Electronic System S.A. Financial statements as of and for the year ended December 31, 2017

Transcription

1 Financial statements as of and for the year ended December 31, 2017

2 BALANCE SHEETS AS OF DECEMBER 31, 2017 (Presented in comparative form with the year ended December 31, 2016) (Free translation into English of the original prepared by the Company in Spanish) Notes ASSETS Non-current assets Property, plant and equipment 4 167,388, ,071,224 Investments 5 237,715, ,800,497 Deferred income tax asset 17 36,336,018 48,078,205 Other receivables 6 882, ,077 Receivables with related parties 8 289,441,928 - Total non-current assets 731,764, ,703,003 Current assets Inventories 7 3,022,227,064 1,853,987,065 Other receivables 6 662,584, ,068,237 Receivables with related parties 8 518,931, ,423,838 Trade accounts receivable 9 4,525,480,077 2,159,633,164 Investments 5 43,148,643 26,000,002 Cash and cash equivalents 61,376,352 35,408,678 Total Current Assets 8,833,748,992 5,088,520,984 Total Assets 9,565,513,513 5,807,223,987 SHAREHOLDERS EQUITY AND LIABILITIES Capital and reserves Capital stock 10 17,986,927 17,986,927 Reserves 11,1 1,752,516, ,318,899 Cash flow hedging reserve 11,3 50,527,000 (27,884,000) Retained earnings 11,2 1,764,446,540 1,966,197,381 Total Shareholders Equity 3,585,476,747 2,737,619,207 LIABILITIES Non-current Liabilities Loans ,750,845 - Provisions 14 8,244,681 2,866,653 Total Non-current Liabilities 751,995,526 2,866,653 Current Liabilities Accounts payable 12 4,807,870, ,290,107 Other related parties payable 8-548,407,339 Loans ,024,557 1,421,094,089 Salaries and social security payable 123,369,681 43,722,546 Taxes payable 16 54,382,622 27,794,097 Other liabilities 15 26,393, ,429,949 Total Current Liabilities 5,228,041,240 3,066,738,127 Total Liabilities 5,980,036,766 3,069,604,780 Total Shareholders Equity and Total liabilities 9,565,513,513 5,807,223,987 The accompanying notes 1 through 30 are an integral part of these consolidated financial statements - 1 -

3 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 (Presented in comparative form with the year ended December 31, 2016) (Free translation into English of the original prepared by the Company in Spanish) Notes Revenues 18 11,974,380,127 8,192,000,915 Cost of sales 20 (9,756,860,318) (5,641,289,764) Gross profit 2,217,519,809 2,550,711,151 OPERATING INCOME (EXPENSES) Selling expenses 19,2 (146,476,382) (113,462,360) Administrative expenses 19,2 (214,948,718) (173,742,214) Investment results 21 58,920,267 75,352,306 Other operating expenses, net 22 (3,579,760) (2,374,176) Income before financial results 1,911,435,216 2,336,484,707 FINANCIAL RESULTS Exchange rate differences 23 (116,675,067) (215,807,147) Financial income ,040, ,227,559 Financial costs 23 (169,615,387) (174,454,316) Profit before tax 1,910,185,601 2,299,450,803 INCOME TAX EXPENSE Current 17 (128,664,262) (105,087,506) Deferred 17 (17,074,799) 9,059,353 NET INCOME 1,764,446,540 2,203,422,650 OTHER COMPREHENSIVE INCOME Cash flow hedges 78,411,000 (342,458,509) Total other comprehensive income 78,411,000 (342,458,509) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,842,857,540 1,860,964,141 The accompanying notes 1 through 30 are an integral part of these financial statements

4 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEAR ENDED DECEMBER 31, 2017 (Free translation into English of the original prepared by the Company in Spanish) Complementary capital accounts Reserved earnings Capital stock Issuance premium Adjustment to capital (1) Legal reserve Special reserve Retained earnings Reserve for hedging transactions Total Balance as of December 31, ,500, ,486,367 1,943, ,375,477 1,966,197,381 (27,884,000 ) 2,737,619,207 Decision made by the Regular Shareholders Meeting held on April 6, Appropriation to special reserve 2,203,422,650 (2,203,422,650) - - Dividends distribution in cash (240,000,000) (240,000,000) Decision made by the Regular and Special Shareholders Meeting held on June 28, Appropriation to legal reserve 1,653,963 (1,653,963) - - Dividends distribution in cash (350,000,000) (350,000,000) Regular Shareholders Meeting held on August 16, Dividends distribution in cash (405,000,000) (405,000,000) Decision made by the Regular Shareholders Meeting held on September 29, 2017: - Loss absorption following adoption of IFRS (237,225,269) 237,225,269 - Cash flow hedging reserve 78,411,000 78,411,000 Net income 1,764,446,540 1,764,446,540 Balance as of December 31, ,500, ,486,367 3,597,385 1,748,918,895 1,764,446,540 50,527,000 3,585,476,747 (1) Corresponds to the difference between the capital adjusted for inflation and its historical value, according to the Argentine Commercial Corporations Law N 19,550 The accompanying notes 1 through 30 are an integral part of these financial statements

