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Intangible Assets
 12 Months Ended
Dec. 31, 2019
Text block [abstract]  
Intangible Assets
Note 13. Intangible Assets
 
 
  
Rights to
Produce and
Distribute
Coca-Cola
Trademark
Products
 
 
Goodwill
 
 
Trademark
Rights
 
  
Other Indefinite
Lived
Intangible
Assets
 
  
Total
Unamortized
Intangible
Assets
 
 
Technology
Costs and
Management
Systems
 
 
Systems in
Development
 
 
Alcohol
Licenses
 
  
Other
 
 
Total
Amortized
Intangible
Assets
 
 
Total
Intangible
Assets
 
Cost as of January 1, 2017
  
Ps.
85,338
 
 
Ps.
51,857
 
 
Ps.
6,225
 
  
Ps.
2,151
 
  
Ps.
145,571
 
 
Ps.
6,124
 
 
Ps.
798
 
 
Ps.
1,416
 
  
Ps.
2,338
 
 
Ps.
10,676
 
 
Ps.
156,247
 
Additions
  
 
1,288
 
 
 
—  
 
 
 
—  
 
  
 
6
 
  
 
1,294
 
 
 
464
 
 
 
920
 
 
 
221
 
  
 
445
 
 
 
2,050
 
 
 
3,344
 
Acquisitions from business combinations (see Note 4)
  
 
4,144
 
 
 
140
 
 
 
5
 
  
 
—  
 
  
 
4,289
 
 
 
6
 
 
 
—  
 
 
 
—  
 
  
 
80
 
 
 
86
 
 
 
4,375
 
Changes in fair value of past acquisitions
  
 
5,167
 
 
 
(7,022
) 
 
 
836
 
  
 
9
 
  
 
(1,010
) 
 
 
(188
) 
 
 
—  
 
 
 
—  
 
  
 
892
 
 
 
704
 
 
 
(306
) 
Transfer of completed development systems
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
412
 
 
 
(412
) 
 
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
Disposals
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
110
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
110
 
 
 
110
 
Effect of movements in exchange rates
  
 
(2,563
) 
 
 
(1,526
) 
 
 
119
 
  
 
91
 
  
 
(3,879
) 
 
 
175
 
 
 
(15
) 
 
 
—  
 
  
 
52
 
 
 
212
 
 
 
(3,667
) 
Changes in value on the recognition of inflation effects
  
 
(727
) 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
(727
) 
 
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
175
 
 
 
175
 
 
 
(552
) 
Venezuela deconsolidation effect
  
 
(745
) 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
(745
) 
 
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
(139
) 
 
 
(139
) 
 
 
(884
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Cost as of December 31, 2017
  
Ps.
91,902
 
 
Ps.
43,449
 
 
Ps.
7,185
 
  
Ps.
2,257
 
  
Ps.
144,793
 
 
Ps.
7,103
 
 
Ps.
1,291
 
 
Ps.
1,637
 
  
Ps.
3,843
 
 
Ps.
13,874
 
 
Ps.
158,667
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Rights to
Produce and
Distribute
Coca-Cola
Trademark
Products
 
 
Goodwill
 
 
Trademark
Rights
 
 
Other Indefinite
Lived
Intangible
Assets
 
 
Total
Unamortized
Intangible
Assets
 
 
Technology
Costs and
Management
Systems
 
 
Systems in
Development
 
 
Alcohol
Licenses
 
  
Other
 
 
Total
Amortized
Intangible
Assets
 
 
Total
Intangible
Assets
 
Cost as of January 1, 2018
  
Ps.
91,902
 
 
Ps.
43,449
 
 
Ps.
7,185
 
 
Ps.
2,257
 
 
Ps.
144,793
 
 
Ps.
7,103
 
 
Ps.
1,291
 
 
Ps.
1,637
 
  
Ps.
3,843
 
 
Ps.
13,874
 
 
Ps.
158,667
 
Additions
  
 
—  
 
 
 
75
 
 
 
—  
 
 
 
71
 
 
 
