Translation of a report and consolidated financial ... · Translation of a report and consolidated...

Translation of a report and consolidated financial statements originally issued in Spanish - see note 27

Corporación Lindley S.A. and Subsidiary

Consolidated financial statements as of December 31, 2011 and 2010 together with the independent auditors‟ report



Consolidated financial statements as of December 31, 2011 and 2010

together with the independent auditors‟ report

Content

Independent auditors’ report

Consolidated financial statements

Consolidated statement of financial position

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the consolidated financial statements


Independent auditors‟ report

To the shareholders of Corporación Lindley S.A. and Subsidiary

We have audited the accompanying consolidated financial statements of Corporación Lindley S.A.

and its subsidiary (the Group), which comprise the consolidated statement of financial position as at

31 December 2011, 2010 and 1 January 2010, the consolidated income statement, consolidated

statement of comprehensive income, consolidated statement of changes in equity and consolidated

statement of cash flows for the years ended 31 December 2011 and 2010, and 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 International 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

audit. We conducted our audit in accordance with International 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 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.

Miembro de Ernst & Young Global Inscrita en la partida 11396556 del Registro

de Personas Jurídicas de Lima y Callao


Independent auditors‟ report (continued)

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 give a true and fair view of the financial

position of the Group as at 31 December 2011, 2010 and 1 January 2010, and of its financial

performance and cash flows for the years ended 31 December 2011 and 2010 in accordance with

International Financial Reporting Standards.

Lima, Peru,

24 February 2012

Countersigned by:

Manuel Diaz

C.P.C.C. Registration No.19-000996


The accompanying notes are an integral part of these consolidated statement of financial position.


Consolidated statement of financial position As of 31 December 2011, 2010 and 1 January 2010

Note 2011 2010

As of 1 January

2010 S/.(000) S/.(000) S/.(000)

Assets

Current assets

Cash and cash equivalents 4 357,355 42,345 35,442

Net trade accounts receivable 5 152,770 96,717 71,770

Accounts receivable from related parties 21(b) 54,859 71,309 44,454

Net other accounts receivable and financial

assets 6 41,082 59,108 28,839

Net inventories 7 213,449 204,826 147,298

Prepaid expenses 11,918 1,600 1,574 __________ __________ __________

Total current assets 831,433 475,905 329,377 __________ __________ __________

Non-current assets

Long term other non-current financial assets 6 21,037 21,036 22,167

Net investment properties 8 106,578 107,886 108,392

Net property, plant and equipment 9 1,091,309 789,062 656,068

Net intangibles 10 306,927 306,633 307,616

Other assets 2,425 1,991 1,621 __________ __________ __________

Total non-current assets 1,528,276 1,226,608 1,095,864 __________ __________ __________

Total assets 2,359,709 1,702,513 1,425,241 __________ __________ __________

Note 2011 2010

As of 1 January

2010 S/.(000) S/.(000) S/.(000)

Liabilities and shareholders’ equity

Current liabilities

Financial obligations 13 42,076 123,656 85,631

Trade accounts payable 11 256,242 228,707 154,722

Accounts payable from related parties 21(b) 94,319 72,198 26,390

Income tax and workers profit sharing 13,874 11,894 30,629

Other accounts payable 12 140,327 114,876 103,828

Current portion of derivative financial instruments 25 16,286 6,568 4,078 __________ __________ __________

Total current liabilities 563,124 557,999 405,278

Long term financial obligations 13 1,048,648 392,722 336,932

Long term portion of derivative financial

instruments 25 2,098 4,195 9,609

Deferred income tax liability 14(a) 35,102 58,855 49,286 __________ __________ __________

Total liabilities 1,648,972 1,013,671 801,105 __________ __________ __________

Shareholders’ equity 15

Capital and reserves attributable to shareholders

of the parent

Capital stock 580,981 580,981 580,981

Investment shares 71,966 71,966 71,966

Legal reserve 4,450 4,450 4,450

Net unrealized gain on hedges agreements 11,313 35,130 14,535

Retained earnings 41,547 (4,164) (48,209) __________ __________ __________

710,257 688,363 623,723

Non-controlling interest 480 479 413 __________ __________ __________

Net total shareholders’ equity 710,737 688,842 624,136 __________ __________ __________

Total liabilities and shareholders’ equity 2,359,709 1,702,513 1,425,241 __________ __________ __________


The accompanying notes are an integral part of these consolidated financial statements.


Consolidated income statement For the years ended 31 December 2011 and 2010

Note 2011 2010 S/.(000) S/.(000)

Net sales 17 1,767,812 1,538,049

Cost of sales 18 (1,270,652) (1,082,864) __________ __________

Gross profit 497,160 455,185

Selling expenses 18 (302,184) (253,999)

Administrative expenses 18 (65,474) (64,982)

Other operating income 19 66,474 74,815

Other expenses 19 (79,775) (110,408) __________ __________

Operating income 116,201 100,611

Financial income 20 59,919 25,943

Financial expenses 20 (106,834) (59,299)

Net loss from financial instruments 25 (2,352) 2,877 __________ __________

Income before income tax 66,934 70,132

Income tax 14(b) (21,222) (26,021) __________ __________

Net income 45,712 44,111 __________ __________

Attributable to:

Equity shareholders of the parent 45,711 44,045

Non-controlling interests 1 66 __________ __________

45,712 44,111 __________ __________

Earnings per share for net income basic and diluted 23 S/.0.0700 S/.0.0675 __________ __________

Weighted average number of shares outstanding attributable to

equity shareholders (in thousands of shares) 23 652,947 652,947 __________ __________




Consolidated statement of comprehensive income For the years ended 31 December 2011 and 2010

Nota 2011 2010 S/.(000) S/.(000)

Net income 45,712 44,111 ________ ________

Other comprehensive income

Unrealized gain (loss)of derivatives under cash flow hedges,

note 25 (31,912) 33,395

Income tax effect, nota 14 8,095 (12,800) ________ ________

Total other comprehensive income (23,817) 20,595 ________ ________

Total comprehensive income 21,895 64,706 ________ ________

Attributable to:

Equity shareholders of Lindley 21,894 64,640

Non-controlling interests 1 66 ________ ________

Total comprehensive income 21,895 64,706 ________ ________




Consolidated statement of change in equity For the years ended as of 31 December 2011 and 2010

Attributable to owners of the parent ___________________________________________________________________________________________________________

Number of

shares

Capital

stock

Investment

shares Legal reserve

Unrealised

results of

derivatives

cash flows

hedge

Retained

earnings Total

Non-

controlling

interests Total In thousand S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

As of 1 January 2010 580,981 580,981 71,966 4,450 14,535 (48,209) 623,723 413 624,136

Net income - - - - - 44,045 44,045 66 44,111

Unrealized gain of derivatives under cash flow hedges, net of

income tax effect, note 25 - - - - 20,595 - 20,595 - 20,595 __________ __________ __________ __________ __________ __________ __________ __________ __________

As of 31 December 2010 580,981 580,981 71,966 4,450 35,130 (4,164) 688,363 479 688,842

Net income - - - - - 45,711 45,711 1 45,712

Unrealized loss of derivatives under cash flow hedges, net of

income tax effect, note 25 - - - - (23,817) - (23,817) - (23,817) __________ __________ __________ __________ __________ __________ __________ __________ __________

As of 31 December 2011 580,981 580,981 71,966 4,450 11,313 41,547 710,257 480 710,737 __________ __________ __________ __________ __________ __________ __________ __________ __________



Consolidated statement of cash flows For the years ended 31 December 2011 and 2010

2011 2010 S/.(000) S/.(000)

Reconciliation of net income to cash and cash equivalents provided by

operating activities

Net income 45,712 44,111

Plus (less) adjustments to net income of the year:

Depreciation 99,201 79,387

Amortization 938 1,853

Allowance for doubtful accounts 2,619 401

Allowance for obsolescence 228 1,581

Recovery of previous years provisions

Deferred income tax (15,658) (3,231)

Gain from property, plant and equipment sales (2,880) (5,938)

Loss (gain) related to derivative financial instruments 2,352 (2,877)

Various provisions and other 23,333 10,645

Financial expenses 42,311

Financial income (11,561 22,025 _________ _________

186,595 144,909

Debits and credits for net changes in operating current assets and

liabilities

Decrease (increase) in operating assets

Trade accounts receivable (56,053) (24,947)

Accounts receivable from related parties 16,450 (26,855)

Other accounts receivable 18,025 11,757

Inventories (8,623) (57,528)

Prepaid expenses (10,318) (26)

Increase (decrease) in operating liabilities

Trade accounts payable 27,535 73,985

Accounts payable to related parties 22,121 45,808

Other accounts payable 43,464 39,541 __________ __________

239,196 206,644

Interests payments (23,144) (20,244)

Interests collections 2,223 2,440

Income tax payments (23,647) (40,895) __________ __________

Cash and cash equivalents, provided by operating activities 194,628 147,928 __________ __________


Consolidated statement of cash flows (continuación)


2011 2010 S/.(000) S/.(000)

Investing Activities

Collection from property sales, plants and equipment 32,561 57,432

Purchases of property, plant and equipment and investment properties (360,020) (182,507)

Purchases of intangibles (1,232) (870) __________ __________

Cash and cash equivalents used in investing activities (328,691) (125,945) __________ __________

Financing Activities

Banks and shareholder loans 1,710,231 68,980

Payment of financial obligations (1,218,847) (62,052)

Interest (42,311) (22,025) __________ __________

Cash and cash equivalents provided by (used in) financing activities 449,073 (15,097) __________ __________

Net increase (decrease) in cash and cash equivalents 315,010 6,903

Cash and cash equivalents at the beginning of the year 42,345 35,442 __________ __________

Year-end cash and cash equivalents 357,355 42,345 __________ __________

Transactions that did not affect cash flows:

Unrealized gains (losses) on hedge agreements (23,817) 20,595

Acquisition of property, plant and equipment through financial lease

contracts 68,295 59,189


Notes to the consolidated financial statements As of 31 December 2011 and 2010

1. Identification and economic activity

(a) Identification -

Corporación Lindley S.A. (formerly Corporación José R. Lindley S.A., hereinafter “the Company”

or “Lindley”) is a Peruvian public company formed on the basis of Fábrica de Aguas Gaseosas La

Santa Rosa, a company incorporated in 1910 that would become José R. Lindley e Hijos S.A. in

November 1928. Subsequently, on February 22, 1960, it was incorporated Inmobiliaria Lintab

S.A. which absorbed José R. Lindley e Hijos S.A. and other related companies through a

reorganization process. In April 1997, Inmobiliaria Lintab S.A. changed its name to Corporación

José R. Lindley S.A. until June 15, 2010, and after that changed to the actual name. The main

four shareholders of the Company are members of the Lindley family, who hold 59.66 percent of

the Company‟s representative shares and Perú Beverage Limitada S.R.L., a subsidiary of The

Coca-Cola Company, which owns 38.52 percent of capital of the Company at September 30,

2011 and December 31, 2010.

The Company‟s legal address domicile is Jr.Cajamarca No. 371, Rímac, Lima.

The consolidated financial statements as of December 31, 2011 and for the year then ended

include the financial statements of Lindley and its subsidiary Embotelladora La Selva S.A.

(hereinafter "ELSSA" or "Subsidiary") in which Lindley has control and an equity interest of

93.20 percent (together hereinafter called "the Group"). ELSSA is a Peruvian public company

that has the same economic activity as the Company and was incorporated on June 23, 1967.

The accompanying consolidated financial statements as of December 31, 2011 have been

approved by Group‟s Management on 24 February 2012 to be issue.

(b) Economic activity -

The Group's primary activity is the production, bottling, distribution and sale of soft drinks,

carbonated water, and fruit pulps and nectars used certain trademarks owned by related parties

through franchise agreements, such as Corporación Inca Kola Perú S.R.L, Schweppes Holdings

Limited and The Coca-Cola Company. All those related parties have contracts in force until April

2015 and expected to be renewed at maturity.

The Company consolidated the bottling systems of the Coca Cola and Inca Kola products in Peru

based on a process of mergers and acquisitions made in previous years with the bottler of The

Coca Cola Company brands in southern Peru, Lima and Trujillo, and with Embotelladora Piura

S.A. Then the Company ensured the strengthening of these brands in the Peruvian market and

achieved a superior market structure.


Notes to the consolidated financial statements (continued)

2

The Company registered a 10 percent or 22 million unit sales-volume increases for the year

ending December 31, 2010 and a 4 percent or 9 million unit increases for the year ending

December 31, 2009. (Unaudited).

The Group has increased its share in the market for Peruvian soft drinks, despite the extremely

competitive nature, largely through increased sales of the Company‟s leading brands, "Inca Kola"

and "Coca Cola". The Group primarily sells its products to distributors located in Lima and cities

in Peru‟s interior.

The Company also operates in the Eastern region of the country through its subsidiary,

Embotelladora La Selva S.A.

On 23 November 2011, the Company entered a international bonds issuing under rule

144A/Regulation S of the Stock Exchange Market Law of the United States of America for a total

amount of US$320,000,000 to an interest rate of 6.75% due on 23 November 2021. The

obtained funds related to this issuing were used to restructure its liabilities and finance its

inversion plan. See note 13.

2. Basis of consolidation, preparation and presentation, principles and accounting policies

2.1.1 Basis of preparation and presentation –

The accompanying consolidated financial statements have been prepared in accordance with

International Financial Reporting Standards (hereinafter "IFRS"), in forces as of December 31,

2011.

The financial statements have been prepared under the historical cost basis, except for derivative

financial instruments which are measured at fair value, based on the accounting records kept by

the Company. The financial statements are presented in nuevos soles and all amounts are

rounded to thousands (S/.(000)), unless otherwise indicated.

2.1.2 Basis of consolidation -

The consolidated financial statements comprise the financial statements of the Group as of

December 31, 2011, 2010 and as of January 1, 2010

Subsidiary is fully consolidated from the date of acquisition, being the date on which the Group

obtains control, and continue to be consolidated until the date when such control ceases.

The financial statements of the subsidiary are prepared for the same reporting period as the

parent company, using consistent accounting policies.

All intra-group balances, transactions, unrealised gains and losses resulting from intra-group

transactions and dividends are eliminated in full.



3

Where the ownership of a subsidiary is less than 100%, and therefore a non-controlling interest

exists, any losses of that subsidiary are attributed to the non-controlling interest even if that

results in a deficit balance.

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, it:

- Derecognises the assets (including goodwill) and liabilities of the subsidiary

- Derecognises the carrying amount of any non-controlling interest

- Derecognises the cumulative translation differences, recognised in equity

- Recognises the fair value of the consideration received.

- Recognises the fair value of any investment retained

- Recognises any surplus of deficit in profit or loss

- Reclassifies the parent´s share of components previously recognised in other

comprehensive income to profit or loss or retained earnings, as appropriate.

The note 2.5 includes information about the significant accounting judgments, estimates and

assumptions used by Group‟s Management for the preparation of these accompanying

consolidated financial statements.

2.2. Summary of significant accounting policies

Below the significant accounting policies used by Group‟s Management for the preparation of

consolidated financial statements are shown:

(a) Cash and cash equivalents -

Cash and short-term deposits in the consolidated statement of financial position comprise

cash at banks and on hand and short-term deposits with a maturity of three months or less.

