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Document and Entity Information
12 Months Ended
Jun. 30, 2018
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Document And Entity Information  
Entity Registrant Name IRSA INVESTMENTS & REPRESENTATIONS INC
Entity Central Index Key 0000933267
Document Type 20-F
Trading Symbol IRSA
Document Period End Date Jun. 30, 2018
Amendment Flag false
Current Fiscal Year End Date --06-30
Entity a Well-known Seasoned Issuer No
Entity's Reporting Status Current Yes
Entity a Voluntary Filer Yes
Entity Emerging Growth Company false
Entity Shell Company false
Entity Filer Category Accelerated Filer
Entity Common Stock, Shares Outstanding 0
Document Fiscal Period Focus FY
Document Fiscal Year Focus 2018
Consolidated Statements of Financial Position - ARS ($)
$ in Millions
Jun. 30, 2018
Jun. 30, 2017
Non-current assets    
Investment properties $ 162,726 $ 99,953
Property, plant and equipment 13,403 27,113
Trading properties 6,018 4,532
Intangible assets 12,297 12,387
Other assets 189
Investments in associates and joint ventures 24,650 7,885
Deferred income tax assets 380 285
Income tax and MPIT credit 415 145
Restricted assets 2,044 448
Trade and other receivables 8,142 4,974
Investments in financial assets 1,703 1,772
Financial assets held for sale 7,788 6,225
Derivative financial instruments 31
Total non-current assets 239,755 165,750
Current assets    
Trading properties 3,232 1,249
Inventories 630 4,260
Restricted assets 4,245 506
Income tax and MPIT credit 399 339
Group of assets held for sale 5,192 2,681
Trade and other receivables 14,947 17,264
Investments in financial assets 25,503 11,951
Financial assets held for sale 4,466 2,337
Derivative financial instruments 87 51
Cash and cash equivalents 37,317 24,854
Total current assets 96,018 65,492
TOTAL ASSETS 335,773 231,242
SHAREHOLDERS' EQUITY    
Shareholders' equity attributable to equity holders of the parent (according to corresponding statement) 37,421 25,864
Non-controlling interest 37,120 21,472
TOTAL SHAREHOLDERS' EQUITY 74,541 47,336
Non-current liabilities    
Borrowings 181,046 109,489
Deferred income tax liabilities 26,197 23,024
Trade and other payables 3,484 3,040
Provisions 3,549 943
Employee benefits 110 763
Derivative financial instruments 24 86
Salaries and social security liabilities 66 127
Total non-current liabilities 214,476 137,472
Current liabilities    
Trade and other payables 14,617 20,839
Borrowings 25,587 19,926
Provisions 1,053 890
Group of liabilities held for sale 3,243 1,855
Salaries and social security liabilities 1,553 2,041
Income tax and MPIT liabilities 522 797
Derivative financial instruments 181 86
Total current liabilities 46,756 46,434
TOTAL LIABILITIES 261,232 183,906
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES $ 335,773 $ 231,242
Consolidated Statements of Income and Other Comprehensive Income - ARS ($)
$ in Millions
12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2016
Profit or loss [abstract]      
Revenues $ 33,088 $ 27,004 $ 12,916
Costs (19,629) (16,033) (7,036)
Gross profit 13,459 10,971 5,880
Net gain from fair value adjustment of investment properties 22,605 4,340 17,536
General and administrative expenses (3,869) (3,219) (1,639)
Selling expenses (4,663) (4,007) (1,842)
Other operating results, net 582 (206) (32)
Profit / (loss) from operations 28,114 7,879 19,903
Share of (loss) / profit of associates and joint ventures (721) 109 508
Profit before financial results and income tax 27,393 7,988 20,411
Finance income 1,761 937 1,264
Finance costs (21,058) (8,072) (5,571)
Other financial results 596 3,040 (518)
Financial results, net (18,701) (4,095) (4,825)
Profit before income tax 8,692 3,893 15,586
Income tax 124 (2,766) (6,325)
Profit for the year from continuing operations 8,816 1,127 9,261
Profit for the year from discontinued operations 12,479 4,093 817
Profit for the year 21,295 5,220 10,078
Items that may be reclassified subsequently to profit or loss:      
Currency translation adjustment 12,689 1,919 4,531
Share of other comprehensive income of associates and joint ventures 922 1,920 (178)
Revaluation surplus 99
Change in the fair value of Hedging instruments net of income taxes (19) 124 3
Items that may not be reclassified subsequently to profit or loss, net of income tax:      
Actuarial profit from defined benefit plans (12) (10) (10)
Other comprehensive income for the year from continuing operations 13,679 3,953 4,346
Other comprehensive income for the year from discontinued operations 435 560 (213)
Total other comprehensive income for the year 14,114 4,513 4,133
Total comprehensive income for the year 35,409 9,733 14,211
Total comprehensive income from continuing operations 22,495 5,080 13,607
Total comprehensive income from discontinued operations 12,914 4,653 604
Total comprehensive income for the year 35,409 9,733 14,211
Profit for the year attributable to:      
Equity holders of the parent 15,003 3,030 9,534
Non-controlling interest 6,292 2,190 544
Profit / (loss) from continuing operations attributable to:      
Equity holders of the parent 5,278 1,383 9,196
Non-controlling interest 3,538 (256) 65
Total comprehensive income attributable to:      
Equity holders of the parent 15,532 4,054 9,605
Non-controlling interest 19,877 5,679 4,606
Total comprehensive income from continuing operations attributable to:      
Equity holders of the parent 5,338 1,977 9,356
Non-controlling interest $ 17,157 $ 3,103 $ 4,251
Profit per share attributable to equity holders of the parent:      
Basic (in pesos per share) $ 26.09 $ 5.27 $ 16.58
Diluted (in pesos per share) 25.91 5.23 16.47
Profit per share from continuing operations attributable to equity holders of the parent:      
Basic (in pesos per share) 9.18 2.41 15.99
Diluted (in pesos per share) $ 9.12 $ 2.39 $ 15.88
Consolidated Statements of Changes in Shareholders' Equity - ARS ($)
$ in Millions
Share Capital [Member]
Treasury Shares [Member]
Inflation Adjustment of Share Capital and Treasury Shares [Member]
[1]
Share Premium [Member]
Additional Paid-in Capital from Treasury Shares [Member]
Legal Reserves [Member]
CNV 609/12 Resolution Special Reserve [Member]
[2]
Cost of Treasury Shares [Member]
Changes in Non-Controlling Interest [Member]
Reserve for Share-Based Payments [Member]
Reserve for Future Dividends [Member]
Cumulative Translation Adjustment Reserve [Member]
Hedging Instruments [Member]
Revaluation Surplus [Member]
Special Reserve [Member]
Reserve for Defined Contribution Plans [Member]
Other Reserves from Subsidiaries [Member]
Other Reserves [Member]
(Accumulated deficit)/Retained Earnings [Member]
Subtotal [Member]
Non-controlling Interests [Member]
Total
Beginning balance at Jun. 30, 2015 $ 574 $ 5 $ 123 $ 793 $ 7 $ 117 $ 2,755 $ (34) $ 4 $ 64 $ 394     $ 428 $ 7,235 $ 12,037 $ 943 $ 12,980
Changes In Equity [Roll Forward]                                            
(Loss) / Profit for the year                     9,534 9,534 544 10,078
Other comprehensive income for the year 118 (37)     (10) 71 71 4,062 4,133