146
 
 
 
1,051
 
 
 
371
 
 
 
131
 
  
 
94
 
 
 
1,647
 
 
 
1,793
 
Acquisitions from business combinations (see Note 4)
  
 
4,602
 
 
 
842
 
 
 
170
 
 
 
—  
 
 
 
5,614
 
 
 
35
 
 
 
57
 
 
 
—  
 
  
 
291
 
 
 
383
 
 
 
5,997
 
Changes in fair value of past acquisitions
  
 
—  
 
 
 
272
 
 
 
—  
 
 
 
—  
 
 
 
272
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
272
 
Internal development
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
41
 
 
 
41
 
 
 
41
 
Transfer of completed development systems
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
904
 
 
 
(904
) 
 
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
Disposals
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(2
) 
 
 
(2
) 
 
 
(43
) 
 
 
—  
 
 
 
—  
 
  
 
(146
) 
 
 
(189
) 
 
 
(191
) 
Philippines disposal
  
 
(3,882
) 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(3,882
) 
 
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
(596
) 
 
 
(596
) 
 
 
(4,478
) 
Effect of movements in exchange rates
  
 
(5,005
) 
 
 
(4,108
) 
 
 
(656
) 
 
 
(349
) 
 
 
(10,118
) 
 
 
(343
) 
 
 
(38
) 
 
 
—  
 
  
 
(311
) 
 
 
(692
) 
 
 
(10,810
) 
Changes in value on the recognition of inflation effects
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
57
 
 
 
57
 
 
 
57
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Cost as of December 31, 2018
  
Ps.
87,617
 
 
Ps.
40,530
 
 
Ps.
6,699
 
 
Ps.
1,977
 
 
Ps.
136,823
 
 
Ps.
8,707
 
 
Ps.
777
 
 
Ps.
1,768
 
  
Ps.
3,273
 
 
Ps.
14,525
 
 
Ps.
151,348
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Rights to
Produce and
Distribute
Coca-Cola
Trademark
Products
 
 
Goodwill
 
 
Trademark
Rights
 
 
Other Indefinite
Lived
Intangible
Assets
 
 
Total
Unamortized
Intangible
Assets
 
 
Technology
Costs and
Management
Systems
 
 
Systems in

Development
 
 
Alcohol
Licenses
 
 
Other
 
 
Total
Amortized
Intangible
Assets
 
 
Total
Intangible
Assets
 
Cost as of January 1, 2019
  
Ps.
87,617
 
 
 
40,530
 
 
Ps.
6,699
 
 
Ps.
1,977
 
 
Ps.
136,823
 
 
Ps.
8,707
 
 
Ps.
777
 
 
Ps.
1,768
 
 
Ps.
3,273
 
 
Ps.
14,525
 
 
Ps.
151,348
 
Additions
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
164
 
 
 
164
 
 
 
824
 
 
 
334
 
 
 
191
 
 
 
685
 
 
 
2,034
 
 
 
2,198
 
Acquisitions from business combinations (see Note 4)
  
 
—  
 
 
 
6,542
 
 
 
469
 
 
 
—  
 
 
 
7,011
 
 
 
759
 
 
 
—  
 
 
 
—  
 
 
 
12
 
 
 
771
 
 
 
7,782
 
Changes in the fair value of past acquisitions
  
 
(2,887
) 
 
 
2,903
 
 
 
—  
 
 
 
153
 
 
 
169
 
 
 
(6
) 
 
 
—  
 
 
 
—  
 
 
 
(185
) 
 
 
(191
) 
 
 
(22
) 
Transfer of completed development systems
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
412
 
 
 
(413
) 
 
 
—  
 
 
 
1
 
 
 
—  
 
 
 
—  
 
Disposals
  
 
—  
 
 
 
—  
 
 
 
(48
) 
 
 
—  
 
 
 
(48
) 
 
 
(580
) 
 
 
—  
 
 
 
(130
) 
 
 
—  
 
 
 
(710
) 
 