For the purpose of the consolidated statement cash flows, cash and cash equivalents consist

of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

(b) Financial instruments: Initial recognition and subsequent measurement -

(i) Financial assets –

Initial recognition and measurement –

Financial assets within scope of International accounting standard (IAS) 39

“Financial instruments: Recognition and measurement” are classified as financial

assets at fair value through profit or loss, loans and receivables, held-to-maturity

investments, available-for-sale financial assets, or as derivatives designated as

hedging instruments in an effective hedge, as appropriate. The Group determines

the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus, in the case of assets

not at fair value through profit or loss, directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time



4

frame established by regulation or convention in the marketplace (regular way

trades) are recognised on the trade date, i.e., the date that the Group commits to

purchase or sell the asset.

Subsequent measurement -

The subsequent measurement of financial assets depends on their classification as

follows:

Financial assets at fair value through profit or loss -

Financial assets at fair value through profit or loss include financial assets held for

trading and financial assets designated upon initial recognition at fair value through

profit or loss. Financial assets are classified as held for trading if they are acquired

for the purpose of selling or repurchasing in the near term.

This category includes derivative financial instruments entered into by the Group

that are not designated as hedging instruments in hedge relationships as defined

by IAS 39.

Financial assets at fair value through profit and loss are carried in the consolidated

statement of financial position at fair value with changes in fair value recognised in

finance income or finance costs in the consolidated income statement.

As of 31 December 2011, 2010 and 1 January 2010, the Company maintained

derivative financial instruments (cross currency swap and interest rate swaps)

designed as for trading classified as financial liabilities at fair value with changes in

fair value recognised in the consolidated income statement, see note 25.

Loans and receivables -

Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market. After initial

measurement, such financial assets are subsequently measured at amortized cost

using the effective interest rate method (EIR), less impairment. Amortized cost is

calculated by taking into account any discount or premium on acquisition and fees

or costs that are an integral part of the EIR. The EIR amortization is included in

finance income in the consolidated income statement. The losses arising from

impairment are recognised in the consolidated income statement in finance costs.



5

Held-to-maturity investments -

Non-derivative financial assets with fixed or determinable payments and fixed

maturities are classified as held-to-maturity when the Group has the positive

intention and ability to hold them to maturity. After initial measurement, held-to-

maturity investments are measured at amortized cost using the effective interest

method, less impairment. Amortized cost is calculated by taking into account any

discount or premium on acquisition and fees or costs that are an integral part of

the EIR. The EIR amortization is included in finance income in the consolidated

income statement. The losses arising from impairment are recognised in the

consolidated income statement in finance costs.

The Group did not have any held-to-maturity investments as of 31 December 2011,

2010 and 1 January 2010.

Available for sale financial investments -

Available-for-sale financial investments are those, which are intended to be held for

an indefinite period of time and which may be sold in response to needs for liquidity

or in response to changes in the interest rate, exchange rate or market conditions,

or neither classified as held for trading nor designated at fair value through profit

or loss.

After initial measurement, available-for-sale financial investments are subsequently

measured at fair value. The unrealised gains or losses are recognised directly in the

consolidated statement of changes in equity. When the financial investment is sold

the cumulative gain or loss previously recognised in consolidated statement of

changes in equity, is recognised in consolidate income statement in finance costs

or income.

The gained dividends during the period when the investment was held are

recognised in the consolidated statement of income when the payment right has

been established. .

As of 31 December 2011, 2010 y as of 1 January 2010, the Group has not

maintained investments in this category.



6

Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a group

of similar financial assets) is derecognised when:

-

-

has assumed an obligation to pay the received cash flows in full without

material delay to a third party under a „pass-through‟ arrangement; and

either (a) the Group has transferred substantially all the risks and rewards of

the asset, or (b) the Group 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

has entered into a pass-through arrangement, and has neither transferred nor

retained substantially all of the risks and rewards of the asset nor transferred

control of it, the asset is recognised to the extent of the Group‟s continuing

involvement in it. In that case, the Group also recognises an associated liability.

The transferred asset and the associated liability are measured on a basis that

reflects the rights and obligations that the Group has retained.

(ii) Impairment of financial assets -

The Group assesses at each reporting date whether there is any 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 has

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. Evidence of

impairment may include indications that the debtors or a group of debtors is

experiencing significant financial difficulty, default or delinquency in interest or

principal payments, the probability that they will enter bankruptcy or other

financial reorganisation and where observable data indicate that there is a

measurable decrease in the estimated future cash flows, such as changes in arrears

or economic conditions that correlate with defaults.



7

Financial assets carried at amortized cost -

For financial assets carried at amortized cost, 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 the Group determines that no objective evidence of impairment exists

for an individually assessed financial asset, whether significant or not, it includes

the asset in a group of financial assets with similar credit risk characteristics and

collectively assesses them for impairment. Assets that are individually assessed for

impairment and for which an impairment loss is, or continues to be, recognised are

not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the

amount of the loss is measured as the difference between the assets carrying

amount and the present value of estimated future cash flows (excluding future

expected credit losses that have not yet been incurred). The present value of the

estimated future cash flows is discounted at the financial asset‟s original effective

interest rate. If a loan has a variable interest rate, the discount rate for measuring

any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance

account and the amount of the loss is recognised in the consolidated income

statement. Interest income continues to be accrued on the reduced carrying

amount and is accrued using the rate of interest used to discount the future cash

flows for the purpose of measuring the impairment loss.

The interest income is recorded as part of finance income in the consolidated

income statement. Loans together with the associated allowance are written off

when there is no realistic prospect of future recovery and all collateral has been

realised or has been transferred to the Group. If, in a subsequent year, the amount

of the estimated impairment loss increases or decreases because of an event

occurring after the impairment was recognised, the previously recognised

impairment loss is increased or reduced by adjusting the allowance account. If a

future write-off is later recovered, the recovery is credited to finance costs in the

consolidated income statement.

(iii) Financial liabilities –

Initial recognition and measurement -

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at

fair value through profit or loss, loans and borrowings, or as derivatives designated

as hedging instruments in an effective hedge, as appropriate. The Group

determines the classification of its financial liabilities at initial recognition.



8

All financial liabilities are recognised initially at fair value and, in the case of loans

and borrowings, carried at amortized cost. This includes directly attributable

transaction costs.

As of 31 December 2011, 2010 and 1 January 2010 the Group‟s financial

liabilities include trade and other payables, accounts payable to related parties

financial obligations, and derivative financial instruments.

Financial liabilities are classified as short term obligations at less the Group has

irrevocable right to deferred the agreement for twelve months more after the

consolidated statement of financial position.

Subsequent measurement –

The measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss -

Financial liabilities at fair value through profit or loss include financial liabilities held

for trading and financial liabilities designated upon initial recognition as at fair

value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the

purpose of selling in the near term. This category includes derivative financial

instruments entered into by the Group that are not designated as hedging

instruments in hedge relationships as defined by IAS 39. Separated embedded

derivatives are also classified as held for trading unless they are designated as

effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the income

statement.

Loans and borrowings -

After initial recognition, interest bearing loans and borrowings are subsequently

measured at amortized cost using the effective interest rate method. Gains and

losses are recognised in the consolidated income statement when the liabilities are

derecognised as well as through the effective interest rate method (EIR)

amortization process. Amortized cost is calculated by taking into account any

discount or premium on acquisition and fees or costs that are an integral part of

the EIR. The EIR amortization is included in finance costs in the consolidated

income statement.



9

Derecognition -

A financial liability is derecognised 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, and the difference in the respective carrying amounts is recognised in the

consolidated income statement.

(iv) Offsetting of financial instruments -

Financial assets and financial liabilities are offset and the net amount reported in

the consolidated statement of financial position if, and only if, there is a currently

enforceable legal right to offset the recognised amounts and there is an intention

to settle on a net basis, or to realise the assets and settle the liabilities

simultaneously.

(v) Fair value of financial instruments -

The fair value of financial instruments that are traded in active markets at each

reporting date is determined by reference to quoted market prices or dealer price

quotations (bid price for long positions and ask price for short positions), without

any deduction for transaction costs. For financial instruments not traded in an

active market, the fair value is determined using appropriate valuation techniques.

Such techniques may include using recent arm‟s length market transactions;

reference to the current fair value of another instrument that is substantially the

same; a discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they

are measured are provided in Note 22.

Derivative financial instruments -

Derivative financial instruments as defined by IAS 39, are classified as for trade

and hedge. The most relevant aspects of each category are described as follows:

Trade -

Derivative financial instruments for trade are initially recognised at historical cost

in the consolidated statement of financial position and subsequently at their fair

value. The fair value are obtained basis on the exchange rate and market interest

rate. Any gain or losses in the fair value are recorded in the consolidated income

statement.



10

The derivative financial instruments maintained by the Company as “Cross

Currency Interest Rate Swap” and “Interest Rate Swaps”, do not qualify for hedge

accounting in accordance to specific rules of IAS 39, for that reason are treated as

derivative financial instruments for trade.

Hedge -

Hedge accounting in accordance to IAS 39 is applied with the objective to manage

particular risks for the transactions that accomplish with specific criteria for that.

The derivative financial instruments are initially recognised at fair value on the date

on which a derivate contract is entered and are subsequently remeasurement to

the consolidated financial statements date. Any gains or losses arising from

changes in the fair value of derivatives are taken directly to the consolidated

statement of income, except for the effective portion of cash flow hedges, which is

recognised in other comprehensive income.

For the purpose of hedge accounting, hedges are classified as:

- Fair value hedges when hedging the exposure to changes in the fair value of

a recognised asset or liability or an unrecognised firm commitment (except

for foreign currency risk) or a portion of these assets, liabilities or firm

commitment attributable to a particular risk which could affect the

consolidated statement of income; or

-

either (i) attributable to a particular risk associated with a recognised asset

or liability (total or some future interest payments on variable rate debt) or

a highly probable forecast transaction which could affect the consolidated

income statement.

At the inception of a hedge relationship, the Group formally designates and

documents the hedge relationship to which the Group wishes to apply hedge

accounting and the risk management objective and strategy for undertaking the

hedge. The documentation includes identification of the hedging instrument, the

hedged item or transaction, the nature of the risk being hedged and how the entity

will assess the effectiveness of changes in the hedging instrument‟s fair value in

offsetting the exposure to changes in the hedged item‟s fair value or cash flows

attributable to the hedged risk. Such hedges are expected to be highly effective in

achieving offsetting changes in fair value or cash flows and are assessed on an

ongoing basis to determine that they actually have been highly effective

throughout the financial reporting periods for which they were designated.



11

Hedges that meet the specified criteria for hedge accounting are accounted for as

follows:

Fair value hedges –

Changes in the fair value of the hedged item attributable to the hedged risk are

adjusted to the carrying value of the hedged item and are recognized in the

consolidated statement of income.

For fair value hedges relating to items carried at amortized cost, the adjustment to

the carrying amount is amortized against the results of the year according to the

maturity of the hedged items. Amortization may begin as soon as they make the

adjustment and must begin no later than the hedged item ceases to be adjusted for

changes in fair value attributable to the risk being covered.

If the hedged item is derecognised, the unamortized fair value is recognised

immediately in the consolidated income statement.

When an unrecognized firm commitment is designated as a hedged item, the

subsequent cumulative change in its fair value, that is attributable to the hedged

risk, is recognized as an asset or liability with a corresponding gain or loss

recognized in the consolidated statement of income.

As of December 31, 2011, 2010, and 1 January 2010, the Group has not

maintained hedging instruments at fair value.

Cash flow hedges –

The effective portion of the gain or loss on the hedging derivative instrument is

recognized in the equity and consolidated statement of changes in equity

respectively, and the gain or loss related to the ineffective portion is immediately

recognized in the consolidated statement of income.

The accumulated amounts in equity for cash flows hedging are carried out to the

consolidated statement of income in the periods when the hedge item affects the

profit and loss. In the cases when the finance income or expense is recognized or

when the forecast sale occurs. Where the hedged item is the cost of non-financial

asset or financial liability, the amounts recognized in equity are transferred to the

initial cost of the asset or non-financial liability.



12

If it expects the forecasted transaction or firm commitment does not occur, the

cumulative gain or loss previously recognized in equity is transferred to the

consolidated statement of income. If the hedging instrument expires or is sold, is

terminated or exercised without replacement or rollover, or if its designation as a

hedge is revoked, any cumulative gain or loss previously recognized in equity

remains in equity until the forecasted transaction or firm commitment occurs.

As of December 31, 2011, 2010 and 1 January 2010, the Group decided to hedge

their exposure to risks associated with commodity price volatility by subscribing

futures contracts and prices of sugar swaps. These contracts qualify as hedges

pursuant to IAS 39 (see note 25).

(c) Foreign currency translation -

(i) Functional and presentation currency -

The Group has determinated the nuevo sol as the functional and presentation

currency of its consolidated financial statements.

(ii) Transaction and balances in foreign currency -

Transactions in foreign currency are those carried out in a currency different from

the functional currency. Transactions in foreign currency are initially recorded at

the functional currency using the exchange rates in effect on the transactions.

Monetary assets and liabilities denominated in foreign currencies are

subsequently translated into the functional currency using the exchange rate in

effect as of the consolidated statement of financial position. Any gains or losses

from exchange differences resulting from the settlement of these transactions

and the translation of foreign currency monetary assets and liabilities at the

consolidated statement of financial position date exchange rate are recognized in

the consolidated statement of income.

Non-monetary assets and liabilities are translated into the functional currency at the

actual exchange rate at the transaction date.

(d) Inventories -

Inventories are stated at the lower of average cost or net realizable value.

Costs incurred in bringing each product to its present location and condition are

accounted for as follows:

Goods for sale, raw materials, packaging materials and supplies:

The cost includes the purchase cost using the pondered average method.



13

Finished goods and work in progress:

The cost of the products in process and finished goods includes material costs, labor

expenses and the corresponding distribution of the fixed costs and production overheads

(based on normal operating capacity) and excludes financing cost and exchange

differences.

The purchase cost include the gains and losses transference related to cash flows hedge

recognised in the comprehensive income, associated to the raw material acquisition.

Inventories in transit –

Inventories in transit are stated at purchase cost.

Net realizable value is the sales price obtained in the ordinary course of business, less the

estimated costs of placing the inventories into a ready-for-sale condition and the

commercialization and distribution expenses.

(e) Investment properties -

Investment properties are stated at acquisition cost or equity incorporation, in accordance

to IAS 40 “Investment property”, following the historical cost model. As consequence,

they are treated following the indicated in IAS 16 “Property, plant and equipment”.

Investment properties include land and its respective construction.

The construction have to be depreciated following the straight line method, using an

adequate rate to extinguish the cost at the end of useful live estimated between 40 and

80 years.

Investment properties are derecognised when either they have been disposed of or when

the investment property is permanently withdrawn from use and no future economic

benefit is expected from its disposal. The difference between the net disposal proceeds

and the carrying amount of the asset is recognised in the income statement in the period

of derecognition.

Transfers are made to or from investment property only when there is a change in use.

For a transfer from investment property to owner-occupied property, the deemed cost for

subsequent accounting is the fair value at the date of change. If 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.



14

(f) Property, plant and equipment -

Property, plant and equipment are stated at cost, net of accumulated depreciation and/or

accumulated impairment losses, if any. Such cost includes the cost of replacing

component parts of the property, plant and equipment and borrowing costs for long-term

construction projects if the recognition criteria are met. When significant parts of

property, plant and equipment are required to be replaced at intervals, the Group

derecognises the replaced part, and recognises the new part with its own associated

useful life and depreciation. Likewise, when a major inspection is performed, its cost is

recognised in the carrying amount of the plant and equipment as a replacement if the

recognition criteria are satisfied. All other repair and maintenance costs are recognised in

the income statement as incurred.

