General de Alquiler de Maquinaria, S.A.

Size: px

Start display at page:

Download "General de Alquiler de Maquinaria, S.A."

Elmer Matthews
5 years ago
Views:

1 General de Alquiler de Maquinaria, S.A. Explanatory report on certain accounting impacts included in the Company s Alternative Performance Measures in the consolidated directors' report for February 2018

2 Translation of a report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails. 26 February 2018 General de Alquiler de Maquinaria, S.A. Carretera Tiñana Km Granda, Asturias For the attention of Antonio Trelles Dear Sirs, In accordance with the engagement letter dated 13 February 2018, we present to you below the conclusions on the work performed for the explanation of the impact of certain operations, balances and transactions on the consolidated financial statements of the General de Alquiler de Maquinaria, S.A. and Subsidiaries Group ( GAM or the Group ) for These impacts were presented by the Group as part of the consolidated directors' report and, specifically, in the Alternative Performance Measures (APMs) section. 1. Background, scope and limitations of our work Background Based on the discussions we have held with you, the Group s activities include certain operations which impact on both the consolidated statement of profit or loss and the consolidated balance sheet, but which require certain additional explanations given their particular nature (specifically, arising from their conversion, or non-conversion, to cash for amounts differing from those recognised at year-end). Scope The basic objective of our work consisted of reviewing and explaining (descriptive summary) the impact on the Group s consolidated financial statements for 2017 of the following impacts taken into account in the Alternative Performance Measures: Impact of the exchange losses recognised in profit or loss arising from the recognition at the year-end exchange rate of the balances at subsidiaries denominated in euros. Impact of the measurement of the Group s derivative financial instruments on profit or loss and equity. Impact of the debt (Tranche C) with respect to: o o Its recognition for accounting purposes, describing its conversion characteristics. The impact on profit or loss of the interest accrued thereon, which can be added to the principal of the debt. Comments on the (non-)deductibility thereof for income tax purposes.

3 Limitations Our work covers accounting matters only (description of the impact on profit or loss and equity), as this is our area of expertise and at no time does it refer to the legal issues or consequences thereof. The scope of our engagement does not consider the performance of an audit or any other kind of review of the financial information which is included or attached to our work and, therefore, we do not express an opinion or any conclusions on the aforementioned financial information. In this connection, we expressly indicate to you that reviewing or questioning the accounting treatment of the matters indicated above does not form part of the scope of this engagement as a specific point of our analysis (or, by extension, of any other). Group management is responsible for the preparation and content of the aforementioned information. Accordingly, management is responsible for the proper recognition of transactions in the accounting records, for maintaining an adequate internal control structure which permits the preparation of reliable financial statements, for determining and applying accounting policies and standards and for identifying laws and regulations applicable to the Group s activity and ensuring compliance therewith. The addressees of the report should reach their own conclusions in the light of the objective findings disclosed and are responsible for the sufficiency of the procedures performed for the purposes pursued. Consequently, we do not assume any liability with respect to the sufficiency of the agreed-upon procedures. 2. Work performed Our engagement consisted of the following: a) Identification of the figures used in the calculations presented in Appendix I Review of whether the consolidated balance sheets as at 31 December 2017 and 2016 and the consolidated statement of profit or loss and consolidated statement of cash flows for the years then ended prepared by the Board of Directors coincide with those presented in Appendix I. Identification of the line items of those financial statements affected by the balances and transactions described in the previous section and reconciliation with the Group s consolidated financial statements for 2017 and Breakdown of those line items, separating by subtotals and identifying the amounts corresponding to the balances and transactions described in the previous section with the Group s accounting records. No differences were identified between the information included in Appendix I and the information contained in the Group s consolidated financial statements, either in the consolidated statement of profit or loss, consolidated balance sheet or the notes to the consolidated financial statements (mainly Notes 9 and 25). 2