5 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEAR ENDED DECEMBER 31, 2016 (Free translation into English of the original prepared by the Company in Spanish) Capital stock Complementary capital accounts Issuance premium Adjustment to capital (1) Reserved earnings Legal reserve Special reserve Retained earnings Reserve for hedging transactions Total Balance as of December 31, ,500, ,486,367 1,943, ,921,895 1,191,228, ,574,509 1,676,655,066 Decision made by the Shareholders Meeting held on March 21, Special reserve increase 1,428,453,582 (1,428,453,582) - Decision made by the Shareholders Meeting held on August 16, Cash dividends (800,000,000) (800,000,000) Other comprehensive income (342,458,509) (342,458,509) Net income 2,203,422,650 2,203,422,650 Balance as of December 31, ,500, ,486,367 1,943, ,375,477 1,966,197,381 (27,884,000 ) 2,737,619,207 (2) Corresponds to the difference between the capital adjusted for inflation and its historical value, according to the Argentine Commercial Corporations Law N 19,550 The accompanying notes 1 through 30 are an integral part of these financial statements

6 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 (Presented in comparative form with the year ended December 31, 2016) (Free translation into English of the original prepared by the Company in Spanish) Notes CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year 1,764,446,540 2,203,422,650 Income tax 145,739,061 96,028,153 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation of property, plant and equipment 41,513,742 33,558,225 Results on equity investments (58,920,267) (75,352,306) Withdrawal of other investments 2,505,541 - (Use) Increase in provisions 14,963,436 (2,397,319) Interests (115,425,452) (178,773,243) Exchange rate differences 116,675, ,807,147 Disposal of property, plant and equipment 461,942 18,697,097 Changes in operating assets and liabilities: Other receivables 28,767,536 (860,117,595) Inventories (1,110,844,041) (358,692,341) Other related parties receivables (231,245,168) 258,161,887 Trade accounts receivable (1,811,495,749) (37,626,636) Other liabilities (147,036,197) 107,908,968 Accounts payable 3,402,539,735 (2,777,513,199) Other related parties payable (18,500,000) 8,693,718 Salaries and social security taxes payable 79,645,831 (31,835,869) Taxes payable 26,588,525 (50,124,647) Provisions (66,981,366) (11,203,530) Net cash and cash equivalents provided by (used in) operating activities 2,063,398,716 (1,441,358,840) CASH FLOWS FROM INVESTING ACTIVITIES Dividends Collected 14,045,374 - Contribution Guarantee Trust - (241,840,042) Acquisition of property, plant and equipment (36,293,059) (100,462,690) Net cash and cash equivalents used in investing activities (22,247,685) (342,302,732) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (1,534,157,339) (260,842,661) New loans 1,248,342,703 3,218,815,098 Interest paid (216,468,157) (174,454,316) Interest collected 285,040, ,206,766 Repayment of loans (1,780,792,762) (2,089,342,718) Net cash and cash equivalents (used in) provided by financing activities (1,998,034,716) 1,047,382,169 Net increase (decrease) in cash and cash equivalents 43,116,315 (736,279,403) Cash and cash equivalents at beginning of year 25 61,408, ,688,083 Cash and cash equivalents at end of year ,524,995 61,408,680 The accompanying notes 1 through 30 are an integral part of these financial statements

