SMB Annual Report 2014 - San Miguel Brewery Inc. Annual Report 2014.pdf · only the best quality beer. A brew kettle at the Polo Brewery. ... while maintaining superior product quality

2 S A N M I G U E L B R E W E RY I N C .

MESSAGE TOSTOCKHOLDERS

As we celebrate the 125th year of San Miguel Pale Pilsen and the

long history of our parent company, San Miguel Corporation (SMC),

we, San Miguel Brewery Inc. (SMB), renew our commitment to work

hard at creating a strong, dynamic company for our consumers,

customers, business partners, employees and stakeholders.

Our founder, Don Enrique Maria Barretto de Ycaza, was a man of vision. His foresight enabled him to put up La Fabrica de Cerveza de San Miguel in 1890, then the pioneer beer brewery in the Philippines and Southeast Asia. Visionary as he was, Barretto had no way of knowing that his single-product business would eventually grow to become of one of the Philippines’ largest and most respected companies and that San Miguel Beer would become the beer of choice, selling nine out of ten beers in the country.

Since then, the success of SMB has always been its enduring relationship with the Filipino. Over the years, our brand has become woven into the national story—a legacy brand and the beer for people who will go to great lengths for friendship—Kahit Kailan Kaibigan.

Although more than a century has passed, we have never lost sight of the principles that have made our business a success. Despite the ever competitive industry landscape, we exist to enrich the lives of all our stakeholders through our iconic brands.

And truly, it is the efforts of the men and women of SMB that allowed our company to bounce back from a very challenging 2013, and in 2014,

turn in a performance that we can all celebrate and be proud of as revenues amounted to P79 billion, while operating income rose to P22 billion. We met our targets and achieved excellent results while maintaining our discipline and following our proven strategy of leveraging on our great brands and distribution network, developing our brand-building programs, and pursuing selected growth opportunities.

As we move forward, we also acknowledge the relationships that we have forged over the years as these have been an integral contribution to the success of the company. Conducting the business in a way that every stakeholder benefits from our success has enabled us to broaden the breadth of our network.

The company’s aim to carry our products beyond Asia and be a leading beer manufacturer in the international market got a boost as SMB linked up with Spain’s major brewer Mahou San Miguel (MSM). This will allow both companies to tap into strategic markets where our brands can compete with other heritage brews.

Towards the end of 2014, we grabbed the opportunity to tap a market that has been expanding at a faster pace in the last five years.

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Ramon S. AngChairman of the Board

Roberto N. HuangPresident

We also acknowledge the

relationships that we have forged

over the years as these have been

an integral contribution to the

success of the company.

Our entry—or expansion, as history dictates—into the non-alcoholic beverage market will help us achieve the vision of expanding our company’s reach in the Philippine market and tap new consumers for our new brands and planned product offerings.

We are taking the right actions to drive growth in the years to come and are confident that our passion for quality products and our extensive distribution network will help us drive our success in the non-alcoholic beverage market by making sure that all our products are available anytime, anywhere.

We take very great pride in our history, at San Miguel Brewery Inc. We will never stop

growing and building on the legacy that made us a leader in the beer industry. We will forge on, remembering always what matters most to our success: nurturing friendships, relationships, and delighting our consumers with the very best beer products we can offer. We hope you’ll join us in our journey to our next 125 years.

Cheers!



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125 Years of Unmatched Quality: San Miguel Brewery brews and bottles only the best quality beer.

A brew kettle at the Polo Brewery. Acquired by the corporation in 1947, Polo became the main brewery after Aviles ceased operations in 1976.

In this undated photo, a sales team strike a pose in front of an office warehouse in Luzon.

The very first San Miguel Beer print ad.

Pale Pilsen: Truly A Great Beer advertisement

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MANAGEMENT'S DISCUSSION & ANALYSIS

Forged by 125 years of brewing excellence, San Miguel Brewery Inc.

(SMB) showed strength of character in 2014 as it recovered from the

challenging business environment in 2013.

SMB delivered stronger results in 2014 with improved financial performance attributed to volume growth, pricing strategy, efficient management of financial resources and prudent spending. Consolidated sales revenue improved by 5.3% to P79 billion. Meanwhile, operating income rose to P22.1 billion with a strong margin of 27.9%, resulting in a higher net income of P13.5 billion.

DOMESTIC OPERATIONS

In its home market, SMB asserted dominance in the beer industry while capturing a sizeable share in the broader alcoholic beverage market. With the objective of encouraging beer consumption, focus was given on demand-generation at grassroots level supported by intensified execution of defense programs to counter competition. Growth opportunities came from the country’s vibrant economy and improving demographics while reconstruction, rehabilitation and livelihood projects provided additional boost.

To strengthen the San Miguel equity, SMB conducted brand-building programs alongside consumer promos and volume-generating on-ground activities nationwide. The annual

San Miguel Oktoberfest Beer and Music Festival featured a kick-off party with the first ever beer shower in the Philippines as well as the participation of popular entertainment and sports celebrities, complemented by over 70 barangay street parties. Another signature event, the yearly National Beer Drinking Contest, was conducted by SMB with the aim of crowning the fastest beer drinkers among beer enthusiasts from all over the country.

The year 2014 highlighted the return of the San Miguel Beermen to Philippine basketball and this brought the San Miguel brand closer to the hearts and minds of Filipino beer drinkers. To reinforce San Miguel as a responsible brewer, the company also sustained its responsible drinking campaign and initiated its You Drink, We Drive program in selected bar clusters in Metro Manila.

San Miguel Pale Pilsen as our flagship brand launched a new Sarap na Nakakabilib thematic campaign on its 125th year, to further establish the brand as the standard of beer taste and a true Filipino icon. Limited edition Bilib Ako Sa’yo cans for personalized messages were made available to


In so many ways, the Philippine fiesta speaks volumes about the Filipinos’ penchant for communal gathering. And in these get-togethers, there will always be a bottle or two of San Miguel Beer.

In 1982, San Miguel mounted the first San Miguel Oktoberfest in Manila to celebrate the country’s best-loved beer. Since then, the San Miguel Oktoberfest has been one of the most-anticipated parties in the country.

While the timing of the San Miguel Oktoberfest in the Philippines hews closely to that of the Munich version, the company distinguishes its party from other events through a combination of fun, music and beer. No wonder the San Miguel Oktoberfest carved its own niche in the events scene that the Department of Tourism included it into the country’s list of official fiestas.

Now on its 33rd year, San Miguel Oktoberfest continues to find ways to generate interest in the annual event, which draws crowds upon crowds of loyal beer patrons who have contributed to the success and popularity of the different San Miguel Beer brands.

In 2014, SMB kicked off the Oktoberfest season with 12 hours of music coming from the best Filipino artists playing a diverse selection of beats. Together with the never before seen

NO OTHER FIESTA LIKE SAN MIGUEL OKTOBERFEST

support the campaign along with barangay parties for the Sarap Mag Babad summer program, consumer promos in off-premise outlets as well as beerhouse and bar tours.

Red Horse Beer remained the country’s undisputed #1 Extra Strong Beer as it bolstered its Astig equity via its new Kaya Mo Na campaign. The Pambansang Muziklaban, which culminated with Muziklaban Rakollision judging night, gathered Pinoy Rock music legends and enthusiasts alike to recognize the country’s best amateur rock band. Supporting these were Pasiklaban barangay events and other below-the-line activities.

San Mig Light strengthened its consumer relevance by harping on its Look Good and Feel Good All Night communication executed through

a thematic campaign, Bucket Nights program and Party All Night events. The new On All Night app-based loyalty program was also introduced, enabling online customer engagement for the brand.

Gold Eagle Beer’s upbeat sales was fuelled by Sama-Sama Mag-Jamming, Sama-Sama Mag-Gold Eagle Beer campaign involving Unli Jamming radio jingle, Jamming sa Taboan community events as well as Jamming sa Tindahan consumer and trade promotions that fortified the brand’s presence in Visayas and Mindanao.

San Miguel Flavored Beer continued its buoyant sales mainly due to increased outlet presence, offtake-generating programs as well

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as the advertisements and Game Tayo digital campaign which communicated San Miguel Flavored Beer as the seriously fun beer. Capitalizing on the brand’s growth momentum, the company launched six-pack carriers, canned variants and a new packaging design.

San Miguel Lifestyle Brews focused on establishing San Miguel Premium All-Malt, San Miguel Super Dry and Cerveza Negra as a line of specialty beers by highlighting their premium ingredients and numerous awards for superior quality. Visibility programs, consumer promotions, bar tours and participation in various food events supported San Miguel Lifestyle Brews as the preferred set of brands in the upscale market.

San Mig Zero has been gaining ground as it exceeded volume expectations in 2014 attributed to its Zero Bitterness campaign backed by increased product availability, trial-generating initiatives, merchandising programs in targeted outlets and consumer promos to tap the health conscious and calorie-counting individuals.

Meanwhile, the company widened its reach to consumers through the expansion of home delivery service in key cities nationwide, draft beer party pack promotions, online sales and non-traditional events aimed to maximize growth opportunities in new and emerging markets.

To further improve sourcing and distribution, the company enhanced its sales network and strengthened support to outlets and business partners. Given the unpredictable weather patterns, SMB implemented contingency plans while rehabilitating and opening sales offices to ensure the availability of its products.

On top of these, cost management initiatives were intensified to strengthen bottomline results while maintaining superior product quality. Upgrades in manufacturing equipment and processes, improvements in material sourcing and enhancements in quality control were implemented in order to increase operational efficiencies and maintain high quality standards. As a result, SMB garnered awards from various local and international bodies in recognition for its quality products, compliance to government regulations and best labor practices.

mash-ups, Oktoberfest 2014 was highlighted by the first ever beer shower in the country. Indeed, the Oktoberfest Beer and Music festival lives up to the innovations SMB has offered in their annual event featuring their brands.

In the past, the San Miguel Oktoberfest parties introduced different acts every year to keep the excitement and interest among loyal followers of our brands.

To celebrate Oktoberfest in 2008, revelers were treated to the longest beer and music party that was implemented for 120 days.

SMB mounted the country’s first 3D lights and sound show in 2010 as the best Filipino bands kept the music going through the night. A fireworks display capped off the successful run of the San Miguel Oktoberfest.

The following year, SMB built a giant pyramid that flowed with the beer, as each San Miguel Beer brand mounted an activity tent where drinkers enjoyed their beer and music genre of choice.

In 2012, Oktoberfest brought back improved brand tents and international recording artist apl.de.ap home to headline the party and became Pale Pilsen’s latest endorser.

To bring the Oktoberfest vibe closer to the people, we brought the San Miguel Oktoberfest to the barangays in 2013, holding parties almost weekly nationwide. Different bands played at different venues simultaneously.

SMB garnered awards

from various local and

international bodies in

recognition for its quality

products, compliance to

government regulations

and best labor practices.


As SMB focused on driving up beer consumption, 2014 was another milestone year for the company as it took the initial steps to expand its business in the non-alcoholic beverage category in line with its multi-beverage strategy. The move is expected to further strengthen SMB’s growth potential as it taps new sources of growth in the beverage industry while fortifying leadership in the beer business, thereby ensuring superior long-term value to the company’s stakeholders.

INTERNATIONAL OPERATIONS

San Miguel Brewing International Limited (SMBIL) continued to deliver strong financial performance, primarily driven by the volume growth of higher-margin San Miguel brands, tight cost management and enhancement of operational efficiencies. Volume of San Miguel global brands were up by 5% propelled by brand-building activities as well as trade and consumer programs. Despite experiencing a slight decline in consolidated volumes, SMBIL was able to sustain its profit growth trend for a fourth straight year to reach an 18% increase in operating income.

Thailand’s domestic volumes and profit rose in 2014 on account of increased availability, marketing campaigns and conduct of Fit & Firm and San Miguel Beer Garden events that improved awareness and higher consumption for San Miguel Pale Pilsen and San Mig Light. 2014 marked the entry of Cerveza Negra Draught in the market while San Miguel Thailand continued to build presence of Kirin Ichiban in the premium Japanese segment.

Operations in South China improved further as domestic volumes moderately increased, driven by growth of the San Miguel brands in retail chains, Shenzhen, East Guangdong and West Guangdong. Gains from increased production volumes for exports likewise contributed to the improved performance of South China.

EXPORTING BEER SINCE THE TURN OF THE CENTURY

From its early days, San Miguel Beer had always been destined to be shared with the world.

Just six years after its founding, San Miguel Beer’s superior quality fended off imported beers which competitors tried to introduce in the market. Proof of this is that San Miguel sold more than five bottles for every bottle of imported beer bought, grabbing a foothold of the fledgling beer market before the turn of the 20th century.

But a good beer is always best to be shared. As demand for beer grew steadily in the Philippines, San Miguel Beer was brought to other parts of Southeast Asia. In 1914, Manila exported San Miguel Beer to Shanghai, Hong Kong and Guam, embarking on a quest to introduce arguably the best brew in this side of the world. The international approach helped build the San Miguel brand as an iconic drink.

Since then, the company focused on exporting its brews through a network of importers and distributors. Given its global footprint in terms of sourcing raw materials and its expansive network, San Miguel Beer easily found its way into different countries around the world.

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San Miguel Brewing International Limited (SMBIL) continued

to deliver strong financial performance, primarily driven by the

volume growth of higher-margin San Miguel brands, tight cost

management and enhancement of operational efficiencies.

SAN MIGUEL TRAVELS TO EUROPE

Both companies continued their collaboration until 1983 when San Miguel Corporation divested its shareholdings.

Two years later, the companies agreed on territories with San Miguel Spain having trademark rights in Europe and selected Mediterranean countries, and San Miguel Corporation remaining the owner and authorized user of the San Miguel trademark for the rest of the world, particularly in Asia, the Americas, Africa and Australia.

San Miguel Brewery Inc. and Mahou San Miguel wrote another chapter in their shared history. In May 2014, SMB’s international arm San Miguel Brewing International Ltd. and Mahou San Miguel signed a cooperation agreement to promote their international business, working together to position San Miguel as an iconic brand worldwide and to further strengthen San Miguel’s global footprint in their respective territories.

San Miguel began its foray into the Spanish market in 1953 when top officials signed the Manila Agreement, which paved the way for the creation of a new Spanish brewery, La Segarra, S.A. The new entity was allowed to brew and sell beer under the San Miguel brand.

Upon the completion of the Lerida brewery in 1957, the company was renamed to San Miguel Fabricas de Cerveza y Malta, which became a separate company that had exclusive rights to use the San Miguel brand in Europe. Although the new company was separately operated, it remained an affiliate of SMC, with the Philippine company holding a significant minority stake in the Spanish brewer.

San Miguel likewise entered into a technical and product development assistance agreement to help the Spanish brewer in setting up the company’s first brewery in Lerida, Spain. By the 1960s, San Miguel S.A. had already begun to distribute within Europe.

Courtesy call with Mr. Ramon S. Ang by Mahou San Miguel Spain shareholders on March 6, 2015.L-R: Cecile Caroline de Ocampo (VP for SMC Mergers & Acquisitions), Roberto Huang (SMB President), Eduardo Petrossi (MSM Shareholder), Francisco Javier Lopez del Hierro (MSM Shareholder), Ramon Ang (SMC President and COO), Jose Antonio Herraiz (MSM Shareholder), Carlos Berba (SMBIL Managing Director), Alberto Toquero (MSM General Manager), Carmela Ortiz (SMBIL Business Planning Manager), Mariano Navarro (MSM CFO)


For most part of 2014, Hong Kong’s operating profit was significantly going up. The pullout of premium partner brands in the last quarter, however, affected full-year results. In order to strengthen its portfolio and to create excitement in the market, SMBHK launched Cerveza Negra Draught and Red Horse Draught as well as a new selection of premium draught brands from the US, Spain, New Zealand and UK. These product introductions were met with positive consumer and trade feedback, which should provide further opportunities in 2015.

Indonesia sustained its operating profit growth in 2014 as a result of better margins and prudent spending on fixed costs. Sales volume, on the other hand, was adversely affected by price increase implemented in early-2014 and further aggravated by market uncertainties brought about by the country’s evolving anti-alcohol regulations.

Domestic volumes in Vietnam posted double-digit growth, with higher sales of San Mig Light driven by market-wide promotions while W1nBia expansion was supported by trade incentives. However, total production volume and operating income were pulled down due to lower exports as a result of the on-going political crisis in some of its markets.

Total export volume of San Miguel brands rose in 2014 driven by double-digit expansion in UAE, Taiwan, South Korea, Qatar, Bahrain and the US as well as increases in the new markets of Australia and Africa. The launch of Cerveza Negra Draught in Korea and Taiwan also boosted volumes for the year. However, the phasing out of a private label brand pulled total export volumes down. Despite the shortfall in total export volumes, operating income grew double-digit due to improved margins as well as lower cost-to-produce as a result of its regional sourcing strategy.

AGGRESSIVE EXPANSION IN THE 1990s

Quick to realize the worldwide potential of its products, San Miguel expanded its beer business from a single market in the Philippines and began exporting beer to different parts of Asia, particularly China and Hong Kong, even before San Miguel turned 20 years old.

San Miguel’s bold and pioneering efforts in 1948 saw the rise of its first offshore brewery in Hong Kong as the British territory reeled from the ravages of World War II. In a matter of years, San Miguel managed to endear Pale Pilsen to locals that they considered it as their local brew.

Exports would soon expand to areas as diverse as Japan, Australia, Malaysia, Singapore and Saudi Arabia. Later on, San Miguel realized it could better service the demand for its beers by putting up international facilities at certain locations.

In 1987, San Miguel began brewing in Nepal through a licensing agreement with a major local brewer there. Three years later, San Miguel embarked on an aggressive internalization strategy just as the company turned 100.

San Miguel Brewing International Ltd. was established in 1991 to capitalize on the rapidly improving economies and thriving beer markets in Asia. Joint ventures were forged and breweries set up in China, Indonesia, and Vietnam, while a sales office in Taiwan was established to tap its growing draught beer market.

San Miguel sealed its dominant footprint in the Southeast Asian market with the acquisition of a brewery in Thailand in 2004 and creation of a dedicated sales organization in Cambodia.

Meanwhile, Exports operation increasingly became a major growth driver of SMB’s international business. The company’s various beer products are now made available in over 40 countries and territories worldwide, having Malaysia, Korea, Singapore, Japan, US, UAE and selected African countries as some of its major export destinations.

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The bold and authentic taste of San Miguel Pale Pilsen found a place in the hearts and minds of Filipinos. Its unique heritage is representative of a friendship between the Filipino drinker and his beer that has lasted over a hundred years.

The Filipinos’ love affair with Pale Pilsen began in 1890 when the beer was first brewed in Manila. After years of improving the formula, the brew’s distinct pale golden lager earned the reputation of being the “Pride of the Pacific” in the 1895 regional exposition in Manila. Since then, Pale Pilsen garnered various accolades, including the prestigious Monde Selection International.

Pale Pilsen was not an overnight success, as it gained competition throughout its formative years. Some produced packaging similar to the Pale Pilsen, while others tried to imitate the brew’s formula.

Pale Pilsen’s stature as the flagship brand is the amber-colored steinie bottle which makes Pale Pilsen one of the most recognizable brands in the Philippines. Though the exact date when the steinie was introduced to the market is still

being ascertained, advertisements in 1938-1939 showed that the new bottle was first sold in the market during those years.

No matter how other beers tried to put up a fight, Pale Pilsen’s taste and high quality prevailed over rival beers. One by one, competition folded up as the brand’s strength continued to grow through the years.

One of the aspects where San Miguel Pale Pilsen made its mark

into society’s consciousness is its advertisements. Screen icons Paraluman and Ric Rodrigo are among the first stars to grace the ads of San Miguel Brewery Inc.

San Miguel Pale Pilsen bottles can also be seen in movies and television shows from time to time, especially when the scene calls for a bar or a neighborhood tagayan. While some shows tend to wrap a piece of tissue around the label, the neck of Pale Pilsen’s bottle gives away the brand of the beer the actors are holding.

Indeed, Pale Pilsen is truly a satisfying beer that has a distinct aroma and full flavor. Its smooth and rich taste reminds drinkers why this classic brew is the standard of beers.

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CORPORATE SOCIAL RESPONSIBILITY

As communities move forward, long-standing partnerships with SMB shows value of building trust among people.

The strength of San Miguel Brewery Inc. comes from the people who make the company. Collaborating with our stakeholders in making our partner communities a better place has been the guiding principle of our various corporate social responsibility initiatives.

More than improving the lives and livelihood of our stakeholders, SMB always seeks to be a responsible pillar of the community. In many ways, the company is an anchor which keeps the ship where it is regardless of how strong the tides are.

We recognize that our products touch the lives of people from different walks of life. As such, our CSR programs are crafted to have the most impact on our stakeholders so they are able to flourish in their communities.

Of all the programs we support and implement, we prioritize our resources into initiatives involving the environment. SMB’s Buhayin ang Kalikasan flagship program is making headway into rejuvenating key areas where forest cover is fast thinning and water supply is slowly dwindling.

We credit the continuing success of the program with our partners from the government and the communities. The government assists SMB by identifying critical areas where our support can help make the most impact. The communities on the other hand ensure that the trees live to its fullest potential by keeping and maintaining the target areas.

Apart from our environmental thrust, SMB uplifts the lives of our partner communities through a combination of projects that forms part of the company’s social development framework. Implementing simultaneous projects in the sectors of education, livelihood, and health, the entire program equips beneficiaries with the necessary knowledge and skills to improve their way of life.

Our support comes in different forms depending on the needs of our partner communities. As we respond during calamities by providing immediate relief assistance, we also strive to go beyond the goods by assessing and implementing projects in the long-term to ensure that the beneficiaries are able to sustain their lives on their own.

It is through our partnership forged by trust and time that SMB and its stakeholders work together harmoniously moving forward in the next years.


She was silent as she struggled to tie the outrigger of her banca, a small fishing boat that would soon be hers.

Remedios Enero, or Nang Remy, was the only woman in the group of fisher folk that arrived in San Remegio, Cebu to receive the fishing boats donated by SMB. The program, anchored on stewardship, entrusted boats to families affected by Super Typhoon Yolanda so that they can start again providing for their families.

After Yolanda’s fury, Nang Remy’s house had been badly damaged and her family’s fishing boat was shattered by the strong waves. Left nothing but hope, she walked along the shore to pick up debris that could still be sold. She would often look out to the sea—an undeniable longing to go back to her livelihood.

At 58, Nang Remy displays the strength of a 20-year-old. At dawn, she goes out to dive for shells when the sea is nothing but a black rolling mass. She can hold her breath long enough to dig the shells on the seabed, sometimes staying underwater even longer when she has to.

“I would swim to the sea at three until six in the morning. I would dive to get some shellfish. Sometimes, I get a lot and able to take home P500. On other days, I earn only P100. The buyers would always ask for a bargain and I would just agree just to get money for food,” Nang Remy shared.

Asked why she chose this livelihood, she said: “The sea is my friend. Since I was a child, this has already been our livelihood. My father would bring me to our small fishpond to help him. When I got married, my husband and I also bought a fishpond but it got destroyed by a strong storm.”

Nang Remy has always believed in rising above the tide. “We should not allow ourselves to weaken. We have to strive as much as we can,” she said.

Just celebrated her birthday that month, Nang Remy said the new banca from SMB is now her most prized gift. “It is a good program. Aside from giving us livelihood, we are also given a chance to take care of the sea.”

Nang Remy got even more surprised when she discovered that her banca goes with a generator set to power her boat, and some fishing implements she could use.

Carmen Cahegas looked at her toes. She cuts her nails straight now, following doctor’s orders to be careful with nail-clipping as she may wound her feet. Nang Carmen, a diabetic, is one of the 68 patients now enjoying the services of SMB’s community clinic in Mandaue City, which opened in 2013.

When she first learned of the services being offered by the clinic, she thought it was just one of those medical missions—a temporary, day-long initiative by big companies that they never see again.

“I worked as a seamstress,” she said in Cebuano, “but because I could hardly see my work, I had to stop. I thought it was only because I was aging,” she said.

“Then in 2008 I had a mild stroke. I was walking and I suddenly got weak. I was rushed to the hospital and it was after that episode I learned I had diabetes,” she recalled.