4 b) Explanation of the adjustments included in Appendix I Impact of the unrealised exchange gains and losses recognised in profit or loss arising from recognition at the year-end exchange rate of the balances at subsidiaries denominated in euros. The Company has receivables from and payables to third parties denominated in euros, as well as between various Group companies, certain of which prepare their financial statements in other currencies. Consequently, exchange differences arise when financial statements of those companies are prepared in currencies other than the euro, which the Group recognises in profit or loss under Exchange Differences. These exchange differences are also included in the consolidated financial statements. The main exchange differences were generated as a result of balances held with the subsidiaries in Panama, Colombia, Brazil and Mexico. In this connection, the balances between Group companies are settled at specific times based on the generation and availability of cash at these companies and, accordingly, the exchange rates used at year-end may differ significantly from the exchange rates existing upon transfer of the cash and settlement of the balance. Management of the GAM Group decided to adjust the financial information presented in Appendix I, eliminating the effect of the exchange differences not yet settled at the end of each year, assuming that such an impact occurs only on settlement of the transaction and when there is cash flow. At that moment, the exchange rate existing on the day of the transaction is used, which can differ (being either higher or lower) from the year-end exchange rate. This impact amounted to an expense of EUR 3,781 thousand in 2017 (2016: income of EUR 706 thousand), as presented in Appendix I. The exchange differences settled in 2017 represented income of EUR 250 thousand (2016: an expense of EUR 188 thousand), and arose basically as a result of a settlement in 2017 at a better exchange rate than that at which the transactions were recognised in the previous year. These transactions did give rise to an actual cash outflow in Had these transactions not been considered in the adjustment presented in Appendix I, the gains in 2017 would have been EUR 621 thousand (2016: losses of EUR 7,699 thousand). The information relating to this point can be found in Notes 2.2-a, 2.4. and 25 to the Group s consolidated financial statements for

5 Impact of the measurement of the Group s derivative financial instruments and warrants on profit or loss. At 2017 year-end, as a result of the agreement entered into in December of that year, the Group held a derivative financial instrument relating to the transaction involving a preestablished number of treasury shares performed with the non-controlling interest GAM Alquiler Perú, S.A.C. This derivative was measured at fair value and its impact was recognised in the consolidated statement of profit or loss (embedded derivative at fair value through profit or loss). Since the term for settling the derivative runs until 30 March 2019, its final value -and the corresponding cash outflow- will depend on the measurement of the Group s shares when the exchange is performed. Also, at 2017 year-end the Group had issued a series of warrants relating to Tranche C1 of the refinanced debt, which are also measured at fair value through profit or loss. The ordinary settlement thereof is envisaged to be the moment that Tranche C matures (2020) and the final value thereof will depend, therefore, on their measurement at that moment. Group management decided to adjust the financial information presented in Appendix I, eliminating the effect of the measurement of these financial instruments (derivatives and warrants) in the same manner as the adjustment made for the unrealised exchange differences. This impact amounted to income of EUR 1,408 thousand (derivative) and EUR 331 thousand (warrants) in 2017, as presented in Appendix I (EUR 1,739 thousand in total). The information relating to this point can be found in Notes 3.2-b, 3.2-c, 9 and 25 to the Group s consolidated financial statements for Impact of the convertible debt (Tranche C) on the consolidated balance sheet and the consolidated statement of profit or loss The Group recognised EUR 70,704 thousand (31 December 2016: EUR 65,629 thousand) under Non-Current Liabilities in its consolidated balance sheet as at 31 December 2017 in relation to Tranche C of the debt convertible by the banks into newly-issued Group shares with the same dividend and voting rights as the current shares outstanding. This debt, together with other bank borrowings and payables to non-current asset suppliers, matures in 2021, totalling EUR 156,430 thousand. The borrowing costs on this debt are set at 8% and are added to the principal amount annually, and can only be paid on maturity (in 2021). Therefore, they represent borrowing costs that do not give rise to a cash outflow in The total amount recognised in this connection in 2017 was EUR 6,325 thousand (2016: EUR 5,990 thousand). This amount also included a change in the fair value of the debt, which does not give rise to a cash outflow either. Management of the GAM Group decided to make two adjustments to the financial information presented in Appendix I in relation to this debt: 4

