United Breweries Holdings Ltd Auditor Reports

To

The members of

UNITED BREWERIES (HOLDINGS) LIMITED.

1. Report on the Financial Statements

We have audited the accompanying stand-alone financial statements of UNITED BREWERIES (HOLDINGS) LIMITED (‘the Company’) which comprise the Balance Sheet as at 31st March 2016, the Statement of Profit and Loss and the Cash Flow Statement, and a summary of the significant accounting policies and other explanatory information for the year then ended.

2. Management’s Responsibility for the Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation and presentation of these stand-alone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting frauds and irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

3. Auditor’s Responsibility

Our responsibility is to express an opinion on these stand-alone financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. 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 the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the stand-alone financial statements.

4. Basis for qualified opinion

a. The company had extended corporate guarantees of Rs. 87,072 million in favour of lenders/lessors/creditors of Kingfisher Airlines Limited (KFA) an erstwhile subsidiary of the company (Refer note no. 31 to financial statements). The beneficiaries of such guarantees have invoked the guarantees and are pursuing recovery actions against the company. This may result in loss to the company (Refer note no. 31 to financial statements). No provision has been made in the accounts for such possible loss.

b. The company carries investments in certain subsidiaries. The carrying value of such investments is Rs. 1,472 million. There are significant declines in the carrying value of these investments. The company has not provided for such declines. (Refer note 33(h) to financial statements).

c. Certain subsidiaries owe to the company Rs. 754 million. Net-worths of these companies are eroded, impairing the recovery of such loans and advances. Company has not provided for the possible loss on this count. (Refer note 39 to financial statements).

d. The company has shown Rs. 358 million as due from a banker who has unilaterally encashed company’s deposits lying with it and appropriated the amount towards its claims against a group company. The possible loss on account of this development has not been recognised in the financial statements (Refer note 42 to financial statements).

e. An amount of Rs. 8,074 million is shown as dues from a contributory trust ("Trust") managed by a financial company which had sold the company’s investments that were pledged with it and had appropriated part of the sale proceeds against dues from KFA (Ref note no. 43 & 33(e)). Further, the said Trust still holds custody of 59,150,000 shares in KFA, belonging to the company (Ref note no. 33(c)). The company has petitioned the City Civil Court of Calcutta and High Court of Karnataka challenging the validity of the pledge and for rendering full accounts. Pending outcome of the petitions, the company has shown the above amounts as good and recoverable. Should the company fail to get the reliefs as sought, there would be losses. The company has not provided for any possible losses in this regard.

According to the management, it is not possible to estimate the losses if any and consequently quantify the amount of provisions required in the above cases.

Had the company estimated and provided for the losses as mentioned in paragraphs 4(a) to 4(e) above, the loss stated in the Statement of Profit and Loss would have been higher by such amount; the liabilities in the Balance Sheet would have been higher by the amount of provision with respect to item mentioned in paragraph 4(a) above; the carrying value of investments in the Balance Sheet would have been lower by the amount of provision with respect to item mentioned in paragraph 4(b) above; the amount of loans and advances in the Balance Sheet would have been lower by the amount of provision with respect to item mentioned in paragraph 4(c) above and the amount of other current assets in the Balance Sheet would have been lower by the amount of provisions with respect to items mentioned in paragraphs 4(d) and 4(e) above.

f. Winding up petitions filed against the Company have been admitted by the Honourable High Court of Karnataka and are being heard [Ref. note no. 44]; the Honourable High Court of Karnataka has restrained the Company from disposing of any of its assets [Ref. note no. 50.]; the Company is a defendant in recovery suits instituted by certain creditors/lenders for recovery of their dues of Rs. 62,033 million [Ref. note no. 37] (which is part of the amount mentioned at Sl No. 4(a) above); some of the lenders have recovered their dues by disposing of the securities pledged by the company.[Ref. note no. 37]. On the consideration that it shall defend legal cases successfully, the company has prepared its financial statements on going concern basis for the reasons stated in note no. 50. The appropriateness of preparation of financial statements on going concern basis is subject to the Company being able to successfully defend itself in the petitions/suits filed against it and obtaining substantial reliefs in the suits filed by it as mentioned in note no. 44.

g. The Company has not recognised in its financial statements, disputed liabilities amounting to Rs. 77,309 million (which is part of the amount mentioned at Sl No. 4(a) above) arising out of invocation of its corporate guarantees [Ref. note no. 31]. Had the company recognised the above, current liabilities in the Balance Sheet would have been higher, guarantees under contingent liabilities would have been lower and amounts recoverable under other current assets would have been higher, by Rs. 77,309 million.

5. Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the "Basis for Qualified Opinion" paragraphs above, the aforesaid stand-alone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March 2016, and its loss and its cash flows for the year ended on that date.

6. Emphasis of Matter

Attention is invited to the following:

a. A term deposit for Rs. 609 million with a banker, representing part of the sale proceeds of shares in United Spirits Limited in favour of Diageo group which had been kept deposited to comply with the direction of the Honourable High Court of Karnataka to the effect that the sale proceeds shall be kept invested in term deposits with banks, has been pre-closed by the bank by exercising its general lien and it has adjusted an amount of Rs. 494 million (a part of which is referred in paragraph 4(d)) and encumbered an amount of Rs. 115 million against the borrowings from one of the group companies which had been guaranteed by the Company [Ref note no. 42];

b. The ‘status quo’ with respect to the transaction of sale of 10,141,437 no. of shares in United Spirits Limited in favour of Diageo group, as ordered by the Honourable Supreme Court of India, continues;

c. The Company has written off an amount of Rs. 579 million due from an associate. [Ref. note no. 39];

d. The lenders of Kingfisher Airlines Limited have taken possession of the Company’s property in Goa to recover its dues [Ref. note no. 32(d)];

e. Note no. 48 regarding non-accrual of interest payable to the extent of Rs. 1904 million (out of that Rs. 634 million pertaining to earlier year) on account of the lender company’s shareholders not approving the agreement granting the loan.

7. Report on Other Legal and Regulatory Requirements

i. As required by the Companies (Auditor’s Report) Order, 2016 ("the Order"), issued by the Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure A, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

ii. As required by section 143(3) of the Act, we report that:

a. We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

b. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

c. The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account;

d. Except for the effects of the matters described in the Basis for Qualified Opinion paragraphs above, in our opinion, the aforesaid stand-alone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

e. The matters described in the Basis for Qualified opinion paragraphs above, in our opinion, may have an adverse effect on the functioning of the company;

f. On the basis of the written representations received from the directors as on 31st March 2016, and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March 2016, from being appointed as a director in terms of Section 164(2) of the Act;

g. We have issued a separate report on the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls. The said report can be found in "Annexure B" to this report.

h. With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note 44 to the financial statements;

ii. The company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses except for the matters specified in the Basis for Qualified Opinion paragraphs;

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

	For Vishnu Ram & Co.,
	Chartered Accountants
	S.Vishnumurthy
	Proprietor
Place: Bangalore	Membership No. 22715
Date: 31-08-2016	Firm Registration No.004742S

Annexure to the Independent Auditors Report

Re: United Breweries (Holdings) Limited

Referred to in paragraph 7(i) of our report of even date;

(i) (a) The company has maintained proper records showing full particulars including quantitative details and situation of its fixed assets.

(b) Most of the assets have been physically verified by the management during the year. Some of the assets have not been verified. However, there is a regular programme of physical verification whereunder, every asset gets verified atleast once every three years. In our opinion, such verification is reasonable having regard to the size of the company and the nature of its assets. Discrepancies noticed on verification during the year have been properly dealt with in the books of account.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company.

(ii) The physical verification of inventory has been conducted at reasonable intervals by the management. The discrepancies noticed on verification between the physical stocks and the book records have been properly dealt with in the books of account.

(iii) As explained to us, the company has not granted any loans, secured or unsecured during the year to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act, 2013. Therefore, the provisions of clause 3(iii)(a) to 3(iii)(c) of the Companies (Auditor’s Report) Order, 2016 are not applicable to the company.

(iv) According to the information and explanation given to us and based on our examination of the records of the company, the company has not given any loans, made any investments, provided any guarantee/security to any persons during the year. Therefore, the provisions of clause 3(iv) of the Companies (Auditor’s Report) Order, 2016 are not applicable to the company.