Daughter of the Sea

Complete wellness of communities

With her new fishing boat and tools, Nang Remy can go back to what she does best: fishing in the deep sea. SMB donated boats to a community in northern Cebu, which had been battered by Super Typhoon Yolanda in 2013.

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The community clinic caters to indigent patients of SMB’s host community Barangay Tipolo in Cebu, and other nearby villages where Nang Carmen is from. SMB has three other community clinics in Valenzuela City, San Fernando City in Pampanga, and Sta. Cruz in Davao del Sur. A fifth clinic in Bacolod City is in the pipeline. Identified beneficiaries get free consultations and medicines for diabetes and hypertension, among other illnesses.

In February 2014, the community clinic marked its first year anniversary with a lecture on diabetes by resident physicians and representatives from the National Nutrition Council. They talked about proper nutrition for people with diabetes.

“I am glad to note that my patients have shown improved health. My greatest reward is seeing them improve every day,” resident physician Dr. Joselito Te said.

Leonora Saplad, a diabetic for almost 20 years, used to struggle with her medication and periodic visits to the doctor. She and her husband rely on odd jobs to support their family. Sometimes, she has to forgo buying her medicines so she could buy food for the family.

“Before, I thought it was additional expense for us,” Leonora said of laboratory tests which Dr. Te strictly requires of his patients. “I am very happy with our doctor because he is very concerned. We have seen how we have progressed.”

Like Leonora, Lydia Tanguan said her family’s needs also come first over the medicines of her husband Mario, a stroke survivor. As the breadwinner, Mario drives a cab to support Lydia and their four children. She helps her husband by taking side jobs, doing manicures and pedicures to augment family income.

“We cannot regularly buy his medications,” said Lydia, who came to the clinic’s anniversary lecture. “So when SMB gave a clinic to our barangay to support indigent families like us, it was an answered prayer.”

“We are so happy with this program of San Miguel,” Nang Carmen said. “We cannot support regularly our medication on our own. But because of this program, our health is cared for.”

In February 2014, Mandaue Brewery celebrated the first year anniversary of the community clinic by holding a lecture on diabetes management. Resident physician Dr. Joselito Te discussed on how to take care of a diabetic patient at home. Patients and SMB employees shared stories on how the community clinic made an impact in their lives.


HONG KONG

Advocating against hunger

Employees of SMB Hong Kong (SMBHK) took on the challenge of working as beer ambassadors at the much-awaited San Miguel BeerFest and donated HK$100 to charity for each of the staff member’s shift.

Each year, crowds of tourists, locals, and athletes party at the Victoria Harbor and celebrate with overflowing San Miguel Beer, food, dragon boat-themed activities, and the best music lineup.

PT Delta (PTD), our subsidiary in Indonesia, commits itself to the improvement of the well-being of its neighboring communities surrounding its manufacturing facility. To do so, it conducts an annual medical mission, designed to assess and address pressing medical problems of people in the different communities.

Taiwanese rock legend Wu Bai and China Blue headlined the BeerFest, and they were joined by the biggest names in the Hong Kong rock scene like Sugar Club, Kolor and Red Noon.

When all of the shouting and thumping were over, employees gathered HK$11,100 from the event. They picked Food Angel as their charity—a food rescue and food assistance program launched by Bo Charity Foundation.

With hunger a growing issue in Hong Kong, the Food Angel program tries to address the problem by “rescuing edible surplus food from different sectors of the food industry that would otherwise be eventually disposed of.”

The recovered food would undergo strict food safety protocols before it is being prepared into nutritious hot meals, which are served to underprivileged communities in the territory.

As of March last year, Food Angel recovered nearly 500 tons of food, which they turned into over 800,000 hot meal boxes and nearly 150,000 nonperishable food packs.

INDONESIA

Taking care of host communitiesThree villages near the facilities are among the communities who benefit from the annual medical mission. These villages are in need of medical attention as about three-fourths of the population is mired in poverty.

Last year, some 600 residents underwent health screening to assess their wellness and were provided medicines to address minor concerns such as colds, cough, hypertension, or skin diseases.

For serious ailments discovered during the medical mission, patients are immediately asked to seek consultation with specialists to better assess their condition and provide treatment.

Milk is also provided to over 320 children during the medical mission.

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Ramon S. AngChairman


Ferdinand K. Constantino

Keisuke Nishimura

Alonzo Q. AnchetaIndependent Director

Carmelo L. SantiagoIndependent Director

Carlos Antonio M. Berba

Virgilio S. Jacinto

Teruyuki Daino

Takashi Hayashi

Toshiya Miyoshi*

BOARD OF DIRECTORS

* replaced Hajime Nakajima on March 27, 2015


Ramon S. Ang, 61, Filipino, has served as Chairman of the Company since July 26, 2007 and is the Chairman of the Company’s Executive Committee. He also holds, among others, the following positions: Vice Chairman, President and Chief Operating Officer of San Miguel Corporation (“SMC”); Director, President and Chief Executive Officer of Petron Corporation (“Petron”) and Top Frontier Investment Holdings, Inc. (“Top Frontier”); Chairman and Chief Executive Officer of SMC Global Power Holdings Corp. (“SMC Power”); Chairman of Sea Refinery Corporation, Petron Malaysia Refining & Marketing Berhad (Malaysia), San Miguel Foods, Inc. (“SMFI”), San Miguel Yamamura Packaging Corporation (“SMYPC”), Anchor Insurance Brokerage Corporation (“AIBC”), San Miguel Brewery Hong Kong Limited (“SMBHK”) (Hong Kong) and San Miguel Properties, Inc.; and Vice Chairman of Ginebra San Miguel, Inc. (“GSMI”) and San Miguel Pure Foods Company, Inc. (“SMPFC”). He is also Chairman of Liberty Telecoms Holdings Inc., Philippine Diamond Hotel & Resort, Inc., Philippine Oriental Realty Development, Inc., and Atea Tierra Corporation. Mr. Ang has held directorships in various subsidiaries of SMC during the last five (5) years and was previously the Company’s President (2007- 2009). He was also a director/officer in other publicly listed companies outside of the San Miguel Group in the last three (3) years. Mr. Ang holds a Bachelor’s Degree in Mechanical Engineering from Far Eastern University.

Roberto N. Huang, 66, Filipino, has served as Director since October 8, 2007 and President of the Company since April 30, 2009. He is also a Member of the Company’s Executive Committee; Director of San Miguel Brewing International Limited (“SMBIL”) and SMBHK; and Chairman and President of Iconic Beverages, Inc. (“IBI”), Brewery Properties Inc. (“BPI”) and Brewery Landholdings, Inc. (“BLI”). He also served as General Manager of the Company (2007-2009). Mr. Huang holds a Bachelor’s Degree in Mechanical Engineering from Mapua Institute of Technology and completed academic requirements for a Master’s Degree in Business Administration from De La Salle University.

Ferdinand K. Constantino, 63, Filipino, has served as Director of the Company since July 26, 2007 and is the Chairman of the Company’s Executive Compensation Committee and a Member of its Audit Committee. He also holds, among others, the following positions: Director, Senior Vice President, Chief Finance Officer and Treasurer of SMC; President of AIBC; Director and Vice Chairman of SMC Power; and Director of SMYPC, Top Frontier, GSMI and SMFI. He is also a former Chief Finance Officer and Treasurer of the Company (2007-2009). Mr. Constantino has held directorships in various subsidiaries of SMC during the last five (5) years and was also a director in other publicly listed companies outside of the San Miguel Group in the last three (3) years. Mr. Constantino holds a Bachelor’s Degree in Economics from the University of the Philippines and completed academic requirements for a Master’s Degree in Economics from the University of the Philippines.

Keisuke Nishimura, 58, Japanese, has served as Director of the Company since April 30, 2009. He is the Representative Director of the Board and Senior Executive Officer of Kirin Holdings Company, Limited (“Kirin”). He was previously the Director of China Resources Kirin Beverages (Greater China) Company, Limited; Executive Officer and General Manager, Strategy Planning Department of Kirin; the Company’s Executive Vice President (2009-2011); and Director of SMBHK (2010-2011) and SMBIL (2010-2011). Mr. Nishimura holds a Bachelor’s Degree in Business from Yokohoma National University and a Master’s Degree in Business from the University of Washington.

Carmelo L. Santiago, 72, Filipino, has served as Independent Director of the Company since February 25, 2010. He was also an Independent Director of the Company from October 8, 2007 to April 30, 2009. He is the Chairman of the Company’s Audit Committee and a Member of its Executive Committee, Executive Compensation Committee and Governance and Nomination Committee. He is currently an Independent Director of SMPFC and Liberty Telecoms Holdings Inc.; an Independent Non-executive Director of SMBHK; and Director of Terbo Concept, Inc. He was a former independent director of SMC (2008-2013), GSMI (2010-2012), and AIBC. Mr. Santiago is the founder and owner of several branches of Melo’s Restaurant and founder of Wagyu Restaurant. Mr. Santiago holds a Bachelor’s Degree in Business Administration from University of the East.

212 0 1 4 A N N U A L R E P O R T

Alonzo Q. Ancheta, 82, Filipino, has served as an Independent Director of the Company since April 30, 2009 and is the Chairman of the Company’s Governance and Nomination Committee and a Member of its Audit Committee. Atty. Ancheta is a Director of Philippine Tobacco Flue-Curing and Redrying Corporation; President of Zobella & Co. (A.Q. Ancheta and Partners), Ogilvy & Mather (Philippines), Inc. and Growe Investments Ltd.; Member of the Board of Trustees and Corporate Secretary of St. Luke’s Medical Center; Council Adviser of the Intellectual Property Association of the Philippines; and Philippine National Committee member and Vice Chair of the ASEAN Law Association. He was the Senior Vice President (2000-2006) and President (2006-2009) of the Asian Patent Attorneys Association. Atty. Ancheta holds a Bachelor of Arts Degree and Bachelor of Laws Degree from the University of Manila.

Carlos Antonio M. Berba, 50, Filipino, has served as Director of the Company since August 10, 2010. He is the Managing Director of SMBIL since January 1, 2008. He is also currently Deputy Chairman of SMBHK, a Commissioner of PT Delta Djarkarta Tbk (Indonesia) (“PTD”); and Chairman/Director of other subsidiaries of SMBIL. Mr. Berba holds a Bachelor’s Degree in Electrical Engineering from the University of the Philippines, a Master’s Degree in Japanese Business Studies from the Japan America Institute of Management Science & Chaminade University of Honolulu, and a Master’s Degree in Business Administration from the Wharton School, University of Pennsylvania.

Virgilio S. Jacinto, 58, Filipino, has served as Director of the Company since October 14, 2010 and is a Member of the Audit Committee and the Governance and Nomination Committee. He is the Corporate Secretary, Compliance Officer, Senior Vice-President and General Counsel of SMC; Director of Petron; Corporate Secretary and Compliance Officer of Top Frontier and GSMI. He was formerly the Vice President and First Deputy General Counsel of SMC (2006-2010). He was Director and Corporate Secretary of United Coconut Planters Bank; Partner at Villareal Law Offices and Associate at SyCip Salazar Feliciano & Hernandez Law Office. Atty. Jacinto is an associate professor at the University of the Philippines College of Law. He has held various directorships in various subsidiaries of SMC in the last five (5) years. Atty. Jacinto holds a Bachelor’s Degree in Philosophy and Bachelor of Laws Degree from the University of the Philippines and a Master’s Degree in Law from Harvard University.

Teruyuki Daino, 55, Japanese, has served as Director of the Company since April 12, 2011 and as Executive Vice President since October 11, 2011. He is a member of the Executive Committee and Executive Compensation Committee; and a Director of SMBHK, SMBIL, IBI, BPI, BLI, San Miguel Beer (Thailand) Limited (“SMBTL”) and San Miguel Holdings (Thailand) Ltd. He was previously the Executive Financial Advisor of the Company (April-October 2011) and served in the Kirin group of companies in various capacities. Mr. Daino holds a Bachelor’s Degree in Economics from Hitotsubashi University and a Master’s Degree in Business Administration from the Massachusetts Institute of Technology.

Takashi Hayashi, 48, Japanese, has served as Director of the Company and Executive Financial Advisor since May 27, 2014. He is a member of the Executive Committee and Audit Committee; and a Director of SMBHK, SMBIL and SMBTL. He also served in the Kirin group of companies in various capacities. Mr. Hayashi graduated from Keio University with a Bachelor’s Degree in Economics and is a Chartered Member of the Securities Analysts Association of Japan.

Toshiya Miyoshi*, 56, Japanese, has served as Director of the Company since March 27, 2015. He is currently the Director and Senior Executive Officer of Kirin, and Senior Executive Officer of Kirin Company, Ltd. He was the Senior Executive Officer, Director of Group Personnel and General Affairs Department of Kirin and Senior Executive Officer, General Manager of Personnel Department of Kirin Company, Ltd. He also served the Kirin group in various capacities. Mr. Miyoshi holds a Bachelor’s degree in Commerce from Waseda University, Japan.

* replaced Hajime Nakajima on March 27, 2015


San Miguel Brewery Inc. recognizes the importance of good governance in generating and sustaining shareholder value and safeguarding shareholders’ rights and interests. It remains committed to conducting its business affairs in a fair and transparent manner and in maintaining the highest ethical standards in all its business dealings.

The corporate governance practices observed by the Company are described in this section.

SHAREHOLDER AND

STAKEHOLDER RELATIONS

The Company adheres to corporate governance practices which promote shareholder and stakeholder rights in order to establish long-term and mutually-beneficial relationships.

Voting and Shareholder MeetingEach share in the name of the shareholder entitles such shareholder to one vote which may be exercised in person or by proxy at shareholders’ meetings, including the Annual Stockholders’ Meeting (ASM). The agenda, date, time and place of the ASM meeting, and the deadlines for the submission and validation of proxies are disclosed more than one month prior to the ASM. In 2014, the Definitive Information Statement and Notices of the 2014 ASM were sent to the stockholders on April 28, 2014.

Shareholders have the right to elect, remove and replace directors as well as vote on certain corporate acts in accordance with the Corporation Code. Shareholders vote viva voce, unless a motion to cast votes by ballot is made and duly seconded, and approved by the majority of the shareholders present or represented at the meeting as the method of voting.

Information and Investor RelationsThe Company keeps the investing community and its stakeholders informed of its financials and performance, as well as leadership and governance, through timely disclosures, announcements and periodic reports filed with the Securities and Exchange Commission (SEC) and Philippine Dealing & Exchange Corp. (PDEx), regular quarterly briefings, ASMs, investor conferences, website, emails and telephone calls. The Company, through the Investor Relations of the San Miguel Group of Companies, also holds regular briefings and meetings with investment and financial analysts.

Dividends Under the dividend policy of the Company, common shareholders will receive annual cash dividends based on prior period’s recurring net income at such amount to be determined by the Board of Directors after taking into consideration the implementation of business plans, debt service requirements, operating expenses, budgets, funding for new investments, acquisitions, appropriate reserves and working capital. The Company paid out cash dividends of P0.56 per share in 2014.

Pre-emptive rightsUnder the Company’s amended articles of incorporation, shareholders may not subscribe to all issues of shares of the Company.

Suppliers, Creditors and CustomersThe Company recognizes the importance of its suppliers, creditors and customers in the creation and growth of value, stability and long-term competitiveness of its business. The Company honors its obligations to its suppliers and creditors, including timely payment in accordance with

CORPORATE GOVERNANCE

232 0 1 4 A N N U A L R E P O R T

agreements. The Company is committed to delivering products and services which delight and inspire loyalty in its customers.

DISCLOSURE AND TRANSPARENCY

San Miguel Brewery Inc. observes a high level of corporate disclosure and transparency regarding the Company’s financial condition and state of corporate governance on a regular basis.

Ownership Structure The top 20 common shareholders of the Company, including the shareholdings of certain record and beneficial owners who own more than 5% of its capital stock, its directors and key officers, are disclosed annually in its Definitive Information Statement distributed to shareholders prior to the ASM.

Financial ReportingRegular updates on operating and financial information are provided to the investing community and stakeholders through adequate and timely disclosures filed with the SEC and the PDEx.

Full-year audited and quarterly interim financial statements are disclosed and submitted to the SEC and PDEx in accordance with prescribed rules. These financial statements conform to the Philippine Accounting Standards and Philippine Financial Reporting Standards, which are all in compliance with the International Accounting Standards. The financial results are presented to financial and investment analysts through a quarterly analysts’ briefing. The full year results are also distributed to the shareholders prior to the ASM.

In addition to compliance with structural reportorial requirements, the Company discloses, in a timely manner, market-sensitive information, such as dividend declarations, joint ventures and acquisitions, sale and divestment of significant assets that affect the share price performance. These disclosures and other up-to-date and relevant information on the Company may be found at its website, www.sanmiguelbrewery.com.ph.

Annual Corporate Governance ReportThe Company’s Annual Corporate Governance Report (ACGR) contains comprehensive information, among others, on the Company’s board composition, disclosure policies, policies on code of conduct and ethics, related party transactions, risk management system, remuneration process, policies relating to shareholder and stakeholder rights, and investor relations programs. It is posted on the Company’s website and is updated in accordance with the structured reports and letters of advice submitted to the SEC from time to time.

The SEC has considered the Company to be a listed company for purposes of compliance with the SEC ACGR rules, as the Company’s bonds are listed on the PDEx. The SEC required the Company to comply with ACGR guidelines for as long as its bond issues are listed in the PDEx.

ACCOUNTABILITY AND AUDIT

The Audit Committee provides oversight to external and internal auditors.

External Auditor The accounting firm of R.G. Manabat & Co. served as the Company’s external auditors for the fiscal years 2014 and 2013. The external auditor is selected and appointed by the shareholders upon the recommendation of the Board after consultations with the Audit Committee, and rotated every five years or earlier in accordance with SEC regulations.

Audit Fees amounting to P6.68 million in 2014 and 2013 and Other Fees amounting to P3.0 million in 2014 were paid by the Company to the external auditor. Other Fees were for services rendered in connection with the Company’s issuance of its P15 billion fixed rate bonds.

The external auditor facilitates an environment of good corporate governance as reflected in the Company’s financial records and reports, through the conduct of an independent annual audit on the Company’s business and rendition of an objective opinion on the reasonableness of such records and


reports. They also attend the ASM and respond to appropriate questions during the meeting. They also have the opportunity to make a statement if they so desire. In instances when the external auditor suspects fraud or error during its conduct of audit, they are required to disclose and express their findings on the matter.

Internal AuditInternal audit is carried out by an independent internal audit group which helps the organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. The internal audit group of the Company functionally reports directly to the Audit Committee. The internal audit group of the Company is responsible for identifying and evaluating significant risk exposures and contributes to the improvement of risk management and control systems by assessing the adequacy and effectiveness of controls covering the organization’s governance, operations and information systems. By evaluating their effectiveness and efficiency, and by promoting continuous improvement, the group maintains effective controls of their responsibilities and functions.

BOARD OF DIRECTORS

The Company’s Board of Directors is at the core of the Company’s corporate governance framework and practice. It is the Board’s responsibility to foster the long-term success of the Company and secure its sustained competitiveness in a manner consistent with its fiduciary responsibility, exercised in the best interest of the Company, its shareholders, and other stakeholders. It exercises oversight of the business, affairs and integrity of the Company; and determines the Company’s mission, long-term strategy and objectives.

The Board is likewise responsible for the review and approval of the Company’s financial statements. The directors consider that the Company’s financial

statements have been prepared in conformity with the Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and reasonable, informed and prudent judgment of management and the Board with an appropriate consideration to materiality.

CompositionThe Board consists of eleven members, each elected by the stockholders with voting rights during the ASM. The Board members hold office for one year until successors are duly elected and qualified in accordance with the amended by-laws of the Company, its Amended Manual on Corporate Governance (Manual) and applicable rules and regulations. The broad range of skills, expertise and experience of the directors in the fields of business, finance, accounting and law ensure comprehensive evaluation of, and sound judgment on, matters relevant to the Company’s businesses and related interests.

Two of the directors, Atty. Alonzo Q. Ancheta and Mr. Carmelo L. Santiago sit as independent and non-executive directors. The Company defines an independent director as a director who, apart from his fees and shareholdings, has no business or relationship with the Company which could, or could reasonably be perceived to, materially interfere with the exercise of his independent judgment in carrying out his responsibilities as a director. The independent directors are nominated and elected in accordance with the rules of the SEC. Pursuant to such rules, the independent directors issue a certification confirming their independence at the time of their election and/or re-election.

The Chairman and the PresidentThe Chairman of the Board is Mr. Ramon S. Ang, a non-executive director, while Mr. Roberto N. Huang holds the position of President. These positions are held by separate individuals with their respective roles clearly defined to ensure independence, accountability and responsibility in the discharge of their duties.


and such other powers as may be specifically limited by the Board or by law.

The Executive Committee held one meeting in 2014 to approve the alignment of certain negative covenants of its outstanding bonds to allow the Company to engage in the business of manufacture, distribution, and sale of all kinds of beverage products.

Governance and Nomination Committee The Governance and Nomination Committee is currently composed of three voting directors – Atty. Alonzo Q. Ancheta, an independent director and the Chairman of the Committee, Atty. Virgilio S. Jacinto and Mr. Carmelo L. Santiago (also an independent director), and two non-voting members – Ms. Mercy Marie J. L. Amador, the Company’s Chief Finance Officer and Treasurer, and Ms. Lynn B. Santos, the Company’s Assistant Vice President, Business Planning and Quality and Productivity Management.

The Governance and Nomination Committee is responsible for making recommendations to the Board of Directors on matters relating to the directors’ appointment, election and succession, with the view of appointing individuals to the Board of Directors with the relevant experience and capabilities to maintain and improve the competitiveness of the Company and increase its value. The Committee screens and shortlists candidates for Board directorship in accordance with the qualifications and disqualifications for directors set out in the Company’s Manual, the amended articles of incorporation and amended by-laws of the Company and applicable laws, rules and regulations.

The Governance and Nomination Committee also assists the Board in its oversight responsibilities in the development and implementation of the corporate governance principles, policies and systems of the Company, and in the establishment and implementation of mechanisms for the assessment and improvement of the performance

of the Board of Directors, its members and the Board Committees, and evaluation of the Company’s compliance with the Manual.

The Committee held three meetings in 2014 in which the Committee discussed and deliberated on, among others, the qualification of the nominees for election to the Board both to replace existing directors and for election at the 2014 ASM. The Committee also approved amendments to the Manual to update the same with new SEC requirements.

Executive Compensation Committee Three directors currently comprise the Executive Compensation Committee: Mr. Ferdinand K. Constantino, Mr. Teruyuki Daino and Mr. Carmelo L. Santiago, an independent director. Mr. Ferdinand K. Constantino is Chairman of the Committee. The Executive Compensation Committee advises and assists the Board in the establishment of formal and transparent policies and practices on directors and executive remuneration, succession planning, promotion and career advancement, and provides oversight over remuneration of directors, senior management and other key personnel to ensure that the Company’s compensation scheme fairly and responsibly reward directors and executives based on their performance and the performance of the Company, and remain competitive to attract and retain directors and officers who are needed to run the Company successfully.

The Committee held two meetings in 2014 to review, discuss and endorse for Board approval Management’s proposed promotions to officership.

Audit Committee The Audit Committee is currently composed of five members with two independent directors as members, Mr. Carmelo L. Santiago, who also sits as Committee Chairman, and Atty. Alonzo Q. Ancheta. The other members are Mr. Ferdinand K. Constantino, Atty. Virgilio S. Jacinto, and Mr. Takashi Hayashi.


MANAGEMENT

Management is primarily responsible for the day-to-day operations and business of the Company. The annual compensation of the President and the senior key executives of the Company are set out in the Definitive Information Statement distributed to shareholders.

HUMAN RESOURCES

The Company continues to support and dedicate resources for the training and development of its human resources. As such, career advancement and development opportunities are provided by the Company through numerous training programs and seminars.

The Company ensures that it provides its employees with a safe and healthy work environment. The Company has an in-house clinic at its main office to take care of the employees’ medical needs. Each brewery also has its own clinic. It is mandatory for employees to undergo an annual medical examination. Further, the Company has also initiated activities centered on the safety, health and welfare of its employees.