The historical acquisition cost includes purchase price, including non-refundable purchase

taxes and any other expense that are directly attributable to the acquisition of the assets.

Works in progress represent properties and equipments that are under construction and

are recorded at cost. The constructions are not depreciated until the relevant assets are

finished and operative.

An item of property, plant and equipment and any significant part initially recognised is

derecognised upon disposal or when no future economic benefits are expected from its

use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the

difference between the net disposal proceeds and the carrying amount of the asset) is

included in the income statement when the asset is derecognized.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the

assets as follows:

Years

Buildings and other constructions 40 to 80

Machinery and equipment 5 to 50

Furniture and fixtures 4 to 30

Transport units 5 to 33

Bottles and boxes 2.5 and 4

Computer equipment and others 4 to 30

The assets‟ residual values, useful lives and selected depreciation method are reviewed at

each year end and adjusted prospectively if appropriate.



15

Plastic bottles and returnable glass bottles are presented at cost and are classified as

bottles in the item "Net property, plant and equipment.” The depreciation of these is

calculated following the straight-line method, using 2.5 years as useful lives for returnable

plastic bottles, 4 years for returnable glass bottles.

Non-returnable bottles are presented in "Inventories" caption at specific acquisition cost.

(g) Leases -

The determination of whether an arrangement is, or contains, a lease is based on the

substance of the arrangement at the inception date, whether fulfillment of the

arrangement is dependent on the use of a specific asset or assets or the arrangement

conveys a right to use the asset.

Finance leases which transfer to the Group substantially all the risks and benefits

incidental to ownership of the leased item, are capitalised at the commencement of the

lease at the fair value of the leased property or, if lower, at the present value of the

minimum lease payments.

Initial cost are included as part of property, plant and equipment. Lease payments are

apportioned between finance charges and reduction of the lease liability so as to achieve a

constant rate of interest on the remaining balance of the liability. Finance charges are

recognised in finance costs in the consolidated income statement.

The leased assets are depreciated as is explained in the literal (f) above, which is

consistent with the policy that the Group maintains.

Leases in which the Group does not transfer substantially all the risks and benefits of

ownership of the asset are classified as operating leases. Operating lease payments are

recognised as an operating expense in the income statement on a straight-line basis over

the lease term.

(h) Intangible asset -

An intangible asset is recognized to the extent that it is probable that future economic

benefits generated will flow to the Group and its cost can be reliably measured. The

intangibles are presented at cost less accumulated depreciation and, if applicable, the

allowance for impairment of assets has been estimated.

The amortization of assets is calculated following the straight-line method, using the rates

to extinguish the cost of assets at end of estimated useful life up to 5 years for software

licenses and other projects.

The amortization period and the amortization method for an intangible asset with a finite

useful life are reviewed at least at the end of each reporting period. Changes in the

expected useful life or the expected pattern of consumption of future economic benefits



16

embodied in the asset is accounted for by changing the amortization period or method, as

appropriate, and are treated as changes in accounting estimates. The amortization

expense on intangible assets with finite lives is recognised in the income statement in the

expense category consistent with the function of the intangible assets.

Gains or losses arising from derecognition of an intangible asset are measured as the

difference between the net disposal proceeds and the carrying amount of the asset and

are recognised in the income statement when the asset is derecognised.

(i) Goodwill -

Business combinations are accounted for using the acquisition method. 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 interest in the acquiree.

For each business combination, the Group elects whether it measures the non-controlling

interest in the acquiree either at fair value or at the proportionate share of the acquiree‟s

identifiable net assets. Acquisition costs incurred are expensed and included in

administrative expenses.

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. This

includes the separation of embedded derivatives in host contracts by the acquiree.

Goodwill is initially measured at cost, being the excess of the aggregate of the

consideration transferred and the amount recognised for non-controlling interest over the

net identifiable assets acquired and liabilities assumed. If this consideration is lower than

the fair value of the net assets of the subsidiary acquired, the difference is recognised in

profit or loss at the acquisition date.

After initial recognition, goodwill is measured at cost less any accumulated impairment

losses. For the purpose of impairment testing, goodwill acquired in a business combination

is, from the acquisition date, allocated to each of the Group‟s cash-generating units that

are expected to benefit from the combination, irrespective of whether other assets or

liabilities of the acquiree are assigned to those units.



17

Where goodwill forms part of a cash-generating unit 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.

(j) Borrowing costs -

Borrowing costs directly attributable to the acquisition, construction or production of an

asset that necessarily takes a substantial period of time to get ready for its intended use

or sale are capitalised as part of the cost of the respective assets. All other borrowing

costs are expensed in the period they occur. Borrowing costs consist of interest and other

costs that an entity incurs in connection with the borrowing of funds.

The Group capitalises borrowing costs for all eligible assets where construction was

commenced on IFRS adoption date or after (1 January 2010).

When the Company obtains funds specifically to finance a project, the capitalised amount

represents the borrowing costs actually agreed. If during a short term period there are

funds excess from the Money received for the project, the income that generate the

temporary investment are capitalised and deduced from the total capitalised cost. When

the used funds are part of general borrowings, the capitalised amount is calculated using

an average rate from all the interest rate of the period. The other borrowing costs are

recognised in the consolidated statement of income in the period when occurs.

(k) Impairment of non financial assets -

The Group assesses at each reporting date whether there is an indication that an asset

may be impaired. If any indication exists, or when annual impairment testing for an asset

is required, the Group estimates the asset‟s recoverable amount. An asset‟s recoverable

amount is the higher of an asset‟s or cash-generating unit‟s (CGU) fair value less costs to

sell and its value in use and is determined for an individual asset, unless the asset does not

generate cash inflows that are largely independent of those from other assets or groups of

assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount,

the asset is considered impaired and is written down to its recoverable amount. 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. In determining fair value less costs to

sell, recent market transactions are taken into account, if available. If no such

transactions can be identified, an appropriate valuation model is used.

Impairment losses of continuing operations, including impairment on inventories, are

recognised in the income statement in those expense categories consistent with the

function of the impaired asset.



18

For assets excluding goodwill, an assessment is made at each reporting date as to whether

there is any indication that previously recognised impairment losses may no longer exist

or may have decreased. If such indication exists, the Group estimates the asset‟s or cash-

generating unit‟s recoverable amount.

A previously recognised impairment loss is reversed only if there has been a change in the

assumptions used to determine the asset‟s recoverable amount since the last impairment

loss was recognised. The reversal is limited so that the carrying amount of the asset does

not exceed its recoverable amount, nor exceed the carrying amount that would have been

determined, net of depreciation, had no impairment loss been recognised for the asset in

prior years. Such reversal is recognised in the income statement unless the asset is

carried at a revalued amount, in which case the reversal is treated as a revaluation

increase.

The following criteria are also applied in assessing impairment of goodwill:

Goodwill is tested for impairment annually (as at 31 December) and when circumstances

indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each cash-

generating unit (or group of cash-generating units) to which the goodwill relates. Where

the recoverable amount of the cash generating unit is less than their carrying amount, an

impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed

in future periods.

(l) Taxes -

Current income tax -

Current income tax assets and liabilities for the current period are measured at the

amount expected to be recovered from or paid to the taxation authorities. The tax rates

and tax laws used to compute the amount are those that are enacted or substantively

enacted, at the reporting date in the countries where the Group operates and generates

taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity

and not in the income statement. Management periodically evaluates positions taken in

the tax returns with respect to situations in which applicable tax regulations are subject to

interpretation and establishes provisions where appropriate



19

Deferred tax -

Deferred tax is provided using the liability method on temporary differences at the

reporting date between the tax bases of assets and liabilities and their carrying amounts

for financial reporting purposes. Deferred tax liabilities are recognised 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

- 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 recognised for all deductible temporary differences, carry forward

of unused tax credits and unused tax losses, to the extent that it is probable that taxable

profit will be available against which the deductible temporary differences, and the carry

forward of unused tax credits and unused tax losses can be utilised, except:

-

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, or

- In respect of deductible temporary differences associated with investments in

subsidiaries, associates and interests in joint ventures, deferred tax assets are

recognised 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 utilised.

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 utilised. Unrecognised deferred

tax assets are reassessed at each reporting date and are recognised to the extent that it

has become probable that future taxable profits will allow the deferred tax asset to be

recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply

in the year when the asset is realised or the liability is settled, based on tax rates (and tax

laws) that have been enacted or substantively enacted at the reporting date.



20

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right

exists to set off current tax assets against current income tax liabilities and the deferred

taxes relate to the same taxable entity and the same taxation authority.

Sales tax -

Revenues, expenses and assets are recognised net of the amount of sales tax, except:

-

from the taxation authority, in which case the sales tax is recognised as part of the

cost of acquisition of the asset or as part of the expense item as applicable;

- Receivables and payables are stated with the amount of sales tax included

The net amount of sales tax recoverable from, or payable to, the taxation authority is

included as part of receivables or payables in the statement of financial position.

(m) Revenue recognition -

Revenue is recognised to the extent that it is probable that the economic benefits will flow

to the Group and the revenue can be reliably measured, regardless of when the payment is

being made. Revenue is measured at the fair value of the consideration received or

receivable, taking into account contractually defined terms of payment and excluding

taxes or duty. The Group assesses its revenue arrangements against specific criteria in

order to determine if it is acting as principal or agent. The Group has concluded that it is

acting as a principal in all of its revenue arrangements. The following specific recognition

criteria must also be met before revenue is recognised:

Sale of goods -

Revenue from the sale of goods is recognised when the significant risks and rewards of

ownership of the goods have passed to the buyer, usually on delivery of the goods and its

corresponding bill.

Rendering of services -

Revenue from property leases and other services are recognised when they are accrued.

Interest income -

Interest income are recognised when they are accrued using the effective interest rate.

Interest income is included in finance income in the consolidated income statement.

(n) Recognition of costs and expenses -

The cost of sales that corresponds to the cost of production of the products that the

Company commercializes is registered when the goods are delivered, simultaneous to the

recognition of income corresponding to the sale.

The financial costs are recorded as expense when they are accrued and mainly include the

interest charges and other related costs incurred related to the received loans.



21

The other costs and expenses are recognized as they are accrued, independent to the

moment of payment, and are recorded in the periods to which they are related.

(o) Provisions -

Provisions are recognised when the Group has a present obligation (legal or constructive)

as a result of a past event, it is probable that an outflow of resources embodying economic

benefits will be required to settle the obligation and a reliable estimate can be made of the

amount of the obligation. Provisions are reviewed each period and are adjusted to reflect

the best estimate at financial position date. The expense relating to any provision is

presented in the income statement net of any reimbursement. If the effect of the time

value of money is material, provisions are discounted using a current pre-tax rate that

reflects, where appropriate, the risks specific to the liability. Where discounting is used,

the increase in the provision due to the passage of time is recognised as a finance cost.

(p) Contingencies -

The contingent liabilities are not recognized in the consolidated financial statements.

These are disclosed in the notes to the consolidated financial statements unless the

possibility of a disbursement is remote.

A contingent asset is not recognized in the consolidated financial statements but it is

disclosed when its degree of contingency is probable.

(q) Employment benefits -

The Group has short term obligations related to employment benefits that include salaries,

social contributions, gratifications, performance bonuses and profit sharing. These

obligations are recorded monthly in the consolidated income statement when they are

accrued.

(r) Earnings per share -

Basic and diluted earnings per share have been calculated over the basis of the weighted

average of the common shares and investment shares in circulation during the period. As

of December 31, 2011 and 2010, the Company does not have financial instruments with

dilutive effect; as a result, the basic and diluted earnings per share are the same.



22

(s) Subsequent events -

The subsequent events at closing date that provide additional information on the Group's

financial position and have a connection with events occurred and recorded at the date of

the consolidated statement of financial position (adjusting events) are included in the

consolidated financial statements. Significant subsequent events that are not adjusting

events are disclosed in notes to the consolidated financial statements.

2.3. First time adoption of IFRS -

These financial statements, for the year ended 31 December 2011, are the first the Group has

prepared in accordance with IFRS. For periods up to and including the year ended 31 December

2010, the Group prepared its financial statements in accordance with Peru generally accepted

accounting principles (Peruvian GAAP).

Accordingly, the Group has prepared financial statements which comply with IFRS applicable for

periods ending on or after 31 December 2011, together with the comparative period data as at

and for the year ended 31 December 2010, as described in the accounting policies. In preparing

these financial statements, the Group‟s opening statement of financial position was prepared as

at 1 January 2010, the Group‟s date of transition to IFRS. This note explains the principal

adjustments made by the Group in restating the Peruvian GAAP statement of financial position as

at 1 January 2010 and its previously published under Peruvian GAAP financial statements as at

and for the year ended 31 December 2010.

Exemptions applied -

IFRS 1 First-Time Adoption of International Financial Reporting Standards allows first-time

adopters certain exemptions from the retrospective application of certain IFRS. The Group has

applied the following exemptions:

- Certain items of property, plant and equipment have been measured at fair value at the

date of transition to IFRS.

- Investment properties have been measured at fair value at the date of transition to IFRS.

- Goodwill maintain the book value as of 31 December 2009 as deemed cost at that date.

- Investment in subsidiary maintain the book value as of 31 December 2009 as deemed cost

at that date.

Estimates -

The estimates at 1 January 2010 and at December 31, 2011 and 2010 are consistent with those

made for the same dates in accordance with Peruvian GAAP apart from the estimation of residual

values and useful lives of property, plant and equipment as explained as follows.