7 NOTES TO THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2017 (Presented in comparative form with the year ended December 31, 2016) (Free translation into English of the original prepared by the Company in Spanish) (in pesos) 1. GENERAL INFORMATION Electronic System S.A. ( Electronic System or the Company ) is a corporation registered in Argentina on April 16., 1991 in accordance with the provisions of Business Companies Act. The Company is set to expire in 99 years, and it was registered with the Inspección General de Justicia (Corporate Inspection Bureau) on April 23, 1991 under number 2032, Book 109, Volume A Corporations. Pursuant to section 3 of its bylaws, its corporate purpose includes manufacturing, assemblying, technical service marketing, imports and exports of any type of manufactured products including, but not limited to, any type of food and / or grains or seafood, their derivatives and those arising from industrialization or fractionation of the products, electric products, electronic and household appliances, telephones and computing equipment. As of December 31, 2017, and following a series of share transfers, the capital stock of the Company is composed of 7,500,000 nominative, non-endorseable shares, 8% owned by Rubén Cherñajovsky, 2% owned by León Gabriel Friedmann and the remaining 90% is held by Lucia Cherñajovsky, María Cherñajovsky, Nicolás Benjamín Cherñajovsky and Florencia Cherñajovsky, divided equally among them. The last four mentioned holders have given the usufruct rights and their political rights to Rubén Cherñajovsky, for their total belongings. Electronic System, sells in Argentina a broad range of products, manufacturing such products in its factory and others in its related company Newsan S.A. (Hereinafter referred to as "Newsan" or "Related Company") located in Ushuaia, Province of Tierra del Fuego, at its plant located in the city of Campana, Province of Buenos Aires and the remaining corresponds to imported products. In addition, the Company and Newsan manufacture under its own and licensed brands such as Atma, Noblex, Philco, Siam. Also, both Companies manufacture under third party brands based on industrial agreements with international Companies such as Motorola, Huawei, LG, Alcatel, Karcher and Lenovo. From 2016, the food exports segment, mainly fish and peanuts, became relevant. On December 22, 2015, the Newsan shareholder s meeting, decided to approve a business restructuring among Newsan and Noblex Argentina S.A (Hereinafter referred to as Noblex or "Related Company") and Electronic System. In recent years, Newsan, Noblex Argentina S.A. and Electronic System S.A., had been engaged in manufacturing and selling electronic products. Particularly in the last four years, Newsan, Noblex and Electronic System (the Companies ) had been significantly increasing their businesses, both in terms of volume and diversification of operations. In order to optimize the administrative and financial structures of each of these companies, Newsan would be focused on manufacturing TVs, tablets, microwave ovens, set- top boxes, notebooks, monitors, cameras, video cameras and air conditioning units, while Electronic System would be focused on manufacturing cell phones and gadgets. On the other hand, Noblex would be engaged in developing the new businesses and strategic opportunities, while also maintaining the projects granted under Law 19,640. This proposal was approved by the Federal Department of Industry - the enforcement authority of Law No. 19,640 with the projects having been adjusted as described above to enlarge the previously authorized production capacities, so that each company could go ahead with the manufacturing of the abovementioned products

8 On January 8, 2016, the enforcement authority extended the benefits under the industry promotion regime in favor of Noblex to manufacture cell phones until March 31, Noblex also intended to apply for an additional three-month extension, which would involve completing the necessary purchases to meet commitments already undertaken, which finally did not occur. The shareholders also decided to transfer personnel and certain movable, real and intangible property allocated to the production and manufacturing of the above-described products in order to complete the business restructuring referred to in the above paragraph. In January 2016, Noblex transferred to Electronic System the proceeds from the financial derivatives used to hedge purchases denominated in foreign currency originally projected by Noblex but finally completed by Electronic System, as a result of the reallocation of businesses referred to above. During the year 2016, personnel and certain movable property affected to the production and manufacture of the detailed products were transferred. 2. BASIS OF PREPARATION 2.1 Application of International Financial Reporting Standards (IFRS) The financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) as issued by Technical Resolution N 26 of the F.A.C.P.C.E. (and amendments) and by the Securities Exchange National Commission (Comisión Nacional de Valores - CNV ). The figures and other information for the fiscal year ended December 31, 2016 are an integral part of these financial statements and are intended to be read only in relation to those financial statements. The financial statements have been prepared on a historic cost basis, except for the revaluation of certain non-current assets and financial instruments. In general, the historic cost is calculated based on the fair value of the consideration paid in exchange for those assets. The principal accounting policies are described below. Information attached is stated in Pesos ($), Argentine s legal currency, prepared on the basis of the Company s accounting records. The preparation of financial information, which is a responsibility of the Board of Directors, requires that the Board makes accounting estimates and use their judgment in applying the accounting standards. The more complex areas which frequently require the use of judgment, or those where assumptions or estimates are significant are detailed in Note 3 on accounting estimates and judgments. These separate financial statements have been approved by the Board of Directors in the meeting held on March 7,