The Company’s permanent employees also enjoy a funded, noncontributory retirement plan. Benefits and privileges accruing to all regular employees are similarly discussed in the Employee Handbook. The Employee Handbook, which is provided to each employee, also contains the policies and guidelines for the duties and responsibilities of an employee of San Miguel Brewery Inc.

Through internal newsletters and Company e-mails all facilitated by the Human Resources and the Business Affairs and Communications Department of the Company, employees are updated on material developments within the organization.

POLICIES

Securities Dealing The Company has adopted a policy which regulates the acquisition and disposal of Company shares by its directors, officers and employees, and the use and disclosure of material non-public information by persons who have knowledge or are in possession thereof.

Whistleblowing PolicyProcedures were also established for the communication and investigation of concerns regarding the Company’s accounting, internal accounting controls, auditing, and financial reporting matters to the Audit Committee under its whistleblowing policy.

These policies are available at the Company’s website.

Code of ConductThe Company also adopted a Code of Ethics that sets out the fundamental standards of conduct and values consistent with the principles of good governance and business practices that shall guide and define the actions and decisions of the directors, officers and employees of the Company.

COMPLIANCE MONITORING

Atty. Rosabel Socorro T. Balan is the Company’s Compliance Officer. The Compliance Officer is responsible for monitoring compliance by the Company with the provisions and requirements of its Manual and ensuring adherence to corporate principles and best practices. The Compliance Officer holds the position of Vice President and has direct reporting responsibilities to the Chairman of the Board.

292 0 1 4 A N N U A L R E P O R T


Teruyuki DainoExecutive Vice President

Mercy Marie Jacqueline L. AmadorVP and Chief Finance Officer and Treasurer

Takashi Hayashi*Executive Financial Advisor

Minerva Lourdes B. BiboniaSVP and Marketing Manager

Atty. Rosabel Socorro T. BalanVP, General Counsel, Corporate Secretary and Compliance Officer

Debbie D. NamalataVP and National Sales Manager

Josefino C. CruzManufacturing Manager

Rebecca S. FloresAVP and Brewing Technical Group Manager

Rene T. CenizaAVP and National Logistics Manager

Enrico E. ReyesAVP and Human Resources and Business Affairs and Communications Head

Feliciano M. MadlansacayAVP and Finance Manager for Philippine Operations

Rodney Ralph D. HolmesAVP and Financial Planning and Analysis Manager

Lynn B. SantosAVP and Business Planning and Quality andProductivity Management Manager

Alma Leonora C. JaveniaAVP and Information Systems Management Manager

Charity Anne A. ChiongAVP and Business Procurement Group Manager

Carlos Antonio M. BerbaSMBIL Managing Director

Takeshi WadaSMBIL Executive Vice President

Hercila M. ReyesVP and SMBIL Chief Finance Officer

Jesus J. Bitanga, Jr.VP and SMBIL International Sales Manager

Frederick Gerard S. MartelinoVP and SMBIL Export Development Manager

Ernest John F. EstreraVP and SMBIL Marketing Manager

Daniel B. TrajanoAVP and SMBIL Logistics Manager

Daniel T. de CastroAVP and SMBIL Human Resources Manager

Carmela R. OrtizAVP and SMBIL Business Planning Manager

Clifford T. QueAVP and SMBIL Information SystemsManagement Manager

OPERATIONSCOMMITTEE

DOMESTIC OPERATIONS INTERNATIONAL OPERATIONS

* replaced Shobu Nishitani in May, 2014


STATEMENT OF MANAGEMENT’S RESPONSIBILITYFOR FINANCIAL STATEMENTS

The management of San Miguel Brewery Inc. is responsible for the preparation and fair presentation of the consolidated financial statements as at December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012, including the additional components attached therein, in accordance with the prescribed financial reporting framework indicated therein. This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

The Board of Directors reviews and approves the consolidated financial statements and submits the same to the stockholders.

R. G. Manabat & Co., the independent auditors appointed by the stockholders, has audited the consolidated financial statements of the company in accordance with Philippine Standards on Auditing, and in its report to the stockholders has expressed its opinion on the fairness of presentation upon completion of such audit.

Dated as of March 11, 2015.



Mercy Marie J. L. AmadorChief Finance Officer and Treasurer

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312 0 1 4 A N N U A L R E P O R T

REPORT OF THE AUDIT COMMITTEE

The Audit Committee assists the Board of Directors in its corporate governance and oversight responsibilities in relation to financial reporting, risk management, internal controls and internal and external audit processes and methodologies. In fulfillment of these responsibilities, the Audit Committee performed the following in 2014:

• recommended to the Board of Directors the re-appointment of R.G. Manabat & Co. as external auditors of the Company for 2014;

• reviewed and approved the terms of engagement of the external auditors, including the audit, audit-related and any non-audit services provided by the external auditors to the Company and the fees for such services, and ensured that the same did not impair the external auditors’ independence and objectivity;

• reviewed and approved the scope of the audit and audit programs of the internal and external auditors, and have discussed the results of their audit processes and their findings and assessment of the Company’s internal controls and financial reporting systems;

• reviewed, discussed and recommended for approval of the Board of Directors the Company’s annual and quarterly consolidated financial statements, and the reports required to be submitted to regulatory agencies in connection with such consolidated financial statements, to ensure that the information contained in such statements and reports presents a true and balanced assessment of the Company’s position and condition, and comply with the regulatory requirements of the Securities and Exchange Commission; and

• reviewed the effectiveness and sufficiency of the Company’s financial and internal controls, risk management systems, and control and governance processes, and ensured that, where applicable, necessary measures are taken to address any concern or issue arising therefrom.

Carmelo L. SantiagoChairman

Ferdinand K. ConstantinoMember

Virgilio S. JacintoMember

Alonzo Q. AnchetaMember

Takashi HayashiMember

SMBI FS 2014 C5 6.indd 31 5/15/15 1:51 PM


The Stockholders and Board of DirectorsSan Miguel Brewery Inc.

We have audited the accompanying consolidated financial statements of San Miguel Brewery Inc. and Subsidiaries (a subsidiary of San Miguel Corporation), which comprise the consolidated statements of financial position as at December 31, 2014 and 2013, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2014, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of San Miguel Brewery Inc. and Subsidiaries (a subsidiary of San Miguel Corporation) as at December 31, 2014 and 2013, and its consolidated financial performance and its consolidated cash flows for each of the three years in the period ended December 31, 2014, in accordance with Philippine Financial Reporting Standards.

R.G. MANABAT & CO.,

ENRICO E. BALUYUTPartnerCPA License No. 065537SEC Accreditation No. 1177-A, Group A, valid until April 30, 2015Tax Identification No. 131-029-752BIR Accreditation No. 08-001987-26-2014 Issued September 26, 2014; valid until September 25, 2017PTR No. 4748099MC Issued January 5, 2015 at Makati City

March 11, 2015Makati City, Metro Manila

REPORT OF INDEPENDENT AUDITOR

Telephone +63 (2) 885 7000Fax +63 (2) 894 1985Internet www.kpmg.com.phE-Mail [email protected]

R.G. Manabat & Co.The KPMG Center, 9/F6787 Ayala AvenueMakati City 1226, Metro Manila, Philippines

Branches • Subic • Cebu • Bacolod • Iloilo

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332 0 1 4 A N N U A L R E P O R T

20132014Note

ASSETSCurrent AssetsCash and cash equivalents Trade and other receivables - netInventoriesPrepaid expenses and other current assets Total Current Assets

Noncurrent AssetsInvestments - netProperty, plant and equipment - net Investment property - netIntangible assets - netDeferred tax assets Other noncurrent assets - net Total Noncurrent Assets

LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and accrued expensesIncome and other taxes payable Current maturities of long-term debt - net of debt issue costs Total Current Liabilities

Noncurrent LiabilitiesLong-term debt - net of current maturities and debt issue costsDeferred tax liabilitiesOther noncurrent liabilities Total Noncurrent Liabilities

6, 31, 324, 7, 26, 31, 32

4, 89, 31, 32

10, 31, 324, 114, 124, 134, 17

4, 14, 26, 27, 28, 31, 32

15, 26, 31, 32 17

16, 31, 32

16, 31, 3217

4, 28

P14,1986,3523,254

93824,742

6220,544

73336,009

1,9098,911

68,168P92,910

P7,8612,869

22,38633,116

22,62717

4,11526,759

P9,8866,0053,4601,062

20,413

6020,120

1,41635,998

1,6108,931

68,135P88,548

P6,4552,650

- 9,105

37,518383

3,28841,189

SAN MIGUEL BREWERY INC. AND SUBSIDIARIES(A Subsidiary of San Miguel Corporation)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONDECEMBER 31, 2014 AND 2013

(In Millions)

See Notes to the Consolidated Financial Statements.

EquityEquity Attributable to Equity Holders of the CompanyCapital stock Additional paid-in capitalCumulative translation adjustmentsReserve for retirement planRetained earningsTreasury stock

Non-controlling Interests Total Equity

18

3318

2

15,410515

(847)(2,870)

19,740(1,029)

30,9192,116

33,035P92,910

15,410515

(774)(2,498)

24,164(1,029)

35,7882,466

38,254P88,548

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2014Note 2013 2012

SALES

COST OF SALES

GROSS PROFIT

SELLING AND ADMINISTRATIVE EXPENSES

INTEREST EXPENSE AND OTHER FINANCING CHARGES

INTEREST INCOME

REVERSALS ON IMPAIRMENT OF NONCURRENT ASSETS - Net

OTHER INCOME (CHARGES) - Net

INCOME BEFORE INCOME TAX

INCOME TAX EXPENSE

NET INCOME

Attributable to:Equity holders of the CompanyNon-controlling interests

Basic and Diluted Earnings Per Share

26

19, 26

20

16, 23

25

24

17

29

P75,053

39,405

35,648

(14,094)

(3,872)

463

-

(294)

17,851

5,330

P12,521

P12,051470

P12,521

P0.78

P79,005

42,794

36,211

(14,132)

(2,722)

188

-

50

19,595

6,080

P13,515

P13,029486

P13,515

P0.85

P75,580

38,030

37,550

(15,217)

(4,072)

724

1,367

586

20,938

5,840

P15,098

P14,360738

P15,098

P0.93


SAN MIGUEL BREWERY INC. AND SUBSIDIARIES(A Subsidiary of San Miguel Corporation)CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012(In Millions, Except Per Share Data)

SMBI FS 2014 C5 6.indd 34 5/15/15 1:51 PM

352 0 1 4 A N N U A L R E P O R T


2014Note 2013 2012

NET INCOME

OTHER COMPREHENSIVE INCOME

Items that will not be reclassified to profit or lossEquity reserve for retirement plan - net of tax

Items that will be reclassified to profit or lossGain (loss) on exchange differences on translation of foreign operations Net loss on available-for-sale financial assets

OTHER COMPREHENSIVE INCOME (LOSS) - Net of Tax

TOTAL COMPREHENSIVE INCOME - Net of Tax

Attributable to:Equity holders of the CompanyNon-controlling interests

28

32

P12,521

(674)

636(1)

635

(39)

P12,482

P12,037445

P12,482

P15,098

(379)

(1,021)(6)

(1,027)

(1,406)

P13,692

P13,194498

P13,692


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In Millions)

P13,515

368

77(2)

75

443

P13,958

P13,474484

P13,958

SMBI FS 2014 C5 6.indd 35 5/15/15 1:51 PM


Note

Cum

ulat

ive

Tran

slat

ion

Adj

ustm

ents

Equi

ty A

ttri

buta

ble

to E

quit

y H

olde

rs o

f the

Com

pany

Capi

tal

Stoc

k

Add

itio

nal

Paid

-in

Capi

tal

Non

-co

ntro

lling

In

tere

sts

Tota

l Eq

uity

Tran

slat

ion

Rese

rve

Fair

Va

lue

Rese

rve

Rese

rve

for

Reti

rem

ent

Plan

Reta

ined

Ea

rnin

gsTr

easu

ry

Stoc

kTo

tal

28 32 10 33

P15,

410

-

-

-

-

-

-

-

-

P15,

410

P515 -

-

-

-

-

-

-

-

P515

(P84

0)

- 75 - 75 - 75 -

-

(P76

5)

(P2,

870)

372

-

-

372

-

372

-

-

(P2,

498)

P19,

740

-

-

-

-

13,0

29

13,0

29 -

(8,6

05)

P24,

164

(P1,

029)

-

-

-

-

-

-

-

-

(P1,

029)

P30,

919

372 75 (2

)

445

13,0

29

13,4

74 -

(8,6

05)

P35,

788

P2,1

16 (4) 2

- (2

)48

6

484

232

(366

)

P2,4

66

P33,

035

368 77 (2

)

443

13,5

15

13,9

58 232

(8,9

71)

P38,

254

(P7) - - (2

)

(2)

- (2)

- -

(P9)

Forw

ard

SAN

MIG

UEL

BRE

WER

Y IN

C. A

ND

SU

BSID

IARI

ES(A

Sub

sidi

ary

of S

an M

igue

l Cor

pora

tion

)CO

NSO

LID

ATED

STA

TEM

ENTS

OF

CHA

NG

ES IN

EQ

UIT

YFO

R TH

E YE

ARS

EN

DED

DEC

EMBE

R 31

, 201

4, 2

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D 2

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(In M

illio

ns)

As

of Ja

nuar

y 1,

201

4

Equi

ty re

serv

e fo

r ret

irem

ent p

lan

Gai

n on

exc

hang

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ffere

nces

on

tr

ansl

atio

n of

fore

ign

oper

atio

nsN

et lo

ss o

n av

aila

ble-

for-

sale

fina

ncia

l

asse

ts -

net o

f tax

Oth

er c

ompr

ehen

sive

inco

me

(loss

)N

et in

com

e

Tota

l com

preh

ensi

ve in

com

e (lo

ss)

Addi

tions

to n

on-c

ontr

ollin

g in

tere

sts

Cash

div

iden

ds

As

of D

ecem

ber 3

1, 2

014

SMBI FS 2014 C5 6.indd 36 5/15/15 1:51 PM

372 0 1 4 A N N U A L R E P O R T

Not

e

Cum

ulat

ive

Tran

slat

ion

Adju

stm

ents

Equi

ty A

ttrib

utab

le to

Equ

ity H

olde

rs o

f the

Com

pany

As

of Ja

nuar

y 1,

201

3

Equi

ty re

serv

e fo

r ret

irem

ent p

lan

Gai

n (lo

ss) o

n ex

chan

ge d

iffer

ence

s

on tr

ansl

atio

n of

fore

ign

oper

atio

nsN

et lo

ss o

n av

aila

ble-

for-

sale

fina

ncia

l

asse

ts -

net o

f tax

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er c

ompr

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sive

inco

me

(loss

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et in

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l com

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ve in

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mpt

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sh d

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As

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ecem

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Capi

tal

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k

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l Pa

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In

tere

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ock

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28 32 33

P15,

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-

- -

-

-

- -

-

P15,

410

P515 -

-

-

-

-

-

-

-

P515

(P1,

496)

-

656

-

656

-

656

-

-

(P84

0)

(P2,

202)

(668

)

-

-

(668

)-

(668

)-

-

(P2,

870)

P16,

312

- (1

)

- (1

)12

,051

12,0

50 -

(8,6

22)

P19,

740

P -

-

-

-

-

-

-

(1,0

29)

-

(P1,

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P28,

533

(668

)

655 (1

)

(14)

12,0

51

12,0

37(1

,029

)(8

,622

)

P30,

919

P2,0

72 (6)

(19)

- (25)

470

445

-

(401

)

P2,1

16

P30,

605

(674

)

636 (1

)

(39)

12,5

21

12,4

82(1

,029

)(9

,023

)

P33,

035

(P6) - - (1

)

(1)

- (1)

- - (P7)

Forw

ard

SMBI FS 2014 C5 6.indd 37 5/15/15 1:51 PM


Not

e

Cum

ulat

ive

Tran

slat

ion

Adju

stm

ents

Capi

tal

Stoc

k

Addi

tiona

l Pa

id-in

Ca

pita

l

Non

-co

ntro

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In

tere

sts

Tota

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uity

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slat

ion

Rese

rve

Fair

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for

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tain

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As

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2

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Loss

on

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on

tran

slat

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of fo

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ions

Net

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on

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finan

cial

ass

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- net

of t

ax

Oth

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28 32 33

P15,

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-

-

-

-

-

-

-

P15,

410

P515 -

-

-

-

-

-

-

P515

(P67

3) (2)

(821

)

-

(823

)-

(823

)-

(P1,

496)

P - - -

(6)

(6) -

(6) -

(P6)

(P1,

867)

(335

)

-

-

(335

)-

(335

)-

(P2,

202)

P10,

584 (2) - -

(2)

14,3

60

14,3

58(8

,630

)

P16,

312

P23,

969

(339

)

(821

)

(6)

(1,1

66)

14,3

60

13,1

94(8

,630

)

P28,

533

P1,9

59 (40)

(200

) -

(240

)73

8

498

(385

)

P2,0

72

P25,

928

(379

)

(1,0

21)

(6)

(1,4

06)

15,0

98

13,6

92(9

,015

)

P30,

605

P -

- - - - - - -

P -

See

Not

es to

the

Cons

olid

ated

Fin

anci

al S

tate

men

ts.

Equi

ty A

ttrib

utab

le to

Equ

ity H

olde

rs o

f the

Com

pany

SMBI FS 2014 C5 6.indd 38 5/15/15 1:51 PM

392 0 1 4 A N N U A L R E P O R T

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax Adjustments for: Depreciation, amortization and others Interest expense and other financing charges Retirement costs Provision for impairment losses on receivables, inventories and others Reversals on impairment of noncurrent assets - net Interest income Loss (gain) on sale of property and equipment, investment and intangible assets

Operating income before working capital changes Decrease (increase) in: Trade and other receivables Inventories Prepaid expenses and other current assetsIncrease (decrease) in: Accounts payable and accrued expenses Other taxes payable

Cash generated from operationsInterest paidIncome taxes paidContributions paid

Net cash flows provided by operating activities

212328

7, 8

25

24

P17,851

3,093 3,872

582

342

- (463)

(77)

25,200

(1,508)(136)

(53)

35352

23,908(3,695)(5,792)

(751)

13,670

P20,938

2,5014,072

527

360

(1,367)(724)

4

26,311

(148)266

55

287(18)

26,753(3,773)(5,709)

(472)

16,799Forward


CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(In Millions)

2014Note 2013 2012

P19,595

2,9792,722

632

162

- (188)

(4)

25,898

776(293)(134)

(1,271)97

25,073(2,949) (5,744)

(923)

15,457

SMBI FS 2014 C5 6.indd 39 5/15/15 1:51 PM


CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of property, plant and equipmentAcquisitions of investment propertyProceeds from sale of property and equipment,

investment property and intangible assetsProceeds from sale of investmentIncrease in intangible assets and other noncurrent assetsInterest received

Net cash flows used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from long-term borrowingsPayments of: Short-term borrowings Long-term borrowings Dividends paid to non-controlling shareholders Increase in non-controlling interests Redemption of common sharesIncrease (decrease) in other noncurrent

liabilitiesCash dividends paid

Net cash flows used in financing activities

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS AT END OF YEAR


1112

33

6

(P927)(695)

7-

(2,078)192

(3,501)

14,851

- (22,400)

(365)232

(6)

4(8,606)

(16,290)

22

(4,312)

14,198

P9,886

(P1,022)(8)

1403

(3,424)472

(3,839)

-

- (7,884)

(401)-

(1,008)

(7)(8,618)

(17,918)

326

(7,761)

21,959

P14,198

(P790)(25)

8-

(3,054)725

(3,136)

21,078

(1,757)(19,989)

(385)- -

(6)(8,630)

(9,689)

(294)

3,680

18,279

P21,959

2014Note 2013 2012

SMBI FS 2014 C5 6.indd 40 5/15/15 1:51 PM

412 0 1 4 A N N U A L R E P O R T


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Amounts in Millions, Except Per Share and Number of Shares Data)

San Miguel Brewery Inc. (SMB or the Company) was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on July 26, 2007. The accompanying consolidated financial statements comprise the financial statements of the Company and its Subsidiaries (collectively referred to as the Group). The Company is a public company under Section 17.2 of the Securities Regulation Code and its Peso-denominated fixed-rate bonds issued in 2009, 2012 and 2014 are listed on the Philippine Dealing & Exchange Corp. (PDEx).

The Company’s common shares were listed on the Philippine Stock Exchange, Inc. (PSE) on May 12, 2008. The Company filed a petition for voluntary delisting with the PSE following the PSE’s adoption of the minimum public ownership rule and denial by SEC of all requests made (including the Company’s request) for the extension of the grace period to comply with such rule. The petition was approved by the PSE on April 24, 2013 and the Company’s common shares were delisted effective May 15, 2013 (Notes 16 and 18).

San Miguel Corporation (SMC) is the parent company of the Group. Top Frontier Investment Holdings, Inc. is the ultimate parent company of the Group.

The Group is primarily engaged in manufacturing, selling and distribution of fermented and malt-based beverages. The Group is also engaged in acquiring, developing and licensing trademarks and intellectual property rights and in the management, sale, exchange, lease and holding for investment of real estate of all kinds including buildings and other structures.

The registered office address of the Company is No. 40 San Miguel Avenue, Mandaluyong City, Philippines.

Statement of ComplianceThe accompanying consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). PFRS are based on International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). PFRS consist of PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations issued by the Financial Reporting Standards Council (FRSC).

The consolidated financial statements were authorized for issuance by the Board of Directors (BOD) on March 11, 2015.

Basis of MeasurementThe consolidated financial statements of the Group have been prepared on a historical cost basis of accounting except for the following items which are measured on an alternative basis at each reporting date:

1. Reporting Entity

2. Basis of Preparation

ItemsDerivative financial instrumentsAvailable-for-sale (AFS) financial assetsDefined benefit retirement liability

Measurement BasisFair valueFair ValueFair value of the plan assets less the present value of the defined benefit retirement obligation

Functional and Presentation CurrencyThe consolidated financial statements are presented in Philippine peso, which is the Company’s functional currency. All financial information are rounded off to the nearest million (000,000), unless otherwise indicated.

SMBI FS 2014 C5 6.indd 41 5/15/15 1:51 PM


Basis of ConsolidationThe consolidated financial statements include the accounts of the Company and its subsidiaries as follows:

Name of Subsidiary Company SubsidiariesPlace of

Buisiness

Proportion of Ownership Interest

Held by the Effective Equity Interest of

the Company *Line of

Business

Iconic Beverages, Inc. (IBI)

San Miguel Brewing International Ltd. (SMBIL)

Neptunia Corporation Limited (NCL)

San Miguel Company Limited

San Miguel Company Limited Taiwan Branch

San Miguel Brewery Hong Kong Limited (SMBHK)

Ravelin Limited Best Investments International,

Inc. Hong Kong Brewery Limited San Miguel Shunde Holdings

Limited (SMSH) San Miguel (Guangdong)

Brewery Company Limited (SMGB)

San Miguel (Guangdong) Limited (SMGL)

Guangzhou San Miguel Brewery Company Limited (GSMB)

San Miguel (China) Investment Company Limited (SMCIC)

San Miguel (Baoding) Brewery Company Limited (SMBB)

San Miguel Holdings (Thailand) Ltd (SMHTL)

San Miguel Beer (Thailand) Limited (SMBTL)

San Miguel Marketing (Thailand) Limited (SMMTL)

Dragon Island Investments Limited (DIIL)

San Miguel (Vietnam) Limited (SMVL)

San Miguel Brewery Vietnam Limited (SMBVL)

San Miguel Malaysia Pte. Ltd PT. Delta Djakarta Tbk. and

Subsidiary (PTD)Brewery Properties Inc. (BPI) Brewery Landholdings, Inc. (BLI)

Licensing trademarks

Manufacture and sale of beerInvestment

holdingInvestment

holdingBeer distribution

Manufacture and sale of beer

Property holdingInvestment

holdingDormant

Investment holding

Manufacture and sale of beer

Investment holding

Beer distribution

Investment holding


holdingManufacture and

sale of beerTrading

Investment holding

Investment holding


holdingManufacture and

sale of beerProperty holdingProperty holding

Philippines

British Virgin Islands

Hong Kong

Hong Kong

Taiwan

Hong Kong

Hong KongBritish Virgin Islands

Hong KongHong Kong

People’s Republic of China

Hong Kong




Thailand

Thailand

Thailand

British Virgin Islands

Bermuda

Republic of Vietnam

Malaysia

Republic of Indonesia

PhilippinesPhilippines

100

100

-

-

-

-

--

--

-

-

-

-

-

-

-

-

-

-

-

-

-

40-

-

-

100

100

100

65.8

100100

10092

100

93

70

100

100

49

100

100

100

100

100

100

58.3

-100

100

100

100

100

100

65.8

65.865.8

65.860.5

60.5

61.2

42.8

100

100

49

49

100

100

100

100

100

58.3

4040

* Represents the ultimate equity interest in the subsidiary at the level of the Company after taking into consideration the dilutive effects of the non-controlling interests at the various intervening levels of ownership.

