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Intangible Assets | 12 Months Ended
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Dec. 31, 2019
Text block [abstract] |
Intangible Assets | Note 13. Intangible Assets
|  | Rights to Produce and Distribute Coca-Cola trademark Products |  |  | Goodwill |  |  | Other indefinite lived intangible assets |  |  | Technology costs and management systems |  |  | Development systems |  |  | Other amortizable |  |  | Total |
Balance as of January 1, 2017 |  | Ps. | 85,338 |  |  | Ps. | 33,582 |  |  | Ps. | 1,248 |  |  | Ps. | 4,579 |  |  | Ps. | 798 |  |  | Ps. | 475 |  |  | Ps. | 126,020 |
Purchases |  |  | 1,288 |  |  |  | — |  |  |  | 7 |  |  |  | 179 |  |  |  | 920 |  |  |  | 446 |  |  |  | 2,840 |
Acquisition from business combinations |  |  | 9,066 |  |  |  | (6,168 | ) |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 64 |  |  |  | 2,968 |
Transfer of completed development systems |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 412 |  |  |  | (412 | ) |  |  | — |  |  |  | — |
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Effect of movements in exchange rates |  |  | (2,318 | ) |  |  | (1,186 | ) |  |  | 101 |  |  |  | (86 | ) |  |  | (15 | ) |  |  | (52 | ) |  |  | (3,556 | )
Changes in value on the recognition of inflation effects |  |  | (727 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 175 |  |  |  | (552 | )
Effect of Venezuela (Note 3.3) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (139 | ) |  |  | (139 | )
Capitalization of borrowing cost |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Cost as of December 31, 2017 |  | Ps. | 92,647 |  |  | Ps. | 26,228 |  |  | Ps. | 1,356 |  |  | Ps. | 5,090 |  |  | Ps. | 1,291 |  |  | Ps. | 969 |  |  | Ps. | 127,581 |
Balance as of January 1, 2018 |  | Ps. | 92,647 |  |  | Ps. | 26,228 |  |  | Ps. | 1,356 |  |  | Ps. | 5,090 |  |  | Ps. | 1,291 |  |  | Ps. | 969 |  |  | Ps. | 127,581 |
Purchases |  |  | — |  |  |  | — |  |  |  | 50 |  |  |  | 226 |  |  |  | 371 |  |  |  | 28 |  |  |  | 675 |
Acquisition from business combinations |  |  | 4,602 |  |  |  | — |  |  |  | — |  |  |  | 26 |  |  |  | 57 |  |  |  | 291 |  |  |  | 4,976 |
Systems Development |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 41 |  |  |  | 41 |
Transfer of completed development systems |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 904 |  |  |  | (904 | ) |  |  | — |  |  |  | — |
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5 | ) |  |  | — |  |  |  | (93 | ) |  |  | (98 | )
Philippines disposal (Note 5) |  |  | (3,882 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (596 | ) |  |  | (4,478 | )
Effect of movements in exchange rates |  |  | (5, 005 | ) |  |  | (2,499 | ) |  |  | (352 | ) |  |  | (218 | ) |  |  | (38 | ) |  |  | (31 | ) |  |  | (8,143 | )
Changes in value on the recognition of inflation effects |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 57 |  |  |  | 57 |
Cost as of December 31, 2018 |  | Ps. | 88,362 |  |  | Ps. | 23,729 |  |  | Ps. | 1,054 |  |  | Ps. | 6,023 |  |  | Ps. | 777 |  |  | Ps. | 666 |  |  | Ps. | 120,611 |
Balance as of January 1, 2019 |  | Ps. | 88,362 |  |  | Ps. | 23,729 |  |  | Ps. | 1,054 |  |  | Ps. | 6,023 |  |  | Ps. | 777 |  |  | Ps. | 666 |  |  | Ps. | 120,611 |
Purchases |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 100 |  |  |  | 334 |  |  |  | 263 |  |  |  | 697 |
Acquisition from business combinations |  |  | (2,887 | ) |  |  | 2,903 |  |  |  | 153 |  |  |  | (6 | ) |  |  | — |  |  |  | (185 | ) |  |  | (22 | )
Transfer of completed development systems |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 398 |  |  |  | (399 | ) |  |  | 1 |  |  |  | — |
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (17 | ) |  |  | — |  |  |  | — |  |  |  | (17 | )
Effect of movements in exchange rates |  |  | (3,475 | ) |  |  | (799 | ) |  |  | (42 | ) |  |  | (68 | ) |  |  | (22 | ) |  |  | 13 |  |  |  | (4,393 | )