9 2.1.1 Inflation IAS 29 Financial reporting in hyperinflationary economies, requires the financial statements of an entity whose functional currency belongs to a hyperinflationary economy to be stated in terms of the measuring current unit at the end of the fiscal year. For such purpose, in general, inflation is to be computed in non-monetary items from the acquisition or revaluation date, as applicable. The standard lists a set of quantitative and qualitative factors to be taken into account in order to determine whether an economy is to be considered hyperinflationary. Considering inflation s decreasing trend, the absence of qualitative factors that may lead to a certain conclusion, and the anomalies detected in information about inflation published by INDEC, the Company s Board of Directors has concluded there is no sufficient evidence to consider Argentina as a country having a hyperinflationary economy as of December 2017, according to guidelines established by IAS 29. Therefore, restatement principles established in the mentioned standard have not been applied in this fiscal year. Over the last years, certain macroeconomic variables affecting Company s business, such as payroll costs, the main raw materials and inputs prices, borrowing and exchange rates have experienced significant changes. In case that the restatement of the financial statements becomes applicable, the corresponding adjustment should be resumed, and calculated from the last date the Company had restated its financial statements in order to reflect inflation effects, as established by applicable regulation. Both circumstances should be taken into consideration by these financial statements users Standards and interpretations not yet adopted The Company did not adopt the IFRS, interpretations and amendments to the IFRS that are detailed below, which were issued, but to date have not been adopted, given that their application is not required at the close of the fiscal year ended December 31, 2017: Standard Denomination IFRS 9 Financial instruments 1 IFRS 15 Revenue from contracts with customers 1 IFRS 16 Leases 2 IFRS 17 Insurance Contracts 3 IFRIC 22 Foreign currency transactions and advance consideration 1 IFRIC 23 Uncertainty over income tax treatments 1 Changes to IAS 40 Investment Properties 1 Annual changes to IFRS (annual cycle ) Miscellaneous 1 Changes to IFRS 9 Financial Instruments 2 Changes to IAS 28 Investments in associates and joint ventures Annual changes to IFRS (annual cycle ) Miscellaneous 2 1 Changes applicable for annual periods beginning on January 1, Changes applicable for annual periods beginning on January 1, Changes applicable for annual periods beginning on January 1,

10 IFRS 9 Financial Instruments, issued in July 2014, replaced IAS 39 Financial Instruments - Recognition and Measurement. The new standard includes requirements for the classification, measurement and write-off of financial assets and liabilities, a new expected impairment loss model and a substantially modified hedge accounting model. The 2014 version of IFRS 9 was issued as a complete standard and replaces all earlier versions. IFRS 9 is applicable for annual periods beginning on or after January 1, Earlier application is permitted. The Board of Directors evaluated its effects and anticipated that this standard, that will be adopted by the Company in its financial statements for the fiscal year beginning on January 1, 2018, won t have a meaningful impact on the financial statements. IFRS 15 will replace IAS 11 and IAS 18, and also any interpretations related thereto (IFRIC 13, IFRIC 15, IFRIC 18 and SIC 31). The basic principle under this standard is that entities will recognize any revenues from a transfer of assets or provision of services to customers for amounts that reflect the consideration to which the entity expects to be entitled in exchange for those assets or services. The new criteria may modify the assets that are classified together or separately for revenue recognition purposes. The new standard provides a five-step model framework that will be applied to all the contracts with customers, going from the identification of the contract(s) with a customer and the performance obligations stipulated thereunder, determination of the transaction price, allocation of the transaction price to the performance obligations stipulated in the contract, and the recognition of revenue when (or as) the entity satisfies a performance obligation. IFRS 15 will be in effect for the fiscal year beginning on or after January 1, 2018, early adoption being permitted. The Board of Directors evaluated its effects and anticipated that this standard, that will be adopted by the Company in its financial statements for the fiscal year beginning on January 1, 2018, won t have a meaningful impact on the financial statements. IFRS 16 issued in January 2016 states how issuers recognize, measure and disclose the leases in the Financial Statements. The rule takes most leases in the accounts of tenants to a single model, eliminating the distinction between operating and finance leases. Accounting landlords, however, remains virtually unchanged, preserving the distinction between operating and finance leases. IFRS 16 will take effect from the year beginning on January 1, 2019 and may be adopted earlier. However, the Company cannot adopt IFRS 16 before adopting IFRS 15, "Revenue from contracts with customers". The Board of Directors has to evaluate the effects of IFRIC 22 and anticipate that it will be adopted in the Company s Financial Statements for the year beginning on January 1, IFRS 17, which supersedes IFRS 4, provides the principles for recognition, measurement and presentation of insurance contracts. IFRS 17 seeks to ensure that an entity should provide relevant information on said contracts. Such information is used by financial statement users to assess the effects of insurance contracts on the entity s financial position, income and cash flow

