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NOTES TO ACCOUNTS

United Breweries Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 36027.85 Cr. P/BV 11.07 Book Value (₹) 123.04
52 Week High/Low (₹) 1491/1032 FV/ML 1/1 P/E(X) 64.00
Bookclosure 17/09/2018 EPS (₹) 21.29 Div Yield (%) 0.18
Year End :2018-03 

* Non-current advance to suppliers relates to amount paid under protest to Maharashtra Industrial Development Corporation ("MIDC”) towards increased charges for water supplies. The Company has filed a special leave petition before the Supreme Court in respect of this matter and the management, basis a legal advice, believes that the Company's position will be upheld in the appellate process and accordingly, the same has been considered as a contingent liability as at year end. There are no advances to directors or other officers of the Company or any of them either severally or jointly with any other person or advances to firms or private companies, respectively, in which any director is a partner or a director or a member.

b) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Re. 1 per share. Each holder of equity share is eligible for one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

Secured borrowings

a) Foreign currency short-term loan was part of consortium facility and was secured by first pari-passu charge on all current assets of the Company namely stock of raw materials, semi finished and finished goods, stores and spares and not relating to plant & machinery (consumables, stores & spares), bills receivable and book debt of the present and the future. This facility was fully hedged and was repayable on July 19, 2017 and carried interest rate of 8.43% per annum, payable on a monthly basis. The loan has been fully repaid during the year.

b) Cash credit facilities from banks are secured by first pari-passu charge on all current assets of the Company namely stock of raw materials, semi-finished and finished goods, stores and spares not relating to plant and machinery (consumable stores and spares), bills receivable and book debts both present and future. These are repayable on demand and carries interest in the range of 8.15% to 8.70% p.a.

c) Indian currency working capital demand loan is part of consortium facility and is secured by first pari-passu charge on all current assets of the Company namely stock of raw materials, semi finished and finished goods, stores and spares and not relating to plant & machinery (consumables, stores & spares), bills receivable and book debt of the present and the future. This facility is repayable within 180 days and carries interest rate of 6.40% per annum to 7.90% per annum.

Unsecured borrowings

a) Commercial papers were repayable after a term of 60 days from issue and carried interest rate of 9.20% p.a. These have been fully repaid during the year.

* Includes sale of beer Rs. 12,07,424 Lakhs (Previous year: Rs. 9,93,895 Lakhs) and sale of malt Rs. 8,811 Lakhs (Previous year: Rs. 6,531 Lakhs).

** Royalty income

*Net of reversal of provision no longer required amounting to Rs. 632 Lakhs (Previous year : Rs. 617 Lakhs).

(i) The Company operates two defined benefit plans i.e., gratuity and provident fund for its employees. Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure at 15 days of last drawn salary for each completed year of service. Under the provident fund benefit plan, the Company contributes to the provident fund trust which guarantees a specified rate of return on such contributions on a periodical basis. The shortfall in the return, if any, is borne by the Company. The following table summarizes the components of net benefit expenses and the funded status for respective plans:

The Company has entered into operating lease arrangements for vehicles, computers, equipments, manufacturing facility, office premises and employee residential premises. These leases are for a period of 11 to 60 months with options of renewal and premature termination with notice period, except in certain leases with lock-in period of 6 to 60 months. There are certain sub-lease restrictions placed upon the Company by entering into these leases. The total lease rentals expense for the year is Rs. 3,974 Lakhs (Previous year: Rs. 3,666 Lakhs). Future minimum rentals payable under non-cancellable operating leases are as follows:t

* The Company is contesting these demands and the management, based on advise of its advisors, believes that its position will likely be upheld in the appellate process. No expense has been accrued in the standalone Ind AS financial statements for these demands raised. The management believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company's financial position and results of operations. The Company does not expect any reimbursements in respect of the above contingent liabilities.

In addition, the Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company's management reasonably does not expect that these legal actions, when ultimately concluded and determined, will have material effect on the Company's results of operations or financial condition.

A. Name of related parties and related party relationships

Related party where control exists:

Subsidiary Maltex Malsters Limited ('MML')

Related parties under Ind AS 24 with whom transactions have taken place during the year:

Associate : Kingfisher East Bengal Football Team Private Limited ('KEBFTPL')

Enterprises having significant influence : Scottish & Newcastle India Limited, UK ('SNIL')

United Breweries (Holdings) Limited ('UBHL')

Key management personnel (KMP) : Mr. Shekhar Ramamurthy, Managing Director

Mr. Steven Bosch, Director, CFO (effective October 1, 2016)

Mr. Henricus Petrus van Zon, Director, CFO (till September 30, 2016)

Enterprises over which investing parties : Heineken UK Limited ('HUL'), holding company of SNIL

or KMP have significant influence Heineken International B.V. ('HIBV')

Heineken Brouwerijen B.V. ('HBBV')

Heineken Supply Chain B.V. ('HSCBV')