Changes in value on the recognition of inflation effects |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (6 | ) |  |  | (6 | )
Cost as of December 31, 2019 |  | Ps. | 82,000 |  |  | Ps. | 25,833 |  |  | Ps. | 1,165 |  |  | Ps. | 6,430 |  |  | Ps. | 690 |  |  | Ps. | 752 |  |  | Ps. | 116,870 |
Accumulated amortization |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as of January 1, 2017 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,764 | ) |  |  | — |  |  |  | (292 | ) |  |  | (2,056 | )
Amortization expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (605 | ) |  |  | — |  |  |  | (42 | ) |  |  | (647 | )
Effect of movements in exchange rate |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 46 |  |  |  | — |  |  |  | 184 |  |  |  | 230 |
Effect of Venezuela (Note 3.3) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (120 | ) |  |  | (120 | )
Impairment of Venezuela |  |  | (745 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (745 | )
Balances as of December 31, 2017 |  | Ps. | (745 | ) |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (2,323 | ) |  | Ps. | — |  |  | Ps. | (270 | ) |  | Ps. | (3,338 | )
Amortization expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (797 | ) |  |  | — |  |  |  | (201 | ) |  |  | (998 | )
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | 93 |  |  |  | 98 |
Philippines disposal (Note 5) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 375 |  |  |  | 375 |
Effect of movements in exchange rate |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 141 |  |  |  | — |  |  |  | (33 | ) |  |  | 108 |
Changes in value on the recognition of inflation effects |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (51 | ) |  |  | — |  |  |  | (1 | ) |  |  | (52 | )
Balance as of December 31, 2018 |  | Ps. | (745 | ) |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (3,025 | ) |  | Ps. | — |  |  | Ps. | (37 | ) |  | Ps. | (3,807 | )
Amortization expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (819 | ) |  |  | — |  |  |  | (243 | ) |  |  | (1,062 | )
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 17 |  |  |  | — |  |  |  | — |  |  |  | 17 |
Effect of movements in exchange rate |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 52 |  |  |  | — |  |  |  | 9 |  |  |  | 61 |
Changes in value on the recognition of inflation effects |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (30 | ) |  |  | — |  |  |  | 1 |  |  |  | (29 | )
Balance as of December 31, 2019 |  | Ps. | (745 | ) |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (3,805 | ) |  | Ps. | — |  |  | Ps. | (270 | ) |  | Ps. | (4,820 | )
Balance as of December 31, 2017 |  | Ps. | 91,902 |  |  | Ps. | 26,228 |  |  | Ps. | 1,356 |  |  | Ps. | 2,767 |  |  | Ps. | 1,291 |  |  | Ps. | 699 |  |  | Ps. | 124,243 |
Balance as of December 31, 2018 |  | Ps. | 87,617 |  |  | Ps. | 23,729 |  |  | Ps. | 1,054 |  |  | Ps. | 2,998 |  |  | Ps. | 777 |  |  | Ps. | 629 |  |  | Ps. | 116,804 |
Balance as of December 31, 2019 |  | Ps. | 81,255 |  |  | Ps. | 25,833 |  |  | Ps. | 1,165 |  |  | Ps. | 2,625 |  |  | Ps. | 690 |  |  | Ps. | 482 |  |  | Ps. | 112,050 |
The Company’s intangible assets such as technology costs and management systems are subject to amortization with a range in useful lives from 3 to 10 years. For the year ended December 31, 2019, the amortization of intangible assets is recognized in cost of goods sold, selling expenses and administrative expenses and amounted to Ps. 26, Ps. 245 and Ps. 791, respectively. For the year ended December 31, 2018, the amortization of intangible assets is recognized in cost of goods sold, selling expenses and administrative expenses and amounted to Ps. 32, Ps. 236 and Ps. 730, respectively. On March 28, 2017 the Company acquired distribution rights and other intangibles of AdeS soy-based beverages in its territories in Mexico and Colombia for an aggregate amount of Ps. 1,664. This