11 IFRS 17 is effective from the fiscal year beginning January 1, 2021 and may be applied earlier if both IFRS 15 and IFRS 9 have also been applied. The Board has to evaluate the effects thereof and expects that it will be adopted in the Company s financial statements in the business year beginning January 1, The IFRIC 22 (Foreign currency transactions and advance payments) clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency when the entity recognizes a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. IFRIC 22 is applicable for annual periods beginning on or after January 1, Earlier application is permitted. The Board of Directors has evaluated that these amendments that will be adopted in the Company s Financial Statements for the year beginning on January 1, 2018, won t have a meaningful impact on the financial statements. IFRIC 23 (Uncertainty over income tax treatments) clarifies the accounting of uncertainties over income tax in the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. An entity should consider whether it is likely that the tax authority may accept a tax treatment or set of tax treatments that the entity is using or intends to use for filing the income tax return. IFRIC 23 is effective for annual reporting periods beginning on or after January 1, Earlier application is permitted. The Board of Directors has to evaluate the effects of IFRIC 22 and anticipate that it will be adopted in the Company s Financial Statements for the year beginning on January 1, The amendments to IAS 40 (Investment Property) are: a) Paragraph 57 has been amended to state that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management s intentions for the use of a property by itself does not constitute evidence of a change in use. b) The list of evidence in paragraph 57(a) (d) was designated as non-exhaustive list of examples instead of the previous exhaustive list. The amendments to IAS 40 are effective for periods beginning on or after 1 January Earlier application is permitted. The Board of Directors has evaluated that these amendments that will be adopted in the Company s Financial Statements for the year beginning on January 1, 2018, won t have a meaningful impact on the financial statements. Annual Improvements to IFRS (cycle ) introduce amendments to the following rules: IFRS 1 (First-time Adoption of IFRS) (the short-term exemptions set forth in paragraphs E3-E7 were eliminated for they have already served their purpose); IAS 28 (Investments in Associates and Joint Ventures), clarifies that the choice to measure investments in associates or joint ventures at fair value through profit or loss when held by an entity that is a venture capital organization or other type of qualified entity, is available for each investment in an associate or a joint venture, upon initial recognition

12 Amendments to IFRS 1 and IAS 28 are effective for periods beginning on January 1, The Board of Directors evaluated the effects and anticipated, that will be adopted by the Company in its financial statements for the fiscal year beginning on January 1, 2018, won t have a meaningful impact on the financial statements. The changes made to IFRS 9 (Financial instruments) allow financial assets with a prepayment option that may lead to the compensation received by the option holder due to the early termination being measured at the amortized cost upon meeting certain criteria and clarifications in the accountability of changes or financial debt swaps measured at the amortized cost which do not result in a reduction of the financial debt. Amendments to IFRS 9 are effective for the annual fiscal year commencing on January 1, 2019, although it may be applied earlier. The Board of Directors has to evaluate the effects of them and anticipate that it will be adopted in the Company s Financial Statements for the year beginning on January 1, Amendments to IAS 28 (Investments in associates and joint ventures) clarify that IFRS 9, including its impairment requirements, apply to interests in associates and joint ventures that form part of the net investment in such entities and are not valued under the equity method. Amendments to IAS 28 are effective for the annual fiscal year commencing on January 1, 2019, although it may be applied earlier. The Board of Directors is required to assess the effects of such standard and expects to adopt it in the Company s financial statements for the fiscal year commencing on January 1, The annual improvements to IFRS ( cycle) include changes in the following standards: IFRS 3 (Business combinations) and IFRS 11 (Joint arrangements) (clarifying the accountability where an entity assumes control of a business that is a joint arrangement); IAS 12 (Income tax) explains that the implications of the income tax on dividends are recognized under losses or profits, and IAS 33 (Cost of loans) explains the treatment for specific loans once the related asset is ready for use or sale. Changes become effective in the fiscal year beginning January 1, The Board has to assess the effects thereof and expects they will be adopted in the Company s financial statements in the business year beginning January 1,