Heineken Asia Pacific Pte. Ltd. ('HAPPL')

Heineken Ceska Republika ('HCR')

Force India F1 Team Limited, UK ('Force India')

Additional related parties as per the Companies Act, 2013 with whom transactions have taken place during the year:

Directors : Dr. Vijay Mallya*

Mr. A K Ravi Nedungadi Mr. Sijbe Hiemstra Mr. Frans Erik Eusman Mr. Stephan Gerlich Mrs. Kiran Majumdar Shaw Mr. Madhav Bhatkuly Mr. Chugh Yoginder Pal Mr. Chhaganlal Jain Mr. Sunil Alagh

Mr. Christiaan August J Van Steenbergen (effective November 8, 2017)

*The Securities and Exchange Board of India vide its order dated January 25, 2017 restrained Dr. Vijay Mallya from holding position as Director or Key Managerial Person of any listed company. Pursuant to the decision of the Board at its meeting held on July 4, 2017, the Company had communicated on July 6, 2017 to Dr. Mallya and his associate companies (promoters of the Company) to nominate a director on the Board in his place in terms of the Articles of Association of the Company. Further, pursuant to the decision of the Board at its meeting held on August 10, 2017, the Company carried out necessary filings with the Registrar of Companies, Karnataka (ROC) and Stock Exchanges notifying Dr. Mallya's cessation from holding the position of director in the Company. The applicable form relating to cessation of directorship has since been approved by the ROC.

Key management personnel (KMP): : Mr. Govind Iyengar, Company Secretary Relative of director or KMP : Mr. Umesh Hingorani

Body corporate/Private companies whose : United Breweries International (UK) Limited, UK ('UBIUK')

Board of directors is accustomed to act Mandwa Farms Private Limited ('MFPL') in accordance with advise, directions or H. Parson Private Limited ('HPPL') instructions of a director (included in Blitz Publications Private Limited ('BPPL')

'Others' below)

(a) Fixed assets with gross block of Rs. 275 Lakhs (Previous year: Rs. 235 Lakhs) are lying with MML.

(b) The remuneration to key managerial personnel and relatives does not include the provisions made for gratuity and compensated absences, as they are determined on an actuarial basis for the Company as a whole.

(c) The Company received an order dated September 30, 2015 from the Debt Recovery Tribunal, Karnataka, Bangalore (DRT) whereby the Company has been directed not to pay/release amounts that may be payable with respect to shares in the Company held by an erstwhile director (including his joint holdings) and United Breweries (Holdings) Limited, without its prior permission. Accordingly, the Company has withheld payment of Rs. 1,127 Lakhs relating to dividend on aforesaid shares and the Company would also withhold payment of proposed dividend for the year ended March 31, 2018 on aforesaid shares, which is subject to approval by the shareholders in the ensuing annual general meeting.

The Company received an order dated March 11, 2016 from the Deputy Commissioner of Income Tax (International Taxation), Bangalore, requesting the Company to create a charge in favour of the Central Government on any amount due or likely to be due to a director of the Company, to the extent of Rs. 67,980 Lakhs relating to tax demands on Kingfisher Airlines Limited. The Company also received an order dated June 28, 2016 from the Commissioner of Income Tax (TDS), prohibiting the Company from making any payment in the nature of salary, remuneration, allowances, etc. to an erstwhile director of the Company. Further, the Company received an order dated September 19, 2017 from the Assistant Provident Fund Commissioner & Recovery Officer, whereby the Company has been directed to remit to the authorities amount to the extent of Rs. 874 Lakhs from any amount payable or that may accrue in future to an erstwhile director. The Company has accordingly withheld payment of Rs. 45 Lakhs (net of TDS) relating to director commission and sitting fees payable to the aforesaid erstwhile director.

39. FINANCIAL INSTRUMENTS FAIR VALUE MEASUREMENT

All assets and liabilities for which fair value is measured or disclosed in the standalone Ind AS financial statements are categorised within the fair value hierarchy, as below, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 : Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

There has been no transfers between levels during the year.

The fair values of Cross currency interest rate swap and Foreign currency forward contracts are derived from quoted market prices in active markets.

The management assessed that the carrying values of investments, trade and other receivables, cash and short term deposits, other assets, borrowings, trade and other payables and balances with related parties, based on their notional amounts, reasonably approximate their fair values because these instruments have short-term maturities and are re-priced frequently.

40. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company's principal financial liabilities comprise borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Company's operations. The Company's principal financial assets include investments, trade and other receivables, cash and cash equivalents, bank balances, security deposits and derivatives that are out of regular business operations.

The Company is exposed to market risk, credit risk and liquidity risk. The Company's senior management oversees the management of these risks. The Company's senior management is supported by a risk management committee that advises on financial risks and the appropriate financial risk governance framework for the Company.