Total comprehensive income for the year 118 (37)     (10) 71 9,534 9,605 4,606 14,211
Incorporated by business combination                     8,630 8,630
Cumulative translation adjustment for interest held before business combination (91)     (91) (91) (91)
Share of changes in subsidiaries' equity     37 37 37 51 88
Appropriation of retained earnings approved by Shareholders meeting held 520     520 (520)
Reserve for share-based compensation 1 (1) 9 5 3     8 17 34 51
Capital reduction of subsidiaries                     (4) (4)
Dividends distribution                     (615) (615)
Changes in non-controlling interest 17     17 17 568 585
Capital contribution from non-controlling interest                     11 11
Dividends reimbursement                     10 10 10
Ending balance at Jun. 30, 2016 575 4 123 793 16 117 2,755 (29) 21 67 520 421 (37)     (10) 37 990 16,259 21,632 14,224 35,856
Changes In Equity [Roll Forward]                                            
(Loss) / Profit for the year                     3,030 3,030 2,190 5,220
Other comprehensive income for the year 973 56     (5) 1,024 1,024 3,489 4,513
Total comprehensive income for the year 973 56     (5) 1,024 3,030 4,054 5,679 9,733
Out-of-period adjustments                     (133) (133)
Incorporated by business combination                     40 40
Irrevocable contributions                     2 2
Capitalization of contributions at subsidiaries                     (1) (1)
Issuance of capital of subsidiaries                     2,267 2,267
Appropriation of retained earnings approved by Shareholders meeting held 26 (4) (26)     (26) 4
Reserve for share-based compensation 1 1 11     12 13 87 100
Capital reduction of subsidiaries                     (6) (6)
Dividends distribution                     (2,232) (2,232)
Changes in non-controlling interest 165     165 165 1,545 1,710
Ending balance at Jun. 30, 2017 575 4 123 793 17 143 2,751 (28) 186 78 494 1,394 19 (15) 37 2,165 19,293 25,864 21,472 47,336
Changes In Equity [Roll Forward]                                            
(Loss) / Profit for the year                     15,003 15,003 6,292 21,295
Other comprehensive income for the year 566 (5) 45 (77) 529   529 13,585 14,114
Total comprehensive income for the year 566 (5) 45 (77) 529 15,003 15,532 19,877 35,409
Irrevocable contributions                     1 1
Capitalization of contributions at subsidiaries                     7 7
Appropriation of retained earnings approved by Shareholders meeting held 2,081 2,081 (2,081)
Share-based compensation 2 3 1 4 6 43 49
Dividends distribution                     (1,400) (1,400) (1,490) (2,890)
Changes in non-controlling interest (2,657) (2,657) (2,657) 4,545 1,888
Loss of control in subsidiary (11) (11) 11 (7,335) (7,335)
Dividends reimbursement                     76 76 76
Ending balance at Jun. 30, 2018 $ 575 $ 4 $ 123 $ 793 $ 19 $ 143 $ 2,751 $ (25) $ (2,471) $ 79 $ 494 $ 1,960 $ 14 $ 45 $ 2,081 $ (103) $ 37 $ 2,111 $ 30,902 $ 37,421 $ 37,120 $ 74,541
[1] Includes Ps.1 of Inflation adjustment of treasury stock. See Note 16.
[2] Related to CNV General Resolution N 609/12.
Consolidated Statements of Cash Flows - ARS ($)
$ in Millions
12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2016
Operating activities:      
Net cash generated from continuing operating activities before income tax paid $ 11,176 $ 6,736 $ 4,015
Income tax and MPIT paid (981) (957) (778)
Net cash generated from continuing operating activities 10,195 5,779 3,237
Net cash generated from discontinued operating activities 4,144 3,280 889
Net cash generated from operating activities 14,339 9,059 4,126
Investing activities:      
Increase of interest in associates and joint ventures (209) (531) (207)
Acquisition and improvements of investment properties (3,200) (2,751) (882)
Advanced payments (7)
Proceeds from sales of investment properties 674 291 1,325
Acquisitions and improvements of property, plant and equipment (1,877) (1,298) (477)
Proceeds from sales of property, plant and equipment 17 8
Acquisitions of intangible assets (629) (370) (86)
Acquisitions of subsidiaries, net of cash acquired (46) (46) 9,193
Net increase of restricted assets (3,065) (396)
Dividends received from associates and joint ventures 301 216 14
Dividends received from financial assets 289 35 72
Proceeds from sales of interest held in associates and joint ventures 252 9
Proceeds from loans granted 612
Proceeds from associate liquidation 7
Acquisitions of investments in financial assets (21,999) (4,752) (11,895)
Proceeds from investments in financial assets 20,526 4,569 11,951
Interest received from financial assets 463 212 102
Payment for acquisition of other assets (120)
Loans granted to related parties (348) (4) (862)
Loans granted (102)
Net cash (used in) generated from continuing investing activities (8,454) (4,817) 8,250
Net cash (used in) generated from discontinued investing activities (3,119) 2,749 (27)
Net cash (used in) generated from in investing activities (11,573) (2,068) 8,223
Financing activities:      
Borrowings and issuance of non-convertible notes 17,853 26,596 146,396
Payment of borrowings and non-convertible notes (17,969) (17,780) (145,401)
Obtention / (payment) of short term loans, net 345 (862) 752
Obtention of loans from related parties 4 4
Payment of borrowings to related parties (14) (6)
Interests paid (6,999) (5,326) (2,934)
Issuance of capital from subsidiaries 857
Capital distributions to non-controlling interest in subsidiaries (31) 73 (184)
Capital contributions of non-controlling interest in subsidiaries 1,347 202 1
Acquisition of non-controlling interest in subsidiaries (612) (117) (802)
Proceeds from sales of non-controlling interest in subsidiaries 2,507 2,528
Dividends paid (1,392)
Receipts from claims 90
Dividends paid to non-controlling interest in subsidiaries (1,259) (2,037) (106)
Acquisition of derivative financial instruments (131)
Proceeds net from derivative financial instruments, net 81 151 1,331
Net cash (used in) generated from continuing financing activities (6,125) 4,140 (859)
Net cash generated from (used in) discontinued financing activities 2,258 (2,603) (3,109)
Net cash (used in) generated from financing activities (3,867) 1,537 (3,968)
Net (decrease) increase in cash and cash equivalents from continuing activities (4,384) 5,102 10,628
Net increase (decrease) in cash and cash equivalents from discontinued activities 3,283 3,426 (2,247)
Net (decrease) increase in cash and cash equivalents (1,101) 8,528 8,381
Cash and cash equivalents at beginning of year 24,854 13,866 375
Net decrease in cash and cash equivalents reclassified to held for sale (347) (157)
Foreign exchange gain on cash and changes in fair value of cash equivalents 13,911 2,617 5,110
Cash and cash equivalents at end of year $ 37,317 $ 24,854 $ 13,866
The Group's business and general information
12 Months Ended
Jun. 30, 2018
Groups Business And General Information  
The Group's business and general information
1. The Group’s business and general information