 
(758
) 
Effect of movements in exchange rates
  
 
(3,475
) 
 
 
(2,069
) 
 
 
(520
) 
 
 
(134
) 
 
 
(6,198
) 
 
 
(553
) 
 
 
(23
) 
 
 
—  
 
 
 
(337
) 
 
 
(913
) 
 
 
(7,111
) 
Changes in value on the recognition of inflation effects
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(6
) 
 
 
(6
) 
 
 
(6
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost as of December 31, 2019
  
Ps.
81,255
 
 
Ps.
47,906
 
 
Ps.
6,600
 
 
Ps.
2,160
 
 
Ps.
137,921
 
 
Ps.
9,563
 
 
Ps.
675
 
 
Ps.
1,829
 
 
Ps.
3,443
 
 
Ps.
15,510
 
 
Ps.
153,431
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization and Impairment Losses
  
Rights to
Produce and
Distribute
Coca-Cola
Trademark
Products
 
  
Goodwill
 
  
Trademark
Rights
 
  
Other
Indefinite Lived
Intangible
Assets
 
  
Total
Unamortized
Intangible
Assets
 
  
Technology
Costs and
Management
Systems
 
 
Systems in
Development
 
  
Alcohol
Licenses
 
 
Other
 
 
Total
Amortized
Intangible
Assets
 
 
Total
Intangible
Assets
 
Amortization as of January 1, 2017
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
(1,937
) 
 
Ps.
—  
 
  
Ps.
(376
) 
 
Ps.
(666
) 
 
Ps.
(2,979
) 
 
Ps.
(2,979
) 
Amortization expense
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(961
) 
 
 
—  
 
  
 
(81
) 
 
 
(217
) 
 
 
(1,259
) 
 
 
(1,259
) 
Impairment losses
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(110
) 
 
 
—  
 
  
 
—  
 
 
 
—  
 
 
 
(110
) 
 
 
(110
) 
Venezuela deconsolidation effect
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
(120
) 
 
 
(120
) 
 
 
(120
) 
Effect of movements in exchange rates
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(254
) 
 
 
—  
 
  
 
—  
 
 
 
148
 
 
 
(106
) 
 
 
(106
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization as of December 31, 2017
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
(3,262
) 
 
Ps.
—  
 
  
Ps.
(457
) 
 
Ps.
(855
) 
 
Ps.
(4,574
) 
 
Ps.
(4,574
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization as of January 1, 2018
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
(3,262
) 
 
Ps.
—  
 
  
Ps.
 (457
) 
 
Ps.
(855
) 
 
Ps.
(4,574
) 
 
Ps.
(4,574
) 
Amortization expense
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(1,453
) 
 
 
—  
 
  
 
(87
) 
 
 
(373
) 
 
 
(1,913
) 
 
 
(1,913
) 
Disposals
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
93
 
 
 
—  
 
  
 
—  
 
 
 
98
 
 
 
191
 
 
 
191
 
Philippines disposal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
375
 
 
 
375
 
 
 
375
 
Effect of movements in exchange rates
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
236
 
 
 
—  
 
  
 
—  
 
 
 
(1
) 
 
 
235
 
 
 
235
 
Changes in value on the recognition of inflation effects
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(51
) 
 
 
—  
 
  
 
—  
 
 
 
(1
) 
 
 
(52
) 
 
 
(52
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization as of December 31, 2018
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
(4,437
) 
 
Ps.
—  
 
  
Ps.
(544
) 
 
Ps.
(757
) 
 
Ps.
(5,738
) 
 
Ps.
(5,738
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization as of January 1, 2019
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
 —  
 
  
Ps.
(4,437
) 
 
Ps.
—  
 
  
Ps.
(544
) 
 
Ps.
(757
) 
 
Ps.
(5,738
) 
 
Ps.
(5,738
) 
Amortization expense
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(1,351
) 
 
 
—  
 
  
 
(123
) 
 
 
(337
) 
 
 
(1,811
) 
 
 
(1,811
) 
Disposals
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
445
 
 
 