13 2.2 Sales of goods Revenues from the sale of goods are recognized at time all the following conditions are satisfied: the entity has transferred to the buyer the significant risks and rewards of ownership of the goods; the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. 2.3 Services rendered Revenues from service arrangements are recognized based on the progress of the contract. 2.4 Non-current investments Investments in others Companies As of December 31, 2017 and 2016, the Company holds interest on Top & Best S.A. according to the following detail: % of direct and indirect interest as of (1) Name Main activity Country Top & Best S.A. (2) Marketing of household goods Argentina (1) Percentage on capital stock and votes. (2) A provision has been set up against the total value of the equity interest in Top & Best S.A. because such company has no activity Jointly controlled entities A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity that is subject to joint control, that is, when the financial strategy and operational decisions related to the business activities require the unanimous consent of the parties sharing control

14 According to the provisions of IFRS 11 Joint Arrangements and IAS 28 Investments in associates and joint ventures, investments where two or more parties have joint control (defined as Joint Arrangement ) must be classified in each case as a Joint Operation (when the parties have joint control they have rights on the assets and obligations regarding the Joint Arrangement liabilities) or Joint Venture (when the parties exercising joint control have rights on the Joint Arrangement s net assets). Taking into consideration this classification, Joint Operations should be consolidated proportionally, while Joint Ventures are accounted for through the equity method. As of December 31, 2017 and 2016, the Company exercises joint control over the following entities: % of direct and indirect participation as of (1) Name Main Activity Country Compañía Inversora Argentina para la Exportación S.A. Financial and investment activities on its own benefit or on behalf third parties Argentina Sociedad Administradora de Proyectos de Inversión S.A. Advice, administration and management of investment projects. Argentina (1) Percentage on capital stock and votes. According to the analysis of the joint arrangement in which the Company participates, management has determined that participation in Compañía Inversora Argentina para la Exportación S.A is classified in accordance with IFRS as a joint business Participation in a trust As explained in Note 30, the Company participates in a Guarantee Trust ( Fideicomiso de Garantía ). The participation in such trust has been valued at cost (nominal value of the contributions made) net of utilizations and plus others financial results accrued at year end. 2.5 Leasing Leases from operating leases agreements are recognized in the statement of comprehensive income on a straight-line basis over the term of the relevant lease. 2.6 Foreign currency and functional currency The financial statements of the Company are stated in pesos (legal currency of Argentina), which is the functional currency (currency of the main economic environment in which a company operates) for the Company, which is also the presentation currency of these financial statements

15 Transactions in currencies other than the entity's functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting year, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognized in profit or loss in the year. In the financial statements, the assets and liabilities denominated in foreign currency are translated into Argentine pesos using exchange rates prevailing at the end of the reporting year. 2.7 Borrowing costs Borrowing costs are recognized in the statement of comprehensive income when they are incurred. 2.8 Taxation The Tax Reform Act No was published in the Official Bulletin on December 29, 2017, and came into force on December 31, One of the main changes of such reform is the reduction in the income tax rate for retained profits from 35% to: - 30% for the fiscal years between January 1, 2018 and December 31, 2019 (transition scheme) - 25% starting January 1, The gradual changes to the income tax rate are not applicable for measuring the current tax accrued as of December 31, However, the new regulation affects the measurement of tax deferred assets and liabilities, as these must be recognized by applying the tax rates that will be in force on the dates where the differences between book values and tax values will be reverted or used. The income tax expense represents the sum of current income tax payable and deferred tax Current taxes The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting year

16 2.8.2 Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affected neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting year and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting year. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting year, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if a) there is a legally enforceable right to offset by the tax authority and b) deferred tax assets and liabilities relate to income taxes levied by the same tax authority, having the Group the intention of settle assets and liabilities on a net basis. 2.9 Property, plant and equipment For the purposes of the preparation of these financial statements, the Company has used the exception of IFRS 1, First-time Adoption of International Financial Reporting Standards, related to deemed cost of property, plant and equipment. Accordingly, the Company has elected to measure, as of its transition date (January 1, 2015), the cost of items of property, plant and equipment at the book amounts (restated), according to previous generally accepted standards, at transition date as deemed cost, adjusted to reflect changes in a general price index. This value was determined considering the effects of changes in the purchasing power of the Argentine peso up to February 28, 2003, under the restatement-in-constant-pesos method required by RT No. 6 of the F.A.C.P.C.E