acquisition was made to reinforce the Company’s leadership position. For the year ended December 31, 2017, the amortization of intangible assets is recognized in cost of goods sold, selling expenses and administrative expenses and amounted to Ps. 22, Ps. 83 and Ps. 544, respectively. Impairment Tests for Cash-Generating Units Containing Goodwill and Distribution Rights For the purpose of impairment testing, goodwill and distribution rights are allocated and monitored on an individual country basis, which is considered to be the CGU. The aggregate carrying amounts of goodwill and distribution rights allocated to each CGU are as follows:
In millions of Ps. |  | 2019 |  |  | 2018 |
Mexico |  | Ps. | 56,352 |  |  | Ps. | 56,352 |
Guatemala |  |  | 1,679 |  |  |  | 1,853 |
Nicaragua |  |  | 420 |  |  |  | 460 |
Costa Rica |  |  | 1,442 |  |  |  | 1,417 |
Panamá |  |  | 1,131 |  |  |  | 1,182 |
Colombia |  |  | 4,367 |  |  |  | 4,600 |
Brazil |  |  | 38,765 |  |  |  | 42,153 |
Argentina |  |  | 306 |  |  |  | 327 |
Uruguay |  |  | 2,626 |  |  |  | 3,003 |
Total |  | Ps. | 107,088 |  |  | Ps. | 111,347 |
Goodwill and distribution rights are tested for impairments annually. The recoverable amounts of the CGUs are based on value-in-use calculations. Value in use was determined by discounting the future cash flows generated from the continuing use of the CGU. The foregoing forecasts could differ from the results obtained over time; however, the Company prepares its estimates based on the current situation of each of the CGUs. The recoverable amounts are based on value in use. The value in use of CGUs is determined based on the method of discounted cash flows. The key assumptions used in projecting cash flows are: volume, expected annual long-term inflation, and the weighted average cost of capital (“WACC”) used to discount the projected flows. To determine the discount rate, the Company uses the WACC as determined for each of the cash generating units in real terms and as described in following paragraphs. The estimated discount rates to perform, impairment test for each CGU consider market participants’ assumptions. Market participants were selected considering the size, operations and characteristics of the business that are similar to those of the Company. The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the opportunity cost to a market participant, considering the specific circumstances of the Company and its operating segments and is derived from its WACC. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by Company’s investors. The cost of debt is based on the interest bearing borrowings the Company is obliged to service, which is equivalent to the cost of debt based on the conditions that a creditor would assess in the market. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based on publicly available market data. Market participant assumptions are important because, not only do they include industry data for growth rates, management also assesses how the CGU’s position, relative to its competitors, might change over the forecasted period. The key assumptions used for the value-in-use calculations are as follows:
| • |  | Cash flows were projected based on actual operating results and the five-year business plan. Cash flows for a further five-year were forecasted maintaining the same stable growth and margins per country of the last year base. The Company believes that this forecasted period is justified due to the non-current nature of the business and past experiences.
| • |  | Cash flows after the first ten-year period were extrapolated using a perpetual growth rate equal to the expected annual population growth, in order to calculate the terminal recoverable amount.
| • |  | A per CGU-specific Weighted Average Cost of Capital (“WACC”) was applied as a hurdle rate to discount cash flows to get the recoverable amount of the units; the calculation assumes, size premium adjustment.
