amortized in the term of the agreement which is 4 years. |
|
Distribution rights |
|
12.31.2017 |
|
12.31.2016 |
|
|
|
|
ThCh$ |
|
ThCh$ |
|
|
Chile (excluding Metropolitan Region, Rancagua and San Antonio) |
|
304,264,699 |
|
300,305,728 |
|
|
Brazil (Rio de Janeiro, Espirito Santo, Ribeirão Preto and the investments in Sorocaba and Leão Alimentos e Bebidas Ltda.) |
|
187,695,738 |
|
207,469,759 |
|
|
Paraguay |
|
162,825,074 |
|
165,295,516 |
|
|
Argentina (North and South) |
|
803,916 |
|
1,027,483 |
|
|
Monster distribution rights |
|
705,190 |
|
821,577 |
|
|
Total |
|
656,294,617 |
|
674,920,063 |
|
|
|
|
|
|
|
|
The movement and balances of identifiable intangible assets are detailed as follows:
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|
01-01-2017 to 12-31-2017 |
|
01-01-2016 to 12-31-2016 |
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|
Distribution |
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|
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|
|
|
|
Distribution |
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|
|
|
|
|
|
|
Details |
|
Rights |
|
Water rights |
|
Software |
|
Total |
|
Rights |
|
Water rights |
|
Software |
|
Total |
|
|
|
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
674,920,063 |
|
470,918 |
|
5,605,081 |
|
680,996,062 |
|
658,625,624 |
|
476,643 |
|
6,564,388 |
|
665,666,655 |
|
|
Additions (1) |
|
11,923,449 |
(1) |
— |
|
2,907,715 |
|
14,831,164 |
|
821,577 |
(2) |
975 |
|
2,842,314 |
|
3,664,866 |
|
|
Amortization |
|
(116.387 |
) |
— |
|
(1,842,933 |
) |
(1,959,320 |
) |
— |
|
(4,575 |
) |
(3,207,309 |
) |
(3,211,884 |
) |
|
Other increases (decreases) (3) |
|
(30.432.508 |
) |
— |
|
(162,520 |
) |
(30,595,028 |
) |
15,472,862 |
|
(2,125 |
) |
(594,312 |
) |
14,876,425 |
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|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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Total |
|
656,294,617 |
|
470,918 |
|
6,507,343 |
|
663,272,878 |
|
674,920,063 |
|
470,918 |
|
5,605,081 |
|
680,996,062 |
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(1) |
Corresponds to distribution rights paid in Argentina, Paraguay and Chile resulting from the transaction in which The Coca-Cola Company acquired the “AdeS” business described in previous notes. |
|
(2) |
During the second quarter of 2016 Embotelladora Andina S.A. began distributing of Monster products |
|
(3) |
Mainly corresponds to the foreign currency effect of converting foreign subsidiaries’ distribution rights into the presentation currency. |
14.2 Goodwill
Goodwill is considered as the excess acquisition cost over fair value of the group´s ownership interest in identifiable net assets of the acquired subsidiary at the acquisition date.
14.2.1 Measurement of recoverable goodwill value
Goodwill is annually reviewed but its recoverable value is checked during anticipated periods, if there are facts indicating a possible impairment. These signs may include new legal dispositions, changes in the economic environment affecting business operating performance indicators, movements in the competition, or the sale of a significant part of the cash-generating unit (CGU).
Management reviews business performance based on geographic segments. Goodwill is monitored by operating segment that includes different cash generating units of the operations in Chile, Brazil, Argentina and Paraguay. Impairment of distribution rights is geographically monitored at the CGU or group of cash generating units that correspond to specific territories for which Coca-Cola distribution rights have been acquired. These cash generating units or groups of cash generating units are composed by:
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· |
Regions in Chile (excluding Metropolitan Region, province of Rancagua and province of San Antonio) |
|
· |
Argentina North |
|
· |
Argentina South |
|
· |
Brazil (state of Rio de Janeiro and Espirito Santo) |
|
· |
Brazil (Ipiranga territories) |
|
· |
Brazil: (investment in the associate Sorocaba) |
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· |
Brazil: (investment in the associate Leão Alimentos S.A.) |
|
· |
Paraguay |
In order to check if goodwill has suffered an impairment loss, the company compares its book value with its recoverable value, and an impairment loss is recognized for the excess of the book value amount of the asset over its recoverable amount. To determine the recoverable values of the CGU, management considers the discounted cash flow method as the most appropriate method.