SMBI FS 2014 C5 6.indd 42 5/15/15 1:51 PM

432 0 1 4 A N N U A L R E P O R T

There are no changes to the Group’s ownership structure as of December 31, 2014 and 2013 except for the merger of San Miguel (Baoding) Utility Limited in 2014 with SMBB. SMBB is the surviving entity.

A subsidiary is an entity controlled by the Group. The Group controls an entity if and only if, the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including the contractual arrangement with the other vote holders of the investee, rights arising from other contractual arrangements and the Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are included in the consolidated financial statements from the date when the Group obtains control and continues to be consolidated until the date when such control ceases.

The subsidiaries’ financial statements are prepared for the same reporting period as the Company, using uniform accounting policies for like transactions and other events in similar circumstances. Intergroup balances and transactions, including intergroup unrealized profits and losses, are eliminated in preparing the consolidated financial statements.

Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented in the consolidated statements of income, consolidated statements of comprehensive income, and within equity in the consolidated statements of financial position but separate from the Group’s equity attributable to equity holders of the Company.

Non-controlling interests represent the interests not held by the Group in PTD, SMHTL, SMBHK group and BPI group in 2014 and 2013.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, the Group: (i) derecognizes the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of any non-controlling interests and the cumulative transaction differences recorded in equity; (ii) recognizes the fair value of the consideration received, the fair value of any investment retained and any surplus or deficit in profit or loss; and, (iii) reclassify the Company’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

When the Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements, except for the changes in accounting policies as explained below.

Adoption of New and Amended Standards and InterpretationThe FRSC approved the adoption of a number of new and amended standards and interpretation as part of PFRS.

Amendments to Standards and Interpretation Adopted in 2014

The Group has adopted the following PFRS effective January 1, 2014 and accordingly, changed its accounting policies in the following areas:

• Recoverable Amount Disclosures for Non-financial Assets (Amendments to PAS 36, Impairment of Assets). These narrow-scope amendments to PAS 36 address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments clarified that the scope of those disclosures is limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal. The adoption of these amendments did not have an effect on the consolidated financial statements.

SMBI FS 2014 C5 6.indd 43 5/15/15 1:51 PM


• Offsetting Financial Assets and Financial Liabilities (Amendments to PAS 32, Financial Instruments). The amendments clarify that: (a) an entity currently has a legally enforceable right to set-off if that right is: (i) not contingent on a future event; and (ii) enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties; and (b) gross settlement is equivalent to net settlement if and only if the gross settlement mechanism has features that: (i) eliminate or result in insignificant credit and liquidity risk; and (ii) process receivables and payables in a single settlement process or cycle. The adoption of these amendments did not have an effect on the consolidated financial statements.

• Measurement of Short-term Receivables and Payables (Amendment to PFRS 13, Fair Value Measurement). The amendment clarifies that, in issuing PFRS 13 and making consequential amendments to PAS 39 and PFRS 9, Financial Instruments, the intention is not to prevent entities from measuring short-term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial. The adoption of this amendment did not have an effect on the consolidated financial statements.

• Novation of Derivatives and Continuation of Hedge Accounting (Amendments to PAS 39, Financial Instruments: Recognition and Measurement). The amendments allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a contract agree to replace their original counterparty with a new one). The adoption of these amendments did not have an effect on the consolidated financial statements.

• Philippine Interpretation IFRIC 21, Levies. The interpretation provides guidance on accounting for levies in accordance with the requirements of PAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation confirms that an entity recognizes a liability for a levy when, and only when, the triggering event specified in the legislation occurs. An entity does not recognize a liability at an earlier date even if it has no realistic opportunity to avoid the triggering event. Other standards should be applied to determine whether the debit side is an asset or expense. Outflows within the scope of PAS 12, Income Taxes, fines and penalties and liabilities arising from emission trading schemes are explicitly excluded from the scope. The adoption of this interpretation did not have an effect on the consolidated financial statements.

Additional disclosures required by the new and amended standards and interpretation were included in the consolidated financial statements, where applicable.

New and Amended Standards Not Yet Adopted

A number of new and amended standards and interpretation are effective for annual periods beginning after January 1, 2014 and have not been applied in preparing these consolidated financial statements. Unless otherwise indicated, none of these are expected to have a significant effect on the consolidated financial statements.

The Group will adopt the following new and amended standards on the respective effective dates:

• Annual Improvements to PFRS Cycles 2010-2012 and 2011-2013 contain 11 changes to nine standards with consequential amendments to other standards and interpretations, of which only the following are applicable to the Group.

o Meaning of ‘Vesting Condition’ (Amendment to PFRS 2, Share-based Payment). PFRS 2 has been amended to clarify the definition of ‘vesting condition’ by separately defining ‘performance condition’ and ‘service condition’. The amendment also clarifies the following: (i) how to distinguish between a market and a non-market performance condition; and (ii) the basis on which a performance condition can be differentiated from a non-vesting condition. The amendment is required to be applied prospectively for annual periods beginning on or after July 1, 2014.

o Scope Exclusion for the Formation of Joint Arrangements (Amendment to PFRS 3, ). PFRS 3 has been amended to clarify that the standard does not apply to the accounting for the formation of all types of joint arrangements in PFRS 11, Joint Arrangements - i.e., including joint operations - in the financial statements of the joint arrangements themselves. The amendment is required to be applied prospectively for annual periods beginning on or after July 1, 2014.

o Disclosures on the Aggregation of Operating Segments (Amendments to PFRS 8, Operating Segments). PFRS 8 has been amended to explicitly require the disclosure of judgments made by management in applying

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the aggregation criteria. The disclosures include: (i) a brief description of the operating segments that have been aggregated; and (ii) the economic indicators that have been assessed in determining that the operating segments share similar economic characteristics. In addition, the amendments clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets is required only if this information is regularly provided to the entity’s chief operating decision maker. This change aligns the disclosure requirements with those for segment liabilities. The amendments are required to be applied prospectively for annual periods beginning on or after July 1, 2014.

o Scope of Portfolio Exception (Amendment to PFRS 13). The amendment clarifies that the scope of the exception for measuring the fair value of a group of financial assets and financial liabilities with offsetting risk positions on a net basis (portfolio exception) applies to contracts within the scope of PAS 39 and PFRS 9, regardless of whether they meet the definition of financial assets or financial liabilities under PAS 32 - e.g., certain contracts to buy or sell non-financial items that can be settled net in cash or another financial instrument. The amendment is required to be applied prospectively for annual periods beginning on or after July 1, 2014.

o Restatement of accumulated depreciation (amortization) on revaluation (Amendments to PAS 16, Property, Plant and Equipment and PAS 38, Intangible Assets). The amendments clarify the requirements of the revaluation model in PAS 16 and PAS 38, recognizing that the restatement of accumulated depreciation (amortization) is not always proportionate to the change in the gross carrying amount of the asset. PAS 16 and PAS 38 have been amended to clarify that, at the date of revaluation: the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset - e.g. restated in proportion to the change in the carrying amount or by reference to observable market data; and the accumulated depreciation (amortization) is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses; or the accumulated depreciation (amortization) is eliminated against the gross carrying amount of the asset.

o Definition of ‘Related Party’ (Amendments to PAS 24, Related Parties). The definition of a ‘related party’ is extended to include a management entity that provides key management personnel (KMP) services to the reporting entity, either directly or through a group entity. For related party transactions that arise when KMP services are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it has recognized as an expense for those services that are provided by a management entity; however, it is not required to ‘look through’ the management entity and disclose compensation paid by the management entity to the individuals providing the KMP services. The reporting entity will also need to disclose other transactions with the management entity under the existing disclosure requirements of PAS 24 - e.g., loans. The amendment is required to be applied prospectively for annual periods beginning on or after July 1, 2014.

o Inter-relationship of PFRS 3 and PAS 40 (Amendment to PAS 40, Investment Property). PAS 40 has been amended to clarify that an entity should assess whether an acquired property is an investment property under PAS 40 and perform a separate assessment under PFRS 3 to determine whether the acquisition of the investment property constitutes a business combination. Entities will still need to use judgment to determine whether the acquisition of an investment property is an acquisition of a business under PFRS 3. The amendment is required to be applied prospectively for annual periods beginning on or after July 1, 2014.

• Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to PAS 16, Property, Plant and Equipment and PAS 38, Intangible Assets). The amendments to PAS 38, Intangible Assets, introduce a rebuttable presumption that the use of revenue-based amortization methods for intangible assets is inappropriate. This presumption can be overcome only when revenue and the consumption of the economic benefits of the intangible asset are ‘highly correlated’, or when the intangible asset is expressed as a measure of revenue. The amendments to PAS 16 explicitly state that revenue-based methods of depreciation cannot be used for property, plant and equipment. This is because such methods reflect factors other than the consumption of economic benefits embodied in the asset - e.g., changes in sales volumes and prices. The amendments are required for annual periods beginning on or after January 1, 2016, and are to be applied prospectively. Early application is permitted.

• PFRS 9, Financial Instruments (2014). PFRS 9 (2014) replaces PAS 39 and supersedes the previously published versions of PFRS 9 that introduced new classifications and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). PFRS 9 includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, guidance on own credit risk on financial liabilities measured at fair value. It also supplements the new general hedge accounting requirements published in 2013. PFRS 9 incorporates new hedge accounting requirements that represent a major overhaul of hedge accounting and introduces significant improvements by aligning the accounting more closely with risk

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management. The new standard is required to be applied retrospectively for annual periods beginning on or after January 1, 2018. Early adoption is permitted.

Financial Assets and Financial LiabilitiesDate of Recognition. The Group recognizes a financial asset or financial liability in the consolidated statements of financial position when it becomes a party to the contractual provisions of the instrument. In the case of regular way purchase or sale of financial assets, recognition is done using settlement date accounting.

Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value of the consideration given (in case of an asset) or received (in case of a liability). The initial measurement of financial instruments, except for those designated as at fair value through profit or loss (FVPL), includes transaction costs.

Financial AssetsThe Group classifies its financial assets, at initial recognition, in the following categories: held-to-maturity (HTM) investments, AFS financial assets, financial assets at FVPL and loans and receivables. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets and financial liabilities at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Financial Assets at FVPL. A financial asset is classified as at FVPL if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated as at FVPL if the Group manages such investments and makes purchase and sale decisions based on their fair values in accordance with the documented risk management or investment strategy of the Group. Derivative instruments (including embedded derivatives), except those covered by hedge accounting relationships, are classified under this category.

Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term.

Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria is met:

• the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis;

• the assets are part of a group of financial assets which are managed and their performances are evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

• the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recognized.

The Group carries financial assets at FVPL using their fair values. Attributable transaction costs are recognized in profit or loss as incurred. Fair value changes and realized gains or losses are recognized in profit or loss. Fair value changes from derivatives accounted for as part of an effective cash flow hedge are recognized in other comprehensive income and presented in the consolidated statements of changes in equity. Any interest earned is part of “Interest income” account in the consolidated statements of income. Any dividend income from equity securities classified as at FVPL is recognized in profit or loss when the right to receive payment has been established.

The Group’s derivative assets are classified under this category (Notes 9 and 32).

Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments and maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS financial assets or financial assets at FVPL.

Subsequent to initial measurement, loans and receivables are carried at amortized cost using the effective interest method, less any impairment in value. Any interest earned on loans and receivables is recognized as part of “Interest income” account in the consolidated statements of income on an accrual basis. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The periodic amortization is also included as part of “Interest income” account in the consolidated statements of income. Gains or losses are recognized in profit or loss when loans and receivables are derecognized or impaired.

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Cash includes cash on hand and in banks which are stated at face value. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

The Group’s cash and cash equivalents, trade and other receivables and noncurrent receivables are included in this category (Notes 6, 7, 14 and 26).

AFS Financial Assets. AFS financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other financial asset categories. Subsequent to initial recognition, AFS financial assets are measured at fair value and changes therein, other than impairment losses and foreign currency differences on AFS debt instruments, are recognized in other comprehensive income and presented in the “Fair value reserve” account in the consolidated statements of changes in equity. The effective yield component of AFS debt securities is reported as part of “Interest income” account in the consolidated statements of income. Dividends earned on holding AFS equity securities are recognized as dividend income when the right to receive payment has been established. When individual AFS financial assets are either derecognized or impaired, the related accumulated unrealized gains or losses previously reported in equity are transferred to and recognized in profit or loss. AFS financial assets also include unquoted equity instruments with fair values which cannot be reliably determined. These instruments are carried at cost less impairment in value, if any.

The Group’s investments in equity securities included under “Investments” account in the consolidated statements of financial position are classified under this category (Note 10).

The Group has no financial assets classified as HTM investments as of December 31, 2014 and 2013.

‘Day 1’ Profit. Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and the fair value (a ‘Day 1’ profit) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where data used are not observable, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ profit amount.

Financial LiabilitiesThe Group classifies its financial liabilities, at initial recognition, in the following categories: financial liabilities at FVPL and other financial liabilities, as appropriate. The Group determines the classification of its financial liabilities at initial recognition and where allowed and appropriate, re-evaluates such designation at each financial year-end. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

Financial Liabilities at FVPL. Financial liabilities are classified under this category through the fair value option. Derivative instruments (including embedded derivatives) with negative fair values, except those covered by hedge accounting relationships, are also classified under this category.

The Group carries financial liabilities at FVPL using their fair values and recognizes fair value changes in profit or loss. Fair value changes from derivatives accounted for as part of an effective accounting hedge are recognized in other comprehensive income and presented in the consolidated statements of changes in equity. Any interest expense incurred shall be recognized as part of “Interest expense and other financing charges” account in the consolidated statements of income.

The Group’s derivative liabilities are classified under this category (Note 15 and 32).

Other Financial Liabilities. This category pertains to financial liabilities that are not designated or classified at FVPL. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any premium or discount and any directly attributable transaction costs that are considered an integral part of the effective interest rate of the liability. The effective interest rate amortization is included in “Interest expense and other financing charges” account in the consolidated statements of income. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.

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The Group’s liabilities arising from its trade or borrowings such as accounts payable and accrued expenses, current maturities of long-term debt and long-term debt are included in this category (Notes 15, 16 and 26).

Embedded DerivativesThe Group assesses whether embedded derivatives are required to be separated from the host contracts when the Group becomes a party to the contract.

An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

Derecognition of Financial Assets and Financial LiabilitiesFinancial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when:

• the rights to receive cash flows from the asset have expired; or

• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; and either: (a) has transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognizes the associated liability. The transferred asset and the associated liability are measured on the basis that reflects the rights and obligations that the Group has retained.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.

Impairment of Financial AssetsThe Group assesses, at the reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Assets Carried at Amortized Cost. For financial assets carried at amortized cost such as loans and receivables, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If no objective evidence of impairment has been identified for a particular financial asset that was individually assessed, the Group includes the asset as part of a group of financial assets with similar credit risk characteristics and collectively assesses the group for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in the collective impairment assessment.

Evidence of impairment for specific impairment purposes may include indications that the borrower or a group of borrowers is experiencing financial difficulty, default or delinquency in principal or interest payments, or may enter into bankruptcy or other form of financial reorganization intended to alleviate the financial condition of the borrower. For collective impairment purposes, evidence of impairment may include observable data on existing economic conditions

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or industry-wide developments indicating that there is a measurable decrease in the estimated future cash flows of the related assets.

If there is objective evidence of impairment, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). Time value is generally not considered when the effect of discounting the cash flows is not material. If a loan or receivable has a variable rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. For collective impairment purposes, impairment loss is computed based on their respective default and historical loss experience.

The carrying amount of the asset is reduced either directly or through the use of an allowance account. The impairment loss for the period is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying amount of the asset does not exceed its amortized cost at the reversal date.

AFS Financial Assets. For equity instruments carried at fair value, the Group assesses, at each reporting date, whether objective evidence of impairment exists. Objective evidence of impairment includes a significant or prolonged decline in the fair value of an equity instrument below its cost. ‘Significant’ is evaluated against the original cost of investment and ‘prolonged’ is evaluated against the period in which the fair value has been below its original cost. The Group generally regards fair value decline as being significant when decline exceeds 25%. A decline in a quoted market price that persists for 12 months is generally considered to be prolonged.

If an AFS financial asset is impaired, an amount comprising the difference between the cost (net of any principal payment and amortization) and its current fair value, less any impairment loss on that financial asset previously recognized in profit or loss, is transferred from equity to profit or loss. Reversals of impairment losses in respect of equity instruments classified as AFS financial assets are not recognized in profit or loss. Reversals of impairment losses on debt instruments are recognized in profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.

In the case of an unquoted equity instrument or of a derivative asset linked to and must be settled by delivery of an unquoted equity instrument, for which its fair value cannot be reliably measured, the amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows from the asset discounted using the historical effective rate of return on the asset.

Classification of Financial Instruments between Debt and EquityFrom the perspective of the issuer, a financial instrument is classified as debt instrument if it provides for a contractual obligation to:

• deliver cash or another financial assets to another entity;

• exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; or

• satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

Debt Issue CostsDebt issue costs are considered as an adjustment to the effective yield of the related debt and are deferred and amortized using the effective interest rate method. When a loan is paid, the related unamortized debt issue costs at the date of repayment are recognized in profit or loss.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. This is not generally

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the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated statements of financial position.

InventoriesFinished goods, goods in process and materials and supplies are valued at the lower of cost and net realizable value.

Costs incurred in bringing each inventory to its present location and conditions are accounted for as follows:

Finished Goods. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.

Goods in Process. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

Materials and Supplies. Net realizable value is the current replacement cost.

Any write-down of inventories to net realizable value and all losses of inventories are recognized as expense in the year of write-down or loss occurrence. The amount of reversals, if any, of write-down of inventories arising from an increase in net realizable value are recognized as reduction in the amount of inventories recognized as expense in the year in which the reversal occurs.

Containers (i.e., returnable bottles and shells). These are stated at deposit values less any impairment in value. The excess of the acquisition cost of the containers over their deposit value is presented under deferred containers included under “Other noncurrent assets” account in the consolidated statements of financial position and is amortized over the estimated useful lives of two to ten years. Amortization of deferred containers is included under “Selling and administrative expenses” account in the consolidated statements of income.

Business CombinationBusiness combinations are accounted for using the acquisition method as at the acquisition date. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included as part of “Selling and administrative expenses” account in the consolidated statements of income.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at the acquisition date fair value and any resulting gain or loss is recognized in profit or loss.

The Group measures goodwill at the acquisition date as: a) the fair value of the consideration transferred; plus b) the recognized amount of any non-controlling interests in the acquiree; plus c) if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less d) the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss. Subsequently, goodwill is measured at cost less any accumulated impairment in value. Goodwill is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying amount may be impaired.

Finished goods and goods in process

Materials and supplies

-

-

at cost, which includes direct materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity but excluding borrowing costs; costs are determined using the moving-average method;at cost, using the moving-average method.

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The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss. Costs related to acquisition, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination, are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in profit or loss.

• Goodwill in a Business Combination Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating

units, or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

• represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

• is not larger than an operating segment determined in accordance with PFRS 8.

Impairment is determined by assessing the recoverable amount of the cash-generating unit or group of cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating unit or group of cash-generating units is less than the carrying amount, an impairment loss is recognized. Where goodwill forms part of a cash-generating unit or group of cash-generating units and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. An impairment loss with respect to goodwill is not reversed.

• Intangible Assets Acquired in a Business Combination The cost of an intangible asset acquired in a business combination is the fair value as at the date of acquisition,

determined using discounted cash flows as a result of the asset being owned.

Following initial recognition, intangible asset is carried at cost less any accumulated amortization and impairment losses, if any. The useful life of an intangible asset is assessed to be either finite or indefinite.

Transactions under Common ControlTransactions under common control entered into in contemplation of each other and business combination under common control designed to achieve an overall commercial effect are treated as a single transaction.

Transfers of assets between commonly controlled entities are accounted for using book value accounting.

Non-controlling InterestsThe acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a result of such transactions. Any difference between the purchase price and the net assets of acquired entity is recognized in equity. The adjustments to non-controlling interests are based on a proportionate amount of the identifiable net assets of the acquired subsidiary.

Property, Plant and EquipmentProperty, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of the property, plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less any impairment in value.

The initial cost of property, plant and equipment comprises its construction cost or purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Cost also includes any related asset retirement obligation (ARO). Expenditures incurred after the asset has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period the costs are incurred. Major repairs are capitalized as part of property, plant and equipment only when it is probable that future economic benefits associated with the items will flow to the Group and the cost of the items can be measured reliably.

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Construction in progress (CIP) represents structures under construction and is stated at cost. This includes the costs of construction and other direct costs. Borrowing costs that are directly attributable to the construction of plant and equipment are capitalized during the construction period. CIP is not depreciated until such time that the relevant assets are ready for use.

Depreciation and amortization, which commences when the assets are available for their intended use, are computed using the straight-line method over the following estimated useful lives of the assets:

Machinery and equipment Buildings and improvementsTransportation equipmentLeasehold improvements

Office equipment, furniture and fixtures Tools and small equipment

4 - 505 - 503 - 7

3 - 50or term of the lease, whichever is shorter

2 - 202 - 10

Number of Years

The remaining useful lives, residual values and depreciation and amortization methods are reviewed and adjusted periodically, if appropriate, to ensure that such periods and methods of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property, plant and equipment.

The carrying amounts of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Fully depreciated assets are retained in the accounts until they are no longer in use.

An item of property, plant and equipment is derecognized when either it has been disposed of or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss arising from the retirement and disposal of an item of property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period of retirement or disposal.

Investment PropertyInvestment property consists of property held to earn rentals and/or for capital appreciation but not for sale in the ordinary course of business, used in the production or supply of goods or services or for administrative purposes. Investment property, except for land, is measured at cost including transaction costs less accumulated depreciation and amortization and any accumulated impairment in value. The carrying amount includes the cost of replacing part of an existing investment property at the time the cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing of an investment property. Land is stated at cost less any impairment in value.

Depreciation and amortization, which commence when the assets are available for their intended use, are computed using the straight-line method over the following estimated useful lives of the assets:

Land improvements Buildings and improvements

5 - 505 - 50

Number of Years

The useful lives, residual values and depreciation and amortization method are reviewed and adjusted, if appropriate, at each reporting date.

Investment property is derecognized either when it has been disposed of or when it is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement and disposal of investment property are recognized in profit or loss in the period of retirement or disposal.

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Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation or commencement of an operating lease to another party. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of the owner-occupation or commencement of development with a view to sell.

For a transfer from investment property to owner-occupied property or inventories, the cost of property for subsequent accounting is its carrying amount at the date of change in use. If the property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value at the date of acquisition. Subsequently, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditures are recognized in profit or loss in the year in which the related expenditures are incurred. The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization period and the amortization method used for an intangible asset with a finite useful life are reviewed at least at each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimate. The amortization expense on intangible assets with finite lives is recognized in profit or loss consistent with the function of the intangible asset.

Amortization is computed using the straight-line method over the following estimated useful lives of other intangible assets with finite lives:

Computer software Land use rights

2 - 1042 - 50

or term of the lease, whichever is shorter

Number of Years

The Group assessed the useful lives of trademarks, some licenses and brand names to be indefinite. Based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the assets are expected to generate cash inflows for the Group.