(v) In our opinion and according to the information and explanations given to us, the company has complied with the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 and other relevant provisions of the Companies Act and the rules framed there under. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in relation to the deposits accepted by the company.

(vi) In our opinion and according to the information and explanations given to us the provisions with regard to maintenance of cost records under section 148(1) of the Companies Act, 2013 are not applicable to the company.

(vii) (a) In our opinion and according to the information and explanations given to us, the company is generally regular in depositing with appropriate authorities undisputed statutory dues including dues in respect of provident fund, employees state insurance, income tax, sales tax, duty of customs, duty of excise, value added tax and other material statutory dues. However, there have been delays in depositing dues of service tax and tax deducted at source with the appropriate authorities.

According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees state insurance, income tax, sales tax, duty of customs, duty of excise, service tax, value added tax and other material statutory dues etc., were in arrears as at 31-3-2016 for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us, following is the list of dues on account of taxes, which have not been deposited on account of disputes.

Name of the Statute	Nature of dues	Disputed amount (Rs. in million)	Forum where dispute is pending
Income Tax Act, 1961	Income tax for the A.Y. 2007-08.	69.535	CIT (Appeals)
Income Tax Act, 1961	Income tax for the A.Y. 2008-09.	171.040	CIT (Appeals)
Income Tax Act, 1961	Income tax for the A.Y. 2010-11.	99.710	CIT (Appeals)
Income Tax Act, 1961	Income tax for the A.Y. 2011-12.	1,144.949	Income Tax Appellate Tribunal
Foreign Trade (Development & Regulation) Act, 1992	Penalty	5.000	High Court of Judicature, Madras

(viii) As per the information and explanations given to us, the company has defaulted in repayment of dues to a bank and a Non Banking Financial Company. The unpaid dues to the bank as at March 31, 2016 were Rs. 1,519 million and unpaid dues to the Non Banking Financial Company were Rs. 695.686 million. Out of this Rs. 17 million has been repaid to bank in April 2016. The company is in negotiation with the banker. The company has not issued any debentures.

(ix) The company has not raised any money by way of initial public offer or further public offer (including debt instruments) and term loans during the year. Therefore, the provisions of clause 3(ix) of the Companies (Auditor’s Report) Order, 2016 are not applicable to the company.

(x) According to the information and explanations given to us, no fraud by the company or on the company by its officers or employees has been noticed or reported during the course of our audit.

(xi) The company has not paid/provided any managerial remuneration during the year. Therefore, the provisions of clause 3(xi) of the Companies (Auditor’s Report) Order, 2016 are not applicable to the company.

(xii) In our opinion and according to the information and explanations given to us, the company is not a nidhi company. Therefore, the provisions of clause 3(xii) of the Companies (Auditor’s Report) Order, 2016 are not applicable to the company.

(xiii) According to the information and explanations given to us and based on our examination of the records of the company, transactions with the related parties are in compliance with sections 177 and 188 of the Act where applicable and details of such transactions have been disclosed in the financial statements as required by the applicable accounting standards.

(xiv) According to the information and explanation given to us and based on our examination of the records of the company, the company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

(xv) According to the information and explanation given to us and based on our examination of the records of the company, the company has not entered into non-cash transactions with directors or persons connected with him. Therefore, the provisions of clause 3(xv) of the Companies (Auditor’s Report) Order, 2016 are not applicable to the company.

(xvi) According to the information and explanation given to us and based on our examination of the records of the company, the company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

	For Vishnu Ram & Co.,
	Chartered Accountants
	S.Vishnumurthy
	Proprietor
Place: Bangalore	Membership No. 22715
Date: 31-08-2016	Firm Registration No.004742S

Annexure – B to the Auditor’s report

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of UNITED BREWERIES (HOLDINGS) LIMITED ("the Company") as of 31st March, 2016 in conjunction with our audit of the financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (‘ICAI’). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the "Guidance Note") and the Standards on Auditing, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness.

Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

	For Vishnu Ram & Co.,
	Chartered Accountants
	S.Vishnumurthy
	Proprietor
Place: Bangalore	Membership No. 22715
Date: 31-08-2016	Firm Registration No.004742S