—  
 
  
 
30
 
 
 
—  
 
 
 
475
 
 
 
475
 
Effect of movements in exchange rates
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
165
 
 
 
—  
 
  
 
—  
 
 
 
68
 
 
 
233
 
 
 
233
 
Changes in value on the recognition of inflation effects
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(29
) 
 
 
—  
 
  
 
—  
 
 
 
1
 
 
 
(28
) 
 
 
(28
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization as of December 31, 2019
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—  
 
  
Ps.
—
  
 
  
Ps.
(5,207
) 
 
Ps.
—  
 
  
Ps.
 (637
) 
 
Ps.
(1,025
) 
 
Ps.
(6,869
) 
 
Ps.
(6,869
) 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carrying Amount
  
Rights to
Produce and
Distribute
Coca-Cola

Trademark
Products
 
  
Goodwill
 
  
Trademark
Rights
 
  
Other
Indefinite Lived
Intangible
Assets
 
  
Total
Unamortized
Intangible Assets
 
  
Technology
Costs and
Management
Systems
 
  
Systems in
Development
 
  
Alcohol
Licenses
 
  
Other
 
  
Total
Amortized
Intangible Assets
 
  
Total
Intangible
Assets
 
As of December 31, 2017
  
Ps.
91,902
 
  
Ps.
43,449
 
  
Ps.
7,185
 
  
Ps.
2,257
 
  
Ps.
144,793
 
  
Ps.
3,841
 
  
Ps.
1,291
 
  
Ps.
1,180
 
  
Ps.
2,988
 
  
Ps.
9,300
 
  
Ps.
154,093
 
As of December 31, 2018
  
Ps.
87,617
 
  
Ps.
40,530
 
  
Ps.
6,699
 
  
Ps.
1,977
 
  
Ps.
136,823
 
  
 
Ps. 4,270
 
  
Ps.
777
 
  
 
Ps.1,224
 
  
 
Ps.2,516
 
  
Ps.
8,787
 
  
Ps.
145,610
 
As of December 31, 2019
  
Ps.
81,255
 
  
Ps.
47,906
 
  
Ps.
6,600
 
  
Ps.
2,160
 
  
Ps.
 137,921
 
  
 
Ps. 4,356
 
  
Ps.
675
 
  
 
Ps.1,192
 
  
 
Ps.2,418
 
  
Ps.
8,641
 
  
Ps.
146,562
 
 
For the years ended December 31, 2019 and 2018, the Company did not recognize any capitalization of borrowing costs.
On March 28, 2017 Coca-Cola FEMSA acquired distribution rights and other intangibles of AdeS
soy-based
beverages in its territories in Mexico and Colombia for an aggregate amount of Ps. 1,664. This acquisition was made to reinforce Coca-Cola FEMSA leadership position. For the years ended 2019, 2018 and 2017, allocation for amortization expense is as follows:
 
   
2019
   2018   2017 
Cost of goods sold
  
Ps.
317
 
  Ps.399   Ps.132 
Administrative expenses
  
 
953
 
   858    627 
Selling expenses
  
 
542
 
   656    500 
  
 
 
   
 
 
   
 
 
 
  
Ps.
1,812
 
  Ps.1,913   Ps.1,259 
  
 
 
   
 
 
   
 
 
 
The average remaining period for the Company’s intangible assets that are subject to amortization is as follows:
 
   Years 
Technology Costs and Management Systems
  
 
3 - 10
 
Alcohol Licenses
  
 
12 - 15
 
Coca-Cola FEMSA Impairment Tests for Cash-Generating Units Containing Goodwill and Distribution Rights
For the purpose of impairment testing, goodwill and distribution rights are allocated and monitored on an individual country basis, which is considered to be a CGU.
The aggregate carrying amounts of goodwill and distribution rights allocated to each CGU are as follows:
 
 
  
December 31,
2019
 
  
December 31,
2018
 
Mexico
  
Ps.
56,352
 
  
Ps.
 56,352
 
Guatemala
  
 
1,679
 
  
 
