UNITED BREWERIES CO INC | CIK:0000888746 |

Note 7 Financial Instruments

 

 

The carrying amounts of each financial instrument category as of each year-end are detailed as follows:

 

		As of December 31, 2017						As of December 31, 2016
		Current			Non current			Current			Non current
		ThCh$			ThCh$			ThCh$			ThCh$
Derivative financial instruments			3,158,391			-			479,492			-
Market securities and investments in other companies			7,565,805			-			7,821,546			-
Derivative hedge assets			-			1,918,191			105,453			203,784
Total other financial assets			10,724,196			1,918,191			8,406,491			203,784
Cash and cash equivalents			170,044,602			-			134,033,183			-
Accounts receivable - trade and other receivable (net)			286,213,598			3,330,606			280,788,133			3,563,797
Acoounts receivable from related companies			5,810,764			258,471			3,536,135			356,665
Total financial assets			472,793,160			5,507,268			426,763,942			4,124,246
Bank borrowings			24,623,746			73,886,831			39,079,561			29,606,398
Bonds payable			3,306,135			69,476,612			3,250,023			70,836,716
Financial leases obligations			176,586			17,638,289			215,950			17,500,919
Derivative hedge liabilities			10,416,675			-			11,118,676			-
Liability coverage			1,840,188			-			-			-
Deposits for return of bottles and containers			13,228,328			-			13,015,723			-
Total other non-financial liabililities (*)			53,591,658			161,001,732			66,679,933			117,944,033
Account payable- trade and other payable			281,681,553			541,783			259,739,479			1,082,898
Accounts payable to related entities			10,069,043			-			9,530,071			-
Total financial liabilities			345,342,254			161,543,515			335,949,483			119,026,931

 

(*) See Note 21 - Other financial liabilities.

 

 

 

The following tables show fair values, based on financial instrument categories, compared to the carrying amount included in the Consolidated Statements of Financial Position:

 

		As of December 31, 2017						As of December 31, 2016
		Book Value			Fair Value			Book Value			Fair Value
		ThCh$			ThCh$			ThCh$			ThCh$
Derivative financial instruments			3,158,391			3,158,391			479,492			479,492
Market securities and investments in other companies			7,565,805			7,565,805			7,821,546			7,821,546
Derivative hedge assets			1,918,191			1,918,191			309,237			309,237
Total other financial assets			12,642,387			12,642,387			8,610,275			8,610,275
Cash and cash equivalents			170,044,602			170,044,602			134,033,183			134,033,183
Accounts receivable - trade and other receivable (net)			289,544,204			289,544,204			284,351,930			284,351,930
Acoounts receivable from related companies			6,069,235			6,069,235			3,892,800			3,892,800
Total financial assets			478,300,428			478,300,428			430,888,188			430,888,188
Bank borrowings			98,510,577			102,062,465			68,685,959			69,668,649
Bonds payable			72,782,747			79,559,896			74,086,739			81,769,096
Financial leases obligations			17,814,875			29,314,234			17,716,869			30,154,204
Derivative hedge liabilities			10,416,675			10,416,675			11,118,676			11,118,676
Liability coverage			1,840,188			1,840,188			-			-
Deposits for return of bottles and containers			13,228,328			13,228,328			13,015,723			13,015,723
Total other non-financial liabililities (*)			214,593,390			236,421,786			184,623,966			205,726,348
Account payable- trade and other payable			282,223,336			282,223,336			260,822,377			260,822,377
Accounts payable to related entities			10,069,043			10,069,043			9,530,071			9,530,071
Total financial liabilities			506,885,769			528,714,165			454,976,414			476,078,796

 

(*) See Note 21 - Other financial liabilities.

 

The carrying amount of current accounts receivable, cash and cash equivalents and other financial assets and liabilities approximate their fair value due to their short-term nature, and in the case of accounts receivable, due to the fact that any collection loss is already reflected in the impairment loss provision.

 

The fair value of non-derivative financial assets and liabilities that are not quoted in active markets are estimated through the use of discounted cash flows calculated on market variables observed as of the date of the financial statements. The fair value of derivative instruments is estimated through the discount of future cash flows, determined according to information observed in the market or to variables and prices obtained from third parties.

 

The fair value of bank borrowings and Bonds payable has hierarchy level 2 of fair value.