Trademarks, licenses and brand names with indefinite useful lives are tested for impairment annually, either individually or at the cash-generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from the disposal of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset is derecognized.

Impairment of Non-financial AssetsThe carrying amounts of property, plant and equipment, investment property, deferred containers and intangible assets with finite useful lives are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Trademarks, licenses and brand names with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. If any such indication exists, and if the carrying amount exceeds the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.

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An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Fair Value MeasurementsThe Group measures a number of financial and non-financial assets and liabilities at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of principal market, in the most advantageous market for the asset or liability. The principal or most advantageous market must be accessible to the Group.

The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

• Level 3: inputs for the asset or liability that are not based on observable market data.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorization at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy.

Provisions Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of past events; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate of the amount of the obligation can be made if the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognized as a separate asset only when it is virtually certain that reimbursement will be received. The amount recognized for the reimbursement shall not exceed the amount of the provision. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Share CapitalCommon SharesCommon shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.

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Treasury SharesOwn equity instruments which are reacquired are carried at cost and deducted from equity. No gain or loss is recognized on the purchase, sale, reissuance or cancellation of the Company’s own equity instruments. When the shares are retired, the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued and to retained earnings for the remaining balance.

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Sale of Goods. Revenue from sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, which is normally upon delivery, and the amount of revenue can be measured reliably.

Interest. Revenue is recognized as the interest accrues, taking into account the effective yield on the asset.

Rent. Revenue from investment property is recognized on a straight-line basis over the term of the lease.

Others. Revenue is recognized when earned.

Cost and Expense RecognitionCosts and expenses are recognized upon receipt of goods, utilization of services or at the date they are incurred.

Expenses are also recognized when a decrease in future economic benefit related to a decrease in an asset or an increase in a liability that can be measured reliably has arisen. Expenses are recognized in the consolidated statements of income on the basis of a direct association between costs incurred and the earning of specific items of income; on the basis of systematic and rational allocation procedures when economic benefits are expected to arise over several accounting periods and the association can only be broadly or indirectly determined; or immediately when an expenditure produces no future economic benefits or when, and to the extent that future economic benefits do not qualify, or cease to qualify, for recognition as an asset.

Share-based Payment TransactionsUnder SMC’s Employee Stock Purchase Plan (ESPP), employees of the Group receive remuneration in the form of share-based payment transactions, whereby the employees render services as consideration for equity instruments of SMC. Such transactions are handled centrally by SMC.

Share-based transactions in which SMC grants option rights to its equity instruments direct to the Group’s employees are accounted for as equity-settled transactions. SMC charges the Group for the costs related to such transactions with its employees. The amount is charged to operations by the Group.

The cost of ESPP is measured by reference to the market price at the time of the grant less subscription price. The cumulative expenses recognized for share-based payment transactions at each reporting date until the vesting date reflect the extent to which the vesting period has expired and SMC’s best estimate of the number of equity instruments that will ultimately vest. Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately.

However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets

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and the arrangement conveys a right to use the asset. A reassessment is made after the inception of the lease only if one of the following applies:

(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;

(b) a renewal option is exercised or an extension is granted, unless the term of the renewal or extension was initially included in the lease term;

(c) there is a change in the determination of whether fulfillment is dependent on a specific asset; or

(d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d), and at the date of renewal or extension period for scenario (b) above.

Operating LeaseGroup as Lessee. Leases which do not transfer to the Group substantially all the risks and rewards of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term. Associated costs such as maintenance and insurance are expensed as incurred.

Group as Lessor. Leases where the Group does not transfer substantially all the risks and rewards of ownership of the assets are classified as operating leases. Rent income from operating leases is recognized as income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as rent income. Contingent rents are recognized as income in the period in which they are earned.

Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use.

Research and Development CostsResearch costs are expensed as incurred. Development costs incurred on an individual project are carried forward when their future recoverability can be reasonably regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project.

The carrying amount of development costs is reviewed for impairment annually when the related asset is not yet in use. Otherwise, this is reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Employee BenefitsShort-term Employee Benefits. Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Retirement Costs. The Company and majority of its subsidiaries have separate funded, noncontributory retirement plans, administered by the respective trustees, covering their respective permanent employees. The cost of providing benefits under the defined benefit retirement plan is actuarially determined using the projected unit credit method. Projected unit credit method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial gains and losses are recognized in full in the period in which they occur in other comprehensive income. Such actuarial gains and losses are also immediately recognized in equity and are not reclassified to profit or loss in subsequent period.

The net defined benefit retirement liability or asset is the aggregate of the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods, reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of economic benefits available in the form of reductions in future contributions to the plan.

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Defined benefit costs comprise the following:• Service costs• Net interest on the defined benefit retirement liability or asset• Remeasurements of defined benefit retirement liability or asset

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by an independent qualified actuary using the projected unit credit method.

Net interest on the net defined benefit retirement liability or asset is the change during the period as a result of contributions and benefit payments, which is determined by applying the discount rate based on the government bonds to the net defined benefit retirement liability or asset. Net interest on the net defined benefit retirement liability or asset is recognized as expense or income in profit or loss.

Remeasurements of net defined benefit retirement liability or asset comprising actuarial gains and losses, return on plan assets, and the effect of the asset ceiling (excluding net interest) are recognized immediately in other comprehensive income in the period in which they arise.

When the benefits of a plan are changed, or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit retirement plan when the settlement occurs.

Foreign CurrencyForeign Currency Translations. Transactions in foreign currencies are translated to the respective functional currencies of the entities within the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the reporting date.

Nonmonetary assets and nonmonetary liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Nonmonetary items in foreign currencies that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of AFS financial assets, a financial liability designated as an effective hedge of the net investment in a foreign operation or qualifying cash flow hedges, which are recognized in other comprehensive income.

Foreign Operations. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Philippine peso at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Philippine peso at average exchange rates for the period.

Foreign currency differences are recognized in other comprehensive income and presented in the “Translation reserve account” in the consolidated statements of changes in equity. However, if the operation is not a wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income and presented in the “Translation reserve” account in the consolidated statements of changes in equity.

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TaxesCurrent Tax. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred Tax. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• with respect to taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax losses - Net Operating Loss Carry Over (NOLCO) to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of NOLCO can be utilized, except:

• where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• with respect to deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretation of tax laws and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Value Added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, except:

• where the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

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• receivables and payables that are stated with the amount of tax included.

The net amount of tax recoverable from, or payable to, the taxation authority is included as part of “Prepaid expenses and other current assets” or “Income and other taxes payable” accounts in the consolidated statements of financial position.

Related PartiesParties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities.

Basic and Diluted Earnings Per Share (EPS)Basic EPS is computed by dividing the net income for the period attributable to equity holders of the Company by the weighted average number of issued and outstanding common shares during the period, with retroactive adjustment for any stock dividends declared.

Diluted EPS is computed in the same manner, adjusted for the effects of all dilutive common shares.

Operating SegmentsThe Group’s operating segments are organized and managed separately according to geographical location, with each segment representing a strategic business unit that offers different products and serves different markets. Financial information on operating segments is presented in Note 5 to the consolidated financial statements. The Chief Executive Officer (the chief operating decision maker) reviews management reports on a regular basis.

The measurement policies the Group used for segment reporting under PFRS 8 are the same as those used in its consolidated financial statements. There have been no changes in the measurement methods used to determine reported segment profit or loss from prior periods. All inter-segment transfers are carried out at arm’s length prices.

Segment revenues, expenses and performance include sales and purchases between business segments and between geographical segments. Such sales and purchases are eliminated in consolidation.

ContingenciesContingent liabilities are not recognized in the consolidated financial statements. They are disclosed in the notes to the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements when an inflow of economic benefits is probable.

Events After the Reporting DatePost year-end events that provide additional information about the Group’s financial position at the reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

4. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements in accordance with PFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts of assets, liabilities, income and expenses reported in the consolidated financial statements at the reporting date. However, uncertainty about these judgments, estimates and assumptions could result in outcome that could require a material adjustment to the carrying amount of the affected asset or liability in the future.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions are recognized in the period in which the judgments and estimates are revised and in any future period affected.

JudgmentsIn the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements:

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Assessment of Control. Although the Company owned less than half of BPI and less than half of their voting power, the Company has determined that the Company controls BPI. The Company receives substantially all of the returns related to BPI’s operations and net assets and has the current ability to direct BPI’s activities that most significantly affect the returns. Operating Lease Commitments - Group as Lessor/Lessee. The Group has entered into various lease agreements either as a lessor or a lessee. The Group had determined that it retains all the significant risks and rewards of ownership of the property leased out on operating leases while the significant risks and rewards for properties leased from third parties are retained by the lessors.

Rent income recognized as part of other income amounted to P84, P65 and P74 in 2014, 2013 and 2012, respectively (Notes 24 and 27).

Rent expense charged to profit or loss amounted to P568, P583 and P559 in 2014, 2013 and 2012, respectively (Notes 19, 20 and 27).

Assessment of Intangible Assets with Indefinite Useful Life. The Group has assessed that the intangible assets have an indefinite useful life when, based on an analysis of all relevant factors, there is no foreseeable limit to the period over which the assets are expected to generate cash inflows for the entity (Note 13).

Contingencies. The Group is currently involved in pending claims for tax refund and tax cases which could be decided in favor of or against the Group. The Group’s estimate of the probable costs for the resolution of these pending claims and tax cases has been developed in consultation with in-house as well as outside legal counsel handling the prosecution and defense of these matters and is based on an analysis of potential results. The Group currently does not believe that these pending claims and tax cases will have a material adverse effect on its financial position and financial performance. It is possible; however, that future financial performance could be affected by changes in the estimates or in the effectiveness of strategies relating to these proceedings. No accruals were made in relation to these proceedings (Note 34).

Estimates and AssumptionsThe key estimates and assumptions used in the consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates.

Fair Value Measurements. A number of the Group’s accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities.

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information is used to measure fair values, then the valuation team assesses the evidence obtained to support the conclusion that such valuations meet the requirements of PFRS, including the level in the fair value hierarchy in which such valuations should be classified.

The Group uses market observable data when measuring the fair value of an asset or liability. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques (Note 3).

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy based on the lowest level input that is significant to the entire measurement.

The methods and assumptions used to estimate fair values for both financial and non-financial assets and liabilities are discussed in Notes 12 and 32.

Allowance for Impairment Losses on Trade and Other Receivables. Provisions are made for specific and groups of accounts, where objective evidence of impairment exists. The Group evaluates these accounts on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Group’s relationship with the customers and counterparties, the current credit status based on third party credit reports and known market forces, average age of accounts, collection experience, and historical loss experience. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different methodologies. An increase in allowance for impairment losses would increase the recorded selling and administrative expenses and decrease current assets.

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The allowance for impairment losses amounted to P792 and P1,282 as of December 31, 2014 and 2013, respectively. The carrying amount of trade and other receivables amounted to P6,005 and P6,352 as of December 31, 2014 and 2013, respectively (Notes 7, 31 and 32).

Write-down of Inventory. The Group writes-down the cost of inventory to net realizable value whenever net realizable value becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes.

Estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be realized. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the reporting date to the extent that such events confirm conditions existing at the reporting date.

The write-down of inventories amounted to P587 and P500 as of December 31, 2014 and 2013, respectively. The carrying amount of inventories amounted to P3,460 and P3,254 as of December 31, 2014 and 2013, respectively (Note 8).

Estimated Useful Lives of Property, Plant and Equipment, Investment Property and Deferred Containers. The Group estimates the useful lives of property, plant and equipment, investment property and deferred containers based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment, investment property and deferred containers are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets.

In addition, estimation of the useful lives of property, plant and equipment, investment property and deferred containers is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future financial performance could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of property, plant and equipment, investment property and deferred containers would increase recorded cost of sales and selling and administrative expenses and decrease noncurrent assets.

Property, plant and equipment, net of accumulated depreciation and amortization and impairment losses, amounted to P20,120 and P20,544 as of December 31, 2014 and 2013, respectively (Note 11). Investment property, net of accumulated depreciation and impairment losses amounted to P1,416 and P733 as of December 31, 2014 and 2013, respectively (Note 12). Accumulated depreciation, amortization and impairment losses of property, plant and equipment and investment property amounted to P40,635 and P39,302 as of December 31, 2014 and 2013, respectively (Notes 11 and 12).

Deferred containers, net of accumulated amortization included under “Other noncurrent assets” account in the consolidated statements of financial position amounted to P8,785 and P8,750 as of December 31, 2014 and 2013, respectively. Accumulated amortization of deferred containers amounted to P9,602 and P8,427 as of December 31, 2014 and 2013, respectively (Note 14).

Estimated Useful Lives of Intangible Assets with Finite Lives. The useful lives of intangible assets are assessed at the individual asset level as having either a finite or indefinite life. Intangible assets are regarded to have an indefinite useful life when, based on analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group.

Intangible assets with finite useful lives amounted to P788 and P813 as of December 31, 2014 and 2013, respectively (Note 13).

Impairment of Trademarks, Licenses and Brand Names with Indefinite Lives. The Group determines whether trademarks, licenses and brand names are impaired at least annually. The basis used to determine the recoverable amount is the value in use of the trademarks, licenses and brand names. Estimating value in use requires management to make an estimate of the expected future cash flows from the cash-generating unit and from the trademarks, licenses and brand names and to choose a suitable discount rate to calculate the present value of those cash flows.

The carrying amounts of trademarks, licenses and brand names with indefinite useful lives amounted to P35,210 and P35,196 as of December 31, 2014 and 2013, respectively (Note 13).

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Operating SegmentsThe reporting format of the Group’s operating segments is determined based on the Group’s risks and rates of return which are affected predominantly by differences in the products produced. The operating businesses are organized and managed separately according to geographical location, with each segment representing a strategic business unit that offers different products and serves different markets.

The Group’s reportable segments are domestic and international operations.

Domestic operations produce and market fermented and malt-based beverages within the Philippines and distribute products to some export markets.

Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each reporting date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. The Group’s assessment on the recognition of deferred tax assets on deductible temporary difference is based on the projected taxable income in the following periods.

Deferred tax assets amounted to P1,610 and P1,909 as of December 31, 2014 and 2013, respectively (Note 17).

Impairment of Non-financial Assets. PFRS requires that an impairment review be performed on property, plant and equipment, investment property, deferred containers and intangible assets with finite useful lives when events or changes in circumstances indicate that the carrying amount may not be recoverable. Determining the recoverable amount of these assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable amounts and any resulting impairment loss could have a material adverse impact on financial performance.

Accumulated impairment losses of property, plant and equipment, investment property and intangible assets with finite useful lives amounted to P9,639 and P9,600 as of December 31, 2014 and 2013, respectively.

The combined carrying amounts of property, plant and equipment, investment property, deferred containers and intangible assets with finite useful lives amounted to P31,109 and P30,840 as of December 31, 2014 and 2013, respectively (Notes 11, 12, 13 and 14).

Present Value of Defined Benefit Retirement Obligation. The present value of the defined benefit retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions are described in Note 28 to the consolidated financial statements and include discount rate and salary increase rate.

The Group determines the appropriate discount rate at the end of each reporting period. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the retirement obligations. In determining the appropriate discount rate, the Group considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid. The terms to maturity of these bonds should approximate the terms of the related retirement obligation.

Other key assumptions for the defined benefit retirement obligation are based in part on current market conditions.

While it is believed that the Group’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Group’s defined benefit retirement obligation.

The present value of defined benefit retirement obligation amounted to P9,996 and P10,085 as of December 31, 2014 and 2013, respectively (Note 28).

Asset Retirement Obligation. Determining ARO requires estimation of the costs of dismantling and restoring leased properties to their original condition. The Group determined that there is no significant ARO as of December 31, 2014 and 2013.

5. Segment Information

SMBI FS 2014 C5 6.indd 62 5/15/15 1:51 PM

632 0 1 4 A N N U A L R E P O R T

International operations produce and market fermented and malt-based beverages in several foreign markets.

Segment Assets and LiabilitiesSegment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories and property, plant and equipment, net of allowances, accumulated depreciation and amortization and impairment. Segment liabilities include all operating liabilities and consist principally of accounts payable and accrued expenses, wages and accrued liabilities. Segment assets and liabilities do not include deferred taxes.

Inter-segment TransactionsSegment revenues, expenses and performance include sales and purchases between operating segments. Transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties. Such transactions are eliminated in consolidation.

Major CustomerThe Group does not have a single external customer from which sales revenue generated amounted to 10% or more of the total revenues of the Group.

Financial information about the operating segments follow:

For the Year Ended December 31, 2014

Domestic International Eliminations Total

SalesExternal salesInter-segment salesTotal SalesResultsSegment resultInterest expense and other financing chargesInterest incomeOther income - netIncome tax expenseNet IncomeAttributable to:Equity holders of the CompanyNon-controlling interestsNet Income

P64,56954

P64,623

P20,773

(2,722)

P14,436-

P14,436

P1,306

-

P - (54)

(P54)

P -

-

P79,005-

P79,005

P22,079

(2,722)188

50(6,080)

P13,515

P13,029486

P13,515

SMBI FS 2014 C5 6.indd 63 5/15/15 1:51 PM


Domestic International Eliminations Consolidated

Other InformationSegment assetsTrademarks and brand namesOther assetsDeferred tax assetsConsolidated Total AssetsSegment liabilitiesLong-term debt including current maturities - net of debt issue costsIncome and other taxes payableDividends payable and othersDeferred tax liabilitiesConsolidated Total LiabilitiesCapital expendituresDepreciation of property, plant and equipmentNoncash items other than depreciation of property, plant and equipment

P49,04832,000

P6,795

37,518

P776

933

1,426

P18,4791,422

P2,402

-

P151

443

177

(P14,078)

(P57)

-

P -

-

-

P53,44933,422

671,610

P88,548P9,140

37,5182,650

603383

P50,294P927

1,376

1,603


SalesExternal salesInter-segment salesTotal SalesResultsSegment resultInterest expense and other financing chargesInterest incomeOther changes - netIncome tax expenseNet IncomeAttributable to:Equity holders of the CompanyNon-controlling interestsNet Income


P60,72041

P60,761

P20,446

(3,845)

P14,333-

P14,333

P1,108

(27)

P - (41)

(P41)

P -

-

P75,053-

P75,053

P21,554

(3,872)463

(294)(5,330)

P12,521

P12,051470

P12,521

As of and For the Year Ended December 31, 2014

SMBI FS 2014 C5 6.indd 64 5/15/15 1:51 PM

652 0 1 4 A N N U A L R E P O R T



SalesExternal salesInter-segment salesTotal SalesResultsSegment resultInterest expense and other

financing chargesInterest incomeReversals on impairment of

noncurrent assets - netOther income - netIncome tax expenseNet IncomeAttributable to:Equity holders of the CompanyNon-controlling interestsNet Income

P61,57246

P61,618

P21,472

(3,997)

P14,008-

P14,008

P795

(75)

P - (46)

(P46)

P66

-

P75,580-

P75,580

P22,333

(4,072)724

1,367586

(5,840)P15,098

P14,360738

P15,098



Other InformationSegment assetsTrademarks and brand namesOther assetsDeferred tax assetsConsolidated Total AssetsSegment liabilitiesLong-term debt including current maturities - net of debt issue costsIncome and other taxes payableDividends payable and othersDeferred tax liabilitiesConsolidated Total LiabilitiesCapital expendituresDepreciation of property, plant and equipmentNoncash items other than depreciation of property, plant and equipment

P53,63232,000

P8,735

45,013

P932

963

1,690

P17,9561,412

P2,558

-

P90

472

(32)

(P14,073)-

(P53)

-

P -

-

-

P57,51533,412

731,910

P92,910P11,240

45,013

2,869736

17P59,875

P1,022

1,435

1,658

SMBI FS 2014 C5 6.indd 65 5/15/15 1:51 PM




Other InformationSegment assetsTrademarks and brand namesOther assetsDeferred tax assetsConsolidated Total AssetsSegment liabilitiesLong-term debt including

current maturities - net of debt issue costs

Income and other taxes payable

Dividends payable and othersDeferred tax liabilitiesConsolidated Total LiabilitiesCapital expendituresDepreciation of property,

plant and equipmentNoncash items other than

depreciation of property, plant and equipment

Reversal for impairment of noncurrent assets - net

P57,95732,000

P7,851

50,995

P659

1,044

1,181

-

P18,0891,305

P2,337

1,227

P131

422

(146)

(1,367)

(P14,067)-

(P52)

-

P -

-

-

-

P61,97933,305

821,260

P96,626P10,136

52,222

2,761883

19P66,021

P790

1,466

1,035

(1,367)

6. Cash and Cash Equivalents

This account consists of:

Note 2014 2013

Cash on hand and in banksShort-term investments

31, 32

P2,6257,261

P9,886

P2,99111,207

P14,198

Cash in banks earns interest at the respective deposit rates. Short-term investments include demand deposits which can be withdrawn anytime depending on the immediate cash requirements of the Group and earn interest at the respective short-term investment rates.

SMBI FS 2014 C5 6.indd 66 5/15/15 1:51 PM

672 0 1 4 A N N U A L R E P O R T

2014

2013

Trade

Trade

Total

Total

Others

Others

AmountsOwed by

RelatedParties

AmountsOwed by

RelatedParties

Current Past due Less than 30 days 30 - 60 days 61 - 90 days Over 90 days

Current Past due Less than 30 days 30 - 60 days 61 - 90 days Over 90 days

P5,325

2353743

174P5,814

P5,838

425165

11307

P6,746

P84

1661

13P120

P86

115

313

P118

P796

1967

35P863

P545

16259886

P770

P6,205

2704951

222P6,797

P6,469

442205112406

P7,634

Various collaterals for trade receivables such as bank guarantees, time deposits and real estate mortgage are held by the Group for certain credit limits.

7. Trade and Other Receivables


Note 2014

2014

2013

2013

Trade Receivables Amounts owed by related partiesNontrade Amounts owed by related parties Others

Less allowance for impairment losses

26

26

44, 31, 32

P5,81420

100863

6,797792

P6,005

P6,74617

101770

7,6341,282

P6,352

Trade receivables are non-interest bearing and are generally on a seven to 30-day credit term.

“Others” include receivables from employees, insurance and freight claims, interest and various receivables.

The movements in the allowance for impairment losses are as follows:

Balance at beginning of year Charges for the yearWrite-off and reversalCurrency translation adjustmentsBalance at end of year

P1,2825

(494)(1)

P792

P1,26861

(43)(4)

P1,282

Allowance for impairment losses related to amounts owed by related parties as of December 31, 2014 and 2013 amounted to P13 (Note 26).

As of December 31, 2014 and 2013, the aging of trade and other receivables is as follows:

SMBI FS 2014 C5 6.indd 67 5/15/15 1:51 PM


8. Inventories


2014 2013

At net realizable value Finished goods and goods in process Containers Materials and supplies

P1,3761,116

968P3,460

P1,385984885

P3,254

The cost of finished goods and goods in process as of December 31, 2014 and 2013 amounted to P1,394 and P1,399, respectively. The cost of containers as of December 31, 2014 and 2013 amounted to P1,670 and P1,453, respectively. The cost of materials and supplies as of December 31, 2014 and 2013 amounted to P983 and P902, respectively.

The write-down of inventories recognized as expense amounted to P534, P403 and P181 for the years ended December 31, 2014, 2013 and 2012, respectively.

9. Prepaid Expenses and Other Current Assets


Note 2014 2013

Prepaid taxes and licensesPrepaid insuranceDerivative assetsPrepaid rentalsOthers

31, 32

P77091

524

172P1,062

P66090

127

160P938

“Others” include prepaid supplies, prepaid promotional expenses and other miscellaneous prepaid expenses.

10. Investments

The following are the developments relating to the Company’s investments in shares of stock of subsidiaries:

BPI

On April 7, 2014, the board of directors and stockholders of BPI approved the increase of its authorized capital stock from P800 million to P1,600 million consisting of 3,200,000 common shares at par value of P350 per share and 4,800,000 preferred shares at par value of P100 per share. The Company subscribed and paid for an additional 1,546,000 common shares in the amount of P541 million while San Miguel Brewery Inc. Retirement Plan (SMBRP) subscribed and paid for an additional 2,319,000 preferred shares in the amount of P232 million. The increase in BPI’s authorized capital stock was approved by the SEC on November 18, 2014.