 

IRSA was founded in 1943, and it is engaged in a diversified range of real estate activities in Argentina since 1991. IRSA and its subsidiaries are collectively referred to hereinafter as “the Group”. Cresud is our direct parent company and IFIS Limited our ultimate parent company.

 

These Consolidated Financial Statements have been approved for issue by the Board of Directors on September 4, 2018.

 

The Group has established two Operations Centers, Argentina and Israel, to manage its global business, mainly through the following companies:

 

 

 

  (i) Corresponds to Group’s associates, which are hence excluded from consolidation.
  (ii) The results are included in discontinued operations, due to the loss of control in June 2018 (Note 4.G.)
  (iii) Disclosed as financial assets held for sale.
  (iv) Assets and liabilities are disclosed as held for sale and the results as discontinued operations.
  (v) See Note 4 for more information about the change within the Operations Center in Israel.

 

Operations Center in Argentina

 

The activities of the Operations Center in Argentina are mainly developed through IRSA and its principal subsidiary, IRSA CP. Through IRSA and IRSA CP, the Group owns, manages and develops 16 shopping malls across Argentina, a portfolio of offices and other rental properties in the Autonomous City of Buenos Aires, and it entered the United States of America (“USA”) real estate market in 2009, mainly through the acquisition of non-controlling interests in office buildings and hotels. Through IRSA or IRSA CP, the Group also develops residential properties for sale. The Group, through IRSA, is also involved in the operation of branded hotels. The Group uses the term “real estate” indistinctively in these Consolidated Financial Statements to denote investment, development and/or trading properties activities. IRSA CP's shares are listed and traded on both the BASE (BYMA: IRCP) and the NASDAQ (NASDAQ: IRCP). IRSA's shares are listed on the BASE (Merval: IRSA) and the NYSE (NYSE: IRSA).

 

The activities of the Group’s “Others” segment is carried out mainly through BHSA, where IRSA holds, directly or indirectly, a 29.91% interest (considering treasury shares). BHSA is a commercial bank offering a wide variety of banking activities and related financial services to individuals, small and medium-sized companies and large corporations, including the provision of mortgaged loans. BHSA's shares are listed on the BASE (BYMA: BHIP). Besides that, the Group has a 43.93% indirect equity interest in Tarshop, whose main activities are credit card and loan origination transactions.

 

Operations Center in Israel

 

The activities of the Operations Center in Israel are mainly developed through the subsidiaries, IDBD and DIC, whose activities correspond to one of the Israeli largest and most diversified conglomerates, which are involved, through its subsidiaries and other investments, in several markets and industries, including real estate, supermarkets, insurance, telecommunications, etc.; controlling or holding an equity interest in companies such as Clal (Insurance), Cellcom (Telecommunications), Shufersal (Supermarkets), PBC (Real Estate), among others. IDBD is listed in the TASE as a “Debentures Company” in accordance with Israeli law, since some series of bonds are traded in that Exchange.

 

It should be noted that the financial position of IDBD, DIC and its subsidiaries at the Operations Center in Israel does not affect the financial position of IRSA and subsidiaries at the Operations Center in Argentina.

 

In addition, the commitments and other covenants resulting from IDBD and DIC’s financial debt do not have impact on IRSA since such indebtedness has no recourse against IRSA and it is not guaranteed by IRSA’s assets.

Summary of significant accounting policies
12 Months Ended
Jun. 30, 2018
Summary Of Significant Accounting Policies  
Summary of significant accounting policies

2.

Summary of significant accounting policies 

2.1.

Basis of preparation of the Consolidated Financial Statement 

(a)

Basis of preparation

These Consolidated Financial Statements have been prepared in accordance with IFRS issued by IASB and interpretations issued by the IFRIC. All IFRS applicable as of the date of these Consolidated Financial Statements have been applied. 

IAS 29 "Financial Reporting in Hyperinflationary Economies" requires that the financial statements of an entity whose functional currency is one of a hyperinflationary economy be expressed in terms of the current unit of measurement at the closing date of the reporting period, regardless of whether they are based on the historical cost method or the current cost method. To do so, in general terms, the inflation produced from the date of acquisition or from the revaluation date, as applicable, must be calculated in the non-monetary items. This requirement also includes the comparative information of the financial statements. 

In order to conclude on whether an economy is categorized as hyperinflationary in the terms of IAS 29, the standard details a series of factors to be considered, including the existence of a cumulative inflation rate in three years that approximates or exceed 100%. Bearing in mind that the downward trend in inflation observed in the previous year has reversed, noticing a significant increase in inflation during 2018, that it is also expected that the accumulated inflation rate of the last three years will exceed 100% and that the rest of the indicators do not contradict the conclusion that Argentina should be considered a hyperinflationary economy for accounting purposes, the Management understands that there is sufficient evidence to conclude that Argentina is a hyperinflationary economy in the terms of IAS 29, starting with the year initiated on July 1, 2018. Consequently, the Company should restate its next financial statements to be presented after the aforementioned date. However, it must be taken into account that, as of the date of issuance of these financial statements, Decree PEN 664/03 is in force, and it does not allow the presentation of restated for inflation financial statements before the National Securities Commission (CNV) and other bodies of corporate control. 

In an inflationary period, any entity that maintains an excess of monetary assets over monetary liabilities, will lose purchasing power, and any entity that maintains an excess of monetary liabilities over monetary assets, will gain purchasing power, provided that such items are not subject to an adjustment mechanism. 

Briefly, the restatement method of IAS 29 establishes that monetary assets and liabilities must not be restated since they are already expressed in the current unit of measurement at the end of the reporting period. Assets and liabilities subject to adjustments based on specific agreements must be adjusted in accordance with such agreements. The non-monetary items measured at their current values at the end of the reporting period, such as the net realization value or  

others, do not need to be restated. The remaining non-monetary assets and liabilities must be restated by a general price index. The loss or gain from the net monetary position will be included in the net result of the reporting year / period, revealing this information in a separate line item. 

As of June 30, 2018, the restatement criteria of financial information established in IAS 29 have not been applied. However, in recent years’ certain macroeconomic variables that affect the Company's businesses, such as wages and prices of inputs, have undergone annual variations of certain importance. This circumstance must be considered in the evaluation and interpretation of the financial situation and the results presented by the Company in these financial statements. 

IDBD and DIC report their quarterly and annual results following the Israeli regulations, whose legal deadlines are after the deadlines in Argentina and since IDBD and DIC fiscal years end differently from IRSA, the results of operations from IDBD and DIC are consolidated with a lag of three months and adjusted for the effects of significant transactions taking place in such period. For these reasons, it is possible to obtain the quarterly results of IDBD and DIC in time so that they can be consolidated by IRSA and reported to the CNV in its consolidated financial statements within the legal deadlines set in Argentina. This way, the Group's consolidated comprehensive income for the year ended June 30, 2018 includes the results of IDBD and DIC for the 12-month period from April 1, 2017 to March 31, 2018, adjusted for the significant transactions that occurred between April 1, 2018 and June 30, 2018. 

Moreover, the consolidated comprehensive income of the Group for the year ended June 30, 2016 includes the results of IDBD and DIC operations for the period from October 11, 2015 (the acquisition of control) through March 31, 2016, adjusted for those significant transactions that occurred between April 1, 2016 and June 30, 2016. 

(b)

Current and non-current classification 

The Group presents current and non-current assets, and current and non-current liabilities, as separate classifications in its Statement of Financial Position according to the operating cycle of each activity. Current assets and current liabilities include the assets and liabilities that are either realized or settled within 12 months from the end of the fiscal year. 

All other assets and liabilities are classified as non-current. Current and deferred tax assets and liabilities (income tax liabilities) are presented separately from each other and from other assets and liabilities. Deferred tax assets and liabilities are in all cases presented as non-current while the rest is classifed as current and non-current. 

(c)

Presentation currency 

The Consolidated Financial Statements are presented in millions of Argentine Pesos. Unless otherwise stated or the context otherwise requires, references to ‘Peso amounts’ or ‘Ps.’, are millions of Argentine Pesos, references to ‘US$’ or ‘US Dollars’ are millions of US Dollars and references to "NIS" are millions of New Israeli Shekel. 

(d)

Fiscal year-end 

The fiscal year begins on July 1st and ends on June 30 of each year.

(e)

Accounting criteria

The Consolidated Financial Statements have been prepared under historical cost criteria, except for investment properties, financial assets and financial liabilities (including derivative instruments) measured at fair value through profit or loss, financial assets held for sale and share-based compensation, which were measured at fair value.

(f)

Reporting cash flows 

The Group reports operating activities cash flows using the indirect method. Interest paid is presented within financing activities. Interest received is presented within investing activities. The acquisitions and disposals of investment properties are disclosed within investing activities as this most appropriately reflects the Group’s business activities. Cash flows in respect to trading properties are disclosed within operating activities because these items are sold in the ordinary course of business.