 

b) Financial instruments by category:

 

As of December 31, 2017		Fair value with changes in income			Cash and cash equivaletns and loans and accounts receivables			Hedge derivatives			Total
		ThCh$			ThCh$			ThCh$			ThCh$
Financial assets
Derivative financial instruments			3,158,391			-			-			3,158,391
Marketable securities and investments in other companies			7,565,805			-			-			7,565,805
Derivative hedge assets			-			-			1,918,191			1,918,191
Total other financial assets			10,724,196			-			1,918,191			12,642,387
Cash and cash equivalents			-			170,044,602			-			170,044,602
Trade and other current receivables (net)			-			289,544,204			-			289,544,204
Account receivable from to related companies			-			6,069,235			-			6,069,235
Total			10,724,196			465,658,041			1,918,191			478,300,428

 

As of December 31, 2017		Fair value with changes in income			Hedge derivatives			Financial libilities measured at amortized cost			Total
		ThCh$			ThCh$			ThCh$			ThCh$
Financial liabilities
Bank borrowings			-			-			98,510,577			98,510,577
Bonds payable			-			-			72,782,747			72,782,747
Financial leases obligations			-			-			17,814,875			17,814,875
Derivative financial instruments			10,416,675			-			-			10,416,675
Liability coverage			-			1,840,188			-			1,840,188
Deposits for return of bottles and containers			-			-			13,228,328			13,228,328
Total others financial liabililities			10,416,675			1,840,188			202,336,527			214,593,390
Account payable- trade and other payable			-			-			282,223,336			282,223,336
Accounts payable to related entities			-			-			10,069,043			10,069,043
Total			10,416,675			1,840,188			494,628,906			506,885,769

 

As of December 31, 2016		Fair value with changes in income			Cash and cash equivaletns and loans and accounts receivables			Hedge derivatives			Total
		ThCh$			ThCh$			ThCh$			ThCh$
Financial assets
Derivative financial instruments			479,492			-			-			479,492
Marketable securities and investments in other companies			7,821,546			-			-			7,821,546
Derivative hedge assets			-			-			309,237			309,237
Total other financial assets			8,301,038			-			309,237			8,610,275
Cash and cash equivalents			-			134,033,183			-			134,033,183
Trade and other current receivables (net)			-			284,351,930			-			284,351,930
Account receivable from to related companies			-			3,892,800			-			3,892,800
Total			8,301,038			422,277,913			309,237			430,888,188

 

As of December 31, 2016		Fair value with changes in income			Hedge derivatives			Financial libilities measured at amortized cost			Total
		ThCh$			ThCh$			ThCh$			ThCh$
Financial liabilities
Bank borrowings			-			-			68,685,959			68,685,959
Bonds payable			-			-			74,086,739			74,086,739
Financial leases obligations			-			-			17,716,869			17,716,869
Derivative financial instruments			11,118,676			-			-			11,118,676
Deposits for return of bottles and containers			-			-			13,015,723			13,015,723
Total others financial liabililities			11,118,676			-			173,505,290			184,623,966
Account payable- trade and other payable			-			-			260,822,377			260,822,377
Accounts payable to related entities			-			-			9,530,071			9,530,071
Total			11,118,676			-			443,857,738			454,976,414

 

 

The detail of maturities, number of derivative agreements, contracted nominal amounts, fair values and the classification of such derivative instruments by type of agreement at the closing of each year are detailed as follows:

 

		As of December 31, 2017												As of December 31, 2016
		Number			Nominal amounts			Asset			Liability			Number			Nominal amounts			Asset			Liability
		agreements			thousand			ThCh$			ThCh$			agreements			thousand			ThCh$			ThCh$
Cross currency interest rate swaps CLP/USD			-			-			-			-			1			7,427,407			53,743			-
Less than a year			-			-			-			-			1			7,427,407			53,743			-
Cross interest rate swaps UF/CLP			1			2,000			1,918,191			1,484,538			-			-			-			-
Less than a year			-			-			-			1,484,538			-			-			-			-
Between 1 and 5 years			-			2,000			1,918,191			-			-			-			-			-
More than 5 years			1			-			-			-			-			-			-			-
Cross currency interest rate swaps USD/EURO			1			7,878			-			355,650			1			7,876			255,494			-
Less than a year			1			7,878			-			355,650			-			-			51,710			-
Between 1 and 5 years			-			-			-			-			1			7,876			203,784			-
Total			2						1,918,191			1,840,188			2						309,237			-
Forwards USD			27			245,641			3,095,825			9,722,619			29			224,332			359,254			10,586,653
Less than a year			27			245,641			3,095,825			9,722,619			29			224,332			359,254			10,586,653
Forwards Euro			14			65,598			44,474			694,056			10			49,421			109,164			523,079
Less than a year			14			65,598			44,474			694,056			10			49,421			109,164			523,079
Forwards CAD			3			1,750			15,530			-			2			1,480			11,074			7,720
Less than a year			3			1,750			15,530			-			2			1,480			11,074			7,720
Forwards GBP			2			480			2,562			-			2			700			-			1,224
Less than a year			2			480			2,562			-			2			700			-			1,224
Total			46						3,158,391			10,416,675			43						479,492			11,118,676
Total instruments			48						5,076,582			12,256,863			45						788,729			11,118,676