The risk management committee provides assurance to the Company's senior management that the Company's financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company's policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company's policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below. supervision. It is the Company's policy that no trading in derivatives for speculative purposes may be undertaken.

The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below.

a) Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument that will fluctuate because of changes in market prices. Market risk comprises three types of risk i.e. interest rate risk, currency risk and other price risk, such as commodity risk. Financial instruments affected by market risk include borrowings, derivatives financial instruments and trade payables.

i. Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Company's financial instruments will fluctuate because of changes in market interest rates. The Company's exposure to the risk of changes in market interest rate relates primarily to the Company's borrowings with floating interest rates. The Company has hedged its borrowings with interest rate swaps, therefore the changes in the interest rate will not have impact on future cash flows.

ii. Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company's exposure to the risk of changes in foreign exchange rates relates primarily to the Company's foreign currency borrowings and trade payable. The Company has hedged exposure to fluctuations in foreign exchange rates for all of its foreign currency borrowings with cross currency swaps and forward contracts, therefore the changes in the currency rates will not have impact on future cash flows.

iii. Commodity price risk

The Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase and manufacture of Beer and therefore require a continuous supply of Barley. The Company's Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation.

b) Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments if a counterparty default on its obligations. The Company's exposure to credit risk arises majorly from trade and other receivables. Other financial assets like security deposits and bank deposits are mostly with government authorities and nationalized banks and hence, the Company does not expect any credit risk with respect to these financial assets. With respect to trade receivables, significant portion includes dues from state government corporations, hence probability of default is remote. The Company has constituted regional and corporate credit committees to review trade receivables on periodic basis and to take necessary mitigations, wherever required.

For the purpose of the Company's capital management, capital includes issued equity capital, securities premium and all other equity reserves attributable to the equity shareholders. The primary objective of the Company's capital management is to ensure that it maintains a strong credit rating and capital ratios in order to support its business and maximize shareholder value.

The Company monitors capital using a gearing ratio, which is net debt divided by total capital. The Company includes within net debt, all non-current and current borrowings reduced by cash and cash equivalents and other bank balances. ___

In order to achieve this overall objective, the Company's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing borrowings that define capital structure requirements. The breaches in meeting the financial covenants would permit the bank to immediately call borrowings. There have been no breaches in the financial covenants of any interest-bearing borrowings in the current year.

No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2018 and March 31, 2017.

1. The Bihar State Government ("the Government") vide its notification dated April 5, 2016 imposed ban on trade and consumption of foreign liquor in the State of Bihar with immediate effect. The Company filed a writ petition with the Honourable High Court at Patna ("the High Court"), requesting remedies and compensation for losses incurred on account of such abrupt notification. The High Court vide its order dated September 30, 2016 ("the Order") allowed the aforesaid writ petition, however, the Government preferred a special leave petition against the Order before the Honourable Supreme Court of India ("the Supreme Court"). As an interim measure, the Supreme Court directed stay of operation of the Order.

Further, pursuant to notification dated January 24, 2017, the Government did not renew existing brewery licenses for the financial year 2017-18 and consequently the Company was required to destroy or drain all its inventories of finished goods lying at Bihar, including those at warehouses of Bihar State Beverages Corporation Limited ('BSBCL'), for which the Supreme Court had extended time till July 31, 2017. Accordingly, effective April 1, 2017, the Company discontinued production of beer at Bihar and had given its consent to BSBCL to destroy / drain all its inventories lying with them, without prejudice to remedies and compensation available from its representation pending before the Supreme Court. The Company has obtained permission from authorities for manufacture of non-alcoholic beverages at its existing manufacturing facility at Bihar and has initiated necessary steps towards commencement of operations for the new product line.

As at March 31, 2018, the Company has property, plant and equipment (net) of Rs. 21,232 Lakhs (March 31, 2017: Rs. 23,530 Lakhs) at its unit in Bihar. Management believes that the carrying amount of these property, plant and equipment do not exceed their recoverable amount and is confident of utilization of these assets either for the new product line relating to non-alcoholic beverages in Bihar or for manufacturing units in other states. Accordingly, no provision has been considered necessary by the management in this regard.

3. STANDARDS ISSUED BUT NOT YET EFFECTIVE

Ind AS 115 - Revenue from Contract with Customers

Ind AS 115 was issued on March 28, 2018 and establishes a five-step model to account for revenue arising from contracts with customers. Under Ind AS 115, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede virtually all current revenue recognition requirements under Ind AS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after April 1, 2018.

The Company plans to adopt the new standard on the required effective date and is currently assessing the adoption method and the potential impact, the adoption of this standard will have on its financial statements and disclosures.

Appendix B to Ind AS 21, Foreign currency transactions and advance consideration

On March 28, 2018, Ministry of Corporate Affairs ("MCA") has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from April 1, 2018. The Company is evaluating the impact of this amendment on its financial statements.

4. Previous year figures

Previous year figures have been regrouped / reclassified, where necessary, to conform to this year's classification.

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