17 As from the transition date, and according to IFRS, the Company has elected to measure these assets and acquisitions at cost less depreciations and subsequent accumulated impairment losses, which not exceed the recoverable value. Properties under construction for administrative, production, procurement or other purposes are carried at cost, less any recognized impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is recognized so as to write off the cost of assets, other than land (that is not depreciated) and properties under construction, over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each year, with the effect of any changes in estimates being accounted for on a prospective basis. Gain or loss derived of the sale or disposal of an item of Property, plant and equipment is determined as the difference between the obtained sale value and the book value and it is included in the statement of comprehensive income Impairment of tangible assets At the end of each reporting year, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. As of December 31, 2017 such indication does not exist for property, plant and equipment. Recoverable amount is the higher of fair value less costs to sell and value in use. 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 at year-ends of the time value of money considering the specific risks of the asset Inventories Inventories are stated at the lower of acquisition cost or net realizable value. Costs of inventories are determined using the cost absorption method. The net realizable value is the estimated price of sale less estimated costs to conclude such sale Provisions and contingent liabilities Provisions are recognized when the Company have a present obligation (legal or implicit) as a result of a past event and it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation

18 The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting year, taking into account the risks and uncertainties surrounding the obligation. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The Company has based its estimates on the opinion of its legal counsels for the estimation of the obligations. Contingent liabilities are obligations arising from past events which confirmation is subject to the occurrence of events beyond the Company s control, or otherwise from current obligations arising from past events, the amount of which may not be estimated reliably or which settlement is unlikely to require an outlay. The Company does not have any contingent liabilities other than those covered by the provision Financial assets All financial assets have been recognized and derecognized as of the trade date provided a financial asset has been purchased or sold under a contract which requires delivery of an asset during a period generally governed by a relevant market, and they have been initially measured at fair value, plus transaction costs, except for financial assets recorded at fair value through profit or loss, which have been initially measured at fair value. Recognized financial assets are subsequently measured at amortized cost or at fair value. The Company assesses on each balance sheet date whether there is objective evidence of impairment losses on a financial asset or group of financial assets Breakdown of financial assets In order to classify financial assets, an instrument is considered to be a financial instrument if it is not a derivative instrument and it meets the definition of equity of the issuer except for some nonderivative instruments with put options that are presented under equity by issuer. All other nonderivative financial assets are classified as debt instruments. i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. Financial assets are included in this category whether acquired primarily to be sold in the immediate future

19 ii) Accounts receivable Accounts receivable are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market, are classified as current assets, except when they mature more than 12 months from the balance sheet date, in which case they are classified under non-current assets. Trade receivables and other receivables are included in this category. The assets under accounts receivable are recorded at their amortized cost by applying the effective interest method, net of any allowance for impairment, if applicable. iii) Financial assets kept until maturity These are non-derivative financial assets whose payments have a fixed or determinable amount and with a set maturity date and the entity have both the effective intention and the capacity to hold them until maturity. If the Company sells a significant amount of financial assets held to maturity, the whole account should be reclassified as available for sale. iv) Financial assets held for sale Financial assets held for sale are non-derivative financial assets that the Company intends to sell. Such financial assets are measured at fair value, with any gain or loss recognized under other comprehensive income. Upon sale or impairment of the asset, the accumulated gain or loss previously recognized in other comprehensive income is reclassified under income for the year. These financial assets are classified as other non-current financial assets, except those with a maturity of less than 12 months from the balance sheet date, which are classified as current assets. The Company does not hold financial assets available for sale. v) Financial assets denominated in foreign currency The fair value of financial assets denominated in foreign currency is determined in that foreign currency and then translated at the exchange rate prevailing at the end of each reporting period. The foreign currency component forms part of its profit or loss at fair value. As regards financial assets measured at fair value with changes to fair value recognized in profit or loss, the foreign currency component is recognized in profit and loss. In the case of debt instruments denominated in foreign currency classified at amortized cost, determination of exchange differences is based on the asset amortized cost and recognized under Financial results (note 23) to the Statement of Comprehensive Income. vi) Impairment of financial assets Financial assets other than those valued at fair value with changes to profit or loss are assessed on each balance sheet date to ascertain if impairment indicators are present. Financial instruments are impaired where there is objective evidence that, as a result of one or more events occurred after the initial recognition, the future estimated cash flows of the investment have been adversely affected