23

2.3.1 Group reconciliation of equity as at 31 December 2010 –

Note

Peruvian GAAP

balances

IFRS

adjustments

IFRS

balances S/.(000) S/.(000) S/.(000)

Assets

Current assets

Cash and cash equivalents 42,345 - 42,345

Net trade accounts receivable 96,717 - 96,717

Account receivable from related parties 71,309 - 71,309

Net other accounts receivables and financial assets 59,108 - 59,108

Net inventories 204,826 - 204,826

Prepaid expenses 1,600 - 1,600 __________ __________ __________

475,905 - 475,905 __________ __________ __________

Non-current assets

Net other long term financial assets 21,036 - 21,036

Net investment properties E 23,117 84,769 107,886

Net property, plant and equipment B, F 737,070 51,992 789,062

Net intangibles D 309,657 (3,025) 306,632

Other assets 1,992 - 1,992 __________ __________ __________

1,092,871 133,737 1,226,608 __________ __________ __________

Total assets 1,568,776 133,737 1,702,513 __________ __________ __________

Liabilities and shareholders’ equity

Current Liabilities

Financial obligations and derivative financial

instruments 130,224 - 130,224

Trade accounts payable 228,707 - 228,707

Accounts payable to related parties 72,198 - 72,198

Income tax and workers‟ profit sharing payable 11,894 - 11,894

Other accounts payable 114,876 - 114,876 __________ __________ __________

557,899 - 557,899

Non-current liabilities

Long term financial obligations and derivative

financial instruments 396,917 - 396,917

Deferred income tax liability C 27,778 31,077 58,855 __________ __________ __________

Total liabilities 982,594 31,077 1,013,671 __________ __________ __________

Shareholders’ equity

Capital and reserves attributable to shareholders of

Lindley:

Capital stock 580,981 - 580,981

Investment shares 71,966 - 71,966

Legal reserve 4,450 - 4,450

Net unrealized gain on hedges agreements 35,130 - 35,130

Retained earnings

A, B, C, D,

E, F (106,996) 102,832 (4,164) __________ __________ __________

585,531 105,297 690,828

Non-controlling interests 651 (172) 479 __________ __________ __________

Total shareholders’ equity 586,182 102,660 688,842 __________ __________ __________

Total liabilities and shareholders’ equity 1,568,776 133,737 1,702,513 __________ __________ __________



24

Group reconciliation of equity as at 1 January 2010 (transition date to IFRS) –

Note

Peruvian GAAP

balances

IFRS

adjustments

IFRS

balances S/.(000) S/.(000) S/.(000)

Assets

Current assets

Cash and cash equivalents 35,442 - 35,442

Net trade accounts receivable 71,770 - 71,770

Account receivable from related parties 44,454 - 44,454

Net other accounts receivables and financial

assets 28,839

-

28,839

Net inventories 147,298 - 147,298

Prepaid expenses 1,574 - 1,574 __________ __________ __________

329,377 - 329,377 __________ __________ __________

Non-current assets

Net other long term financial assets 22,167 - 22,167

Net investment properties E 26,269 82,123 108,392

Net property, plant and equipment B, F 601,354 54,714 656,068

Net intangibles D 310,899 (3,283) 307,616

Other assets 1,621 - 1,621 __________ __________ __________

962,310 133,554 1,095,864 __________ __________ __________

Total assets 1,291,687 133,554 1,425,241 __________ __________ __________

Liabilities and shareholders’ equity Current Liabilities

Financial obligations and derivative financial

instruments 89,709 - 89,709

Trade accounts payable 154,722 - 154,722

Accounts payable to related parties 26,390 - 26,390

Income tax and workers´ profit sharing

payable 30,629 - 30,629

Other accounts payable 103,828 - 103,828 __________ __________ __________

405,278 - 405,278 Non-current liabilities

Long term financial obligations and derivative

financial instruments 346,541 - 346,541

Deferred income tax liability C 11,939 37,347 49,286 __________ __________ __________

Total liabilities 763,758 37,347 801,105 __________ __________ __________

Shareholders’ equity

Capital and reserves attributable to

shareholders of Lindley:

Capital stock 580,981 - 580,981

Investment shares 71,966 - 71,966

Legal reserve 4,450 - 4,450

Net unrealized gain on hedges agreements 14,535 - 14,535

Retained earnings B, C, D, E, F (144,539) 96,330 (48,209) __________ __________ __________

527,393 96,330 623,723

Non-controlling interests 536 (123) 413 __________ __________ __________

Total shareholders‟ equity 527,929 96,207 624,136 __________ __________ __________

Total liabilities and shareholders’ equity 1,291,687 133,554 1,425,241 __________ __________ __________



25

Group reconciliation of consolidated income statement for the year ended 31 December 2010

Note

Peruvian

GAAP

balances

IFRS

adjustments IFRS balances

S/.(000) S/.(000)

Net sales 1,538,049 - 1,538,049

Cost of sales (1,089,591) 6,727 (1,082,864) __________ ________ _________

Gross profit 448,458 6,727 455,185

Selling expenses (257,268) 3,269 (253,999)

Administrative expenses (65,516) 534 (64,982)

Other operating income 74,815 - 74,815

Other expenses (100,062) (10,346) (110,408) _________ ________ _________

Operating income 100,427 184 100,611

Financial income 25,943 - 25,943

Financial expenses (59,299) - (59,299)

Net loss from financial instruments 2,877 - 2,877 _________ ________ _________

Income before income tax 69,948 184 70,132

Income tax (32,290) 6,269 (26,021) _________ ________ _________

Net income 37,658 6,453 44,111 _________ ________ _________

2.3.2 Reconciliation of consolidated statement of cash flows –

The IFRS adoption has not had impact in the cash flows generated by the Group;

therefore, there are movements of accounts due to the conversion adjustments that are

no material.

2.3.3 Notes to the reconciliation of equity as at 1 January and 31 December 2010 and the

consolidated income statement for the year ended 31 December 2010 –

Opening balances -

Opening balances are derived from financial statements in accordance with Peruvian

GAAP, which include IFRS formalized through resolutions at the financial statements issue

date by the Accounting Standards Board (CNC).



26

IFRS adjustments -

The adoption of IFRS has required adjustments to the balances in the financial statements

under accounting principles generally accepted in Peru. The most important adjustments

are:

A. Investment in subsidiary –

Peruvian GAAP:

In accordance to Peruvian GAAP, the investment in subsidiary was recorded under

the equity method. According to this method, investments in subsidiaries are

initially recorded at cost and subsequently its carrying amount is increased or

decreased to recognize the Company's participation in the profits and/or losses of

such subsidiaries.

IFRS:

In accordance with IAS 27 "Consolidated and Separate Financial Statements",

establish that investment in subsidiaries included in consolidated financial

statement, have to be recorded in the separated financial statements following the

cost or fair value method. As consequence of IFRS adoption, the Company decided

applied the IAS 27 to record the investment in subsidiary under cost method.

As a result of the described above, as at 1 January 2010 the Company has elected

kept the book value of “Investment in subsidiary” caption and as at 31 December

2010 recorded a decrease by approximately S/.1,566,000 as transition to IFRS

adjustment, debit the “retained earnings” in the equity net.

B. Property, plant and equipment -

Cost -

Peruvian GAAP:

Effective January 1, 1994, the Peruvian economy was not considered as

hyperinflationary economy according to IAS 29 “Financial Reporting

Hyperinflationary Economies”; however, the Peruvian entities were required to

prepare financial statements adjusted by inflation until December 31, 2004. As a

result, cost of items of property, plant and equipment were adjusted by inflation to

reflect the effect of the variation of the acquisition power of the Peruvian currency

until December 31, 2004.



27

IFRS:

According to IAS 29, the Group was not permitted to adjust by inflation from

January 1, 1994 to December 31, 2004. In order to address this issue, the Group

has elected to measure certain items of property, plant and equipment at fair value

at the date of transition to IFRS, based on a valuation made by an independent

appraiser. At the date of transition to IFRS, an increase of S/.98,726,000 was

recognized in property, plant and equipment. This amount has been recognized

against retained earnings

As explained above, at the transition date, cost of property, plant and equipment

also includes major spare parts that can be used in items of property, plant and

equipment.

Accumulated depreciation -

Peruvian GAAP:

Peruvian GAAP does not require entities to account for the residual value of an

asset.

It is not required to have a separate depreciation of each part of an item of

property, plant and equipment that is significant in relation to the total cost of the

item. The normal practice is to depreciate the whole item using a single

depreciation rate.

IFRS:

IAS 16 “Property, Plant and Equipment” requires an entity to estimate the residual

value of an item of property, plant and equipment in order to determine the

depreciable amount.

IAS 16 also requires significant components parts of an item of property, plant and

equipment to be depreciated separately.

For the year ended 31 December 2010, the net effect of these adjustments is a

decrease in accumulated depreciation amounting to S/.10,736,000.

C. Deferred income tax –

The various transitional adjustments lead to different temporary differences.

According to the accounting policies in Note 2, the Group has to account for such

differences. Deferred tax adjustments are recognised in correlation to the

underlying transaction either in retained earnings as at transition date.



28

D. Business combinations and goodwill –

Peruvian GAAP:

As at 1 January 1994, the Peruvian economy was not considered as

hyperinflationary economy according to IAS 29 “Financial Reporting

Hyperinflationary Economies”; however, the Peruvian entities were required to

prepare financial statements adjusted by inflation until December 31, 2004. As a

result, the goodwill was adjusted by inflation to reflect the effect of the variation of

the acquisition power of the Peruvian currency until December 31, 2004.

The Company‟s goodwill correspond to the merger provenient of the bottling

system consolidation, as is described in note 1 of the notes to the consolidated

financial statements, and also to the value paid in excess at the acquisition date of

the several authorized bottlers that operated at national level until the

restructuration project began by the Company and ELSA at 1998.

IFRS:

According to IAS 29, the Group was not permitted to adjust by inflation from

January 1, 1994 to December 31, 2004. In order to address this issue, the Group

has elected to measure the goodwill at net cost at the date of transition to IFRS,

In other case, assets and liabilities balances incorporated as part of the business

combination in accordance to local GAAP and have to be recognised in accordance

to IFRS are their deemed cost at the acquisition date.

Also, as of 1 January 2010, there was a net cost related to franchise rights and

concessions related to past due contracts that were adjusted as of that date. The

adjustment was S/.3,283,000.

Amortization –

Peruvian GAAP:

The goodwill‟s amortization until 31 December 2005 was calculated following the

straight line method to extinguish the cost at the end of the useful life estimated

between 10 and 20 years since it was recorded.

Since 1 January 2006, Company‟s Management reestimated the goodwill‟s useful

life and considered that it was unlimited, consequently stopped the amortization.

IFRS:

After initial recognition, goodwill is measured at cost less any accumulated loss for

impairment. In accordance with IFRS 1, the Group has tested goodwill for

impairment at the date of transition to IFRS, no goodwill impairment was deemed

necessary, also the Company elected to maintain the book value as of 1 January

2010.



29

Other adjustments –

E. Investment property –

Company maintained lands and buildings with not defined use and disposition, also

other properties that as of 31 December 2010 accomplished the requirements to

be classified as available for sale. Considering the business conditions showed

during 2011, the Group reassessed the classifications of this caption and decided

to disclose as investment property adjusting their value at fair value at the date of

transition to IFRS, based on a valuation made by an independent appraiser.

According to this, the effect represents an increase in the accumulated results as

of 1 January 2010 by S/.82,122,000 and an effect amounting to S/.2,647,000 as

of 31 December 2010.

F. Planting of bottles –

Planting of returnable glass has as objective introduce to the market by the launch

of new presentations to the market and to meet the growing demand, were

presented at cost and are classified as bottles in the item "Net property, plant and

equipment.” The depreciation of these was calculated following the straight-line

method, using 4 years of useful life. The Company reassessed the accounting

policy of this caption and in accordance to the actual market conditions, products‟

rotation level and the presented demand has considered record the planting of

bottles cost in the operating expenses when occurs the acquisition, and transferred

to equity the net cost maintained as of 1 January 2010 amounting to

S/.42,207,000 and S/.10,810,000 to the consolidated income statement of 2010

period.

2.4. New accounting pronouncements -

On May 2011, el IASB approved the following international financial reporting standards and

their modifications, which will be in force for annual periods beginning on 1 January 2013,

except when the against is indicated:

- Amendment to IAS 1“Presentation of financial statements – presentation of the elements

of comprehensive income statement” That amendment is in force for the periods

beginning on 1 July 2012, and request that if certain conditions are applied, the entity

present separately the captions of the comprehensive income statement that in future can

be reclassified to results, from other caption that never will be classified.

- Amendment to IAS 12 "Income Taxes" established that deferred tax on investment

property that is recorded following the fair value model of IAS 40 should be determined on

the basis that their carrying amount will be recovered through the sale of such assets.

Also, deferred taxes on non-depreciable assets, measured by the revaluation model of IAS

16, should be measured on the presumption of its sale. Effective January 1, 2012 and

thereafter, early adoption is permitted.



30

- Amendment to IAS 19 “Employee benefits”, establish significant changes related to

recognition and measure of the pension defined expense and termination benefits, and

also the information to disclose in the financial statements.

- Amendment to IAS 27 “Separate financial statements” (revised in 2011), and IAS 28

“Investments in associates and joint ventures” (revised in 2011).

- IFRS 9 “Financial Instruments: Classification and Measurement” that modified the

recognition and classification of assets and liabilities established in IAS 39 “Financial

Instruments: Classification and Measurement”.

- IFRS 10 “Consolidated Financial Statements” It establishes the principles for the

preparation and presentation of consolidated financial statements when an entity controls

one or more entities. IFRS 10 replaces the consolidation requirements in SIC-12

“Consolidation – Special Purpose Entities” and IAS 27 “Consolidated and Separate

Financial Statements”.

- IFRS 11 "Join arrangements", the standard contains the inconsistencies of the joint

ventures related to the request of a unique method to report the interest in join controlled

entities, focused in its rights and obligations instead its juridical form. IFRS 11 replace IAS

31 Interest in joint ventures and SIC 13 Join controlled entities – non monetary

contributions by ventures.

- IFRS 12 “Disclosure of Interests in other entities” it establishes the disclosure

requirements for all forms of interests in other entities, including subsidiaries, joint

ventures, associates, special purpose entities and other investment form outside the

consolidated statement of financial position.

- IFRS 13 “Fair Value Measurement” established new requirements on how to measure the

fair value and improve the convergence with international standards and reduce the

complexity to provide a fair value definition and resources for its measurement, also the

disclosure requirements to its use through IFRS.

- IFRIC 20 “Stripping cost in the production phase of a surface mine ".

As of today, Group‟s Management is analyzing the impact of those standards can be produce in

its operations when they will be in force.



31

2.5. Significant accounting judgments, estimates and assumptions -

Many of the amounts included in the financial statements involve the use of judgment and/or

estimation. These judgments and estimates are based on management‟s best knowledge of the

relevant facts and circumstances, having regard to prior experience, but actual results may differ

from the amounts included in the financial statements. Information about such judgments and

estimates are contained in the accounting policies and/or the notes to the financial statements.

The key areas are summarized below:

Significant areas of estimation uncertainty and critical judgments made by management in

preparing the consolidated financial statements include:

- Determination of useful lives of assets for depreciation and amortization purposes – see

notes 2.2(e) and (f) and note 8, 9 and 10.

- Estimation of allowance for obsolescence, see note 2.2(d) and note 7.

- Depreciation of property, plant and equipment, and investment property, see note 2.2(e)

and (f) and note 8 and 9.

- Amortization of intangible assets, see note 2.2(h) and note 10.

- Estimation for impairment of non financial assets, see note 2.2(k) and note 8, 9 and 10.

- Income tax – note 2.2(l) and note 13.

Any difference in the estimations with the subsequent results is recorded in the income

statement in the year when occurs.



32

3. Transactions in foreign currency

Foreign currency transactions are carried out at market exchange rates as published by the

Superintendencia de Banca, Seguros and AFP. The weighted average exchange rates for the

transactions in dollars were S/.2.695 for the purchase and S/2.697 for the sale as of December 31,

2011, (S/.2.808 for the purchase and S/.2.809 for the sale as of December 31, 2010).

As of 31 December 2011, 2010 and 1 January 2010, the Group had the following assets and liabilities

at foreign currency:

2011

2010

1 January

2010

US$(000) US$(000) US$(000)

Assets

Cash and cash equivalents 126,717 783 2,625

Net trade account receivables 1,671 429 1,224

Account receivables from related parties 15,441 14,721 15,268

Net, other account receivables and other

financial assets

8,747 13,074 5,382

_________ _________ _________

152,576 29,007 24,499 _________ _________ _________

Liabilities

Trade account payables 72,721 61,697 31,936

Account payables to related parties 18,856 13,097 4,052

Other financial liabilities 3,058 2,823 2,521

Financial obligations 335,302 81,795 69,672 _________ _________ _________

429,937 159,412 108,181 _________ _________ _________

Net liability position 277,361 130,405 83,682 _________ _________ _________

The Group uses derivative financial instruments to hedge the exposure to a portion of its foreign

currency liability position (see notes 25 and 24(iii).