 (g)

Use of estimates 

The preparation of Financial Statements at a certain date requires the Management to make estimations and evaluations affecting the amount of assets and liabilities recorded and contingent assets and liabilities disclosed at such date, as well as income and expenses recorded during the year. Actual results might differ from the estimates and evaluations made at the date of preparation of these Consolidated Financial Statements. The most significant judgments made by Management in applying the Group’s accounting policies and the major estimations and significant judgments are described in Note 3.

2.2.

New accounting standards 

The following standards and amendments have been issued by the IASB. Below we outline the standards and amendments that may potentially have an impact on the Group at the time of application. 

Standards and amendments adopted by the Group  

Standards and amendments Description

Date of mandatory adoption for the Group in the year ended on 

Cycle of annual improvements 2014-2016. IFRS 12 “Disclosure of Interests in other entities”. Clarifies the standard scope.   06-30-2018 
Amendments to IAS 7 "Disclosure initiative". Establishes that the entity shall disclose information so that users of the Financial Statements may assess the changes in liabilities resulting from financing activities, including both cash and non-cash changes.   06-30-2018 
Amendments to IAS 12 "Recognition of deferred tax assets for unrealized losses". Clarifies the accounting of deferred income tax assets in the case of unrealized losses from debt instruments measured at fair value.   06-30-2018 

 

The adoption of these standards and amendments has not had a material impact for the Group. See details of IAS 7 modifications in Note 19. 

Standards and amendments not yet adopted by the Group  

Standards and amendments Description

Date of mandatory adoption for the Group in the year ended on 

Amendments to IAS 40 "Transfers of Investment Properties" Clarifies the conditions that should be met for an entity to transfer a property to, or from, investment properties.   06-30-2019 
Cycle of annual improvements 2014-2016. IAS 28 “Investments in Associates and Joint ventures”. Clarifies that the option to measure an associate or a joint venture at fair value for a qualifying entity is available upon initial recognition.   06-30-2019 
IFRS 9 “Financial Instruments”. Adds a new impairment model based on expected losses and introduces some minor amendments to the classification and measurement of financial assets.   06-30-2019 
IFRS 15 “Revenues from contracts with customers” Provides the new revenue recognition model derived from contracts with customers. The core principle underlying the model is satisfaction of performance obligations assumed with customers. Applies to all contracts with customers, except those covered by other IFRSs, such as leases, insurance and financial instruments contracts. The standard does not address recognition of interest or dividend income.   06-30-2019 
Amendments to IFRS 2 "Share-based Payment". The amendments clarify the scope of the standard in relation to (i) accounting of the effects that the concession consolidation conditions have on cash settled share-based payments, (ii) the Classification of the share-based payment transactions subject to net settlement, and (iii) accounting for the amendment of terms and conditions of the share-based payment transaction that reclassifies the transaction from cash settled to equity settled.   06-30-2019 
IFRS 16 "Leases". Will supersede IAS 17 currently in force (and associated interpretations) and its scope includes all leases, with a two specific exceptions (low cost assets’ leases and short-term leases). Under the new standard, lessees are required to account for leases under one single model in the balance sheet that is similar to the one used to account for financial leases under IAS 17. The accounting of the lessor has no significant changes.   06-30-2020 

The future adoption of these standards modifications and interpretations will not have a significant impact to the Group, except for the following: 

IFRS 15: Revenues from contracts with customers 

The standard introduces a new five step model for recognizing revenue from contracts with customers:

1.

Identifying the contract with the customer.

2.

Identifying separate performance obligations in the contract. 

3.

Determining the transaction price. 

4.

Allocating the transaction price to separate performance obligations. 

5.

Recognizing revenue when the performance obligations are satisfied. 

The Group will apply the cumulative effect approach, therefore, accumulated impact will be recognized in Retained earnings as of July 1, 2018. Comparative figures will not be restated. 

Main effects that affect the Group: 

Costs of obtaining a contract with a client: 

Customer acquisition costs are capitalized when it is expected that the Group will recover these costs, instead of recognizing these costs in profit or loss as incurred. Accordingly, incremental incentives and commissions paid to Group employees while resellers for securing contracts with customers, are recognized as an asset and are amortized to profit or loss, in accordance with the expected service period from these contracts (over a period of 2-4 years). 

In the statements of cash flows, customer acquisition costs paid will be presented as part of cash flows used in investing activities and the amortization of capitalized customer acquisition costs, will be presented under depreciation and amortization as part of cash flows from operating activities. 

The Group applies the practical exemption specified in the standard and recognizes customer acquisition costs in profit or loss when the expected amortization period of these costs is one year or less. 

Satisfaction of performance obligation in real estate contracts: 

Revenues from the sale of offices and apartments will be recognized during the period of construction, in accordance with the work in progress, instead of upon the delivery or signing of the property’s deed, if one of the following conditions are met:

1. The customer simultaneously receives and consumes the benefits provided by the Group’s performance when the Group provides such services.

2.  The Group’s performance creates or enhances an asset that is controlled by the customer at the time it is being created or enhanced.

3. The Group’s performance does not create an asset with an alternative use for the Group and the Group has the enforceable right to payment for performance completed to date. 

The Group will recognize revenue over time on sales contracts with customers for the development of real estate in which no alternative use exists but the sale to the client and it has the right to enforce the performance of the contract. When these conditions are not met, revenue will be recognized at the time of the deed or upon delivery of the asset. 

The Group determines the amount of revenue from each contract according to the transaction price and work in progress of the asset of each customer separately. 

IFRS 9: Financial instruments 

The new standard includes a new model of "expected credit loss" for receivables or other assets not measured at fair value. The new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an allowance for impairment will be recorded in the amount of expected credit losses resulting from the possible non- compliance events within a certain period. If the credit risk has increased significantly, in most cases the allowance will increase and the amount of the expected losses should be recorded.

In accordance with the new standard, in cases where a change in terms or exchange of financial liabilities is immaterial and does not lead, at the time of analysis, to the reduction of the previous liability and recognition of the new liability, the new cash flows must be discounted at the original effective interest rate, recording the impact of the difference between the present value of the financial liability that has the new terms and the present value of the original financial liability in net income. As a result of the application of the new standard, the amount of the liabilities, whose terms were modified and for which a new effective interest rate was calculated at the time of the change in accordance with IAS 39, will be recalculated from the date of the change using the original effective interest rate. 

IFRS 16: Leases 

The Group is currently assessing the impact of the amendments on its Financial Statements. IFRS 16 will be effective for fiscal year beginning July 1, 2019. On the issue date of these Consolidated Financial Statements, there are no other standards or amendments, issued by the IASB that are yet to become effective and that are expected to have a material effect on the Group. 