1,853
 
Nicaragua
  
 
420
 
  
 
460
 
Costa Rica
  
 
1,442
 
  
 
1,417
 
Panama
  
 
1,131
 
  
 
1,182
 
Colombia
  
 
4,367
 
  
 
4,600
 
Brazil
  
 
38,765
 
  
 
42,153
 
Argentina
  
 
306
 
  
 
327
 
Uruguay
  
 
2,626
 
  
 
3,003
 
 
  
 
 
 
  
 
 
 
Total
  
Ps.
107,088
 
  
Ps.
 111,347
 
 
  
 
 
 
  
 
 
 
Goodwill and distribution rights are tested for impairments annually.
The recoverable amounts are based on value in use. The value in use of a CGU is determined based on the discounted cash flows method. The key assumptions used in projecting cash flows are: volume, expected annual long-term inflation, and the weighted average cost of capital (WACC) used to discount the projected cash flows. The cash flow forecasts could differ from the results obtained over time; however, Coca-Cola FEMSA prepares its estimates based on the current situation of each of the CGUs.
To determine the discount rate, Coca-Cola FEMSA uses the WACC as determined for each of the cash generating units in real terms and as described in following paragraphs.
 
The estimated discount rates to perform impairment test for each CGU consider market participants’ assumptions. Market participants were selected taking into consideration the size, operations and characteristics of the businesses that are similar to those of Coca-Cola FEMSA.
The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the opportunity cost to a market participant, considering the specific circumstances of Coca-Cola FEMSA and its operating segments and is derived from its WACC. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by Company’s investors. The cost of debt is estimated based on the interest-bearing borrowings Coca-Cola FEMSA is obliged to service, which is equivalent to the cost of debt based on the conditions that a creditor in the market would consider. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based on publicly available market data.
Market participant assumptions are important because, not only do they include industry data for growth rates, management also assesses how the CGU’s position, relative to its competitors, might change over the forecasted period.
The key assumptions used for the
value-in-use
calculations are as follows:
 
 
•
 
Cash flows were projected based on actual operating results and the five-year business plan. Cash flows for a further five-year were forecasted maintaining the same stable growth and margins per country of the last year base. Coca-Cola FEMSA believes that this forecasted period is justified due to the
non-current
nature of the business and past experiences.
 
 
•
 
Cash flows after the first
ten-year
period were extrapolated using a perpetual growth rate equal to the expected annual population growth, in order to calculate the terminal recoverable amount.
 
 
•
 
A per
CGU-specific
WACC was applied as a hurdle rate to discount cash flows to get the recoverable amount of the units; the calculation assumes, size premium adjustments.
The key assumptions by CGU for impairment test as of December 31, 2019 were as follows:
 
CGU
  
Pre-tax WACC
 
 
Post-tax

WACC
 
 
Expected Annual
Long-Term Inflation

2020-2029
 
 
Expected Volume
Growth Rates
2020-2029
 
Mexico
  
 
7.3
% 
 
 
5.2
% 
 
 
3.5
% 
 
 
0.7
% 
Colombia
  
 
8.9
% 
 
 
6.2
% 
 
 
3.1
% 
 
 
4.0
% 
Costa Rica
  
 
13.8
% 
 
 
9.7
% 
 
 
2.2
% 
 
 
2.1
% 
Guatemala
  
 
9.1
% 
 
 
7.1
% 
 
 
4.0
% 
 
 
8.5
% 
Nicaragua
  
 
21.1
% 
 
 
12.4
% 
 
 
4.4
% 
 
 
3.0
% 
Panamá
  
 
8.5
% 
 
 
6.6
% 
 
 
2.0
% 
 
 
5.4
% 
Argentina
  
 
21.6
% 
 
 
14.8
% 
 
 
39.2
% 
 
 
3.7
% 
Brazil
  
 
9.3
% 
 
 
5.6
% 
 
 
3.6
% 
 
 
2.0
% 
Uruguay
  
 
9.4
% 
 
 
6.8
% 
 
 
7.4
% 
 
 
2.0
% 
The key assumptions by CGU for impairment test as of December 31, 2018 were as follows:
 