During 2011, the Group recognized a gain and a loss from exchange differences of approximately

S/.55,304,000 and S/.36,695,000 respectively (gain of S/.21,064,000 and a loss of S/.15,756,000

respectively in 2010), which is presented in the caption "Finance income" and "Finance expense" in the

consolidated statement of income.



33

4. Cash and cash equivalents

As of 31December 2011, 2010 and 1 January 2010, cash and cash equivalents comprise bank accounts

amounting to S/.357,355,000, S/.42,345,000 and 35,442,000, respectively which are mainly

maintained in local Banks in nuevos soles and U.S. dollars are unrestricted and generate interests at

market rates. As of 31 December 2011 include approximately S/.339,000,000 from the international

bonds issuing, see note 12.

5. Net trade accounts receivable

(a) The item is made up as follows:

2011 2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Current

Invoices 158,938 97,944 77,929

Notes receivable 7,469 12,394 7,044

Other receivables 2,822 756 798 _________ _________ _________

169,229 111,094 85,771

Less – Allowance for doubtful accounts (c) (16,459) (14,377) (14,001) _________ _________ _________

Net 152,770 96,717 71,770 _________ _________ _________



34

(b) As of 31 December 2011, 2010 and 1 January 2010, the aging of the trade accounts receivable

balance was as follows:

Not impaired Impaired Total S/.(000) S/.(000) S/.(000)

As of 31 December 2011

Not due 94,388 - 94,388

Past due

- 1 month 29,052 - 29,052

- Between 1 to 2 months 10,041 - 10,041


- More than 4 months 14,867 16,459 31,326 __________ __________ __________

Total 152,770 16,459 169,229 __________ __________ __________


Not due 76,956 - 76,956

Past due

- 1 month 5,236 - 5,236



- More than 4 months 5,247 14,377 19,624 __________ __________ __________

Total 96,717 14,377 111,094 __________ __________ __________

As of 1 January 2010

Not due 54,040 - 54,040

Past due

- 1 month 8,151 - 8,039


- Between 2 to 4 months 878 464 1,342

- More than 4 months 3,460 13,537 16,997 __________ __________ __________

Total 71,770 14,001 85,771 __________ __________ __________



35

(c) As of 31 December 2011, 2010, and 1 January 2010, the movement of the allowance for

doubtful accounts was as follows:

2011 2010

S/.(000) S/.(000)

Opening balance 14,377 14,001

Additions 2,619 389

Less: recoveries and write off (537) (13) _________ _________

Ending balance 16,459 14,377 _________ _________

6. Net other accounts receivable and financial assets

(a) The item is made up as follows:

2011 2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Claims for tax refund (b) 25,437 30,155 20,686

Claim to Embonor Holdings S.A. (c) 4,343 4,343 4,343

Loans to employees 2,402 2,209 2,499

Legal deductions and claims to council 1,818 1,478 1,585

Distributors 1,828 1,123 688

Other claims and other receivables (d) 7,240 6,067 8,881

Accruals 1,675 1,702 1,688 _________ _________ _________

44,743 47,077 40,370

Allowance for doubtful accounts (f) (1,674) (1,702) (1,688) _________ _________ _________

43,069 45,375 38,682

Derivatives financial instruments

Credit line applied to sugar contracts 19,050 427 5,624

Cash flow hedge, note 25 (iv) - 34,342 6,700 _________ _________ _________

Total 62,119 80,144 51,006 _________ _________ _________

By maturity -

Current portion 41,082 59,108 28,839

Non-current portion (e) 21,037 21,036 22,167 _________ _________ _________

Total 62,119 80,144 51,006 _________ _________ _________



36

(b) The claims for tax refund comprise:

2011 2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Claims request by ELSA 15,215 15,215 16,037

Tax to be applied 6,549 14,909 4,121

Other claims 3,673 31 528 ________ ________ ________

25,437 30,155 20,686 ________ ________ ________

The claims request by ELSA to the Tax Authority, mainly correspond to tax prepayments in

excess in previous years that are in resolutions process.

The claims request by ELSA to the Tax Authority, mainly correspond to tax prepayments in

excess in previous years that are in resolutions process.

(c) As part of the arrangements described in the sale and purchase contract of participations and

shares held on January 29, 2004 between the Group, Embonor Holding S.A. (hereinafter

"Embonor") and Embotelladora Arica Overseas, involving "SOCAP" and Coca Cola Embonor S.A.,

as a result of the transactions described in note 1(b), the Group may exercise the right to recover

the excess of declared inadmissible claims incorporated in their assets as part of merger with

ELSA, from US$4,000,000, considering the percentage of interest acquired. Thus, the Group

recorded a total of S/.4,343,000, which corresponds to the claim that Management has

requested as restitution to Embonor Holdings S.A. and consider that this concept will be

recovered in the long term

(d) Non current portion comprises:

2011

2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Claims for tax refund 14,876 15,215 16,037

Claim to Embonor Holdings S.A. (c) 4,343 4,343 4,343

Legal deductions and claims to council 1,818 1,478 1,585

Other receivables - - 202 ________ ________ _________

21,037 21,036 22,167 ________ ________ _________

The Management and its legal counsel expect to recover these balances in the medium term.



37

(e) As of 31 December 2011, 2010 and 1 January 2010, the aging of the other financial assets

balance was as follows:

Not impaired Impaired Total S/.(000) S/.(000) S/.(000)


Not due 9,741 - 9,741

Past due

- 1 month 3,313 - 3,313



- More than 4 months 35,741 1,674 37,415 __________ __________ __________

Total 62,119 1,674 63,793 __________ __________ __________


Not due 17,454 - 17,454

Past due

- 1 month 15,849 - 15,849

- Between 1 to 2 months 156 - 156


- More than 4 months 45,564 1,702 47,266 __________ __________ __________

Total 80,144 1,702 81,846 __________ __________ __________

As of1 January 2010

Not due 5,371 - 5,371

Past due

- 1 month 7,379 - 7,379


- Between 2 to 4 months 2,131 408 2,539

- More than 4 months 29,946 1,280 31,226 __________ __________ __________

Total 51,006 1,688 52,694 __________ __________ __________

(f) As of December 31, 2011 and 2010, the movement of the allowance for doubtful accounts was

as follows:

2011 2010

S/.(000) S/.(000)


Additions - 12

Less: recoveries and write off (28) 2 _________ _________

Ending balance 1,674 1,702 _________ _________



38

7. Net inventories

(a) This item is made up as follows:

2011 2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Goods for sale 2,044 1,771 1,838

Finished goods 42,561 40,496 26,117

Product in process 5,024 6,052 4,617

Raw and auxiliary materials 71,120 76,171 40,523

Packaging materials 44,867 32,988 30,618

Supplies and spare parts 34,870 31,493 26,963

Advertising material (b) 4,536 5,049 7,277

Inventories in transit 10,905 14,977 14,189 _________ _________ _________

215,927 208,997 152,142

Less

Allowance for obsolescence (c) (2,478) (4,171) (4,844) _________ _________ _________

213,449 204,826 147,298 _________ _________ _________

(b) This balance corresponds to the material used in advertising campaigns for new product launches

and promotional campaigns for seasonal change, which will be consumed in the normal course of

business operations.

(c) As of 31 December 2011 and 2010, the movement of the allowance for obsolescence was as

follows:

2011 2010

S/.(000) S/.(000)


Additions 228 1,581

Less: recoveries and write off (1,921) (2,254) _________ _________

Ending balance 2,478 4,171 _________ _________



39

8. Net investment properties

(a) The compositions and movement of this item is as follows:

Land

Buildings and

other

constructions Total

S/.(000) S/.(000) S/.(000)

Cost

As of 1 January 2010 94,034 25,306 119,340

Additions - 1,879 1,879

Sales/ disposals (315) (3,132) (3,447) _________ _________ _________

As of 31 December 2010 93,719 24,053 117,772

Sales/ disposals (754) (151) (905) _________ _________ _________

As of 31 December 2011 92,965 23,902 116,867 _________ _________ _________

Accumulated depreciation

As of 1 January 2010 - 10,948 10,948

Additions, note 9(d) - 448 448

Sales/ disposals - (1,510) (1,510) _________ _________ _________

As of 31 December 2010 - 9,886 9,886

Additions, note 9(d) - 403 403 _________ _________ _________

As of 31 December 2011 - 10,289 10,289 _________ _________ _________

Net value as of 1 January 2010 94,034 14,358 108,392 _________ _________ _________

Net value as of 31 December 2010 93,719 14,167 107,886 _________ _________ _________

Net value as of 31 December 2011 92,965 13,613 106,578 _________ _________ _________

(b) The fair value of investment properties are similar to their book value, due to was determined

based on a valuation made by an independent appraiser and do not have modifications at the

year ended 2011.



40

9. Net property, plant and equipment


Lands

Buildings and

other

constructions

Machinery

and

equipment

Furniture and

fixtures

Transport

units

Bottles and

boxes

Computer

equipment

and others

Replacement

units

Work in

progress Units in transit Total

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Cost

Balance as of January 1 156,599 130,979 543,504 23,265 21,573 186,736 268,941 1,406 13,091 10,488 1,356,582

Additions - 2,206 14,003 6,092 29 12,662 15,819 - 66,289 122,717 239,817

Sales and/or withdrawals (6,093) (2,065) (3,718) - (2,031) (30,686) (16,949) - (31) (6,897) (68,470)

Transfers - 9,348 44,090 1,297 2,100 32,287 52,024 - (35,809) (105,337) - _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________

Balance as of 31 December 2010 150,506 140,468 597,879 30,654 21,671 200,999 319,835 1,406 43,540 20,971 1,527,929

Additions 442 989 9,907 201 982 7,988 20,918 - 142,905 243,983 428,315

Sales and/or withdrawals - - (5,934) (1,181) (1,502) (25,340) (14,918) - (1,135) (14,391) (64,401)

Transfers - 14,448 12,634 213 2,652 37,778 33,807 (1,406) (26,981) (73,145) - _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________

Balance as of 31 December 2011 150,948 155,905 614,486 29,887 23,803 221,425 359,642 - 158,329 177,418 1,891,843 _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________

Accumulated depreciation

Balance as of January 1 - 58,976 313,491 18,239 11,246 108,456 190,106 - - - 700,514

Additions (c) - 2,476 21,484 891 1,384 26,793 25,911 - - - 78,939

Sales and/or withdrawals - (968) (3,064) - (1,975) (23,589) (10,990) - - - (40,586) _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________

Balance as of 31 December 2010 - 60,484 331,911 19,130 10,655 111,660 205,027 - - - 738,867

Additions (c) - 2,440 24,433 1,622 1,754 32,074 36,475 - - - 98,798

Sales and/or withdrawals - - (5,604) (1,031) (1,138) (19,170) (10,188) - - - (37,131) _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________

Balance as of 31 December 2011 - 62,924 350,740 19,721 11,271 124,564 231,314 - - - 800,534 _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________

Net value as of 1 January 2010 156,599 72,003 230,013 5,026 10,327 78,280 78,835 1,406 13,091 10,488 656,068 _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________

Net value as of 31 December 2010 150,506 79,984 265,968 11,524 11,016 89,339 114,808 1,406 43,540 20,971 789,062 _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________

Net value as of 31 December 2011 150,948 92,981 263,746 10,166 12,532 96,861 128,328 - 158,329 177,418 1,091,309 _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ __________



41

(b) As part of the program of infrastructure investments, Lindley performed significant acquisitions

and improvement projects in plants in response to the need to expand production capacity which

mainly comprise refurbishment and remodeling of Callao and Huacho plants, it also performed

significant purchases of glass bottles and returnable plastic, to respond to increased market

demand and increase product movement, and of refrigeration equipment, as part of its expansion

and presence in retail outlets. These investments were mainly financed through financial leasing

agreements with BBVA Banco Continental and Interbank and the funds obtained from the

international bonds issuing, see note 13 and were supported by its related companies,

see note 21.

(c) The depreciation of investment properties and property, plant and equipment of the years 2011

and 2010 is as follows:

2011 2010

S/.(000) S/.(000)

Cost of sales, note 18 59,308 50,172

Selling expenses, note 18 33,670 21,938

Administrative expenses, note 18 3,569 3,939

Net others, note 19 2,654 3,338 _________ _________

99,201 79,387 _________ _________

By item –

2011 2010

S/.(000) S/.(000)

Investment properties, nota 8 403 448

Property, plant and equipment 98,798 78,939 _________ _________

99,201 79,387 _________ _________

(d) Based on the results of its financial projections of earnings and cash flows, the Group has made

an assessment of indicators of impairment of some assets that make up this item, and considers

that the allowance for impairment of fixed assets as of 31 December 2011, 2010 and 1 January

2010 is sufficient and will not be required the registration of an additional provision. The present

value of the financial projections has been calculated using a discount rate that reflects the

changing value of money over time in the market.



42

(e) In 2004 the Group transferred in trust domain machinery and real estate and provided its

subsidiaries with the trust estate to ensure compliance with certain financial obligations that

were in force during 2011 and were cancelled with the international bonds issuing. As of

December 31, 2010, the net cost of these machinery and real estate transferred in trust domain

is approximately S/.3,431,000 and S/.162,098.000, respectively (S/.3,615,000 and

S/.164,196,000 as of 1 January 2010, respectively) see note 13.

(f) As of December 31, 2011, the Group insures its main assets for approximately US$75,000,000

(equivalent to S/.210,600,000). In Management‟s opinion, its insurance policies are consistent

with the international practice in the industry. It also believes that the risk of eventual losses due

to accidents considered in the insurance policy is reasonable considering the type of assets the

Group possesses.

(g) As of 31 December 2011, 2010 and 1 January 2010, the value of the goods acquired through

financial lease contracts is as follows:

2011 2010

1 January

2010 _______________________________________ ___________ ___________

Cost

Accumulated

depreciation Net cost Net cost Net cost

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Machinery and

equipment 54,354 (6,234) 48,120 45,842 33,774

Transport units 4,079 (628) 3,451 1,976 1,920

Computer equipment

and others 84,870 (34,140) 50,730 50,659 23,727

Units in transit 91,179 - 91,179 20,421 - _________ _________ _________ _________ _________

234,482 (41,002) 193,480 118,898 59,421 ________ ________ ________ ________ ________



43

10. Net intangibles


Software

licenses and

other projects

Franchise

rights and

concessions Goodwill (c) Total

S/.(000) S/.(000) S/.(000) S/.(000)

Cost

As of 1 January 2010 20,337 5,179 305,555 331,071

Additions 870 - - 870 _________ _________ _________ _________

As of 31 December 2010 21,207 5,179 305,555 331,941

Additions 1,232 - - 1,232 _________ _________ _________ _________

As of 31 December 2011 22,439 5,179 305,555 333,173 _________ _________ _________ _________

Accumulated amortization

As of 1 January 2010 18,276 5,179 - 23,455

Additions (b) 1,853 - - 1,853 _________ _________ _________ _________

As of 31 December 2010 20,129 5,179 - 25,308

Additions (b) 938 - - 938 _________ _________ _________ _________

As of 31 December 2011 21,067 5,179 - 26,246 _________ _________ _________ _________

Net cost as of 1 January 2010 2,061 - 305,555 307,616 _________ _________ _________ _________

Net cost as of 31 December 2010 1,078 - 305,555 306,633 _________ _________ _________ _________

Net cost as of 31 December 2011 1,372 - 305,555 306,927 _________ _________ _________ _________

(b) Distribution of amortization during the years 2011 and 2010 is as follows:

2011 2010

S/.(000) S/.(000)

Administrative expenses, note 18 922 1,820

Cost of sale, note 18 16 33 ________ ________

938 1,853 ________ ________



44

(c) This item corresponds to the result of the merger from the consolidation of the bottling system,

as explained in note 1 of the notes to the consolidated financial statements and for the amount

paid in excess when the Group acquired the authorized bottlers in the country, even before the

project started to restructure and control the national territory by the Company and

Embotelladora Latinoamericana S.A. (ELSA), beginning in 1998.