14.2.2Main assumptions used in the annual test:
a.Discount rate
The real discount rate applied in the annual test carried out in December 2017 was estimated with the Capital Asset Pricing Model, which allows estimating a discount rate according to the risk level of the CGU in the country where it operates. A nominal discount rate before taxes is used according to the following table:
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Discount Rate |
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|
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2017 |
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2016 |
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|
Argentina |
|
17.1 |
% |
20.5 |
% |
|
Chile |
|
7.2 |
% |
7.9 |
% |
|
Brazil |
|
9.6 |
% |
11.9 |
% |
|
Paraguay |
|
9.1 |
% |
10.7 |
% |
Management carries out the annual goodwill impairment test as of December 31 of each year for each CGU.
b.Other assumptions
Financial projections to determine the net value of future cash flows are modelled considering the main variables of the historical flows of the CGU, and approved budgets. In this sense, a conservative growth rate is used, which reach 3% for the soft drinks category and up to 7% for the less developed categories such as juices and water. Perpetuity growth rates between 2% and 2.5% depending on the level of per capita consumption of the products at each operation are set beyond the fifth year of projection. In this sense, the variables of greater sensitivity in these projections correspond to discount rates applied in order to determine the net present value of projected flows.
For the purpose of the impairment test, sensitivities were conducted in these critical variables according to the following:
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· |
EBITDA Margin: corresponds to an increase or decrease of up to 150 bps of the EBITDA margin of the operations. |
|
· |
Discount rate: corresponds to an increase or decrease of 150 bps in the discount rate of future cash flows |
As a result of the annual test for 2017, no impairments have been identified in any of the CGUs assuming conservative EBITDA margin projections and in line with the markets’ history. As of December 31, 2017, there have been no signs of impairment.
Despite the deterioration of the macroeconomic conditions experienced by the economies of the countries where the cash generating units develop their operations, recovery values from the impairment test were higher than the book values of assets.
14.2.4Goodwill by business segment and country
Movement in Goodwill as of December 31, 2017 and December 31, 2016 is detailed as follows:
|
Operating segment |
|
01.01.2017 |
|
Additions |
|
Disposals or |
|
Foreign currency |
|
12.31.2017 |
|
|
|
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
|
Chilean operation |
|
8,503,023 |
|
— |
|
— |
|
— |
|
8,503,023 |
|
|
Brazilian operation |
|
81,145,834 |
|
— |
|
— |
|
(7,636,754 |
) |
73,509,080 |
|
|
Argentine operation |
|
5,972,515 |
|
— |
|
— |
|
(1,299,544 |
) |
4,672,971 |
|
|
Paraguayan operation |
|
7,298,133 |
|
— |
|
— |
|
(384,990 |
) |
6,913,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
102,919,505 |
|
— |
|
— |
|
(9,321,288 |
) |
93,598,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segment |
|
01.01.2016 |
|
Additions |
|
Disposals or |
|
Foreign currency |
|
12.31.2016 |
|
|
|
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
|
Chilean operation |
|
8,503,023 |
|
— |
|
— |
|
— |
|
8,503,023 |
|
|
Brazilian operation |
|
71,960,960 |
|
— |
|
— |
|
9,184,874 |
|
81,145,834 |
|
|
Argentine operation |
|
7,720,202 |
|
— |
|
— |
|
(1,747,687 |
) |
5,972,515 |
|
|
Paraguayan operation |
|
7,651,751 |
|
— |
|
— |
|
(353,618 |
) |
7,298,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
95,835,936 |
|
— |
|
— |
|
7,083,569 |
|
102,919,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segment |
|
01.01.2015 |
|
Additions |
|
Disposals or |
|
Foreign currency |
|
12.31.2015 |
|
|
|
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
ThCh$ |
|
|
Chilean operation |
|
8,503,023 |
|
— |
|
— |
|
— |
|
8,503,023 |
|
|
Brazilian operation |
|
90,122,057 |
|
— |
|
— |
|
(18,161,097 |
) |
71,960,960 |
|
|
Argentine operation |
|
10,058,725 |
|
— |
|
— |
|
(2,338,523 |
) |
7,720,202 |
|
|
Paraguayan operation |
|
8,240,394 |
|
— |
|
— |
|
(588,643 |
) |
7,651,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
116,924,199 |
|
— |
|
— |
|
(21,088,263 |
) |
95,835,936 |
|
|
|
|
|
|
|
|
|
|
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|