CGU
  
Pre-tax WACC
 
 
Post-tax

WACC
 
 
Expected Annual
Long-Term Inflation

2019-2028
 
 
Expected Volume
Growth Rates
2019-2028
 
Mexico
  
 
7.4
% 
 
 
5.3
% 
 
 
4.0
% 
 
 
1.4
% 
Colombia
  
 
7.8
% 
 
 
5.2
% 
 
 
3.1
% 
 
 
4.0
% 
Costa Rica
  
 
13.9
% 
 
 
9.2
% 
 
 
4.0
% 
 
 
1.6
% 
Guatemala
  
 
9.4
% 
 
 
7.5
% 
 
 
3.2
% 
 
 
7.3
% 
Nicaragua
  
 
21.2
% 
 
 
11.0
% 
 
 
6.2
% 
 
 
3.8
% 
Panama
  
 
9.2
% 
 
 
7.0
% 
 
 
2.4
% 
 
 
3.0
% 
Argentina
  
 
19.6
% 
 
 
11.3
% 
 
 
21.9
% 
 
 
2.7
% 
Brazil
  
 
10.7
% 
 
 
6.6
% 
 
 
3.8
% 
 
 
1.7
% 
 
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data). Coca-Cola FEMSA consistently applied its methodology to determine CGU specific WACC’s to perform its annual impairment testing.
During the year ended December 31, 2017 and because the economic and operational conditions worsened in Venezuela, Coca-Cola FEMSA has recognized an impairment of the distribution rights in such country for an amount of Ps 745, such charge has been recorded in other expenses line in the consolidated income statement.
Sensitivity to Changes in Assumptions
At December 31, 2019, Coca-Cola FEMSA performed an additional impairment sensitivity calculation, taking into account an adverse change in
post-tax
WACC, according to the country risk premium, using for each country the relative standard deviation between equity and sovereign bonds and an additional sensitivity to the volume of 100 basis points and concluded that no impairment would be recorded.
 
      
Change in Volume
    
CGU
  
Change in WACC
  
Growth CAGR
(1)
  