Breakdown of the expected changes to the financial position of the Group due to the application of IFRS 9 and 15 are described below:  

 

Current statement of financial position 

 

IFRS 15 impact 

 

IFRS 9 impact 

 Adjusted statement of financial position 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

Trading properties   6,018    (3,338)   -    2,680 
Investments in associates and joint ventures   24,650    24    (19)   24,655 
Deferred income tax assets   380    (95)   -    285 
Trade and other receivables   8,142    497    (63)   8,576 
Total non-current assets   239,755    (2,912)   (82)   236,761 
Current assets                    
Trading properties   3,232    (734)   -    2,498 
Trade and other receivables   14,947    292    (32)   15,207 
Total current assets   96,018    (442)   (32)   95,544 
TOTAL ASSETS   335,773    (3,354)   (114)   332,305 
SHAREHOLDERS’ EQUITY                    
Shareholders' equity attributable to equity holders of the parent                    
Retained earnings   37,421    127    (453)   37,095 
Non-controlling interest   37,120    126    (473)   36,773 
TOTAL SHAREHOLDERS’ EQUITY   74,541    253    (926)   73,868 
LIABILITIES                    
Non-current liabilities                    
Trade and other payables   3,484    (1,647)   -    1,837 
Borrowings   181,046    -    1,025    182,071 
Deferred income tax liabilities   26,197    (43)   (268)   25,886 
Total non-current liabilities   214,476    (1,690)   757    213,543 
Current liabilities                    
Trade and other payables   14,617    (1,925)   -    12,692 
Borrowings   25,587    -    55    25,642 
Income tax and MPIT liabilities   522    8    -    530 
Total current liabilities   46,756    (1,917)   55    44,894 
TOTAL LIABILITIES   261,232    (3,607)   812    258,437 
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES   335,773    (3,354)   (114)   332,305 

 

At the date of presentation of these financial statements, the analysis of IFRS 9 in some of the Group's associates is still being performed, which could modify the preceding information at the time of effective adoption. 

2.3.

Scope of consolidation 

(a)

Subsidiaries 

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group also analyzes whether there is control when it does not hold more than 50% of the voting rights of an entity, but does have capacity to define its relevant activities because of de-facto control. 

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. The Group chooses the method to be used on a case-by-case base. 

The excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the Statement of Income as “Bargain purchase gains”. 

The Group conducts its business through several operating and investment companies, the principal are listed below: 

     

 % of ownership interest held by the Group

Name of the entity Country Main activity   06.30.2018    06.30.2017    06.30.2016 
IRSA's direct interest:                   
IRSA CP (1) Argentina Real estate   86.34%   94.61%   94.61%
E-Commerce Latina S.A. Argentina Investment   100.00%   100.00%   100.00%
Efanur S.A. Uruguay Investment   100.00%   100.00%   100.00%
Hoteles Argentinos S.A. Argentina Hotel   80.00%   80.00%   80.00%
Inversora Bolívar S.A. Argentina Investment   100.00%   100.00%   100.00%
Llao Llao Resorts S.A. (2) Argentina Hotel   50.00%   50.00%   50.00%
Nuevas Fronteras S.A. Argentina Hotel   76.34%   76.34%   76.34%
Palermo Invest S.A. Argentina Investment   100.00%   100.00%   100.00%
Ritelco S.A. Uruguay Investment   100.00%   100.00%   100.00%
Tyrus S.A. Uruguay Investment   100.00%   100.00%   100.00%
U.T. IRSA and Galerías Pacífico (2) (6) Argentina Investment   50.00%   50.00%   - 
IRSA CP's direct interest:                   
Arcos del Gourmet S.A. Argentina Real estate   90.00%   90.00%   90.00%
Emprendimiento Recoleta S.A. Argentina Real estate   53.68%   53.68%   53.68%
Fibesa S.A. (3) Argentina Real estate   100.00%   100.00%   100.00%
Panamerican Mall S.A. Argentina Real estate   80.00%   80.00%   80.00%
Shopping Neuquén S.A. Argentina Real estate   99.92%   99.92%   99.14%
Torodur S.A. Uruguay Investment   100.00%   100.00%   100.00%
EHSA Argentina Investment   70.00%   70.00%   - 
Centro de Entretenimiento La Plata (6) Argentina Real estate   100.00%   -    - 
Tyrus S.A.'s direct interest:                   
DFL (4) Bermudas Investment   91.57%   91.57%   91.57%
I Madison LLC USA Investment   -    100.00%   100.00%
IRSA Development LP USA Investment   -    100.00%   100.00%
IRSA International LLC USA Investment   100.00%   100.00%   100.00%
Jiwin S.A. Uruguay Investment   100.00%   100.00%   100.00%
Liveck S.A. Uruguay Investment   100.00%   100.00%   100.00%
Real Estate Investment Group IV LP (REIG IV) Bermudas Investment   -    100.00%   100.00%
Real Estate Investment Group V LP (REIG V) Bermudas Investment   100.00%   100.00%   100.00%
Real Estate Strategies LLC USA Investment   100.00%   100.00%   100.00%
Efanur S.A.'s direct interest:                   
Real Estate Investment Group VII LP (REIG VII) Bermudas Investment   100.00%   -    - 
DFL's direct interest:                   
IDB Development Corporation Ltd. Israel Investment   100.00%   68.28%   66.28%-
Dolphin IL Investment Ltd. Israel Investment   100.00%   -    - 
DIL's direct interest:                   
Discount Investment Corporation Ltd. (4) Israel Investment   76.57%   77.25%   76.43%
IDBD's direct interest:                   
IDB Tourism (2009) Ltd. Israel Tourism services   100.00%   100.00%   100.00%
IDB Group Investment Inc. Israel Investment   100.00%   100.00%   100.00%
DIC's direct interest:                   
Property & Building Corporation Ltd. Israel Real estate   64.40%   64.40%   76.45%
Shufersal Ltd. (7) Israel Retail   -    54.19%   52.95%
Cellcom Israel Ltd. (5) Israel Telecommunications   43.14%   42.26%   41.77%
Elron Electronic Industries Ltd. Israel Investment   50.30%   50.30%   50.30%
Bartan Holdings and Investments Ltd. Israel Investment   55.68%   55.68%   55.68%
Epsilon Investment House Ltd. Israel Investment   68.75%   68.75%   68.75%

(1)

    Includes interest held through E-Commerce Latina S.A. and Tyrus S.A.

(2)

    The Group has consolidated the investment in Llao Llao Resorts S.A. and UT IRSA and Galerías Pacífico considering its equity interest and a shareholder agreement that confers it majority of votes in the decision making process.

(3) Includes interest held through Ritelco S.A. and Torodur S.A.

(4) Includes Tyrus's equity interest. Until the present financial year, the participation was through Tyrus S.A. and IDBD. 

(5)

DIC considers it exercises effective control over Cellcom because DIC is the group with the higher percentage of votes vis-à-vis other shareholders, with a stake of 46.16%, also taking into account the historic voting performance in the                    Shareholders’ Meetings, as well as the evaluation of the holdings of the remaining shareholders, which are highly atomized.

(6)    Corresponds to acquisitions and constitutions of new entities considered not material as a whole.

(7)    Control was lost in June 30, 2018. See Note 4.G.

  Except for the aforementioned items the percentage of votes does not differ from the stake. 

The Group takes into account both quantitative and qualitative aspects in order to determine which non-controlling interests in subsidiaries are considered significant.

(b)

Changes in ownership interests in subsidiaries without change of control 

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – i.e., as transactions with the owners in their capacity as owners. The recorded value corresponds to the difference between the fair value of the consideration paid and/or received and the relevant share acquired and/or transferred of the carrying value of the net assets of the subsidiary.

(c)

Disposal of subsidiaries with loss of control 

When the Group ceases to have control any retained interest in the entity is re-measured at its fair value at the date when control is lost, with changes in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

(d)

Associates

Associates are all entities over which the Group has significant influence but not control, usually representing an interest between 20% and at least 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, except as otherwise indicated as explained below. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill identified on acquisition. 

As of each year-end or upon the existence of evidence of impairment, a determination is made as to whether there is any objective indication of impairment in the value of the investments in associates. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the Associates and its carrying value and recognizes the amount adjacent to "Share of profit / (loss) of associates and joint ventures " in the Statement of Income and Other Comprehensive Income. 

Profit and losses resulting from transactions between the Group and the associate are recognized in the Group's financial statements only to the extent of the interests in the associates of the unrelated investor. Unrealized losses are eliminated unless the transaction reflects signs of impairment of the value of the asset transferred. The accounting policies of associates are modified to ensure uniformity within Group policies. 