AFS Financial AssetsThe Group’s AFS financial assets pertain to investments in shares of stock and club shares amounting to P60 and P62 as of December 31, 2014 and 2013, respectively (Notes 31 and 32).

The methods and assumptions used to estimate the fair value of AFS financial assets are discussed in Note 32.

SMBI FS 2014 C5 6.indd 68 5/15/15 1:51 PM

692 0 1 4 A N N U A L R E P O R T

The

follo

win

g ta

ble

sum

mar

izes

the

finan

cial

info

rmat

ion

rela

ting

to e

ach

of th

e G

roup

’s su

bsid

iarie

s th

at h

as m

ater

ial n

on-c

ontr

ollin

g in

tere

sts:

Dec

embe

r 31,

201

4D

ecem

ber 3

1, 2

013

BPI

SMBH

KPT

DSM

BTL

SMH

TBP

ISM

BHK

PTD

SMBT

LSM

HT

Non

-con

trol

ling

perc

enta

ge o

n pr

ofit o

r los

s

Non

-con

trol

ling

owne

rshi

p in

tere

st p

erce

ntag

e

Non

-con

trol

ling

voti

ng in

tere

st p

erce

ntag

e

Carr

ying

am

ount

of n

on-c

ontr

ollin

g in

tere

st

Curr

ent a

sset

sN

oncu

rren

t ass

ets

Curr

ent l

iabi

litie

sN

oncu

rren

t lia

bilit

ies

Net

ass

ets

Cash

div

iden

ds to

non

-con

trol

ling

asse

ts

Net

inco

me

(loss

) att

ribu

tabl

e to

non

-con

trol

ling

inte

rest

s

Oth

er c

ompr

ehen

sive

inco

me

(loss

) att

ribu

tabl

e

to

non

-con

trol

ling

inte

rest

s

Sale

s

Net

inco

me

(loss

)O

ther

com

preh

ensi

ve in

com

e (lo

ss)

Tota

l com

preh

ensi

ve in

com

e (lo

ss)

Cash

flow

s fr

om o

pera

ting

activ

ities

Cash

flow

s fr

om in

vest

ing

activ

ities

Cash

flow

s fr

om fi

nanc

ing

activ

ities

Effec

ts o

f exc

hang

e ra

te c

hang

es o

n ca

sh a

nd

ca

sh e

quiv

alen

ts

Net

incr

ease

(dec

reas

e) in

cas

h an

d ca

sh

equi

vale

nts

7% 60%

60%

P483

P588

1,80

5(3

8) (1)

P2,3

54 P16

P12

P -

P214

P170 -

P170 P8

7(6

91)

752

-

P148

7% 60%

60%

P255

P396

1,11

0(7

9) (1)

P1,4

26 P24

P16

P -

P215

P229 -

P229

P259 1

(27)

-

P233

-

34%

34%

P1,1

29

P1,8

623,

555

(889

)(1

,231

)

P3,2

97 P14

P72

(P3)

P4,1

90

P212 (9

)

P203 P6

6(3

5)(2

6)

- P5

-

34%

34%

P1,0

65

P1,8

903,

622

(1,1

16)

(1,2

83)

P3,1

13 P14

P48

P11

P3,7

75

P141 32

P173

P119 (9

)(4

8)

-

P62

-

42%

42%

P1,1

40

P2,8

90 723

(726

)(1

51)

P2,7

36

P308

P442

(P20

)

P6,7

07

P1,0

62 (49)

P1,0

13

P246 (4

5)(2

41)

-

(P41

)

-

42%

42%

P1,0

27

P2,5

29 641

(567

)(1

38)

P2,4

65

P348

P458

(P23

7)

P6,9

24

P1,0

99(5

68)

P531

P577 (3

)(3

56)

(116

)

P102

-

51% 9%

(P94

4)

P1,4

492,

252

(1,6

30)

(3,9

23)

(P1,

852) P -

(P11

1) P6

P1,4

86

(P21

7) 12

(P20

5)

P34

(24)

-

-

P10

-

51% 9%

(P83

3)

P1,3

622,

440

(1,5

21)

(3,9

13)

(P1,

632)

P -

(P10

4)

P56

P1,6

91

(P20

4)11

0

(P94

)

P62 (6

)(3

0) (1)

P25

-

51% 9% P16 P6 169 -

(142

)

P33

P -

P -

P -

P -

P -

-

P -

P -

-

-

-

P -

-

51% 9% P17 P6 168

-

(142

)

P32

P -

P -

(P1)

P -

P -

(2)

(P2)

P -

-

-

-

P -

SMBI FS 2014 C5 6.indd 69 5/15/15 1:51 PM


11.

Pr

oper

ty, P

lant

and

Equ

ipm

ent

The

mov

emen

ts in

this

acc

ount

are

as

follo

ws:

Cost

Janu

ary

1, 2

013

Addi

tions

D

ispo

sals

/rec

lass

ifica

tions

Curr

ency

tran

slat

ion

adju

stm

ents

Dec

embe

r 31,

201

3Ad

ditio

nsD

ispo

sals

/rec

lass

ifica

tions

Curr

ency

tran

slat

ion

adju

stm

ents

Dec

embe

r 31,

201

4

Acc

umul

ated

Dep

reci

atio

n

an

d A

mor

tiza

tion

Janu

ary

1, 2

013

Addi

tions

Dis

posa

ls/r

ecla

ssifi

catio

nsCu

rren

cy tr

ansl

atio

n

ad

just

men

ts

Dec

embe

r 31,

201

3Ad

ditio

nsD

ispo

sals

/rec

lass

ifica

tions

Curr

ency

tran

slat

ion

adju

stm

ents

Dec

embe

r 31,

201

4

Land

Mac

hine

ry a

ndEq

uipm

ent

Build

ings

and

Impr

ovem

ents

Tran

spor

tati

onEq

uipm

ent

Leas

ehol

dIm

prov

emen

ts

Offi

ceEq

uipm

ent,

Furn

itur

e an

dFi

xtur

es

Tool

s an

d O

ther

Eq

uipm

ent

Cons

truc

tion

in

Pro

gres

sTo

tal

P8,0

36 - (47)

(6)

7,99

5-

-

2

7,99

7

-

-

-

-

-

-

-

-

-

P35,

669

785

(98)

1,43

3

37,7

89 708

(71) 66

38,4

92

22,4

731,

061

(87)

499

23,9

46 973

(69) 23

24,8

73

P11,

036

115

(33)

636

11,7

54 91 (2)

37

11,8

80

4,08

522

6(2

8)

170

4,45

324

4 (2)

10

4,70

5

P919 11

0(1

49)

-

880 29 (51) (1

)

857

578 78

(144

)

(1)

511 93 (45) (1

)

558

P293 29 -

2

324 4 (1

)

-

327 96 31 - 2

129 25 (1

) 1

154

P508 36 (2

2) 11 533 25 (12) 1

547

394 34 (22) 7

413 34 (12)

-

435

P75 9 (5

) 6 85 20 (2)

-

103 46 5 (4

) 4 51 7 (2)

- 56

P341 (6

2) (2)

-

277 50 (1

)

-

326

-

-

-

-

-

-

-

-

-

P56,

877

1,02

2(3

56)

2,09

4

59,6

37 927

(140

)

105

60,5

29

27,6

721,

435

(285

)

681

29,5

031,

376

(131

)

33

30,7

81

Forw

ard

SMBI FS 2014 C5 6.indd 70 5/15/15 1:51 PM

712 0 1 4 A N N U A L R E P O R T

Land

Mac

hine

ry a

ndEq

uipm

ent

Build

ings

and

Impr

ovem

ents

Tran

spor

tati

onEq

uipm

ent

Leas

ehol

dIm

prov

emen

ts

Offi

ceEq

uipm

ent,

Furn

itur

e an

dFi

xtur

es

Tool

s an

d O

ther

Equi

pmen

tCo

nstr

ucti

on

in P

rogr

ess

Tota

l

Acc

umul

ated

Impa

irm

ent

Lo

sses

Janu

ary

1, 2

013

Curr

ency

tran

slat

ion

adju

stm

ents

Dec

embe

r 31,

201

3D

ispo

sals

/rec

lass

ifica

tions

Curr

ency

tran

slat

ion

adju

stm

ents

Dec

embe

r 31,

201

4

Net

Boo

k Va

lue

Dec

embe

r 31,

201

3

Dec

embe

r 31,

201

4

P -

-

-

-

- -

P7,9

95

P7,9

97

P6,5

78 684

7,26

2-

35

7,29

7

P6,5

81

P6,3

22

P2,0

25 235

2,26

0-

8

2,26

8

P5,0

41

P4,9

07

P12 1 13 (4

)

- 9

P356

P290

P1 - 1

-

- 1

P194

P172

P37 3 40 (1

)

- 39 P80

P73

P13 1 14 - - 14 P20

P33

P -

-

-

-

- -

P277

P326

P8,6

66 924

9,59

0(5

) 43

9,62

8

P20,

544

P20,

120

Dep

reci

atio

n an

d am

ortiz

atio

n ch

arge

d to

ope

ratio

ns a

mou

nted

to P

1,37

6, P

1,43

5 an

d P1

,466

in 2

014,

201

3 an

d 20

12, r

espe

ctiv

ely

(Not

es 1

9, 2

0 an

d 21

). N

o in

tere

st

was

cap

italiz

ed in

201

4 an

d 20

13. R

ever

sal o

f im

pairm

ent,

net o

f the

rela

ted

depr

ecia

tion,

reco

gniz

ed in

pro

fit o

r los

s am

ount

ed to

P12

3 in

201

2.

SMBI FS 2014 C5 6.indd 71 5/15/15 1:51 PM


12. Investment Property

The movements in investment property, including the effects of currency translation adjustments are as follows:

CostJanuary 1, 2013Additions Currency translation adjustmentsDecember 31, 2013Additions Currency translation adjustmentsDecember 31, 2014Accumulated Depreciation and AmortizationJanuary 1, 2013Additions Currency translation adjustmentsDecember 31, 2013Additions Currency translation adjustmentsDecember 31, 2014Net Book ValueDecember 31, 2013December 31, 2014

Land and Land Improvements

Buildings andImprovements Total

P5457

26578694

31,275

5786

718

- 79

P507P1,196

P3361

27364

12

367

1217

10138

81

147

P226P220

P8818

53942695

51,642

1781516

20916

1226

P733P1,416

No impairment loss was recognized in 2014, 2013 and 2012.

The fair value of investment property amounting to P2,693 and P1,944 as of December 31, 2014 and 2013, respectively, has been categorized as Level 3 in the fair value hierarchy based on the inputs used in the valuation techniques (Note 4).

The fair value of investment property was determined by external, independent property appraisers having appropriate recognized professional qualifications and recent experience in the location and category of the property being valued. The independent appraisers provide the fair value of the Group’s investment property on a regular basis.

Valuation Technique and Significant Unobservable InputsDomestic. The market value was determined using the Sales Comparison Approach. The Sales Comparison Approach considers the sale of similar or substitute property, registered within the vicinity, and the related market data. The estimated value is established by process involving comparison. The property being valued is then compared with sales of similar property that have been transacted in the market. Listings and offerings may also be considered. The observable inputs to determine the market value of the property are the following: location characteristics, size, time element, quality and prospective use, bargaining allowance, and marketability.

The rental value of the subject property was determined using the Income Approach. Under the Income Approach, the market value of the property is determined first, and then proper capitalization rate is applied to arrive at its rental value. The rental value of the property is determined on the basis of what a prudent lessor or a prospective lessee are willing to pay for its use and occupancy considering the prevailing rental rates of similar property and/or rate of return a prudent lessor generally expects on the return on its investment. A study of current market conditions indicates that the return on capital for similar real estate investment ranges from 3% to 5%.

International. The valuation is determined using the Investment Approach which considers the capitalization of net rent income receivable from existing tenancies and the reversionary value of the property after tenancies expire by reference to market sales transactions. The significant unobservable input in the fair value measurement is the discount rate, which ranged from 2.9% to 3.4%.

SMBI FS 2014 C5 6.indd 72 5/15/15 1:51 PM

732 0 1 4 A N N U A L R E P O R T

13. Intangible Assets

The movements in this account are as follows:

Trademarks and Brand

Names

Computer Software

and Other Intangibles

Land Use RightsLicenses Total

CostDecember 31, 2012AdditionsDisposals/reclassificationsCurrency translation adjustmentsDecember 31, 2013AdditionsDisposals/reclassificationsCurrency translation adjustmentsDecember 31, 2014Accumulated AmortizationDecember 31, 2012AdditionsDisposals/reclassificationsCurrency translation adjustmentsDecember 31, 2013AdditionsDisposals/reclassificationsCurrency translation adjustmentsDecember 31, 2014Accumulated Impairment LossesDecember 31, 2012Currency translation adjustmentsDecember 31, 2013AdditionsCurrency translation adjustmentsDecember 31, 2014Net Book ValueDecember 31, 2013December 31, 2014

P33,517- -

12433,641

- -

1233,653

35- -

338

- -

- 38

177

14191-

2193

P33,412P33,422

P1,8323

-

181,853

4-

41,861

2615

-

- 41

9-

- 50

-

- - -

- -

P1,812P1,811

P1,016- -

1041,120

- -

61,126

28222

-

31335

23-

2360

5

16

-

- 6

P779P760

P1101

(1)

3113

31

1118

974

(1)

3103

4-

1108

4

- 41

- 5

P6P5

P36,4754

(1)

24936,727

71

2336,758

44041(1)

37517

36-

3556

186

15201

1

2204

P36,009P35,998

Trademarks and brand names with indefinite useful lives amounted to P33,422 and P33,412 as of December 31, 2014 and 2013, respectively.

Licenses with indefinite useful lives amounted to P1,788 and P1,784 as of December 31, 2014 and 2013, respectively. Licenses with finite useful lives amounted to P23 and P28 as of December 31, 2014 and 2013, respectively.

SMBI FS 2014 C5 6.indd 73 5/15/15 1:51 PM


Trademarks and Brand Names

a. Domestic Operations

The recoverable amount of the trademarks and brand names has been determined based on a valuation using cash flow projections (value in use) covering a five-year period based on long range plans approved by management. Cash flows beyond the five-year period are extrapolated using a determined constant growth rate to arrive at its terminal value. The 2% growth rate used is consistent with the long-term average growth rate for the industry. The discount rate applied to after tax cash flow projections is 8.00% on December 31, 2014 and 2013.

b. International Operations

The recoverable amount of the trademarks and brand names has been determined based on a valuation using cash flow projections (value in use) covering a five-year period based on long range plans approved by management. Cash flows beyond the five-year period are extrapolated using a determined constant growth rate to arrive at its terminal value. The 2% to 3% growth rate used is consistent with the long-term average growth rate for the industry. The discount rates applied to after tax cash flow projections range from 6.4% to 16.6% and from 7.4% to 16.0% in 2014 and 2013, respectively.

Management assessed that there is no impairment loss in the value of trademarks and brand names in 2014, 2013 and 2012.

Management believes that any reasonably possible change in the key assumptions on which the recoverable amount of trademarks and brand names is based would not cause its carrying amount to exceed its recoverable amount.

The calculations of value in use are most sensitive to the following assumptions:

Discount Rate. The Group uses the weighted-average cost of capital as the discount rate, which reflects management’s estimate of the risk. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals.

Growth Rate. Revenue growth was projected taking into account the average growth levels experienced over the past five years and the estimated sales volume and price growth for the next five years.

14. Other Noncurrent Assets


Note 2014 2013

Deferred containers - net Bottles Shells

Others4

26, 27, 28, 31, 32

P6,9241,8618,785

146P8,931

P6,8301,9208,750

161P8,911

“Others” include unamortized cost of pallets, kegs and CO2 cylinders, defined benefit retirement asset, noncurrent portion of long-term receivable, and other noncurrent assets.

SMBI FS 2014 C5 6.indd 74 5/15/15 1:51 PM

752 0 1 4 A N N U A L R E P O R T

15. Accounts Payable and Accrued Expenses


The movements in the deferred containers are as follows:

CostBalance at beginning of yearAdditionsDisposals/reclassification Currency translation adjustmentsBalance at end of yearAccumulated AmortizationBalance at beginning of yearAmortizationDisposals/reclassification Currency translation adjustmentsBalance at end of year

Note

Note

2014

2014

2013

2013

21

4

P17,1772,053

(838)(5)

18,387

8,4271,453

(274)(4)

9,602P8,785

P14,0933,407

(318)(5)

17,177

7,0841,376

(53)20

8,427P8,750

Trade Payables Amounts owed to related partiesNontrade Amounts owed to related parties Derivative liabilities Accruals Interests Payroll Utilities Contracted services Materials Others

26

2631, 32

P3,437981

28627

591573

2374

- 463

P6,455

P3,7702,131

21622

724522

21- 20

435P7,861

Accounts payable and accrued expenses are unsecured and non-interest bearing.

“Others” include accruals for repairs and maintenance, advertising and promotion expenses, freight, trucking and handling, supplies, dividends payable and other payables.

SMBI FS 2014 C5 6.indd 75 5/15/15 1:51 PM


16. Long-term Debt


Unsecured peso-denominated term notes: Series B bonds, fixed interest rate of 8.875% Series C bonds, fixed interest rate of 10.50% Series D bonds, fixed interest rate of 6.05% Series E bonds, fixed interest rate of 5.93% Series F bonds, fixed interest rate of 6.60% Series G bonds, fixed interest rate of 5.50% Series H bonds, fixed interest rate of 6.00%

Less current maturities

P - 2,7932,9859,9336,944

12,3492,514

37,518-

P37,518

P22,3862,7902,9799,9206,938

- -

45,01322,386

P22,627

2014 2013

The amount represents unsecured long-term debt incurred by the Company: (a) to finance its acquisition of SMC’s interest in IBI and BPI; (b) to support the redemption of the Series A bonds which matured on April 3, 2012; (c) to support the partial prepayment of the US$300 unsecured loan facility agreement (paid in full in 2013); and (d) to support the redemption of the Series B bonds which matured on April 4, 2014.

The Company’s unsecured long-term notes comprise the Philippine peso-denominated fixed rate bonds in the aggregate principal amount of: (a) P2,810 pertaining to the aggregate principal amount of the Series C bonds which remain outstanding of the P38,800 bonds (P38,800 Bonds) which were issued on April 3, 2009 (P38,800 Bonds Issue Date); (b) P20,000 (P20,000 Bonds) which were issued on April 2, 2012 (P20,000 Bonds Issue Date); and (c) P15,000 (P15,000 Bonds) which were issued on April 2, 2014 (P15,000 Bonds Issue Date).

The P38,800 Bonds, which originally consisted of the Series A bonds (with a term of three years from the P38,800 Bonds Issue Date), the Series B bonds (with a term of five years and one day from the P38,800 Bonds Issue Date), and the Series C bonds (with a term of ten years from the P38,800 Bonds Issue Date), were sold to the public pursuant to a registration statement that was rendered effective, and permit to sell issued, by the SEC on March 17, 2009. The Series A bonds matured on April 3, 2012 and were accordingly redeemed by the Company on April 3, 2012. Part of the proceeds of the Company’s P20,000 Bonds were used to pay such maturity. The Series B bonds with an aggregate principal amount of P22,400 matured on April 4, 2014 and were accordingly redeemed by the Company on April 4, 2014. The proceeds of the Company’s P15,000 Bonds were used to partially pay such maturity. Only the Series C bonds remain outstanding of the P38,800 Bonds and listed in the PDEx for trading. Unamortized debt issue costs related to these long-term debts amounted to P17 and P34 as of December 31, 2014 and 2013, respectively.

The P20,000 Bonds consist of the Series D bonds (with a term of five years and one day from the P20,000 Bonds Issue Date), the Series E bonds (with a term of seven years from the P20,000 Bonds Issue Date), and the Series F bonds (with a term of ten years from the P20,000 Bonds Issue Date). The P20,000 Bonds were sold to the public pursuant to a registration statement that was rendered effective, and permit to sell issued, by the SEC on March 16, 2012. The Series E bonds and Series F bonds were listed on the PDEx for trading on April 2, 2012, while the Series D bonds were listed on the PDEx for trading on October 3, 2012. Unamortized debt issue costs related to these long-term debts amounted to P138 and P163 as of December 31, 2014 and 2013, respectively.

The P15,000 Bonds consist of the Series G bonds (with a term of seven years from the P15,000 Bonds Issue Date) and Series H bonds (with a term of ten years from the P15,000 Bonds Issue Date). The P15,000 Bonds were sold to the public pursuant to a registration statement that was rendered effective, and permit to sell issued, by the SEC on March 17, 2014 and were listed on the PDEx for trading on April 2, 2014. Unamortized debt issue costs related to these long-term debts amounted to P137 as of December 31, 2014.

Interest on the Series C bonds are paid semi-annually, every April 3 and October 3 of each year. Interest on the P20,000 Bonds are paid semi-annually every April 2 and October 2 of each year (each P20,000 Bonds Interest Payment Date), save for the first interest payment of the Series D bonds which was made on October 3, 2012. The Company may (but shall not be obligated to) redeem all (and not a part only) of the outstanding P20,000 Bonds on the day after the 10th

SMBI FS 2014 C5 6.indd 76 5/15/15 1:51 PM

772 0 1 4 A N N U A L R E P O R T

P20,000 Bonds Interest Payment Date for the Series E bonds, and the 14th P20,000 Bonds Interest Payment Date for the Series F Bonds. Interest on the P15,000 Bonds are paid every April 2 and October 2 of each year (each P15,000 Bonds Interest Payment Date). The Company may also (but shall likewise not be obligated to) redeem all (and not a part only) of the outstanding P15,000 Bonds on the 11th P15,000 Bonds Interest Payment Date for the Series G bonds, and on the 14th, 16th or 18th P15,000 Bonds Interest Payment Dates for the Series H bonds.

On December 5 and 16, 2014, the BOD (through the Executive Committee in the December 16, 2014 meeting) approved the conduct of a consent solicitation process for the holders of record as of December 15, 2014 of the Series C bonds, Series D bonds, Series E bonds and Series F bonds (Record Bondholders) for the amendment of the negative covenants in the trust agreements covering the Series C bonds, Series D bonds, Series E bonds and Series F bonds to align the same with the negative covenants of the Series G bonds and Series H bonds, and allow the Company to engage, or amend its Articles of Incorporation to engage, in the business of manufacturing, selling, distributing, and/or dealing, in any and all kinds of beverage products (Negative Covenant Amendment). The Company obtained the consents of Record Bondholders representing 90% of the outstanding aggregate principal amount of the Series C bonds and 81.05% of the outstanding aggregate principal amount of the Series D bonds, Series E bonds and Series F bonds for the Negative Covenant Amendment. The supplemental agreements amending the trust agreements covering the Series C bonds, Series D bonds, Series E bonds and Series F bonds to reflect the Negative Covenant Amendment were executed by the Company and the respective trustees of the said bonds on February 2, 2015.

As of December 31, 2014 and 2013, the Company is in compliance with its debt covenants.

As of December 31, the movements in debt issue costs are as follows:

Note 2014 2013

Balance at beginning of yearAdditionAmortizationBalance at end of year

23

P197149(54)

P292

P377-

(180)P197

Repayment ScheduleAs of December 31, 2014, the annual maturities of long-term debt are as follows:

20172019202120222024

P3,00012,81012,462

7,0002,538

P37,810

P1584

1135624

P292

P2,98512,72612,349

6,9442,514

P37,518

YearGross

AmountDebt Issue

Costs Net

Interest expense recognized in the consolidated statements of income amounted to P2,668, P3,692 and P3,757 in 2014, 2013 and 2012, respectively (Note 23).

Valuation TechniqueThe market value was determined using the market comparison technique. The fair values are based on PDEX. The Bonds are traded in an active market and the quotes reflect the actual transactions in similar instruments.

The fair value of long-term debt amounting to P42,022 and P49,311 as of December 31, 2014 and 2013, respectively, has been categorized as Level 1 in the fair value hierarchy based on the inputs used in the valuation techniques.