Effect on Valuation
 
Mexico
  
 
+0.4
% 
 
 
-1.0
% 
  Passes by 
4.9x
 
Colombia
  
 
+0.3
% 
 
 
-1.0
% 
  Passes by
4.7x
 
Costa Rica
  
 
+0.8
% 
 
 
-1.0
% 
  Passes by
3.4x
 
Guatemala
  
 
+0.4
% 
 
 
-1.0
% 
  Passes by 
38.5x
 
Nicaragua
  
 
+1.4
% 
 
 
-1.0
% 
  Passes by
1.1x
 
Panamá
  
 
+0.2
% 
 
 
-1.0
% 
  Passes by
9.7x
 
Argentina
  
 
+1.9
% 
 
 
-1.0
% 
  Passes by
13.9x
 
Brazil
  
 
+0.5
% 
 
 
-1.0
% 
  Passes by
1.6x
 
Uruguay
  
 
+0.3
% 
 
 
-1.0
% 
  Passes by
3x
 
 
(1)
Compound Annual Growth Rate (“CAGR”).
FEMSA Comercio
–
Proximity Division, FEMSA Comercio – Health Division and FEMSA Comercio – Fuel Division
Impairment Test for Cash-Generating Units Containing Goodwill
For the purpose of impairment testing, goodwill is allocated and monitored on an individual country basis by operating segment. The Company has integrated its cash generating units as follow: (i) FEMSA Comercio – Proximity Division is integrated as Mexico, and (ii) FEMSA Comercio – Health Division are integrated as Mexico, Chile, Colombia and Ecuador for each of them and (iii) FEMSA Comercio – Fuel Division includes only Mexico.
As of December 31, 2019 in FEMSA Comercio – Health Division there is a significant carrying amount of goodwill allocated in Chile and Colombia as a group of cash generating (South America) with a total carrying amount of Ps. 4,743.
The recoverable amounts are based on value in use. The value in use of CGUs is determined based on the method of discounted cash flows. The key assumptions used in projecting cash flows are: sales, expected annual long-term inflation, and the weighted average cost of capital (“WACC”) used to discount the projected cash flows. The cash flow forecasts could differ from the results obtained over time; however, the Company prepares its estimates based on the current situation of each of the CGUs or group of CGUs.
To determine the discount rate, the Company uses the WACC as determined for each of the cash generating units or group of the cash generating units in real terms and as described in following paragraphs.
The estimated discount rates to perform the IAS 36
“Impairment of assets”,
impairment test for each CGU or group of CGUs consider market participants’ assumptions. Market participants were selected taking into consideration the size, operations and characteristics of the businesses that are similar to those of FEMSA Comercio –Health Division.
The discount rates represent the current market assessment of the risks specific to each CGU or group of CGUs, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the opportunity cost to a market participant, considering the specific circumstances of the Company and its operating segments and is derived from its WACC. The WACC takes into account both debt and cost of equity. The cost of equity is derived from the expected return on investment by Company’s investors. The cost of debt is based on the interest-bearing borrowings the Company is obliged to service, which is equivalent to the cost of debt based on the conditions that a creditor would assess in the market. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based on publicly available market data.
Market participant assumptions are important because, not only do they include industry data for growth rates, management also assesses how the CGU’s position, relative to its competitors, might change over the forecasted period.
The key assumptions used for the
value-in-use
calculations are as follows:
 
 • 
Cash flows were projected based on actual operating results and the five-year business plan. The Company believes that this forecasted period is justified due to the
non-current
nature of the business and past experiences.
 
 • 
Cash flows projected based on actual operating results and five-year business plan were calculated using a perpetual growth rate equal to the expected annual population growth, in order to calculate the terminal recoverable amount.
 
 • 
A per
CGU-specific
Weighted Average Cost of Capital (“WACC”) was applied by FEMSA Comercio – Health Division as a hurdle rate to discount cash flows to get the recoverable amount of the units; the calculation assumes size premium adjustments.
The key assumptions by CGU for impairment test as of December 31, 2019 were as follows:
 
CGU
  
Pre-tax WACC
 
 
Post-tax

WACC
 
 
Expected Annual
Long-Term Inflation

2020-2029
 
 
Expected Volume
Growth Rates
2020-2029
 
South America (FEMSA Comercio – Health Division)
  
 
9.4
% 
 
 
6.6
% 
 
 
3.0
% 
 
 
0.3
% 
The key assumptions by CGU for impairment test as of December 31, 2018 were as follows:
 
CGU
  
Pre-tax WACC
 
 
Post-tax

WACC
 
 
Expected Annual
Long-Term Inflation

2019-2028
 
 
Expected Volume
Growth Rates
2019-2028
 
South America (FEMSA Comercio – Health Division)
  
 
9.0
% 
 
 
6.3
% 
 
 
3.0
% 
 
 
0.4
% 
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data). The Company consistently applied its methodology to determine CGU specific WACC’s to perform its annual impairment testing.
Sensitivity to Changes in Assumptions
At December 31, 2019, the Company performed an additional impairment sensitivity calculation, taking into account an adverse change in
post-tax
WACC, according to the country risk premium, using for each country the relative standard deviation between equity and sovereign bonds and a sensitivity analysis of sales that would be affected considering a contraction in economic conditions as a result of lower purchasing power of customers, which based on management estimation considered to be reasonably possible an effect of 100 basis points in the sale’s compound annual growth rate (“CAGR”), concluding that no impairment would be recognized.
 
      
Change in Sales
    
CGU
  
Change in WACC
  
Growth CAGR
 (1)
  
Effect on Valuation
 
FEMSA Comercio – Health Division (South America)
  
 
+0.2
% 
 
 
-0.5
% 
  
Passes by 1.34x
 
 
(1)
Compound Annual Growth Rate.