20 Financial assets measured at amortized cost are tested for impairment at the end of each reporting period. A financial asset is considered impaired if, and only if, there is objective evidence of impairment as a result of one or more events occurred after the initial recognition of the assets, and provided this event or events causing the loss have an impact on the future estimated cash flows of the financial asset. The objective impairment evidence should include: Significant financial difficulties of the issuer or debtor; or Default on contract clauses, such as non-payment or late payment of interest or principal; or The borrower is likely to file for bankruptcy or any other form of financial reorganization. For certain categories of financial assets, such as trade receivables, where the impairment test on the asset has been assessed on an individual basis and found that the asset is not individually impaired, such asset is to be included in the collective impairment test. The objective evidence of an accounts receivable portfolio being impaired includes the past experience of the Company regarding receivables collection, as well as any changes that are evident in the local and national economic conditions related to payment default. The carrying value of the financial assets is directly written down by the impairment loss, except for trade receivables where the book value is written down through an allowance for bad debts. Where a trade receivable is considered a bad debt, it is written off against the allowance. The changes in the carrying value of the allowance for bad debts is recognized in the statement of comprehensive income. vii) Derecognition of a financial asset The Company shall derecognize a financial asset only when the contractual rights on the financial asset cash flows expire and the substantial risks and advantages inherent to ownership of the financial asset are substantially transferred. If the Company does not transfer or retain substantially all the risks and advantages inherent to the ownership and retains the control over the asset transferred, the Company shall recognize its interest in the asset and the associated obligation at the amounts payable. If the Company retains substantially all the risks and advantages inherent to property on the transferred financial asset, the Company shall continue to recognize the financial asset and shall also recognize a collateral loan for the receipts

21 2.14 Financial liabilities i) Classification as liability or equity Classification as a financial liability or as equity depends on the substance of the contractual agreement. ii) Financial liabilities Financial liabilities at fair value through profit or loss A financial liability at fair value with changes through profit or loss is a financial liability classified either as held for trading or at fair value with changes through profit or loss. A financial liability is classified as held for trading if: a) It is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; or b) It is part of a portfolio of identified financial instruments that are managed together and for which there exists evidence of a recent actual pattern of short-term profit taking; or c) It is a derivative which has not been designated as an effective hedging instrument. Other financial liabilities Other financial liabilities, including loans, are initially recognized at fair value, net of costs directly attributable to their acquisition. Subsequently initial recognition, other financial liabilities are measured at amortized cost using the effective interest method, with interest expense recognized based on the effective yield. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts the expected future cash payments or receipts through the expected life of the financial instrument (or when appropriate, a shorter term) to the net carrying amount of the financial liability. Financial liabilities are classified as current liabilities unless the Company has an unconditional right to defer its settlement for more than 12 months from the financial statements date. iii) Trade accounts payable and other payables Trade payables and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method

22 iv) Financial liabilities in foreign currency The fair value of financial liabilities denominated in foreign currency is determined in that foreign currency and then translated at the exchange rate prevailing at the end of each reporting period. The foreign currency component forms part of its profit or loss at fair value. As regards financial assets classified at fair value with changes through profit or loss, the foreign currency component is recognized in profit and loss. In the case of debt instruments denominated in foreign currency classified at amortized cost, determination of exchange differences is based on the asset amortized cost and recognized under Exchange differences, Financial results (note 23) to the Statement of Comprehensive Income. v) Derecognition of a financial liability The Company shall derecognize a financial liability if, and only if, the Company s liabilities expire, are discharged or satisfied Derivative financial instruments The Company entered into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks. Derivatives had been initially recognized at fair value at the date the derivative contracts are entered into and were subsequently remeasured at their fair value at the end of each reporting year. The resulting gain or loss has been recognized in profit or loss immediately, except in cases where the derivative was appointed and was effective as a hedging instrument, in which event the timing of the recognition in profit or loss depended on the nature of the hedge relationship. As of December 31, 2017, the Company had agreements to purchase foreign currency forwards designated as cash flow hedges. The resulting gain or loss from contracts in force determined as effective hedging during the year has been recognized directly in other comprehensive income Equity accounts Shareholders equity items were presented in accordance with the accounting standards in force as of the transition date. Movements of such items were accounted for in accordance with the resolutions of the corresponding shareholders meetings, regulatory and statutory rules (capital adjustments and reserves), even if such items would not have existed or would have had a different balance if IFRS had been applied in the past. i) Capital stock It is composed by contributions made by the shareholders, represented by shares and includes outstanding shares at their nominal value