6 Addition to equity of the outstanding balance (principal amount plus interest accrued to date) of the debt accumulated at year-end, as it considered that this debt would not foreseeably give rise to a cash outflow on maturity in This impact amounted to EUR 70,704 thousand at 2017 year-end (2016 year-end: EUR 65,529 thousand), as presented in Appendix I. In this connection, it should be noted that a fair value adjustment of EUR 3,456 thousand is included as part of those EUR 70,704 thousand at 31 December This amount, which will be recognised in profit or loss annually until the debt matures, would not form part of the amount convertible to equity. Were this effect considered, adjusted equity would amount to EUR 57,342 thousand (compared with the EUR 60,798 thousand presented). Elimination of the impact on profit or loss for the year of the borrowing costs accrued in the year by the 8% interest, considering them to also represent an accounting expense that does not give rise to a cash outflow. This impact amounted to EUR 6,325 thousand in 2017 (2016: EUR 5,990 thousand), as presented in Appendix I. The information relating to this point can be found in Notes 2.17, 9, 18 and 25 to the Group s consolidated financial statements for Tax effect of the adjustments made Group management did not consider any tax effect in the adjustments presented, based on the following considerations: Convertible debt (Tranche C) With regard to the adjustments for borrowing costs, the Group considered the expense accrued to be non-deductible in its income tax return and, accordingly, the reversal thereof would represent non-reportable revenue, with no tax effect (Art. 15.a) of the Spanish Income Tax Law). In relation to the potential impact of the conversion of debt to equity, although it should be subject to specific analysis in due course, the Group considers that the provisions of Royal Decree-Law 4/2014, of 7 March, could be applicable, which establishes that, from 2014 onwards, in conversions of debt to equity, the capital increase performed by the debtor must be measured for accounting purposes at the amount of increase from a corporate perspective (amount indicated in the public deed), without considering its carrying amount for these purposes. Therefore, it is understood that the tax effect should be null. Unrealised exchange differences, derivatives and warrants Although they would have a tax effect (due to being considered as a deductible expense and reportable revenue, in each case), given the existence of significant amounts of tax loss and tax credit carryforwards at the Group (see Note 19 to the Group s consolidated financial statements for 2017), the impact should be immaterial. 5

7 c) Verification of the clerical accuracy of the adjustments included in Appendix I Verification of whether the arithmetical calculations used to generate the adjusted information (adjusted profit or loss and adjusted equity) included are correct. No misstatements in the arithmetic calculations presented in Appendix I were identified. Deloitte Financial Advisory, S.L. Javier Giral Gracia 6

8 Consolidated financial statements (in thousands of euros) Profit or loss Change Assets Equity and liabilities Revenue % Non-current assets Equity Other income Goodwill Share capital Total revenue % Other intangible assets Share premium Procurements (24.255) (18.188) Property, plant and equipment Treasury shares (259) (7.390) Staff costs (34.612) (34.638) Derivative financial instruments Accumulated losses ( ) (93.048) Depreciation and amortisation charge (23.854) (23.247) Financial assets Equity attributable to the parent (10.462) (8.725) Other operating expenses (35.122) (38.226) Deferred tax assets Non-controlling interests Profit (Loss) from operations (1.524) 475% Total non-current assets Total equity (9.906) (8.079) Interest and other finance income Finance income - derivatives and warrants (2) Current assets Non-current liabilities Contractual obligation/warrant Inventories Debt instruments and other marketable securities Finance income - unrealised exchange differences Trade and other receivables Provisions Unrealised exchange differences Current income tax assets Loans and other bank borrowings Realised exchange differences (188) Other current assets Convertible debt - Tranche C Total finance income Cash and cash equivalents Other non-current payables Issue of debt instruments (22) (55) Total current assets Derivative financial instruments Convertible debt (1) (6.325) (5.990) TOTAL ASSETS Deferred tax liabilities Payables, discounting and loans (4.289) (4.268) Total non-current liabilities Finance costs - exchange differences (3.531) - Unrealised exchange differences (3.781) - Current liabilities Realised exchange differences Loans and other short-term borrowings Other finance costs (317) (368) Trade and other payables Total finance costs (14.484) (10.681) Current income tax liabilities Financial loss (12.638) (8.265) Total current liabilities Loss before tax (6.922) (9.789) 29% TOTAL EQUITY AND LIABILITIES Income tax (858) (1.295) Net loss (7.780) (11.084) 30% Profit (Loss) attributable to non-controlling interests (34) 60 Loss attributable to shareholders of the Parent (7.746) (11.144) 30% Recurring EBITDA (as described in the APMs) % Pro forma financial statements (in thousands of euros) Pro forma net profit (loss) Chang Pro forma equity Change Net profit (7.746) (11.144) 30% Total equity (9.906) (8.079) -23% Finance costs - convertible debt WITH THE ADJUSTMENTS DETAILED, IN 2017 Adjustment - Tranche C Finance costs - unrealised exchange differences (706) THE COMPANY WOULD HAVE GENERATED A Total adjusted equity % Finance income - unrealised exchange differences (250) 188 Finance income - derivatives and warrants (1.739) (55) PROFIT AND HAVE POSITIVE EQUITY Finance income - contractual obligations and warrants - (1.784) Adjusted net profit (loss) 371 (7.511) 105%

Acerinox, S.A. and Subsidiaries

Acerinox, S.A. and Subsidiaries Consolidated Annual Accounts 31 December 2016 Consolidated Directors' Report 2016 (With Auditors Report Thereon) (Free translation from the original in Spanish. In the event