The Group takes into account quantitative and qualitative aspects to determine which investments in associates are considered significant. 

Note 8 includes summary financial information and other information of the Group's associates.

(e)

Joint arrangements 

Joint arrangements are arrangements of which the Group and other party or parties have joint control bound by a contractual arrangement. Under IFRS 11, investments in joint arrangements are classified as either joint ventures or joint operations depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. 

Investments in joint ventures are accounted for under the equity method. Under the equity method of accounting, interests in joint ventures are initially recognized in the Consolidated Statements of Financial Position at cost and adjusted thereafter to recognize the Group’s share of post-acquisition profits or losses and other comprehensive income in the Statements of Income and Other Comprehensive Income. 

The Group determines at each reporting date whether there is any objective evidence that the investment in a joint ventures is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognizes such difference in "Share of profit / (loss) of associates and joint ventures" in the Statements of Income.

2.4.

Segment information 

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker (“CODM”), responsible for allocating resources and assessing performance. The operating segments are described in Note 6.

2.5.

Foreign currency translation

(a)

Functional and presentation currency 

Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Consolidated Financial Statements are presented in Argentine Pesos, which is the Group’s presentation currency.

(b)

Transactions and balances in foreign currency 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities nominated in foreign currencies are recognized in the profit or loss for the year. 

Foreign exchange gains and losses are presented in the Statement of Income within finance income and finance costs, as appropriate, unless they have been capitalized.

(c)

Group companies 

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: 

(i)

assets, liabilities and goodwill for each Statement of Financial Position presented are translated at the closing rate at the date of that financial position;

(ii)

income and expenses for each Statement of Comprehensive Income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

(iii)

all resulting exchange differences are recognized in the Statement of Comprehensive Income. 

The accounting policy of the Group consists in accounting the translation difference of its subsidiaries by the “step-by-step” method according to IAS 21.

2.6.

Investment properties 

Investment properties are those properties owned by the Group that are held either to earn long-term rental income or for capital appreciation, or both, and that are not occupied by the Group for its own operations. Investment property also includes property that is being constructed or developed for future use as investment property. The Group also classifies as investment properties land whose future use has not been determined yet. The Group’s investment properties primarily comprise the Group’s portfolio of shopping malls and offices, certain property under development and undeveloped land. 

Where a property is partially owner-occupied, with the rest being held for rental income or capital appreciation, the Group accounts for the portions separately. The portion that is owner-occupied is accounted for as property, plant and equipment under IAS 16 “Property, Plant and Equipment” and the portion that is held for rental income or capital appreciation, or both, is treated as investment properties under IAS 40 “Investment Properties”. 

Investment properties are measured initially at cost. Cost comprises the purchase price and directly attributable expenditures, such as legal fees, certain direct taxes, commissions and in the case of properties under construction, the capitalization of financial costs. 

For properties under development, capitalization of costs includes not only financial costs, but also all costs directly attributable to works in process, from commencement of construction until it is completed and property is in conditions to start operating. 

Direct expenses related to lease contract negotiation (such as payment to third parties for services rendered and certain specific taxes related to execution of such contracts) are capitalized as part of the book value of the relevant investment properties and amortized over the term of the lease. 

Borrowing costs associated with properties under development or undergoing major refurbishment are capitalized. The finance cost capitalized is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowings associated with specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Finance cost is capitalized from the commencement of the development work until the date of practical completion. Capitalization of finance costs is suspended if there are prolonged periods when development activity is interrupted. Finance cost is also capitalized on the purchase cost of land or property acquired specifically for redevelopment in the short term but only where activities necessary to prepare the asset for redevelopment are in progress. 

After initial recognition, investment property is carried at fair value. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value. Investment properties under construction are measured at fair value if the fair value is considered to be reliably determinable. On the other hand, properties under construction for which the fair value cannot be determined reliably, but for which the Group expects it to be determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier. 

Fair values are determined differently depending on the type of property being measured. 

Generally, for the Operations Center in Argentina, fair value of office buildings and land reserves is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Fair value of office building for the Operations Center in Israel is based on discounted cash flow projections. 

The fair value of the Group’s portfolio of Shopping Malls is based on discounted cash flow projections. This method of valuation is commonly used in the shopping mall industry in the region where the Group conducts its operations. 

The fair value of office buildings in the Operations Center in Israel is based on discounted cash flow projections.

As required by CNV 576/10 Resolution, valuations are performed as of the financial position date by accredited externals appraisers who have recognized professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the Consolidated Financial Statements. The fair value of investment property reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under current market conditions. 

Subsequent expenditures are capitalized to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognized. 

Changes in fair values are recognized in the Statement of Income under the line item “Net gain from fair value adjustment of investment properties”. 

Asset transfers, including assets classified as investments properties which are reclassified under other items or vice-versa, may only be carried out when there is a change of use evidenced by: a) commencement of occupation of real property by the Group, where investment property is transferred to property, plant and equipment; b) commencement of development activities for sale purposes, where investment property is transferred to property for sale; c) the end of Group occupation, where it is transferred from property, plant and equipment to investment properties; or d) commencement of an operating lease transaction with a third party, where properties for sale are transferred to investment property. The value of the transfer is the one that the property had at the time of the transfer and subsequently is valued in accordance with the accounting policy related to the item. 

The Group may sell its investment property when it considers that such property no longer forms part of the lease business. The carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the Statement of Income in the line “Net gain from fair value adjustments of investment properties”. 

Investment properties are derecognized when they are disposed of or when they are permanently withdrawn from use and no future economic benefits are expected to arise from their disposals. The disposal of properties is recognized when the significant risks and rewards have been transferred to the buyer. As for unconditional agreements, proceeds are accounted for when title to property passes to the buyer and the buyer intends to make the respective payment. In the case of conditional agreements, where such conditions have been met. Where consideration receivable for the sale of the properties is deferred, it is discounted to present value. The difference between the discounted amount and the amount receivable is treated as interest income and recognized over the period using the effective interest method. Direct expenses related to the sale are recognized in the line "Other operating results, net" in the Statement of Income at the time they are incurred.

2.7.

Property, plant and equipment 

This category primarily comprises, buildings or portions of a building used for administrative purposes, machines, computers, and other equipment, motor vehicles, furniture, fixtures and fittings and improvements to the Group’s corporate offices. 

The Group has also several hotel properties. Based on the respective contractual arrangements with hotel managers and / or given their direct operators nature, the Group considers it retains significant exposure to the variations in the cash flows of the hotel operations, and accordingly, hotels are treated as owner-occupied properties and classified under "Property, plant and equipment". 

All property, plant and equipment (“PPE”) is stated at acquisition cost less depreciation and accumulated impairment, if any. The acquisition cost includes expenditures which are directly attributable to the acquisition of the items. For properties under development, capitalization of costs includes not only financial costs, but also all costs directly attributable to works in process, from commencement of construction until it is completed and the property is in conditions to start operating. 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Such costs may include the cost of improvements and replacement of parts as they meet the conditions to be capitalized. The carrying amount of those parts that are replaced is derecognized. Repairs and maintenance are charged as incurred in the Statement of Income. Depreciation, based on a component approach, is calculated using the straight-line method to allocate the cost over the assets’ estimated useful lives. 

The remaining useful life as of June 30, 2018 is as follows: 

Buildings and facilities Between 5 and 50 years
Machinery and equipment Between 3 and 24 years
Communication networks Between 4 and 20 years
Others Between 3 and 25 years

 

As of each fiscal year-end, an evaluation is performed to determine the existence of indicators of any decrease in recoverable value or useful life of assets. If there are any indicators, the recoverable amount and/or residual useful life of impaired asset(s) is estimated, and an impairment adjustment is made, if applicable. As of each fiscal year-end, the residual useful life of assets is estimated and adjusted, if necessary. The book amount of an asset is reduced to its recoverable value if the book value greater than its estimated recoverable value. 