SMBI FS 2014 C5 6.indd 77 5/15/15 1:51 PM


17. Income Taxes

Deferred tax assets and liabilities arise from the following:

2014 2013

Items recognized in profit or lossAllowance for impairment losses on receivablesNet defined benefit retirement obligationAllowance for inventory losses Unrealized gains on derivativesUnrealized foreign exchange gains - netOthersItems recognized directly in other comprehensive incomeEquity reserve for retirement plan

P220200169

(670)-

294

1,014P1,227

P358171144(18)

(2)62

1,177P1,892

The above amounts are reported in the consolidated statements of financial position as follows:

Note

2014

2014

2014 2013

2012

2012

2013

2013

Deferred tax assetsDeferred tax liabilities

Statutory income tax rate Increase (decrease) in income tax rate resulting from: Income subjected to final tax OthersEffective income tax rate

CurrentDeferred

4 P1,610(383)

P1,227

P1,909(17)

P1,892

The components of income tax expense are shown below:

P5,99882

P6,080

P5,710(380)

P5,330

P5,881(41)

P5,840

The reconciliation between the statutory income tax rate on income before income tax and the Group’s effective income tax rates is as follows:

30.00%

(0.29)1.32

31.03%

30.00%

(0.78)0.64

29.86%

30.00%

(1.04)(1.07)27.89%

SMBI FS 2014 C5 6.indd 78 5/15/15 1:51 PM

792 0 1 4 A N N U A L R E P O R T

18. Capital Stock

19. Cost of Sales

2014Note

20132014

20122013

Pursuant to the registration statement rendered effective, and permit to sell issued by the SEC on April 28, 2008, 15,488,309,960 common shares of the Company were registered and may be offered for sale at an offer price of P8.00 per common share.

The Company’s common shares were listed on the PSE on May 12, 2008. Following the SEC’s denial of all requests made (including the request of the Company) for the extension of the grace period requirement for listed companies to comply with the PSE’s minimum public ownership requirement and the PSE’s imposition of a trading suspension on the common shares of the Company effective January 1, 2013 as a result of such denial, the BOD of the Company approved on February 15, 2013, the voluntary delisting of the Company’s common shares from the PSE. A petition for the same was thereafter filed by SMB with the PSE on February 20, 2013.

To comply with the PSE requirements on voluntary delisting, the Company undertook a tender offer to buy back all of the common shares held by the public (other than those held by its major stockholders and directors) at an offer price of P20.00 per common share. The tender offer commenced on March 4, 2013 and ended on April 3, 2013. A total of 51,425,799 common shares were tendered and accepted by the Company, equivalent to 0.3337% of its total issued and outstanding shares, and were accordingly recorded as treasury shares.

Thereafter, the PSE approved the petition for the voluntary delisting of the Company in its April 24, 2013 board meeting and has authorized the delisting of the Company’s common shares from its official registry effective May 15, 2013.

As of December 31, 2014 and 2013, the Company has a total of 15,359,053,161 issued and outstanding common shares (excluding the 51,425,799 common shares tendered and accepted by the Company during the tender offer and recorded as treasury shares) and 1,210 and 1,332 shareholders of record, respectively. As of December 31, 2014 and 2013, the Certificate Authorizing Registration (CAR) for 41,465,000 common shares and 28,005,900 common shares, respectively, out of the 51,425,799 common shares tendered and accepted during the tender offer (equivalent to 80.63% and 54%, respectively, of the total tendered and accepted) were secured and presented to the Company. The CARs for the remaining common shares tendered and accepted during the tender offer have yet to be issued by the Bureau of Internal Revenue (BIR).

The movements in the number of outstanding shares of common stock are as follows:

Balance at beginning of year Less redemption of common sharesBalance at end of year

15,410,478,96051,425,799

15,359,053,161

15,359,053,161-

15,359,053,161


Taxes and licenses InventoriesCommunications, light, fuel and water PersonnelDepreciation and amortizationRepairs and maintenance RentOthers

22

21

4, 27

Taxes and licenses include excise, real property and business taxes.

P24,5379,766

2,1361,272

1,035345

20294

P39,405

P27,71910,004

2,1151,298

1,044413

21180

P42,794

P21,97410,507

2,4261,256

1,138424

19286

P38,030

SMBI FS 2014 C5 6.indd 79 5/15/15 1:51 PM


20. Selling and Administrative Expenses


Selling expenses consist of:

Administrative expenses consist of:

2014 20122013

SellingAdministrative

P6,2927,840

P14,132

P6,8207,274

P14,094

P7,5497,668

P15,217

2014

2014

Note

Note

2012

2012

2013

2013

Freight, trucking and handlingPersonnelAdvertising and promotion RentTaxes and licenses Travel and transportationCommunications, light, fuel and waterDepreciation and amortizationRepairs and maintenance Provision for impairment losses on receivablesOthers

22

4, 27

21

P2,1071,6651,639

417164154

119

10391

(431)264

P6,292

P2,0761,605 1,786

421172169

126

10087

61217

P6,820

P2,2881,5712,235

426161170

125

9991

177206

P7,549

PersonnelDepreciation and

amortizationAdvertising and promotionProvision for inventory

lossesContracted servicesManagement feesCommunications, light, fuel and water Taxes and licensesRentProfessional fees Travel and transportationRepairs and maintenance Research and developmentShipping expensesOthers

22

21

30

4, 27

P2,812

1,767905

528466286

171148130115109

903116

266P7,840

P2,554

1,765692

368 373265

116124142156137194

5322

313P7,274

P2,548

2,146877

181335277

10798

114118143213

7027

414P7,668

SMBI FS 2014 C5 6.indd 80 5/15/15 1:51 PM

812 0 1 4 A N N U A L R E P O R T

21. Depreciation and Amortization

22. Personnel Expenses

23. Interest Expense and Other Financing Charges

Depreciation and amortization are distributed as follows:



Personnel expenses are distributed as follows:

2014

2014

Note

Note

2012

2012

2013

2013

Cost of sales: Property, plant and equipment Selling and administrative expenses: Deferred containers Property, plant and equipment Others

11, 19

14

1112, 13, 14

P1,044

1,453

33285

1,870P2,914

P1,035

1,376

40089

1,865P2,900

P1,138

1,832

32885

2,245P3,383

“Others” include amortization of investment property, computer software and other intangible assets, pallets, kegs and CO2 cylinders.

2014

2014

Note

Note

2012

2012

2013

2013

Salaries and wages Other employee benefits Retirement costs 28

P3,3391,804

632P5,775

P3,3991,450

582P5,431

P3,1801,668

527P5,375

Cost of sales Selling expenses Administrative expenses

192020

P1,2981,6652,812

P5,775

P1,2721,6052,554

P5,431

P1,2561,5712,548

P5,375

Interest expense Amortization of debt issue costs Other financing costs

16

16

P2,668

54-

P2,722

P3,692

180-

P3,872

P3,757

24669

P4,072

SMBI FS 2014 C5 6.indd 81 5/15/15 1:51 PM


24. Other Income (Charges)

25. Reversals on Impairment of Noncurrent Assets


2014Note 20122013

Rental incomeForeign exchange gains (losses) - netGain (loss) on sale of: Property and equipment InvestmentLoss on derivatives - netBank chargesOthers

4, 27

31

1032

P84

(60)

4- (9)(3)

34P50

P65

(449)

761

(47)(6)

66(P294)

P74

577

(4)-

(9)(11)(41)

P586

The Group has determined that no further impairment losses nor reversals of previously recognized impairment losses are required in 2014 and 2013. The recoverable amount, which is the value in use, exceeds the carrying amount.

Reversals on impairment of noncurrent assets are reported in the consolidated statement of income as follows:

2012

US Dollar

Peso Equivalent

Provision for impairment losses: Property, plant and equipment Others

Reversal of impairment losses - net

($0.3)(1.6)(1.9)

35.1$33.2

(P11)(70)(81)

1,448P1,367

The Group assessed the recoverable amounts of the cash-generating unit to which these assets belong (China cash-generating unit) and as a result, the carrying amount of the assets in the China cash-generating unit was written down by US$0.5 (P20) in 2012.

a. Mainland China Operations

In 2012, the Group noted that fierce market competition resulted in the decline in the demand for its products in mainland China compared to previous sales forecasts. Consequently, operating losses were incurred. These factors are indications that non-current assets of the operations in mainland China, comprising mainly of the production plant located in Shunde, Guangdong Province and other tangible assets, may be impaired.

The estimates of recoverable amount were based on the assets’ fair values less costs to sell, determined by reference to the observable market prices for similar assets. In estimating this amount, the Group engaged an independent firm of surveyors, LCH (Asia-Pacific) Surveyors Limited, that has among its staff, members of the Hong Kong Institute of Surveyors.

SMBI FS 2014 C5 6.indd 82 5/15/15 1:51 PM

832 0 1 4 A N N U A L R E P O R T

2012

2012

US Dollar

US Dollar

Peso Equivalent

Peso Equivalent

The details of the losses are as follows:

Provision for impairment losses: Property, plant and equipment Others

($0.3)(0.2)

($0.5)

(P11)(9)

(P20)

b. Hong Kong (HK) Manufacturing Operations (SMBHK)

In 2012, there was a change in the estimates used to determine the HK cash-generating unit’s recoverable amount as the Group was able to determine fair value less cost to sell based on a reliable estimate of the amount obtainable from the sale of most of the assets belonging to the HK cash-generating unit under an arm’s length transaction between knowledgeable and willing parties, due to recent comparable transaction data becoming available. The fair value less costs to sell of the HK cash-generating unit was greater than the value in use as at December 31, 2012. Hence, the Group determined the recoverable amount based on the fair value less costs to sell and reversed a part of previously recognized impairment losses in respect of the HK cash-generating unit to the extent that the revised carrying amount of individual assets does not exceed the smaller of: (i) the fair value less costs to sell as at December 31, 2012; and (ii) what would have been determined had no impairment loss been recognized in prior years.

The estimates of the HK cash-generating unit’s fair value less costs to sell were determined by reference to the observable market prices for similar assets. In estimating this amount, the Group engaged an independent firm of surveyors, LCH (Asia-Pacific) Surveyors Limited, that has among its staff, members of the Hong Kong Institute of Surveyors.

Also in 2012, the Group noted an increase in the investment property’s recoverable amount, mainly arising from an increase in the fair value less costs to sell, which exceeded the relevant carrying amount. Hence, the Group reversed previously recognized impairment losses on the investment property to the extent that the revised carrying amount does not exceed the smaller of: (i) the fair value less costs to sell as at December 31, 2012; and (ii) what would have been determined had no impairment loss been recognized in prior years.

The estimates of the investment property’s fair value less costs to sell were determined by reference to the observable market prices for similar assets. In estimating this amount, the Group engaged an independent firm of surveyors, LCH (Asia-Pacific) Surveyors Limited, that has among its staff, members of the Hong Kong Institute of Surveyors.

A reversal of an impairment loss was made to the carrying amount that would have been determined had no impairment loss been recognized in prior years with respect to interests in leasehold land held for own use under operating leases, as there has been a favorable change in the estimates used to determine the recoverable amount.

The details of the reversal are as follows:

Reversal of impairment losses - net $35.1 P1,488

c. PTD

In 2012, the Company performed an impairment testing of PTD’s investment in shares of stock due to the current business condition in PT San Miguel Indonesia Foods and Beverages (PTSMIFB). The test resulted in an impairment loss of US$1.4 (P61) in 2012.

SMBI FS 2014 C5 6.indd 83 5/15/15 1:51 PM


26. Related Party Disclosures

The Group, in the normal course of business, purchases products and services from and sells products to related parties. Transactions with related parties are made on an arm’s length basis and at normal market prices and terms. An assessment is undertaken at each financial year by examining the financial position of the related party and the market in which the related party operates.

Year

RevenueFrom

RelatedParties

PurchasesFrom

RelatedParties

AmountsOwed by

RelatedParties

AmountsOwed to

RelatedParties Terms Conditions

201420132012

201420132012

201420132012

201420132012

201420132012

201420132012201420132012

Retirement plan (Note 28)

Parent

Shareholder

Associate ofUltimate Parent

Associate of Parent

Under Common Control

P - - -

119

10

- - -

12

-

- 6

-

238292199

P250P309P209

P - - -

965999643

- - -

- - -

- 4

-

4,6206,9676,515

P5,585P7,970P7,158

P - - -

201326

1 44

- 2

-

- 1

-

129135168

P150P155P198

P101518

381565477

- - -

- - -

- 1

1,232

8761,7661,790

P1,267P2,347P3,517

On demand;non-interestbearing






Unsecuredno impairment





Unsecured;withimpairment

All current outstanding balances with the related parties are expected to be settled in cash within 12 months as of the reporting date. None of the balances are secured.

a. Amounts owed by related parties consist of trade and nontrade receivables, share in expenses and tolling services. Amounts owed by related parties included under “Other noncurrent assets” account in the consolidated statements of financial position amounted to P11 and P19 as of December 31, 2014 and 2013, respectively (Note 14). Amounts owed by related parties included under “Prepaid expenses and other current assets” account in the consolidated statements of financial position amounted to P19 and P18 as of December 31, 2014 and 2013, respectively (Note 9).

b. Amounts owed to related parties consist of trade payables, professional fees, insurance and management fees arising from purchases of materials, bottles, shells, cartons, reimbursement of expenses and services rendered from/by related parties.

c. The compensation of key management personnel of the Group, by benefit type, follows:

2014 20122013

Short-term employee benefits Retirement costsShare-based payments

P15224

- P176

P13717

3P157

P13319

5P157

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20132014

CancellableLess than one yearBetween one and five years

NoncancellableLess than one year Between one and five years

CancellableLess than one yearBetween one and five yearsMore than five years

NoncancellableLess than one yearBetween one and five years

27. Leasing Agreements

Operating Leases Group as LessorThe Group leases some of its investment property, offices and machinery and equipment under operating lease arrangements to third parties. The leases typically run for a period of one to five years. Some lease agreements provide an option to renew the lease at the end of the lease term and are subject to review to reflect current market rentals.

Lease receivables for the lease of the offices and machinery and equipment are as follows:

P113

14

342054

P68

P81119

391655

P74

Rent income recognized in the consolidated statements of income amounted to P84, P65 and P74 in 2014, 2013 and 2012, respectively (Notes 4 and 24).

Group as LesseeThe Group leases the land and buildings where some of its offices and warehouses are situated, and transportation equipment under operating lease arrangements. The leases typically run for a period of one to ten years. Some leases provide an option to renew the lease at the end of the lease term and are being subjected to reviews to reflect current market rentals.

Lease payments for the lease of the land, buildings and transportation equipment are as follows:

2014 20122013

P1197931

229

81422

P251

P1099038

237

122638

P275

P11880

7205

92433

P238

Rent expense recognized in the consolidated statements of income amounted to P568, P583 and P559 in 2014, 2013 and 2012, respectively (Notes 4, 19 and 20).

SMBI FS 2014 C5 6.indd 85 5/15/15 1:51 PM


28. Retirement Plans

The Company and some of its international subsidiaries have funded, noncontributory, defined benefit retirement plans (collectively, the Retirement Plans) covering a certain number of their permanent employees. The Company’s Retirement Plan is a final salary plan. Contributions and costs are determined in accordance with the actuarial studies made for the Retirement Plans. Annual cost is determined using the projected unit credit method. The Group’s latest actuarial valuation date is December 31, 2014. Valuations are obtained on a periodic basis.

The Company’s Retirement Plan, San Miguel Brewery Inc. Retirement Plan (SMBRP) is registered with the BIR as a tax-qualified plan under Republic Act No. 4917, as amended. The control and administration of the Group’s retirement plans are vested in the Board of Trustees (BOT) of each Retirement Plan. The BOT of the Group’s Retirement Plans exercises voting rights over the shares and approve material transactions. SMBRP’s accounting and administrative functions are undertaken by the Retirement Funds Office of SMC.

Retirement benefits recognized in profit or loss by the Company amounted to P569, P518 and P467 in 2014, 2013 and 2012, respectively, while those charged by the subsidiaries amounted to P63, P64 and P60 in 2014, 2013 and 2012, respectively. The Group’s annual contributions to the Retirement Plans consist of payments covering the current service cost.

The following table shows a reconciliation of the net defined benefit retirement liability and its components:

Present Value of Defined Benefit Retirement Obligation

Net Defined Benefit Retirement Liability

Fair Value of Plan Assets

2014 2013 2014 2013

Balance at beginning of year

Recognized in profit or lossCurrent service costInterest expenseInterest incomeAdministrative expense paid out of plan assets

Recognized in other comprehensive incomeRemeasurements:Actuarial (gains) losses arising from: Experience adjustments Changes in financial assumptions Changes in demographic assumptionsReturn on plan asset excluding interest

OthersBenefits paidContributionsTransfers from other plansTranslation adjustment

Balance at end of year

2014 2013

P10,085

469408- -

877

(12)(179)

(18)-

(209)

(756)- -

(1)

(757)

P9,996

P9,106

394454- -

848

216420

(5)-

631

(507)-

14(7)

(500)

P10,085

P5,982

- - 245-

245

- - - 317

317

(747)923- -

176

P6,720

P5,737

- - 269

(3)

266

- - -

(332)

(332)

(501)751

1447

311

P5,982

P4,103

469408

(245)-

632

(12)(179)

(18)(317)

(526)

(9)(923)-

(1)

(933)

P3,276

P3,369

394454

(269)3

582

216420

(5)332

963

(6)(751)- (54)

(811)

P4,103

As of December 31, 2014 and 2013, the defined benefit retirement liability included as part of “Other noncurrent liabilities” account in the consolidated statements of financial position amounted to P3,280 and P4,115, respectively.

As of December 31, 2014 and 2013, the defined benefit retirement asset included as part of “Other noncurrent assets” account in the consolidated statements of financial position amounted to P4 and P5, respectively.

The retirement benefits amounting to P632, P582 and P527 in 2014, 2013 and 2012, respectively, are recognized as part of “Personnel expenses account” in the consolidated statements of income (Note 22).

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The carrying amounts of the Group’s retirement fund approximate fair values as of December 31, 2014 and 2013.

The Group’s plan assets consist of the following:

20132014In Percentages

Investment in marketable securities and shares of stockInvestment in pooled funds: Stock trading portfolio Fixed income portfolioOthers

74

1547

72

520

3

Investments in Marketable Securities

As of December 31, 2014, the plan assets include:

28,549,900 common shares of the Company with fair market value per share of P20;

2,035,000 preferred shares of Petron Corporation with fair market value per share of P101.8;

695,432 common shares of Ginebra San Miguel, Inc. (GSMI) with fair market value per share of P15.88;

556,740 common shares of SMC with a fair market value per share of P73.80;

2,615,420 Subseries A preferred shares of SMC with fair market value per share of P75.60;

53,000 Subseries B preferred shares of SMC with fair market value per share of P78.15; and

55,674 common shares of Top Frontier Holdings Inc. with fair market value per share of P124.

As of December 31, 2013, the plan assets include:

28,549,900 common shares of the Company with fair market value per share of P20;

2,035,000 preferred shares of Petron Corporation with fair market value per share of P109;

695,432 common shares of GSMI with fair market value per share of P23; and

556,740 common shares of SMC with a fair market value per share of P62.50.

The fair market value per share of the above marketable securities is determined based on quoted market prices in active markets as of reporting date (Note 4).

SMBRP recognized losses on the investment in marketable securities of SMC and its subsidiaries amounting to P11 and P272 in 2014 and 2013, respectively.

Dividend income of SMBRP from the investment in shares of stock of SMC and its subsidiaries amounted to P48 and P46 in 2014 and 2013, respectively.

Investments in Shares of StockAs of December 31, 2014 and 2013, SMBRP has an investment in BPI representing 4,708,494 and 2,389,494 preferred shares, respectively, accounted for under the cost method.

Interest in Pooled FundsInvestments in pooled funds were established mainly to put together a portion of the funds of the Retirement Plans of SMC and its domestic subsidiaries (including SMBRP) to be able to draw, negotiate and obtain the best terms and financial deals for the investments resulting from big volume transactions. The BOT approved the percentage of assets to be allocated for fixed income instruments and equities. SMBRP has set maximum exposure limits for each type of

SMBI FS 2014 C5 6.indd 87 5/15/15 1:51 PM


2013

2013

2014

2014

In Percentages

Discount rate Salary increase rate

Discount rateSalary increase rate

1.7 - 8.05.0 - 10.0

2.1 - 8.65.0 - 10.0

Assumptions for mortality and disability rate are based on published statistics and mortality and disability tables.

As of December 31, 2014 and 2013, the weighted average duration of defined benefit retirement obligation is 6.80 - 11.07 years and 7.50 - 11.25 years, respectively.

As of December 31, 2014 and 2013, the reasonably possible changes to one of the relevant actuarial assumptions, while holding all other assumptions constant, would have affected the defined benefit retirement obligation by the amounts below.

Defined Benefit Retirement Obligation

1 Percent Increase

1 Percent Increase

1 Percent Decrease

1 Percent Decrease

(P1,998)2,112

(P1,980)2,133

2,144(1,999)

P2,159(2,044)

permissible investments in marketable securities and deposit instruments. The BOT may, from time to time, in the exercise of its reasonable discretion and taking into account existing investment opportunities, review and revise such allocation and limits.

Approximately 6.74% and 5.99% of the Retirement Plans investment in pooled funds in stock trading portfolio include investments in shares of stock of SMC and its subsidiaries as of December 31, 2014 and 2013, respectively.

Approximately 7.67% and 5.46% of the Retirement Plans investment in pooled funds in fixed income portfolio include investment in shares of stock of SMC and its subsidiaries as of December 31, 2014 and 2013, respectively.

OthersOthers include cash and cash equivalents, interest receivable, receivables from BLI and other retirement plans of the SMC Group.

The BOT reviews the level of funding required for the retirement fund. Such a review includes the asset-liability matching (ALM) strategy and investment risk management policy. The Group’s ALM objective is to match maturities of the plan assets to the retirement benefit obligation as they fall due. The Group monitors how the duration and expected yield of the investments are matching the expected cash outflows arising from the retirement benefit obligation. The Group is expected to contribute P927 to the retirement plan in 2015.

The Retirement Plans expose the Group to certain risks such as investment risk, interest rate risk, longevity risk and salary risk as follows:

Investment and Interest Rate Risks. The present value of the defined benefit retirement obligation is calculated using a discount rate determined by reference to market yields to government bonds. Generally, a decrease in the interest rate of a reference government bond will increase the defined benefit retirement obligation. However, this will be partially offset by an increase in the return on the Retirement Plans’ investments and if the return on plan asset falls below this rate, it will create a deficit in the Retirement Plans. Due to the long-term nature of the defined benefit retirement obligation, a level of continuing equity investments is an appropriate element of the long-term strategy of the Group to manage the Retirement Plans efficiently.

Longevity and Salary Risks. The present value of the defined benefit retirement obligation is calculated by reference to the best estimates of: (1) the mortality of the plan participants, both during and after employment, and (2) the future salaries of the plan participants. Consequently, increases in the life expectancy and salary of the plan participants will result in an increase in the defined benefit retirement obligation.

The overall expected rate of return is determined based on the historical performance of the investments.

The principal actuarial assumptions used to determine retirement benefits are as follows:

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BLI has amounts owed to SMBRP amounting to P10 and P15 as of December 31, 2014 and 2013, respectively, included as part of “Accounts payable and accrued expenses” account in the consolidated statements of financial position (Notes 15 and 26). Transactions with the Retirement Plans are made at normal market prices. Outstanding balances as of December 31, 2014 and 2013 are unsecured and settlements are made in cash.

29. Earnings Per Share

30. Employee Stock Purchase Plan

31. Financial Risk and Capital Management Objectives and Policies

Basic and diluted EPS is computed as follows:

2014 20122013

Net income attributable to equity holders of the Company (a)

Weighted average number of shares outstanding

(in millions) (b)Basic/diluted EPS (a/b)

P13,029

15,359P0.85

P12,051

15,372P0.78

P14,360

15,410P0.93

As of December 31, 2014, 2013 and 2012, the Group has no dilutive debt or equity instruments.