11. Trade accounts payable


2011 2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Invoices 222,607 212,839 90,957

Notes payables to suppliers 1,282 826 48,597

Invoices in transit for goods and services

received 32,353 15,042 15,168 _________ _________ _________

256,242 228,707 154,722 _________ _________ _________

(b) The maturity of the trade account payables is as follows:

2011 2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Not due 242,261 227,137 146,791

Past due 13,981 1,570 7,931 _________ _________ _________

256,242 228,707 154,722 _________ _________ _________

(c) The trade accounts payable mainly result from the acquisition of materials, supplies and

production spare parts. These are denominated in local currency and foreign currency, have

short-term maturities, and do not generate interests. Guarantees have not been granted for

these obligations.



45

12. Other accounts payable


2011

2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Contingencies (b) 32,738 34,660 32,430

Taxes (c) 31,995 34,352 29,959

Bonus and accrued employee benefits 13,169 1,631 11,792

Deposits received for returnable bottles and

boxes

7,009 7,014 6,973

Vacations payable 6,766 6,165 3,628

Interests payable 9,786 5,306 4,944

Provision for advertising and marketing 9,777 4,912 3,098

Payments to Directors 3,000 3,000 3,000

Other provisions 26,087 17,836 8,004 _________ _________ _________

140,327 114,876 103,828 _________ _________ _________

(b) This item corresponds to the estimated amount of the Company‟s obligations to third parties for

various labor and civil contingencies. These obligations mainly arise through legal processes

related to ELSA from previous years. The amount recorded corresponds to the limit of

responsibility assumed by the Company as set out in clauses 9 and 10 of the Framework

Agreement signed between the Company and SOCAP for the acquisition of SOCAP, in addition to

what is considered by Management and its legal advisors.

(c) Mainly comprise the balance related to value added tax generated during the current period and

will be applied and paid in short term.



46

13. Financial obligations


Current Non current Total debt __________________________________ __________________________________ __________________________________

Lender Guarantee Interest rate Maturity 2011 2010

1 January

2010 2011 2010

1 January

2010 2011 2010

1 January

2010

% S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Loans

Citibank N.A.

Initial loan for US$50,000,000 (b), balance of US$14,385,315

as of December 2010. Trust assets Libor + 3.375 2013 - 12,433 12,796 - 15,542 28,791 - 27,975 41,587

Loan for US$ 6,000,000 (c) as of December 2010. Trust assets Libor + 2.25 2014 - 4,494 4,626 - 12,360 17,346 - 16,854 21,972

Promissory note for S/.15,000,000. Without specific guarantees 3.80 February 2011 - 15,000 - - - - - 15,000 -

Banco Standard Chartered

Initial loan for US$40,000,000 (b), balance of US$2,673,134

as of December 2010. Trust assets Libor + 3.375 2013 - 3,337 3,435 - 4,172 7,728 - 7,509 11,163

Loan for US$ 6,000,000 (c) as of December 2010. Trust assets Libor + 2.25 2014 - 4,494 4,626 - 12,360 17,346 - 16,854 21,972 -

Cayman Discount Investments Corporation

Promissory note for US$2,000,000 endorsed byTribank

International Without specific guarantees Libor + 4.0 2010 - - 5,782 -

- - - 5,782

Banco de Crédito del Perú

Loan for US$5,294,000 Without specific guarantees 6.84 January 2013 - 6,609 6,802 - 8,262 15,306 - 14,871 22,108

Promissory note for S/.9,000,000 Without specific guarantees 1.78 percent April 2010 - 9,000 - - - 9,000

BBVA Banco Continental

Loan for S/.14,045,000 Without specific guarantees 2.0 January 2011 - 14,045 - - - - - 14,045 -


Scotiabank Perú S.A.A.


Leasings (d)

Scotiabank Perú S.A.A.

Financial leases agreement for approximately S/.5,636,000 Acquired fixed assets 7.7 September 2012 984 1,230 1,142 - 984 2,214 984 2,214 3,356

Banco de Crédito del Perú

Financial leases agreement for approximately S/.1,408,000 Acquired fixed assets 7.8 January 2012 43 494 478 - 43 560 43 537 1,038

Financial leases agreement for approximately US$208,745 Acquired fixed assets 8.0 July 2010 - - 134 - - - - - 134

Financial leases agreement for approximately US$6,408,000 Acquired fixed assets 4.19 June 2016 3,412 - - 13,037 - - 16,449 - -

Financial leases agreement for approximately US$2,386,000 Acquired fixed assets 4.62 November 2016 1,287 - - 5,148 - - 6,435 - -

Financial leases agreement for approximately S/.117,237,000 Acquired fixed assets 8.75 February 2012 7 42 38 - 7 49 7 49 87

Interbank

Financial leases agreement for approximately S/.25,255,000 Acquired fixed assets 9.78 2012 6,430 10,241 9,492 - 6,430 15,607 6,430 16,671 25,099

Financial leases agreement for approximately S/.13,281,000 Acquired fixed assets 10.08 2014 1,189 - - 12,092 13,281 11,868 13,281 13,281 11,868

Financial leases agreement for approximately S/.17,155,000 Acquired fixed assets 10.08 2014 2,581 - - 14,574 17,155 15,632 17,155 17,155 15,632

Financial leases agreement for approximately S/.7,754,000 Acquired fixed assets 5.15 2015 1,471 1,399 - 4,884 6,355 - 6,355 7,754 -




47

Current Non current Total debt __________________________________ __________________________________ __________________________________

Lender Guarantee Interest rate Maturity 2011 2010

1 January

2010 2011 2010

1 January

2010 2011 2010

1 January

2010

% S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

BBVA Banco Continental

Financial leases agreement for approximately S/.9,953,000 Acquired fixed assets 5.6 2015 1,992 1,887 1,854 6,073 8,066 7,925 8,065 9,953 9,779


Financial leases agreement for approximately S/.645,000 Acquired fixed assets 4.49 2013 226 216 - 97 323 - 323 539 -

Financial leases agreement for approximately S/.9,143,000 Acquired fixed assets 6.8 2020 2,209 626 - 21,792 8,517 - 24,001 9,143 -

Financial leases agreement for approximately S/.4,143,000 Acquired fixed assets 6.8 2020 2572 284 - 25,373 3,859 - 27,945 4,143 -

Financial leases agreement for approximately S/.1,480,000 Acquired fixed assets 5.02 2014 475 469 - 890 1,011 - 1,365 1,480 -

Corporate bonds (e)

Issued for restructuring of the Company's financial position.

1st issuance Trust assets 6.75 2018 - 8,169 8,169 - 53,099 61,268 - 61,268 69,437

2nd issuance Trust assets 8.53 2018 - 5,672 5,672 - 39,704 45,376 - 45,376 51,048

3rd issuance Trust assets 7.03 2014 - - - - 56,180 57,820 - 56,180 57,820

4th issuance Trust assets 7.25 2014 - - - - 30,000 30,000 - 30,000 30,000

6th issuance Trust assets 7.72 2020 - - - - 56,180 - - 56,180 -

International corporate bonds (f)

Issued for restructuring of the Company's financial position. Without specific guarantees 6.75 2021 - - - 863,040 - - 863,040 - -

Other

Construcciones e Inversiones Alpama S.A.

Loan for US$2,130,000. Without specific guarantees 8.25 2009 - - 6,158 - - - - - 6,158

Shareholders

Loan for US$1,480,120 Without specific guarantees 8.0- 8.5 2009 - - 4,279 - - - - - 4,279

SUNAT

Tax payments Without specific guarantees 4.3 April 2012 162 486 427 - 162 705 162 648 1,132

Tax payments of subsidiary Without specific guarantees 4.3 April 2012 - - 9 9 8 8 9 8 17

Financing for purchase of machinery

Tetra Pak S.A. Without specific guarantees 6.3 2012 - 698 712 - 685 1,383 - 1,383 2,095

Sidel S.P.A. Without specific guarantees - 2015 5,995 - - 15,088 - - 21,083 - -

Sidel Bowling & Service Without specific guarantees - 2016 2,629 - - 9,324 - - 11,953 - - _________ _________ _________ _________ _________ _________ _________ _________ _________

42,076 123,656 85,631 1,048,648 392,722 336,932 1,090,724 516,378 422,563 _________ _________ _________ _________ _________ _________ _________ _________ _________

This financial statements has been prepared from the company’s accounting record

after posting all the necessary adjustments and they represent the final statements for

the corresponding audit period

____________________________

Signature



48

(b) On January 23, 2006, the Company signed a mandate letter with two financial lenders, Citibank

NA and Standard Chartered Bank, to access a medium-term financing amounting to

US$90,000,000 – with Citibank NA providing US$50,000,000 and the Standard Chartered Bank

providing US$40,000,000 -- to (i) amortize and amend the entire outstanding balance of the

syndicated loan used for the transaction indicated in note 1(b), (ii) prepay loans from suppliers,

and (iii) fund additional needs of capital expenditures. The loan term was 7 years and payments

were made quarterly beginning in March 2007 after a grace period of 1 year, bearing an interest

rate three-month Libor over 3.375 percent per year. On August 2011, the Company paid the

loan.

(c) On July 26, 2007, the Company signed a mandate letter with two financial creditors, Citibank NA

and Standard Chartered Bank, to obtain a loan up to US$30,000,000, of which to date it has

received US$20,000,000 (US$10,000,000 from each one of the creditors) to be used for

working capital and capital investment of the Company. The loan term was 7 years and the

payments began after a grace period of 1 year, quarterly from July 2008, earning an interest

rate at three months Libor plus 2.25 percent annually. On August 2011, the Company paid the

loan.

(d) During 2010, the Company entered into various lease agreements with BBVA Banco Continental

and Interbank related to the acquisition of bottling line Krones, vehicles, forklifts and

refrigeration equipment, as well as the implementation of new bottling plants and renewal of

some plants to increase the level of production, see note 9(b).

(e) The Company entered a corporate bond program for a maximum of US$150,000,000 or the

equivalent in nuevos soles to make necessary investments for growth, and to refinance, and

change its financial obligations, thereby lowering costs and increasing flexibility in managing

future cash flows, which was approved by the advance registration process of the “Primer

Programa de Bonos Corporativos Corporación José R. Lindley S.A.” (First Corporate Bond

Program Corporación Jose R. Lindley S.A.) through Executive Resolution No. 079-2007-

EF/94.06.3 issued by the Comisión Nacional Supervisora de Empresas y Valores - CONASEV on

December 14, 2007. In April and July 2008 bonds from the Primera Emisión and from Serie A of

the Segunda Emisión were issued on a single serie for a total amount of S/.81,690,000 and

S/.56,720,000 respectively. In April 2009 were issued the Tercera Emision and Cuarta Emision

for a total amount of US$20,000,000 and S/.30,000,000, respectively. In March 2010 the Sexta

Emision was issued for a total amount of US$20,000,000, while the Quinta Emision on the

amount of S/.85,000,000 approved in February 2010 is currently pending.

On December 2011, the Company made the acceleration option payment of the bonds amounting

to S/.17,600,000 approximately using the funds obtained with the international bonds issuance

indicated in (f).

This financial statements has been prepared from the company’s accounting record

after posting all the necessary adjustments and they represent the final statements for

the corresponding audit period

____________________________

Signature



49

The bonds are backed by a generic guarantee of the assets of the Company. The rights and

obligations of the bonds are secured by a trust. The trust estate includes all fixed assets,

furniture and fixtures that are necessary for the development of core business operations of the

Group and are a part of the Company‟s production units. Currently, the properties included in the

trust estate are valued at US$72,000,000 and are in process of release.

(f) On 23 November 2011, the Company made the international bonds issuance under 144

rule/Regulation S of the Stock Exchange Law of United States of America amounting to

US$320,000,000 with an interest rate of 6.75% and maturity on 23 November 2021. The

obtained funds of this international issuance were used to execute the acceleration option

payment of the local bonds of Primer Programa de Bonos Corporativos (primera, segunda,

tercera, cuarta y sexta emision), the payments of bank loans, and also support the necessary

investment for the construction and improvements of Trujillo and Lima plants.

The international bonds do not have guarantees and must meet certain administrative and

financial obligations and restrictions as follows:

- Not incur in additional debts;

- Not permit to the Subsidiary create or allow that exist a restriction to any Subsidiary

capability to pay dividends or any debt of the Company or any guarantee Subsidiary;

- Not permit to the Subsidiary guarantee debts from Lindley or any Subsidiary;

- Transfer any property or asset from Lindley or any Subsidiary;

- Not grant as collateral;

- Not perform consolidations, mergers, excisions or transfer assets;

- Not perform transactions with affiliates ; and

- Not modified the type of business that the Company performs.

In case that (i) bonds obtain investment scale at less from two risk-rating agencies and (ii) when

the bonds have been obtained the investment scale at less from two risk-rating agencies would

not happened a default in force, the mentioned covenants will be ceases (except the related to

limitation to perform grants, business changes, and other limitations like mergers,

consolidations, and transfer assets while the two risk-rating agencies maintain the investment

scale.