The key assumptions by CGU for impairment test as of December 31, 2019 were as follows:
CGU |  | Pre-tax WACC |  |  | Post –tax WACC |  |  | Expected Annual Long- Term Inflation 2020-2029 |  |  | Expected Volume Growth Rates 2020-2029 |
Mexico |  |  | 7.3 | % |  |  | 5.2 | % |  |  | 3.5 | % |  |  | 0.7 | %
Brazil |  |  | 9.3 | % |  |  | 5.6 | % |  |  | 3.6 | % |  |  | 2.0 | %
Colombia |  |  | 8.9 | % |  |  | 6.2 | % |  |  | 3.1 | % |  |  | 4.0 | %
Argentina |  |  | 21.6 | % |  |  | 14.8 | % |  |  | 39.2 | % |  |  | 3.7 | %
Guatemala |  |  | 9.1 | % |  |  | 7.1 | % |  |  | 4.0 | % |  |  | 8.5 | %
Costa Rica |  |  | 13.8 | % |  |  | 9.7 | % |  |  | 2.2 | % |  |  | 2.1 | %
Nicaragua |  |  | 21.1 | % |  |  | 12.4 | % |  |  | 4.4 | % |  |  | 3.0 | %
Panamá |  |  | 8.5 | % |  |  | 6.6 | % |  |  | 2.0 | % |  |  | 5.4 | %
Uruguay |  |  | 9.4 | % |  |  | 6.8 | % |  |  | 7.4 | % |  |  | 2.0 | %
The key assumptions by CGU for impairment test as of December 31, 2018 were as follows:
CGU |  | Pre-tax WACC |  |  | Post –tax WACC |  |  | Expected Annual Long- Term Inflation 2019-2028 |  |  | Expected Volume Growth Rates 2019-2028 |
Mexico |  |  | 7.4 | % |  |  | 5.3 | % |  |  | 4.0 | % |  |  | 1.4 | %
Guatemala |  |  | 9.4 | % |  |  | 7.5 | % |  |  | 3.2 | % |  |  | 7.3 | %
Nicaragua |  |  | 21.2 | % |  |  | 11.0 | % |  |  | 6.2 | % |  |  | 3.8 | %
Costa Rica |  |  | 13.9 | % |  |  | 9.2 | % |  |  | 4.0 | % |  |  | 1.6 | %
Panama |  |  | 9.2 | % |  |  | 7.0 | % |  |  | 2.4 | % |  |  | 3.0 | %
Colombia |  |  | 7.8 | % |  |  | 5.2 | % |  |  | 3.1 | % |  |  | 4.0 | %
Brazil |  |  | 10.7 | % |  |  | 6.6 | % |  |  | 3.8 | % |  |  | 1.7 | %
Argentina |  |  | 19.6 | % |  |  | 11.3 | % |  |  | 21.9 | % |  |  | 2.7 | %
Sensitivity to Changes in Assumptions As of December 31, 2019, the Company performed an additional impairment sensitivity calculation, taking into account an adverse change in post-tax WACC, according to the country risk premium, using for each country the relative standard deviation between equity and sovereign bonds and an additional sensitivity to the volume of a 100 basis points and concluded that no impairment would be recorded except for Nicaragua. However, upon further review, the Company also concluded that no impairment would be recorded for Nicaragua.
CGU |  | Change in WACC |  |  | Change in Volume Growth CAGR (1) |  |  | Effect on Valuation
Mexico |  |  | 0.4 | % |  |  | -1.0 | % |  | Passes by 4.9x
Brazil |  |  | 0.5 | % |  |  | -1.0 | % |  | Passes by 1.6x
Colombia |  |  | 0.3 | % |  |  | -1.0 | % |  | Passes by 4.7x
Argentina |  |  | 1.9 | % |  |  | -1.0 | % |  | Passes by 13.9x
Guatemala |  |  | 0.4 | % |  |  | -1.0 | % |  | Passes by 38.5x
Costa Rica |  |  | 0.8 | % |  |  | -1.0 | % |  | Passes by 3.4x
Nicaragua |  |  | 1.4 | % |  |  | -1.0 | % |  | Passes by 1.1x
Panamá |  |  | 0.2 | % |  |  | -1.0 | % |  | Passes by 9.7x
Uruguay |  |  | 0.3 | % |  |  | -1.0 | % |  | Passes by 3x
(1) | Compound Annual Growth Rate (CAGR)
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data). The Company consistently applied its methodology to determine CGU specific WACC’s to perform its annual impairment testing. During the year ended December 31, 2017 and because the economic and operational conditions worsened in Venezuela, the Company has recognized an impairment of the distribution rights in such country for an amount of Ps 745, such charge has been recorded in other expenses line in the consolidated income statement

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