IBERSOL Annual Report 2018

ANNUAL REPORT 2018 b) Risk of franchise agreements In restaurants where it operates with international brands, the group enters into long-term franchise agreements: 20 years in the case of Burger King and 10 years in the case of Pizza Hut and KFC, which are renewable for another 10 years at the franchise’s option, provided certain obligations have been fulfilled. It has become practical for these contracts to be renewed. However, nothing obliges the franchisees to do so, so the risk of non-renewal may be verified. In these contracts it is normal to contract the payment of an “Initial Fee” at the beginning of each contract and a “Renewall Fee” at the end of the initial period, in addition to a royalty of marketing operations on the sales made. Periodically, development contracts are negotiated which guarantee the right to open new restaurants. At the moment a contract has been signed for the implementation of 80 KFC res- taurants in the period between May 2017 and May 2022. 3.3 ESTIMATED FAIR VALUE The fair value of financial instruments commercialised in active markets (such as publicly negotiated derivatives, securities for negotiation and available for sale) is determined based on the listed market prices on the consolidated statement of financial position date. The market price used for the group’s financial assets is the price received by the shareholders in the current market. The market price for finan- cial liabilities is the price to be paid in the current market. The nominal value of accounts receivable (minus impairment adjustments) and ac- counts payable is assumed to be as approximate to its fair value. The fair value of financial liabilities is estimated by updating future cash flows contracted at the cur- rent market interest rate that is available for similar financial instruments. 239