50

(g) Information of the financial leases agreements as of 31 December 2011, 2010 and 1 January 2010:

2011 2010 1 January 2010 _____________________________ _____________________________ _____________________________

Minimum

payments

Present value of

lease payments

Minimum

payments

Present value of

lease payments

Minimum

payments

Present value of

lease payments

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Up to 1 year 38,544 28,299 28,257 20,745 21,429 19,584

Above 1 year and more 167,196 122,749 113,616 83,413 59,927 44,828 ________ ________ ________ ________ ________ ________

Total payable amount 205,740 151,048 141,873 104,158 81,356 64,412

Less interest payable (11,263) - (15,691) - (14,363) - ________ ________ ________ ________ ________ ________

Total 194,477 151,048 126,182 104,158 66,993 64,412 ________ ________ ________ ________ ________ ________



51

14. Income tax

(a) The deferred income tax is made up as follows based on temporary differences that generate:

As of 1 January

2010

Income

(expense) Equity

As of 31 December

2010

Income

(expense) Equity

As of 31 December

2011

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Deferred asset

Other provisions 19,866 (2,195) - 17,671 10,002 - 27,673

Derivative financial instruments 4,087 949 (12,800) (7,764) 3,267 8,095 3,598 _________ _________ _________ _________ _________ _________ _________

23,953 (1,246) (12,800) 9,907 13,269 8,095 31,271 _________ _________ _________ _________ _________ _________ _________

Deferred liability

Voluntary revaluation of fixed assets (69,592) 4,289 - (65,303) 2,043 - (63,260)

Financial leasing operations, net of accumulated

depreciation (3,498) 230 - (3,268) 346 - (2,922)

Difference in depreciation rates (149) (42) - (191) - - (191) _________ _________ _________ _________ _________ _________ _________

(73,239) 4,477 - (68,762) 2,389 - (66,373) _________ _________ _________ _________ _________ _________ _________

Net deferred income tax liability (49,286) 3,231 (12,800) (58,855) 15,658 8,095 (35,102) _________ _________ _________ _________ _________ _________ _________

(b) The expense for income tax presented in the consolidated statement of income as of 31 December 2011 and 2010 is composed as follows:

2011 2010

S/.(000) S/.(000)

Income tax

Current (36,880) (29,252)

Deferred 15,658 3,231 ________ ________

(21,222) (26,021) ________ ________



52

(c) For the years 2011 and 2010, the conciliation of the effective and legal rate of the income tax is

presented below:

2011 2010 S/.(000) S/.(000)

Profit before income tax 66,934 70,853 ________ ________

Income tax at legal rate 30 percent 20,080 21,256

Plus (less):

Effect of permanent unrealized gains 2,106 1,641

Effect of non-deductible expenses and other permanent items (964) 3,124 ________ ________

Income tax as effective rate of 32 percent in 2011 and 37 percent

in 2010 21,222 26,021 ________ ________

15. Shareholder’s equity

(a) Capital stock -

As of December 31, 2010 and 2009, the capital stock is represented by 580,981,459 common

shares integrally subscribed and paid, whose nominal value is of 1 Nuevo sol per share, of which

223,774,704 are Series "A ", 329,870,528 are Series "B" and 27,336,227 are Series "C", all

with the same rights and obligations, except those of the series "A", which propose the Finance

Manager, two incumbent directors and alternates, while the Series "B" and "C" appoint the

General Manager and the other directors.

(b) Investment shares -

As of December 31, 2011 and 2010, the investment shares, subscribed in the Lima‟s Stock

Exchange Market, are represented by 71,965,514 shares which are negotiable. The stock market

quotation per investment share as of December 31, 2011 is S/.1.28 per share (S/.2.20 as of

December 31, 2010).

According to law, the investment shares are issued in the name of each holder, and may be

redeemed in agreement with the Group. They have some preference in the payment of dividends

and do not have access to the Board or General Meetings of Shareholders.

Holders of investment shares are entitled to make contributions to increase investment shares

account only in order to maintain proportionality in capital stock, in cases of increases due to

new contributions, and of increases by public subscription, the holders have first option to

subscribe for not less than ten percent of such increases.



53

(c) Legal reserve -

The General Corporate Law requires that a minimum of 10 percent of a company‟s disposable

earnings each year must be transferred to a legal reserve until the reserve reaches an amount

equivalent to 20 percent of the Company‟s capital stock. The legal reserve can compensate

losses or can be capitalized. In both cases, it is mandatory to replenish it.

16. Tax situation and contingencies

(a) The Group is subject to the Peruvian tax system. As of 31 December 2011 and 2010 the income

tax rate was 30 percent of taxable income.

Companies not domiciled in Peru and individuals must pay an additional tax of 4.1 percent over

received dividends.

(b) Since year 2010, the capital gains resulting from the disposal of marketable securities through

centralized negotiation mechanism in Peru are taxable.

In this context, the Income Tax Law indicated that, to establish the income tax produced by the

disposal of marketable securities acquired before January 1, 2010, the taxable cost of those

marketable securities will be the quote price at the year end taxable 2009 or the acquisition cost

or the equity value, whichever is greater.

This rule is applicable for entities when the marketable securities will be disposed inside or

outside of a centralized negotiation mechanism.

Also, when the disposal have been made, redemption or share and participation rescue, acquired

or received by the tax person in different ways and opportunities, the taxable cost will be

composed of the weighted average cost. It is important to mention that the weighted average

cost will be equivalent to the result of the taxable cost, related to the acquired marketable

security in a specific moment by the number of shares, divided by the total acquired shares.

(c) With the purpose of determining the income tax and the value added tax, the transfer prices

among related parties and for transactions with companies domiciled in countries considered tax

havens, prices should be supported by documentation containing information about the valuation

methods applied and criteria used in its determination. Based on an analysis of the Group‟s

operations, Management and its legal advisors do not believe that the new regulations will result

in significant contingencies for the Company as of 31 December 2011 and 2010.



54

(d) Tax authority is legally entitled to review, and if applicable, adjust the income tax and value

added tax computed by the Group and the related parties absorbed by Lindley during the four

subsequent years to the year of the related tax return filing. The income tax and value added tax

returns of the Group and the related parties that are pending review by the Tax Authority are the

followings:

Years open to fiscal review ______________________________________________

Company Income tax Value added tax

Corporación Lindley S.A. 2008 to 2011 2008 to 2011

Embotelladora La Selva S.A. 2007 to 2011 2007 to 2011

(e) Due to various possible interpretations of current legislation, it is not possible to determine

whether or not future reviews will result in tax liabilities for the Group. In the event that

additional taxes payable, interest and surcharges result from tax authority reviews, they will be

charged to expense in the period assessed and paid. However, in the Management‟s and its legal

advisors‟ opinion, any additional tax assessment would not be significant to the financial

statements as of 31 December 2011 and 2010.

(f) As of 31 December 2011, the Group is pursuing reclamations from the Tax Authority and other

legal and labor proceedings totaling approximately S/.62 million and US$0.6 million

(approximately S/.78 million and US$1.7 million as of December 31, 2010) that are pending of

final judicial verdict. Management and legal advisors consider that these processes probably will

have an unfavorable result for the Group amounting to approximately S/.32,738,000

(S/.34,660,000 as of December 31, 2010), which have been recognized by the Group (see note

12(b)); also estimate that the demands classified as remote or possible will be resolved favorably

to the Group.



55

17. Net sales


2011 2010

S/.(000) S/.(000)

Carbonated 1,642,975 1,457,363

Water 197,861 196,947

No carbonated 237,555 180,010

Others 6,322 31,218 __________ __________

2,084,713 1,865,538

Less discounts (316,901) (327,489) __________ __________

1,767,812 1,538,049 __________ __________

(b) As of 31 December 2011 and 2010, it was sold 259 and 236 million units, respectively.

(Unaudited).



56

18. Costs and expenses by nature of expense

The classification of the expenses by nature of the expense for the years ended as of 31 December 2011 and 2010 are presented below:

Cost of sales Selling expenses Administrative expenses ____________________________________ ____________________________________ ____________________________________

2011 2010 2011 2010 2011 2010

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Opening balance of finished goods, product in process and

goods, note 7 48,319 32,572 - - - -

Consumption of raw materials and consumables and

purchase of goods 1,036,438 893,024 - - - -

Labor expenses 96,630 83,155 56,187 44,773 31,978 26,744

Third party services provided 72,686 65,554 135,055 119,399 26,908 30,425

Advertising and promotion - - 69,781 63,639 - -

Taxes and others 1,421 1,425 1,150 982 325 360

Depreciation, note 9(c) 59,308 50,172 33,670 21,938 3,569 3,939

Amortization, note 10(d) 16 33 - - 922 1,820

Other provisions 5,463 5,248 6,341 3,268 1,772 1,694

Less: Ending balance of finished goods, product in process

and goods, note 7 (49,629) (48,319) - - - - __________ __________ _________ _________ _________ _________

1,270,652 1,082,864 302,184 253,999 65,474 64,982 __________ __________ _________ _________ _________ _________



57

19. Other operating income and expenses

These items are made as follows:

2011 2010

S/.(000) S/.(000)

Income

Sale of bottles and boxes 26,572 34,641

Sale of property, plant and equipment 5,989 22,791

Sale of services, raw materials, advertising material and others 27,838 10,529

Rentals 912 945

Various 5,163 5,909 __________ __________

66,474 74,815 __________ __________

Expenses

Cost of sale of bottles and boxes 26,643 35,889

Retirements of inventories, bottles and boxes 26,616 27,252

Provisions for contingencies, termination of personnel and others 14,957 25,549

Net cost of disposal of properties, plant and equipment 3,038 15,605

Depreciation of packaging and others, note 9(d) 2,654 3,338

Cost of sale of services, raw materials, advertising material and

others 5,867 2,775 __________ __________

79,775 110,408 __________ __________

20. Financial income and expenses

This item is made up as follows:

2011 2010

S/.(000) S/.(000)

Income

Income from deposits in bank and others 2,223 2,440

Income from loans from related parties 2,392 2,439

Exchange rate gain 55,304 21,064 __________ __________

59,919 25,943 __________ __________

Expenses

Interests and expenses from long term financial obligations 50,644 28,825

Interests from loans and others 19,291 13,806

Interests from related parties, note 21 204 912

Exchange rate loss 36,695 15,756 __________ __________

106,834 59,299 __________ __________



58

21. Transactions with related parties

(a) During the years 2011 and 2010, the Company has mainly performed the following transactions

with related parties:

2011 2010

S/.(000) S/.(000)

Income

Recovery of expenses related to marketing and advertising

cooperative agreement (e) 25,771 29,836

Income from incident concentrates 11,545 7,603

Sale of packaging and boxes 10 5,025

Interests. 2,374 2,439

Sale of finished goods, goods and others 1,029 522

Others 2,490 920 _________ _________

43,219 46,345 _________ _________

Costs and expenses

Purchase of concentrates (f) 346,964 344,930

Security services 2,738 2,311

Interest expenses. - 763

Advertising expenses - 338

Consulting 677 772

Other 2,878 1,598 _________ _________

353,257 350,712 _________ _________

The Group performs its operations with related parties under the same conditions as those

performed with third parties, and therefore, no difference exists in pricing policies or the

settlement of tax base. Forms of payment also not differ from policies applied to third parties.



59

(b) The balances of the accounts receivable from and accounts payable to the related parties are

presented below:

2011 2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Accounts receivable:

Trade accounts receivable

Embotelladora Bagua S.A. - 319 319

Coca Cola Servicios del Perú S.A. 559 23 40 _________ _________ ________

559 342 359 _________ _________ ________

Other accounts receivable -

Corporación Inca Kola Perú S.R.L. (e) 2,106 24,219 162

Coca Cola Servicios del Perú S.A. (e) 13,216 8,571 7,280

Latin American Finance LLC (d) 38,839 38,043 36,634

Other 139 134 19 _________ _________ ________

54,300 70,967 44,095 _________ _________ ________

Total 54,859 71,309 44,454 ________ ________ _______

Accounts payable

Coca Cola Chile S.A. (f) 53,073 38,715 12,902

Coca Cola Servicios del Perú S.A. (f) 15,929 14,199 10,497

Corporación Inca Kola Perú S.R.L. (f) 23,479 19,182 2,664

Other 1,838 102 327 _________ _________ ________

Total 94,319 72,198 26,390 ________ ________ _______

(c) The salary expenses of the Board members and key Management of the Group were

S/.10,037,000, S/.10,615,000 and S/.9,600,000 during the years 2011 and 2010 respectively.

(d) The item corresponds to US$12,550,000 loan granted to Latin American Finance LLC (a

company incorporated in United States of America), according to contract signed in November

2009, the loan bears an annual interest rate of 7 percent and matures in the short term. The

legal representative of the related parties has become as guarantor of the obligations. During

2011, the Group recognized interest income amounting to S/.2,374,000 (S/.2,439,000 for the

year 2010).



60

(e) The item corresponds to the support provided by Coca Cola Servicios del Perú S.A. and

Corporación Inca Kola Peru S.R.L. through cooperative agreements for the promotion and

marketing activities carried out by the Group in order to increase the market share of the brands

that related parties represent and mainly include purchases of packaging, exhibiting and

advertising campaigns.

(f) The item corresponds to the purchase of bases and concentrates used in the production of drinks

of the different brands that the related parties represent and the Group sells.



61

22. Fair value of financial instruments

The comparison between the carrying value and fair value of financial assets and liabilities presented in the consolidated financial statements at 31 December

2011, 2010 and 1 January 2010 is as follows:

Book value Fair value __________________________________________________ _________________________________________________

2011 2010 1 January 2010 2011 2010 1 January 2010

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Financial assets

Cash and cash equivalents 357,355 42,345 35,442 357,355 42,345 35,442

Net accounts receivable 152,770 96,717 71,770 152,770 96,717 71,770

Accounts receivable from related parties 54,859 71,309 44,454 54,859 71,309 44,454

Net other financial assets 41,082 59,108 28,839 41,082 59,108 28,839 _________ ________ _________ _________ _________ _________

606,066 269,479 180,505 606,066 269,479 180,505 _________ ________ _________ _________ _________ _________

Financial liabilities

Trade accounts payable 256,242 228,707 154,722 256,242 228,707 154,722

Accounts payable to related parties 94,319 72,198 26,390 94,319 72,198 26,390

Other financial liabilities 140,327 114,876 103,828 140,327 114,876 103,828

Corporate bonds 863,040 249,004 208,305 882,955 256,398 215,983

Financial instruments 18,384 10,763 13,687 18,384 10,763 13,687

Financial leasing 194,477 126,181 66,993 151,048 104,158 64,412

Bank loans - 139,154 133,584 - 139,154 133,584

Other financial obligations 33,207 2,039 13,681 33,207 2,039 13,681 _________ ________ _________ _________ _________ _________

1,599,996 942,922 721,190 1,576,482 928,293 726,287 _________ ________ _________ _________ _________ _________

The fair value of financial liabilities is the amount by which the instruments can be exchanged between concerned parties or willing parties conducting an arm's

length transaction without deduction of transaction costs on its possible sale, not in forced, urgent, or involuntary liquidation.

Based on the criteria described above, management believes that there are not significant differences between the carrying value and fair value of financial

instruments of the Group at 31 December 2011, 2010 and 1 January 2010.



62

The methodologies and assumptions used to determine fair values depend on the terms and risk

characteristics of the various financial instruments and include the following:

- The cash and cash equivalents have short-term maturity and do not have significant credit or

interest, for that reason the fair value of cash and cash equivalents approximate their book value.

- Fair value of trade accounts receivable is similar to their book value due to these accounts are

mainly in short-term and are presented net of its allowance of doubtful accounts.

- In the case of current financial obligations, trade and other accounts payable is similar to their

book value due to these accounts have current maturities.

- In the case of the long-term loans, since their conditions and the interest rates that accrued are

market based, Management believes that their carrying values do not differ significantly from

their respective market fair values.

- In the case of derivatives financial instruments, these are recognized at fair value, and therefore,

are not different from their respective book values.

Based in the aforementioned analysis, Management estimates that the book values of the financial

instruments do not differ significantly from their estimated market value as of 31 December 2011,

2010 and 1 January 2010.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial

instruments by valuation technique:

►- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

- Level 2: other techniques for which all inputs which have a significant effect on the recorded fair

value are observable, either directly or indirectly.

- Level 3: techniques which use inputs that have a significant effect on the recorded fair value that

are not based on observable market data.



63

As of 31 December 2011, 2010 and 1 January 2010, the Group maintains the following financial

instruments measured at fair value:

2011 2010

As of 1 January

2010

S/.(000) S/.(000) S/.(000)

Assets measured at fair value:

Level 2

Future sugar contracts BNP Paribas 19,050 34,342 6,700 _________ _________ _________

Liabilities measured at fair value:

Level 2

Currency forwards 11,991 1,472 -

Cross currency swap – BBVA Continental 5,094 5,249 6,768

Interest rate swap - Citigroup 721 2,244 3,841

Interest rate swap – JP Morgan N.A. 578 1,798 3,078 _________ _________ _________

18,384 10,763 13,687 _________ _________ _________

During the years 2011 and 2010, there were not transfers between hierarchy levels from level 2 to

other. The Group does not maintain assets or liabilities measured at level 1 and 3.