SMC offers shares of stocks to employees of SMC and its subsidiaries under the ESPP. Under the ESPP, all permanent Philippine-based employees of SMC and its subsidiaries who have been employed for a continuous period of one year prior to the subscription period will be allowed to subscribe at 15% discount to the market price equal to the weighted average of the daily closing prices for three months prior to the offer period. A participating employee may acquire at least 100 shares of stock through payroll deductions.

The ESPP requires the subscribed shares and stock dividends accruing thereto to be pledged to SMC until the subscription is fully paid. The right to subscribe under the ESPP cannot be assigned or transferred. A participant may sell his shares after the second year from exercise date.

The ESPP also allows subsequent withdrawal and cancellation of participants’ subscriptions under certain terms and conditions.

Expenses for share-based payments charged to operations under “Management fees” account amounted to P17 and P48 in 2013 and 2012, respectively (Note 20).

Objectives and PoliciesThe Group has significant exposure to the following financial risks primarily from its use of financial instruments:

Interest Rate Risk Foreign Currency Risk Liquidity Risk Credit Risk

This note presents information about the exposure to each of the foregoing risks, objectives, policies and processes for measuring and managing these risks, and for management of capital.

The principal non-trade related financial instruments of the Group include cash and cash equivalents, AFS financial assets, noncurrent receivables, long-term loans and derivative instruments. Cash and cash equivalents are used mainly for working capital management purposes. The trade-related financial assets and financial liabilities of the Group such as trade and other receivables and accounts payable and accrued expenses arise directly from and are used to facilitate its daily operations.

SMBI FS 2014 C5 6.indd 89 5/15/15 1:51 PM


The outstanding derivative instruments of the Group are intended mainly for risk management purposes. The Group uses derivatives to manage its exposures to foreign currency and interest rate risks arising from the operating and financing activities.

The BOD has the overall responsibility for the establishment and oversight of the risk management framework of the Group. The risk management policies of the Group are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with the risk management policies and procedures of the Group and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

The BOD constituted the Audit Committee to assist the BOD in fulfilling its oversight responsibility of the Group’s corporate governance process relating to the: a) quality and integrity of the financial statements and financial reporting process and the systems of internal accounting and financial controls; b) performance of the internal auditors; c) annual independent audit of the financial statements, the engagement of the independent auditors and the evaluation of the independent auditors’ qualifications, independence and performance; d) compliance with legal and regulatory requirements, including the disclosure control and procedures; e) evaluation of management’s process to assess and manage the Group’s enterprise risk issues; and f ) fulfillment of the other responsibilities set out by the BOD. The Audit Committee shall also prepare reports required to be included in the Group’s annual report.

The accounting policies in relation to derivatives are set out in Note 3 to the consolidated financial statements.

Interest Rate RiskInterest rate risk is the risk that future cash flows from a financial instrument (cash flow interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of changes in market interest rates. The Group’s exposure to changes in interest rates relates primarily to the long-term borrowings. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. On the other hand, borrowings issued at variable rates expose the Group to cash flow interest rate risk.

The Group manages its interest cost by using an optimal combination of fixed and variable rate debt instruments. Management is responsible for monitoring the prevailing market-based interest rate and ensures that the mark-up rates charged on its borrowings are optimal and benchmarked against the rates charged by other creditor banks.

In managing interest rate risk, the Group aims to reduce the impact of short-term fluctuations on the earnings. Over the longer term, however, permanent changes in interest rates would have an impact on profit or loss.

The Company does not account for any fixed-rate financial assets or financial liabilities at FVPL and the Company does not designate derivatives as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit or loss.

The Group has no floating rate borrowings in 2014 and 2013.

The terms and maturity profile of the interest-bearing financial instruments, together with its gross amounts, are shown in the following tables:

December 31, 2014 1 - 3 Years > 3 - 5 Years > 5 Years Total

Fixed ratePhilippine peso-denominatedInterest rate

P3,0006.05%

P3,000

P12,8105.93%-10.5%

P12,810

P22,0005.5%-6.6%

P22,000

P37,810

P37,810

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Foreign Currency RiskThe Company’s functional currency is the Philippine peso, which is the denomination of the bulk of the Group’s revenues. The exposure to foreign currency risk results from significant movements in foreign exchange rates that adversely affect the foreign currency-denominated transactions of the Group. The risk management objective with respect to foreign currency risk is to reduce or eliminate earnings volatility and any adverse impact on equity.

The Group uses natural hedges and/or purchases foreign currencies at spot rates, where necessary, to address short-term imbalances from importations, revenue and expense transactions, and other foreign currency-denominated obligations.

Information on the Group’s foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents are as follows:

2014 2013

United States (US) Dollar*

United States (US) Dollar*

Peso Equivalent

Peso Equivalent

The Group reported net foreign exchange gains (losses) amounting to (P60), (P449) and P577 in 2014, 2013 and 2012, respectively, with the translation of its foreign currency-denominated assets and liabilities (Note 24). These mainly resulted from the movements of the Philippine peso against the US dollar as shown in the following table:

US Dollar to Philippine Peso

December 31, 2014December 31, 2013December 31, 2012

44.7244.4041.05

December 31, 2013 1 - 3 Years > 3 - 5 Years > 5 Years Total

Fixed ratePhilippine peso-denominatedInterest rate

P22,4008.875%

P22,400

P3,0006.05%

P3,000

P19,8105.93% -10.5%

P19,810

P45,210

P45,210

AssetsCash and cash equivalentsTrade and other receivables Noncurrent receivables

LiabilitiesAccounts payable and accrued expensesNet foreign currency-denominated monetary assets

$89.863.8

0.4154.0

48.0

$106.0

P4,0152,854

176,886

2,146

P4,740

$89.552.3

0.2142.0

51.6

$90.4

P3,9712,322

106,303

2,289

P4,014

* US dollar equivalent of foreign currency-denominated balances as of reporting date.

SMBI FS 2014 C5 6.indd 91 5/15/15 1:51 PM


The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (due to translation of results and financial position of foreign operations):

P1 Decrease in the US Dollar Exchange Rate

P1 Decrease in the US Dollar Exchange Rate

December 31, 2014

December 31, 2013

Effect onIncome before

Income Tax


Income Tax


Income Tax


Income Tax

Effect on Equity

Effect on Equity

Effect on Equity

Effect on Equity

P1 Increase in the US Dollar Exchange Rate

P1 Increase in the US Dollar Exchange Rate

Cash and cash equivalentsTrade and other receivablesNon-current receivables

Accounts payable and accrued expenses

Cash and cash equivalentsTrade and other receivables

Accounts payable and accrued expenses

(P2)(2)- (4)

2(P2)

(P8)(1)

(9)

1(P8)

(P89)(63)

(1)(153)

48(P105)

(P87)(52)

(139)

51(P88)

P22

- 4

(2)P2

P819

(1)P8

P8963

1 153

(48)P105

P8752

139

(51)P88

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group’s currency risk.

Liquidity RiskLiquidity risk pertains to the risk that the Group will encounter difficulty to meet payment obligations when they fall under normal and stress circumstances.

The Group’s objectives to manage its liquidity risk are as follows: a) to ensure that adequate funding is available at all times; b) to meet commitments as they arise without incurring unnecessary costs; c) to be able to access funding when needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities.

The Group constantly monitors and manages its liquidity position, liquidity gaps or surplus on a daily basis. A committed stand-by credit facility from several local banks is also available to ensure availability of funds when necessary.

The table below summarizes the maturity profile of the Group’s financial assets and financial liabilities based on contractual undiscounted receipts and payments used for liquidity management.

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932 0 1 4 A N N U A L R E P O R T

December 31, 2014

December 31, 2013

CarryingAmount

CarryingAmount

Contractual Cash Flow

Contractual Cash Flow

1 Year or Less

1 Year or Less

> 1 Year -2 Years

> 1 Year -2 Years

>2 Years -5 Years

>2 Years -5 Years

Over5 Years

Over5 Years

Financial AssetsCash and cash equivalentsTrade and other receivables - netDerivative assets (included under

“Prepaid expenses and other current assets” account)

AFS financial assets (included under “Investments” account)

Noncurrent receivables (included under “Other noncurrent assets”

account)Financial LiabilitiesAccounts payable and accrued expenses (excluding cash dividends

payable)Derivative liabilities (included under

“Accounts payable and accrued expenses” account)

Long-term debt (including current maturities)


“Prepaid expenses and other current assets” account)

AFS financial assets (included under “Investments” account)

Noncurrent receivables (included under “Other noncurrent assets”

account)Financial LiabilitiesAccounts payable and accrued expenses (excluding cash dividends

payable)Derivative liabilities (included under



P9,8866,005

5

60

29

6,416

27

37,518

P14,1986,352

1

62

38

7,827

22

45,013

P9,8866,005

5

60

29

6,416

27

51,042

P14,1986,352

1

62

38

7,827

22

54,788

P9,8866,005

5

-

-

6,416

27

2,369

P14,1986,352

1

-

-

7,827

22

24,440

P - -

-

-

-

-

-

2,369

P - -

-

-

1

-

-

1,532

P - -

-

-

29

-

-

21,757

P - -

-

-

29

-

-

7,278

P - -

-

60

-

-

-

24,547

P - -

-

62

8

-

-

21,538

Credit RiskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from trade and other receivables and investment securities. The Group manages its credit risk mainly through the application of transaction limits and close risk monitoring. It is the Group’s policy to enter into transactions with a wide diversity of creditworthy counterparties to mitigate any significant concentration of credit risk.

The Group has regular internal control reviews to monitor the granting of credit and management of credit exposures.

Trade and Other ReceivablesThe exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of dealers, wholesalers and retailers as these factors may have an influence on the credit risk.

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Note 2014 2013

Cash and cash equivalents (excluding cash on hand)Trade and other receivables - netAFS financial assetsDerivative assetsNoncurrent receivables

67

914

P9,7986,005

605

29P15,897

P14,1936,352

621

38P20,646

The credit risk for cash and cash equivalents and derivative assets is considered negligible, since the counterparties are reputable entities with high quality external credit ratings.

The Group’s exposure to credit risk arises from default of counterparty. Generally, the maximum credit risk exposure of trade and other receivables is the carrying amount without considering collaterals or credit enhancements, if any. The Group has no significant concentration of credit risk since the Group deals with a large number of homogenous counterparties. The Group does not execute any credit guarantee in favor of any counterparty.

Capital ManagementThe Group maintains a sound capital base to ensure its ability to continue as a going concern, thereby continue to provide returns to stockholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce cost of capital.

The Group manages its capital structure and makes adjustments in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, pay-off existing debt, return capital to shareholders or issue new shares.

The Group defines capital as paid-in capital stock, additional paid-in capital and retained earnings. Other components of equity such as cumulative translation adjustments are excluded from capital for purposes of capital management.

The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital ratios are set in the light of changes in the external environment and the risks underlying the Group’s business, operation and industry.

The Group monitors capital on the basis of debt-to-equity ratio, which is calculated as total debt divided by total equity. Total debt is defined as total current liabilities and total noncurrent liabilities, while equity is total equity as shown in the consolidated statements of financial position.

There were no changes in the Group’s approach to capital management during the year.

The Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before the standard payment and delivery terms and conditions are offered. The Group ensures that sales on account are made to customers with appropriate credit history. The Group has detailed credit criteria and several layers of credit approval requirements before engaging a particular customer or counterparty. The review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer and are reviewed on a regular basis. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment or cash basis.

In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale or retail customer, aging profile, maturity and existence of previous financial difficulties. Customers that are graded as “high risk” are placed on a restricted customer list and future sales are made on cash basis.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance include a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

Financial information on the Group’s maximum exposure to credit risk, without considering the effects of collaterals and other risk mitigation techniques, is presented below.

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32. Financial Assets and Financial Liabilities

The table below presents a comparison by category of carrying amounts and fair values of the Group’s financial instruments:

December 31, 2014 December 31, 2013

CarryingAmount

CarryingAmountFair Value Fair Value


“Prepaid expenses and other current assets” account)AFS financial assets (included under “Investments” account)Noncurrent receivables (included under “Other noncurrent assets”

account)Financial LiabilitiesAccounts payable and accrued expenses (excluding cash dividends payable)Derivative liabilities (included under



P9,8866,005

5

60

29

6,416

27

37,518

P9,8866,005

5

60

29

6,416

27

42,022

P14,1986,352

1

62

38

7,827

22

45,013

P14,1986,352

1

62

38

7,827

22

49,311

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents, Trade and Other Receivables and Noncurrent Receivables. The carrying amount of cash and cash equivalents and trade and other receivables approximates fair value primarily due to the relatively short-term maturities of these financial instruments. In the case of noncurrent receivables, the fair value is based on the present value of expected future cash flows using the applicable discount rates based on current market rates of identical or similar quoted instruments.

Derivatives. The fair values of forward exchange contracts are calculated by reference to current forward exchange rates. Fair values for embedded derivatives are based on valuation models used for similar instruments using both observable and non-observable inputs.

AFS Financial Assets. The fair values of publicly traded instruments and similar investments are based on quoted market prices in an active market. Unquoted equity securities are carried at cost less impairment.

Accounts Payable and Accrued Expenses. The carrying amount of accounts payable and accrued expenses approximates fair value due to the relatively short-term maturities of these financial instruments.

Long-term Debt. The fair value of interest-bearing fixed rate loans is based on the discounted value of expected future cash flows using the applicable market rates for similar types of instrument as of reporting date. As of December 31, 2014 and 2013, discount rates used ranged from 2.54% to 4.33% and from 0.49% to 3.75%, respectively.

Derivative Financial InstrumentsThe Group’s derivative financial instruments according to the type of financial risk being managed and the details of embedded derivative financial instruments that are not designated as hedges are discussed below.

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2014 2013

Balance at beginning of yearNet changes in fair value of non-accounting hedges Less fair value of settled instruments Balance at end of year

(P21)(9)

(30)(8)

(P22)

P3(47)(44)(23)

(P21)

Derivative Instruments Not Designated as HedgesThe Group enters into certain derivatives as economic hedges of certain underlying exposures. These include embedded derivatives found in host contracts, which are not designated as accounting hedges. Changes in fair value of these instruments are accounted for directly in profit or loss.

Embedded Currency ForwardsThe total outstanding notional amount of currency forwards embedded in non-financial contracts amounted to US$38 and US$21 as of December 31, 2014 and 2013, respectively. These non-financial contracts consist mainly of foreign currency-denominated purchase orders, sales agreements and capital expenditures. The embedded forwards are not clearly and closely related to their respective host contracts. The net negative fair value of these embedded currency forwards amounted to P22 and P21, respectively.

The Group recognized marked-to-market losses from embedded derivatives amounting to P9, P47 and P9 in 2014, 2013 and 2012, respectively (Note 24).

Fair Value Changes on DerivativesThe net movements in fair value of all derivative instruments are as follows:

Fair Value HierarchyFinancial assets and financial liabilities measured at fair value in the consolidated statements of financial position are categorized in accordance with the fair value hierarchy. This hierarchy groups financial assets and financial liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and financial liabilities (Note 3).

The table below analyzes financial instruments carried at fair value, by valuation method.

December 31, 2014

Level 1 Level 2 Total Level 1 Level 2 Total

December 31, 2013

Financial AssetsDerivative assets AFS financial assets Financial LiabilitiesDerivative liabilities

P - 60

-

P - 62

-

P1-

22

P162

22

P5-

27

P5 60

27

The Group has no financial instruments valued based on Level 3 as of December 31, 2014 and 2013. During the year, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

33. Cash Dividends

Cash dividends declared by the BOD of the Company to shareholders amounted to P0.56 per share in 2014 and 2013.

On March 11, 2015, the BOD of the Company declared cash dividends of P0.15 per share payable on May 6, 2015 to all stockholders of record as of April 20, 2015.

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972 0 1 4 A N N U A L R E P O R T

34. Other Matters

a. Amendment of Amended Articles of Incorporation

On December 5, 2014, the BOD approved the amendment of Article II (Primary Purpose) of the Amended Articles of Incorporation (AOI) of the Company to include the non-alcoholic beverage business (Proposed Amendment). The Company likewise obtained the affirmative vote of stockholders owning or representing at least two-thirds of the outstanding capital stock of the Company to the Proposed Amendment, through their respective written assent received by the Company as of February 20, 2015. The SEC approved the Proposed Amendment to the Company’s AOI on March 11, 2015.

b. Acquisition of Assets from Ginebra San Miguel Inc.

On December 5, 2014, the BOD authorized the acquisition by the Company of the non-alcoholic beverage assets of GSMI comprised of the property, plant and equipment as of December 31, 2014, and finished goods and other inventories consisting of containers (pallets, crates, bottles and shells), packaging materials and raw materials as of March 31, 2015, used in the non-alcoholic beverage business of GSMI (Acquisition).

The BOD has further authorized management to negotiate and conclude the final terms of the Acquisition.

c. Commitments

The outstanding purchase commitments of the Group as of December 31, 2014 and 2013 amounted to P4,654 and P5,998, respectively.

Amount authorized but not yet disbursed for capital projects as of December 31, 2014 and 2013 is approximately P490 and P330, respectively.

d. Foreign Exchange Rates

The foreign exchange rates used in translating the US dollar accounts of foreign subsidiaries to Philippine peso in 2014 and 2013 were closing rates of P44.72 and P44.40, respectively for consolidated statements of financial position accounts, and average rates of P44.39, P42.43 and P42.24 in 2014, 2013, and 2012, respectively, for income and expense accounts.

e. Claims for Tax Refund

i. Filed by SMC

On April 12, 2004 and May 26, 2004, SMC was assessed by the BIR for deficiency excise tax on “San Mig Light”, one of its beer products. SMC contested the assessments before the Court of Tax Appeals (CTA) First Division under two cases, CTA Case Nos. 7052 and 7053. To these cases was consolidated SMC’s claim for refund of taxes paid in excess of what it believes to be the excise tax rate applicable to it for its “San Mig Light” product for the period of February 2, 2004 to November 30, 2005 (docketed as CTA Case No. 7405). The CTA, through its First Division, and the CTA En Banc (upon appeal), both ruled in favor of SMC. On April 1, 2013, the BIR elevated the consolidated cases to the Supreme Court (docketed as G.R. No. 20573) where they are still pending in its Third Division.

SMC filed with the CTA by way of petition for review (Third Division and docketed as CTA Case No. 7708), a second claim for refund for overpayments of excise taxes for the period of December 1, 2005 to July 31, 2007 on November 27, 2007, as SMC was obliged to continue paying excise taxes in excess of what it believes to be the applicable excise tax rate. The CTA Third Division granted SMC’s petition for review and ordered the BIR to refund or issue a tax credit certificate in favor of SMC. The BIR elevated the decision of the Third Division to the CTA En Banc but its appeal was denied. Subsequently, the BIR filed a petition for review with the Supreme Court (docketed as G.R. No. 205045). The case is pending with the Third Division.

Subsequently, G.R. No. 20573 was consolidated with G.R. No. 205045. SMC and the BIR have filed their respective memoranda as required by the Third Division of the Supreme Court. The cases are now deemed submitted for decision.

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SMC filed its third claim for refund with the CTA (Third Division docketed as CTA Case No. 7953) on July 24, 2009 for overpayments of excise taxes for the period of August 1, 2007 to September 30, 2007. This case is still pending with the CTA.

ii. Filed by SMB

In the meantime, effective October 1, 2007, SMC spun off its domestic beer business into SMB. SMB continued to pay the excise taxes on “San Mig Light” at the higher rate required by the BIR and in excess of what it believes to be the excise tax rate applicable to it.

SMB filed six claims for refund for overpayments of excise taxes with the BIR which were then elevated to the CTA by way of petition for review on the following dates:

(a) first claim for refund of overpayments for the period from October 1, 2007 to December 31, 2008 - Second Division docketed as CTA Case No. 7973 (September 28, 2009);

(b) second claim for refund of overpayments for the period of January 1, 2009 to December 31, 2009 - First Division docketed as CTA Case No. 8209 (December 28, 2010);

(c) third claim for refund of overpayments for the period of January 1, 2010 to December 31, 2010 - Third Division docketed as CTA Case No. 8400 (December 23, 2011);

(d) fourth claim for refund of overpayments for the period of January 1, 2011 to December 31, 2011 - Second Division docketed as CTA Case No. 8591 (December 21, 2012);

(e) fifth claim for refund of overpayments for the period of January 1, 2012 to December 31, 2012 - Second Division docketed as CTA Case No. 8748 (December 19, 2013); and

(f ) sixth claim for refund of overpayments for the period of January 1, 2013 to December 31, 2013 - docketed as CTA Case No. 8955 (December 2014).

CTA Case Nos. 7973, 8209, 8400 and 8591 have all been decided by the respective CTA Divisions where they are

pending, in favor of SMB. The BIR is now in the process of appealing to the CTA En Banc the decisions rendered by the Third Division in CTA Case Nos. 7973 and 8400.

On the other hand, the decision in CTA Case No. 8209 has been declared final and executory by the First Division for failure on the part of the BIR to file a Motion for Reconsideration on the decision. In CTA Case No. 8591, the BIR filed a Motion for Reconsideration, which was opposed by the Company, and subsequently denied by the Second Division. CTA Case No. 8748 is still pending in the Second Division, while the BIR has requested additional time to file its Answer in CTA Case No. 8955.

f. Pending Tax Cases

The BIR issued a Final Assessment Notice dated March 30, 2012 (2009 Assessment), imposing on IBI deficiency tax liabilities including interest and penalties for the tax year 2009. IBI treated the royalties earned from the licensing of its intellectual properties to the Company as passive income, and therefore subject to the 20% final tax. However, the BIR is of the position that said royalties are business income subject to the 30% regular corporate tax.

On May 16, 2012, IBI filed a protest against the 2009 Assessment. In its Final Decision on Disputed Assessment issued on January 7, 2013, the BIR denied IBI’s protest and reiterated the demand to pay the deficiency income tax including interests and penalties. On February 6, 2013, IBI filed a Petition for Review before the CTA contesting the 2009 Assessment. The case was docketed as CTA Case No. 8607 and is already submitted for decision.

On November 17, 2013, IBI received a Formal Letter of Demand with the Final Assessment Notice for tax year 2010 (2010 Assessment) from the BIR with a demand for payment of income tax and VAT deficiencies with administrative penalties. The BIR maintained its position that royalties are business income subject to the 30% regular corporate tax. The 2010 Assessment was protested by IBI before the BIR through a letter dated November 29, 2013. A Petition for Review was filed with the CTA and the case was docketed as CTA Case No. 8813. The case remains pending to date.

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CONTACT US

CORPORATE HEAD OFFICESan Miguel Brewery Inc.40 San Miguel Avenue, Mandaluyong City1550 Metro Manila, PhilippinesP.O. Box 271 Manila Central Post Office, PhilippinesTelephone: (632) 632-3000Fax: (632) 632-3605Website: http://www.sanmiguelbrewery.com.ph

STOCKHOLDER’S MEETINGThe Company’s Annual Stockholder’s Meeting is held every last Tuesday of May.

SHAREHOLDER SERVICES AND ASSISTANCEThe SMC Stock Transfer Service Corporation serves as the Company’s stock transfer agent and registrar.For inquiries regarding dividend payments, change of address and account status, lost or damaged stock certificates, please write or call:

SMC Stock Transfer Service Corporation40 San Miguel Avenue, Mandaluyong City1550 Metro Manila, PhilippinesTelephone: (632) 632-3450Fax: (632) 631-6951

INSTITUTIONAL INVESTORS’ INQUIRIESSan Miguel Brewery Inc. welcomes inquiries from institutional investors, analysts, and the financial community. Please write or call:

Investor RelationsSan Miguel Brewery Inc.Telephone: (632) 632-3000Fax: (632) 632-3111

CUSTOMER AND CONSUMER SERVICESFor inquiries, feedback, and requests, please write or call Beer Account SMC-1 customer service hotline:

Telephone: (632) 632-2000Toll-free No.: 1-800-1-888-762-1Fax: (632) 632-7621

Documents

SMB Annual Report 2014 - San Miguel Brewery Inc. Annual Report 2014.pdf · only the best quality beer. A brew kettle at the Polo Brewery. ... while maintaining superior product quality