Gains from the sale of these assets are recognized when the significant risks and rewards have transferred to the buyer. This will normally take place on unconditional exchange, generally when legal title passes to the buyer and it is probable that the buyer will pay. For conditional exchanges, sales are recognized when these conditions are satisfied. Gains and losses on disposals are determined by comparing the proceeds net of direct expenses related to such sales, with the carrying amount as of the date of each transaction. Gains and losses from the disposal of property, plant and equipment items are recognized within “Other operating results, net” in the Statement of Income. 

When assets of property, plant and equipment are transferred to investment property, the difference between the value at cost transferred and the fair value of the investment property is allocated to a reserve within equity.

2.8.

Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement. 

A Group company is the lessor: 

Properties leased out to tenants under operating leases are included in “Investment Properties” in the Statement of Financial Position. See Note 2.25 for the recognition of rental income. 

The Group has not leased out to tenants under financial leases. 

A Group company is the lessee: 

The Group acquires certain specific assets (especially machinery and computer equipment) under finance leases. Finance leases are capitalized at the commencement of the lease at the lower of the fair value of the property and the present value of the minimum lease payments. Capitalized lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. The finance charges are charged over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Liabilities corresponding to finance leases, measured at discounted value, are included in current and non-current borrowings.

Operating leases where the Group acts as lessee were charged to results at the time they accrue. They mainly include offices and properties for commercial uses. 

2.9.

Intangible assets 

(a)

Goodwill 

Goodwill represents future economic benefits arising from assets that are not capable of being individually identified and separately recognized by the Group on an acquisition. Goodwill is initially measured as the difference between the fair value of the consideration transferred, plus the amount of non-controlling interest in the acquisition and, in business combinations achieved in stages, the acquisition-date fair value of the previously held equity interest in the acquisition; and the net fair value of the identifiable assets and liabilities assumed on the acquisition date. 

Goodwill is not amortized but tested for impairment at each fiscal year-end, or more frequently if there is an indication of impairment. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, referred to as cash-generating units (“CGU”). In order to determine whether any impairment loss should be recognized, the book value of CGU or CGU groups is compared against its recoverable value. Net book value of CGU and CGU groups include goodwill and assets with limited useful life (such as, investment properties, property, plant and equipment, intangible assets and working capital). 

If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Impairment losses recognized for goodwill are not reversed in a subsequent period. 

The recoverable amount of a CGU is the higher of the fair value less costs-to-sell and the value-in-use. The fair value is the amount at which a CGU may be sold in a current transaction between unrelated, willing and duly informed parties. Value-in-use is the present value of all estimated future cash flows expected to be derived from CGU or CGU groups. 

Goodwill is assigned to the Group's cash generating units on the basis of operating segments. The recoverable amount of a cash generating unit is determined based on fair value calculations. These calculations use the price of the CGU assets and they are compared with the book values plus the goodwill assigned to each cash generating unit. 

No impairment was recorded as a result of the analysis performed. 

(b)

Computer software 

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives of three years. Costs associated with maintaining computer software programs are recognized as an expense as incurred. 

(c)

Branding and client relationships 

This relates to the fair value of brands and client relationships arising at the time of the business combination with IDBD. They are subsequently valued at cost, less the accumulated amortization or impairment. Client relationships have an average twelve-year useful life, while one of the brands have an indefinite useful life and the other ten-year useful life.

(d)

Right to receive future units under barter agreements 

The Group also enters into barter transactions where it normally exchanges undeveloped parcels of land with third-party developers for future property to be constructed on the bartered land. The Group generally receives monetary assets as part of the transactions and/or a right to receive future units to be constructed by developers. Such rights are initially recognized at cost (which is the fair value of the land assigned) and are not adjusted later, unless there is any sign of impairment. 

At each year-end, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any of such signs exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. For intangible assets with indefinite useful lives, the Group annually reviews the existence of an impairment, or more frequently if signs of impairment are identified.  

2.10.

Trading properties 

Trading properties comprises those properties either intended for sale or in the process of construction for subsequent sale. Trading properties are carried at the lower of cost and net realizable value. Where there is a change in use of investment properties evidenced by the commencement of development with a view to sale, the properties are reclassified as trading properties at cost, which is the carrying value at the date of change in use. They are subsequently carried at the lower of cost and net realizable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the trading properties to their present location and condition. 

2.11.

Inventories 

Inventories include assets held for sale in the ordinary course of the Group's business activities, assets in production or construction process for sale purposes, and materials, supplies or other assets held for consumption in the process of producing sales and/or services. 

Inventories are measured at the lower of cost or net realizable value. 

Net realizable value is the estimated selling price in the ordinary course of business less selling expenses. It is determined on an ongoing basis, taking into account the product type and aging, based on the accumulated prior experience with the useful life of the product. The Group periodically reviews the inventory and its aging and books an allowance for impairment, as necessary. 

The cost of consumable supplies, materials and other assets is determined using the weighted average cost method, the cost of inventories of mobile phones, related accessories and spare parts is priced under the moving average method, and the cost of the remaining inventories is priced under the first in, first out (FIFO) method. 

Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Inventories and materials are initially recognized at cash price, and the difference being charged as finance cost.

2.12.

Financial instruments 

The Group classifies financial assets in the following categories: those to be measured subsequently at fair value, and those to be measured at amortized cost. This classification depends on whether the financial asset is an equity investment or a debt investment. 

Debt investments 

A debt investment is classified at amortized cost only if both of the following criteria are met: (i) the objective of the Group’s business model is to hold the asset to collect the contractual cash flows; and (ii) the contractual terms give rise on specified dates to cash derived solely from payments of principal and interest due on the principal outstanding. The nature of any derivatives embedded in the debt investment are considered in determining whether the cash derives solely from payment of principal and interest due on the principal outstanding and are not accounted for separately. 

If either of the two criteria mentioned in the previous paragraph is not met, the debt instrument is classified at fair value through profit or loss. The Group has not designated any debt investment as measured at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch. Changes in fair values and gains from disposal of financial assets at fair value through profit or loss are recorded within “Financial results, net” in the Statement of Income. 

Equity investments 

All equity investments, which are neither subsidiaries nor associate companies nor joint venture of the Group, are measured at fair value. Equity investments that are held for trading are measured at fair value through profit or loss. For all other equity investments, the Group can make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. The Group decided to recognize changes in fair value of equity investments through changes in profit or loss.

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value though profit or loss are expensed in the Statement of Income. 

In general, the Group uses the transaction price to ascertain the fair value of a financial instrument on initial recognition. In the other cases, the Group records a gain or loss on initial recognition only if the fair value of the financial instrument can be supported by other comparable transactions observable in the market for the same type of instrument or if based on a technical valuation that only inputs observable market data. Unrecognized gains or losses on initial recognition of a financial asset are recognized later on, only to the extent they arise from a change in factors (including time) that market participants would consider upon setting the price. 

Gains/losses on debt instruments measured at amortized cost and not identified for hedging purposes are charged to income where the financial assets are derecognized or an impairment loss is recognized, and during the amortization process under the effective interest method. The Group is required to reclassify all affected debt investments when and only when its business model for managing those assets changes. 

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets measured at amortized cost is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) can be reliably estimated. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. 

Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. 

2.13.

Derivative financial instruments and hedging activities and options 

Derivative financial instruments are initially recognized at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

 

The Group manages exposures to various risks using hedging instruments that provide coverage. The Group does not use derivative financial instruments for speculative purposes. To date, the Group has used put and call options, foreign currency future and forward contracts and interest rate swaps, as appropriate. 