 

These derivative agreements have been entered into as a hedge of exchange rate risk exposure. In the case of forwards, the Company does not comply with the formal requirements for hedging designation; consequently their effects are recorded in Income, in Other gains (losses).

 

In the case of Cross Currency Interest Rate Swaps and the Cross Interest Rate Swaps, these qualify as cash flow hedges of the cash flows related to loans from Banco de Chile and Banco Scotiabank. See additional disclosures in Note 21.

 

As of December 31, 2017

Entity

Nature of risks covered

Rights

Obligations

Fair value of net asset (liabilities)

Maturity

Currency

Amount

Currency

Amount

Amount

ThCh$

ThCh$

ThCh$

Scotiabank Chile

Flow interest rate and exchange rate on bank bonds

USD

4,860,845

EUR

5,216,495

(355,650)

06-18-2018

Banco de Chile

Flow interest rate on bank bonds

UF

60,640,827

CLP

60,207,174

433,653

09-15-2021

 

As of December 31, 2016

Entity

Nature of risks covered

Rights

Obligations

Fair value of net asset (liabilities)

Maturity

Currency

Amount

Currency

Amount

Amount

ThCh$

ThCh$

ThCh$

Scotiabank Chile

Flow interest rate and exchange rate on bank bonds

USD

5,335,826

EUR

5,080,332

255,494

06-18-2018

Banco de Chile

Flow interest rate on bank bonds

CLP

7,458,187

USD

7,404,444

53,743

07-03-2017

 

The Consolidated Statement of Other Comprehensive Income includes under the caption cash flow hedge, for the years ended December 31, 2017, a charge before income taxes of ThCh$ 5,661 (credit of ThCh$ 84,962 and ThCh$ 80,693, in 2016 and 2015, respectively), related to the fair value of Cross Currency Interest Swap and Cross Interest Rate Swap derivatives instruments.

 

 

The financial instruments recorded at fair value in the Statement of Financial Position are classified as follows, depending on the method used to obtain their fair values:

 

 

 

 

The fair value of financial instruments recorded at fair value in the Consolidated Financial Statements, is detailed as follows:

 

		Recorded fair			Fair value hierarchy
As of December 31, 2017		value			level 1			level 2			level 3
		ThCh$			ThCh$			ThCh$			ThCh$
Derivative financial instruments			3,158,391			-			3,158,391			-
Market securities and investments in other companies			7,565,805			7,565,805			-			-
Derivative hedge assets			1,918,191			-			1,918,191			-
Fair value financial assets			12,642,387			7,565,805			5,076,582			-
Derivative hedge liabilities			1,840,188			-			1,840,188			-
Derivative financial instruments			10,416,675			-			10,416,675			-
Fair value financial liabilities			12,256,863			-			12,256,863			-

 

		Recorded fair			Fair value hierarchy
As of December 31, 2016		value			level 1			level 2			level 3
		ThCh$			ThCh$			ThCh$			ThCh$
Derivative financial instruments			479,492			-			479,492			-
Market securities and investments in other companies			7,821,546			7,821,546			-			-
Derivative hedge assets			309,237			-			309,237			-
Fair value financial assets			8,610,275			7,821,546			788,729			-
Derivative financial instruments			11,118,676			-			11,118,676			-
Fair value financial liabilities			11,118,676			-			11,118,676			-

 

During the year ended as of December 31, 2017, the Company has not made any significant instrument transfers between levels 1 and 2.

 

 

The Company uses two credit assessment systems for its clients: a) Clients with loan insurance are assessed according to the external risk criteria (trade reports, non-compliance and protested documents that are available in the local market), payment capability and equity situation required by the insurance company to grant a loan coverage; b) All other the clients are assessed through an ABC risk model, which considers internal risk (non-compliance and protested documents), external risk (trade reports, non-compliance and protested documents that are available in the local market) and payment capacity and equity situation. The uncollectible rate during the last two years has not been significant.