23. Earning per share

During the years 2011 and 2010 there have been no equity transactions in the capital account and

equity investment, so the number of common and investment shares outstanding and the weighted

average at closing date of both years is as follows:

Common shares 580,981,459

Investment shares 71,965,514 _____________

Total 652,946,973 _____________

The calculation of the earnings per shares as of 31 December 2011 and 2010 is presented below:

Net income

(numerator)

Shares in

thousands

(denominator)

Earnings per

share

S/.(000) S/.


Basic and diluted profit per shares of the common and

investment shares 45,711 652,947 0.0700 _________ _________ _________


Basic and diluted profit per shares of the common and

investment shares 44,045 652,947 0.0675 _________ _________ _________



64

24. Financial risk management

In the normal course of its operations, the Group is exposed to financial risks that include the effects of

variations in interest rates, exchange rates, credit and liquidity. The managing risk program of the

Company tries to minimize the potential effects that affect its financial development.

The Management knows the existing conditions of the market, and based in its knowledge and

experience, controls the liquidity, exchange and credit risk, following the approved policies by the

Board. The most significant aspects for managing these risks are the following:

(i) Market risk -

Market risk is the risk that the fair values of the future cash flows of a financial instrument will

fluctuate because of changes in market prices. The market prices comprise three types of risks:

interest rate risk, currency risk and share investment risk. In the case of the Group, the financial

instruments affected by the market risks include deposits and obligations with financial entities

and third parties in short and long term, which are exposed to currency and interest rate risk.

The sensitivity analysis in the following section is as of 31 December 2011, 2010 and 1 January

2010, and was prepared considering that the net debt amount, the fixed interest rate of debt,

and the financial instruments‟ proportion in foreign currency are constant.

The sensitivity calculations assumed the following:

- Sensitivity in equity is related to the hedge derivatives financial instruments.

- Sensitivity in the consolidated statement of income is the effect of the changes assumed

in the respective market risk. This assumption was based on the financial assets and

liabilities as of 31 December 2011and 2010, including the effect of the hedge derivatives

financial instruments.

(ii) Interest rate risk -

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates. The Group‟s exposure to the risk of

changes in market interest rates relates primarily to the Group‟s long-term debt obligations with

floating interest rates.

The Group manages its interest rate risk through obtaining fixed interest rate debt and by

matching interest rates on active and passive instruments. In addition, when it is necessary, the

Group enters into hedge agreements (cross currency swaps) to exchange variable interest rates

for fixed rates, see note 25.



65

The table below shows the effect on the income before income tax, due to a reasonable variation

of the interest rate, with all other variables held constant:

Increase (decrease)

in point basis

Effect on profit before

income tax

S/.(000)

2011 +100 basis points 172

2010 +100 basis points 870

2011 -100 basis points (172)

2010 -100 basis points (870)

(iii) Currency risk -

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in foreign exchange rates. The Group‟s exposure to exchange

rate risk is mainly related to operative activities.

Management controls this risk through the analysis of the macroeconomics variables of the

country. The Company has entered into forward currency contracts to hedge the mismatch

between asset and liability positions in foreign currency in times of high volatility of exchange

rates, see note 25.

The table below shows the effect on the income before income taxes, due to a reasonable

variation of the exchange rate, with all other variables described in note 3, held constant.

Increase (decrease)

of the exchange rate

Effect on profit before

income tax

S/.(000)

2011 +10% (74,538)

2010 +10% (36,634)

2011 - 10% 74,538

2010 - 10% 36,634

(iv) Credit risk -

Credit risk is the risk that counterparty fails to meet its obligations in relation to a financial

instrument or sale contract, producing a financial loss. The Group is exposed to credit risk

originated by operating activities (mainly accounts receivable and loans) and financing activities,

including deposits in banks and transactions with derivatives and other financial instruments.



66

Credit risk arises from the inability of debtors of the Group to comply with its payment

obligations as they fall due (without taking into account the fair value of any collateral or other

securities as collateral); the failure of counterparties transactions in cash and cash equivalent if

any, is limited to balances in bank accounts and accounts receivable as of the date of the

consolidated statement of financial position. Thus, the Group deposits their surplus funds in first

class financial institutions, provides conservative credit policies, and continuously evaluates

market conditions in which it operates. Accordingly, the Group expects to incur significant losses

for credit risk, see notes 4, 5 and 6.

(v) Liquidity risk -

The Group controls its liquidity risk using a projected cash flow at short and long term.

The objective of the Group is to maintain a balance between continuity of funding and flexibility

through an appropriate number of credit sources and the capacity to settle and repay debts. The

Group has sufficient credit capacity that allows access to credit in first class financial institutions

on reasonable terms.



67

The table below summarizes the maturity profile of the Company‟s financial assets and liabilities at 31 December 2011, 2010 and 1 January 2010 based on

contractual undiscounted payments.

Less than 1 year

Between 1 and 2

years

Between 2 and 5

years

Between 6 years

and above Total

S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)


Cash and cash equivalents 357,355 - - - 357,355

Financial obligations and derivative financial instruments,

note 13 and 25 (58,362) (8,784) (979,098) (62,864) (1,109,108)

Trade accounts payable and other financial liabilities,

notes 11 and 12 (396,570) - - - (396,570)

Accounts payable from related parties, note 21 (94,319) - - - (94,319) _________ _________ _________ _________ _________

(191,896) (8,784) (979,098) (62,864) (1,242,642) _________ _________ _________ _________ _________




note 13 and 25 (129,170) (69,187) (211,894) (116,890) (527,141)


notes 11 and 12 (343,583) - - - (343,583)


(502,606) (69,187) (211,894) (116,890) (900,577) _________ _________ _________ _________ _________

As of 1 January 2010



note 13 and 25 (92,550) (60,998) (194,882) (87,820) (436,250)


notes 11 and 12 (258,550) - - - (258,550)


(342,048) (60,998) (194,882) (87,820) (685,748) _________ _________ _________ _________ _________



68

(vi) Capital management -

The Group‟s objective when managing capital is to ensure that it maintains a strong credit rating

and healthy capital ratios in order to support its business and maximize shareholder value,

accomplish its administrative and financial obligations and restrictions agreed with financial

creditors and bondholders.

The Group manages its capital structure and makes the necessary adjustments, in accordance

with the changes in economic conditions. To maintain or adjust the capital structure, the Group

may adjust the dividend payment to shareholders, return capital to shareholders or issue new

shares.

No changes were made in objectives, policies and processes during the years ending as of 31

December 2011 and 2010.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus

net debt. The Group‟s policy is to maintain a gearing ratio of no more than 60 percent. Within

the net debt calculation, the Company includes obligations with banks and financial institutions

and trade and other account payables, less cash and cash equivalents balance. The capital

includes capital stocks, reserves and retained earnings.

The table below shows the calculation of gearing ratio as of 31 December 2011, 2010 and 1

January 2010:

2011

2010

1 January

2010

S/.(000) S/.(000) S/.(000)

Financial obligations 1,109,108 527,141 436,250

Trade accounts payable and other 504,762 427,675 315,569

Less – cash and cash equivalents (357,355) (42,345) (35,442) __________ __________ __________

Net debt (a) 1,256,515 912,471 716,377

Shareholders‟ equity 710,737 688,842 624,136 __________ __________ __________

Shareholders‟ equity and net debt (b) 1,967,252 1,601,313 1,340,513 __________ __________ __________

Gearing ratio (a / b) 64% 57% 53% __________ __________ __________

(vii) Commodity price risk -

The Group is exposed to the volatility of certain commodities, such as sugar, which is the main

raw material for the soft drinks production. The Group has developed a strategy for manage and

mitigate this risk; the Group has signed futures contracts to buy sugar to hedge the risk of price

volatility in the London and New York markets and a swap of sugar price. See note 25.



69

25. Hedge and derivatives activities

The Company uses swap contracts, futures, forward contracts and cross currency swap to manage

certain exposures in their transactions. These contracts, with the exception of the swap, have been

designated as a hedge for cash flow and fair value. The characteristics and effects of such contracts are

described as follows:

Cash flow hedge

(i) Cross currency swap

In April 2009, the Company entered into a cross currency swap contract with BBVA Banco

Continental, which was designated as cash flow hedges. The detail of these operations is as

follows:

Entity Description

Reference

value Interest rate Maturity

Corporación Lindley S.A. Receive US$ - Pay S/. S/.54,982,000 7.05% April 28, 2014

BBVA Banco Continental Receive US$ - Pay S/. US$17,600,000

Libor 3m +

2.25% April 28, 2014

The cross currency swap was used to hedge exposure to changes in fair value of the syndicated

loan to 3-month Libor plus a margin of 2.25 percent described in note 13(c) and its initial

recognition was designated as cash flows hedge in accordance with IAS 39, thus on August 2011

the Group made the prepayment of the syndicated loan related, and since that date recognised

the fair value variations and the accumulated gains and losses previously maintain in equity,

directly to the consolidated income statements.

In year 2011, the Group has recognised a finance expense related to these contracts amounting

to S/.7,910,000 (S/.3,111,000 in year 2010) and are presented in “Net loss from financial

instruments” in the consolidated income statement. The fair value of these contracts as of 31

December 2011, 2010 and 1 January 2010 was S/.5,094,000, S/.5,249,000 and S/.6,768,000

respectively.

(ii) Forward contracts

The existing forward contracts as of December 31, 2010 have been designated to hedge the

future liability positions in foreign currencies mainly resulting from the existing contracts with

suppliers. The Group has recognized as liability, taking as counterpart the caption "Net

unrealized gain on hedge agreements" in the consolidated statement of changes in equity, the

fair value of these contracts as of December 31, 2010 amounting to S/.1,472,000. In 2011, the

Group has recognized a greater financial expense on these contracts amounting to S/.2,133,000

(S/.1,397,000 as of 31 December 2010) and are presented under "Financial expense" in the

consolidated statement of income (see note 20),



70

The critical periods of the forward contracts have been negotiated to coincide with the timing of

their obligations. The effectiveness of these contracts has not been observed since it has been no

significant element of ineffectiveness at the date of the consolidated statement of financial

position.

(iii) Future contracts

In July 2008, the Company began hedging operations related to the volatility of the price of

sugar, the main raw material used for their products. The Company acquired futures sugar

contracts in recognized markets (London and New York). These contracts have maturities

between March 2012 and May 2014. This activity required that the Company has a credit line of

US$4.5 million in the BNP Paribas - Panama for a period of 2 years to cover open positions and

market price changes. In addition, the Company signed a contract with BNP Paribas Commodity

Futures Inc., a company incorporated in New York, to act as a broker, who settled and recorded

periodically the contracts (revolving). The funds used as credit for the derivative options are

given as collateral. See note 6.

As of December 31, 2011, the Company maintains open positions in 2,162 contracts of 50 MT

and 245 contracts of 1,120 pounds each, with a market value of approximately US$2,077,000

recognising a loss amounting to S/.5,601,000 in consolidated statement of income related to the

cash liquidations of open positions obtained from the difference between the agreed and market

price (open positions in 1,031 contracts of 50 MT and 627 contracts of 1,120 pounds each, at

fair value by approximately US$10,489,000 recognising a total amount of S/.29,464,000 in

consolidated statement of income as of 31 December 2010).

In year 2011, the Company has recognised as part of operating costs the gains and losses

obtained for these contracts amounting to S/.46,796,000 (S/.12,759,000 in year 2010)

presented in the item “Cost of sales” in the consolidated income statement.

As of 31 December 2011, the open positions are as follows:

Maturity Metric tones

Quantity of

contracts Fair value

US$ / TM

London

March 2012 50 386 602.00

May 2012 50 319 591.60

August 2012 50 799 584.60

October 2012 50 640 586.80

December 2012 50 4 591.80

May 2013 50 14 599.00



71

Maturity Metric tones

Quantity of

contracts Fair value

US$/Lb

New York

October 2012 1,120 180 22.83

March 2014 1,120 35 22.88

May 2014 1,120 30 22.72

In May 2010, acquired three sugar prices swap agreements with Citigroup Global Markets.

These contracts expire between February and April 2011. As of December 31, 2010, the fair

value of these contracts is approximately US$1,737,000.

Derivatives not designated as hedging instruments

These contracts are not designated as cash flow or fair value and do not qualify for hedge accounting.

During April 2006, Company‟s Management entered into two swap agreements for interest rate

insurance to cover the loan interest rate indicate in note 13(b). Related to these contracts the Group

has recognised net gain and losses amounting to S/.77,000 (S/.1,486,000 in year 2010). The fair value

of these contracts as of 31 December 2011, 2010 and 1 January 2010 was S/.1,299,000,

S/.4,042,000 and S/.6,919,000 respectively.

Summary of derivatives designated and not designated as hedging instruments

The table below summarizes the fair value of derivative financial instruments of the Group as of 31 December 2011,

2010 and 1 January 2010:



72

Current _______________________________________ Non current _______________________________________ Total debt ______________________________________

Interest rate Maturity 2011 2010

1 January

2010 2011 2010

1 January

2010 2011 2010

1 January

2010

% S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000) S/.(000)

Derivatives financial instruments

Cash flow hedge

Future contracts, (iii) Libor + 4.5 percent 2012 11,991 - - - - - 11,991 - -

Currency forwards, (ii)

Receive dollars – Pay

nuevos soles 2011 - 1,472 - - - - - 1,472 -

Cross Currency Swap – BBVA Banco Continental, (i)

Receive dollars at libor

3m+2.25 percent – Pay

nuevos soles at 7.05

percent 2014 3,256 3,300 1,772 1,839 1,949 4,996 5,095 5,249 6,768

Derivatives financial instruments not designated as

hedge

Interest rate swap – Citigroup 5.23 2013 577 997 1,280 144 1,247 2,561 721 2,244 3,841

Interest rate swap – JP Morgan N.A. 5.24 2013 462 799 1,026 115 999 2,052 577 1,798 3,078 ________ ________ ________ __________ ________ ________ __________ ________ ________

16,286 6,568 4,078 2,098 4,195 9,609 18,384 10,763 13,687 ________ ________ ________ ___________ ________ ________ __________ ________ ________



73

26. Commitment

In previous years, the Company signed private agreements without term defined with Peruvian banks to

guarantee financial obligations of certain customers related to the acquisition of trucks. Those

guarantees will become in obligations for the Company in case any of them (customers) do not pay its

obligations to the bank. In case of this event occurs, said private agreements transfer to the Company

the whole rights and obligations pending related to those leasing agreements signed between the

customers and the banks. As of December 31, 2011 the amount of the obligations of its customers for

this concept is amounting to approximately S/.30,639,000 (unaudited) (S/.42,067,000 (unaudited) as

of December 31, 2010).

27. Explanation added for English

language translation

The accompanying translated consolidated financial statements were originally issued in Spanish and

are presented on the basis of international financial reporting standards, as described in note 2 of this

report. Certain accounting practices applied by the Company that conform to international financial

reporting standards may not conform in a significant manner with generally accepted accounting

principles applied in other countries. In the event of a discrepancy, the Spanish language version

prevails.

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