The Group’s policy is to apply hedge accounting where it is permissible under IFRS 9, practical to do so and its application reduces volatility, but transactions that may be effective hedges in economic terms may not always qualify for hedge accounting under IFRS 9. 

The fair values of financial instruments that are traded in active markets are computed by reference to market prices. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting year. 

The stock call options involving shares of subsidiaries agreed at a fixed price are accounted for under shareholders’ equity. 

2.14.

Groups of assets and liabilities held for sale 

The groups of assets and liabilities are classified as held for sale where the Group is expected to recover their value by means of a sale transaction (rather than through use) and where such sale is highly probable. Groups of assets and liabilities held for sale are valued at the lower of their net book value and fair value less selling costs. 

2.15.

Trade and other receivables 

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. 

An allowance for doubtful accounts is recorded where there is objective evidence that the Group may not be able to collect all receivables within their original payment term. Indicators of doubtful accounts include significant financial distress of the debtor, the debtor potentially filing a petition for reorganization or bankruptcy, or any event of default or past due account. 

In the case of larger non-homogeneous receivables, the impairment provision is calculated on an individual basis. 

The Group collectively evaluates smaller-balance homogeneous receivables for impairment. For that purpose, they are grouped on the basis of similar risk characteristics, and account asset type, collateral type, past-due status and other relevant factors are taken into account. 

The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of a separate account, and the amount of the loss is recognized in the Statements of Income within “Selling expenses”. Subsequent recoveries of amounts previously written off are credited against “Selling expenses” in the Statements of Income. 

2.16.

Other assets

Other assets are recognized initially at cost and subsequently measured at the acquisition cost or the net realizable value, the lower. Within this item the Group includes CLN tokens (digital assets). 

2.17.

Trade and other payables 

Trade payables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. 

2.18.

Borrowings 

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as finance cost over the period of the borrowings using the effective interest method. 

2.19.

Provisions 

Provisions are recognized when: (i) the Group has a present (legal or constructive) obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount of the obligation can be made. Provisions are not recognized for future operating losses. 

The Group bases its accruals on up-to-date developments, estimates of the outcomes of the matters and legal counsel´s experience in contesting, litigating and settling matters. As the scope of the liabilities becomes better defined or more information is available, the Group may be required to change its estimates of future costs, which could have a material adverse effect on its results of operations and financial condition or liquidity. 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provisions due to passage of time is recognized in the Statements of Income. 

2.20.

Onerous contracts 

A provision for onerous contracts is recognized when the expected benefits are lower than the costs of complying with contractual obligations. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the net expected cost of continuing the contract. Before recognizing a provision, the Group recognizes the impairment of the assets related to the mentioned contract.

2.21.

Irrevocable right of use of the capacity of underwater communication lines

Transactions carried out to acquire an irrevocable right of use of the capacity of underwater communication lines are accounted for as service contracts. The amount paid for the rights of use of the communication lines is recognized as “Prepaid expenses” under trade and other receivables, and is amortized over a straight-line basis during the period set forth in the contract (including the option term), which is the estimated useful life of such capacity. 

2.22.

Employee benefits 

(a)

Defined contribution plans 

The Group operates a defined contribution plan, which is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current year or prior periods. The contributions are recognized as employee benefit expense in the Statements of Income in the fiscal year they are due. 

(b)

Termination benefits 

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or as a result of an offer made to encourage voluntary termination as a result of redundancy.

(c)

Bonus plans 

The Group recognizes a liability and an expense for bonuses based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

(d)

Defined benefit plans 

The Group’s net obligation concerning defined benefit plans are calculated on an individual basis for each plan, estimating the future benefits employees have gained in exchange for their services in the current and prior periods. The benefit is disclosed at its present value, net of the fair value of the plan assets. Calculations are made on an annual basis by a qualified actuary. 

(e)

Share-based payments 

The fair value of share-based payments is measured at the date of grant. The Group measures the fair value using the valuation technique that it considers to be the most appropriate to value each class of award. Methods used may include Black-Scholes calculations or other models as appropriate. The valuations take into account factors such as non-transferability, exercise restrictions and behavioral considerations. 

The fair value of the share-based payment is expensed and charged to income under the straight-line method over the vesting period in which the right to the equity instrument becomes irrevocable (“vesting period”); such value is based on the best available estimate of the number of equity instruments expected to vest. Such estimate is revised if subsequent information available indicates that the number of equity instruments expected to vest differs from original estimates.  

(f)

Other long-term benefits 

The net obligations of IDBD, DIC and its subsidiaries concerning employee long-term benefits, other than retirement plans, is the amount of the minimum future benefits employees have gained in exchange for their services in the current and prior periods. These benefits are discounted at their present values. 

2.23.

Current income tax, deferred income tax and minimum presumed income tax 

Tax expense for the year comprises the charge for tax currently payable and deferred income. Income tax is recognized in the statements of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case, the tax is also recognized in other comprehensive income or directly in equity, respectively. 

Current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the date of the Statements of Financial Position in the countries where the Company and its subsidiaries operate and generate taxable income. The Group periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The Group establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. 

Deferred income tax is recognized, using the deferred tax liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the date of the Statements of Financial Position and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. 

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 

The Group is able to control the timing of dividends from its subsidiaries and hence does not expect taxable profit. Hence, deferred tax is recognized in respect of the retained earnings of overseas subsidiaries only if at the date of the Statements of Financial Position, dividends have been accrued as receivable a binding agreement to distribute past earnings in future has been entered into by the subsidiary or there are sale plans in the foreseeable future. 

Entities in Argentina are subject to the Minimum Presumed Income Tax (“MPIT”). Pursuant to this tax regime, an entity is required to pay the greater of the income tax or the MPIT. The MPIT provision is calculated on an individual entity basis at the statutory asset tax rate of 1% and is based upon the taxable assets of each company as of the end of the year, as defined by Argentine law. Any excess of the MPIT over the income tax may be carried forward and recognized as a tax credit against future income taxes payable over a 10-year period. When the Group assesses that it is probable that it will use the MPIT payment against future taxable income tax charges within the applicable 10-year period, recognizes the MPIT as a current or non-current receivable, as applicable, within “Trade and other receivables” in the Statements of Financial Position. 

The minimum presumed income tax was repeeled by Law N ° 27,260 in its article 76 for the periods that begin as of January 1, 2019. 

Regarding the above mentioned, considering the recent Instruction No. 2 of the Federal Administration of Public Revenues (AFIP), it is not appropriate to record the provision of the above mention tax, in the event that accounting and tax losses occur. 

2.24.

Cash and cash equivalents 

Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are not included.

2.25.

Revenue recognition 

Group's revenue is measured at the fair value of the consideration received or receivable. 

Revenue from the sale of property is recognized when: (a) material risks and benefits derived from title to property have been transferred; (b) the Company does not retain any management function on the assets sold nor does it have any control whatsoever on such assets; (c) the amount of revenues and costs associated to the transaction may be measured on a reliable basis; and (d) the Company is expected to accrue the economic benefits associated to the transaction. 

Revenue derived from the provision of services is recognized when: (a) the amount of revenue and costs associated to services may be measured on a reliable basis; (b) the Company is expected to accrue the economic benefits associated to the transaction, and (c) the level of completion of services may be measured on a reliable basis.

Rental and services - Shopping malls portfolio 

Revenues derived from business activities developed in the Group’s shopping malls mainly include rental income under operating leases, admission rights, commissions and revenue from several complementary services provided to the Group’s lessees. 

Rental income from shopping mall, admission rights and commissions, are recognized in the Statements of Income on a straight-line basis over the term of the leases. When lease incentives are granted, they are recognized as an integral part of the net consideration for the use of the property and are therefore recognized on the same straight-line basis. 

Contingent rents, i.e. lease payments that are not fixed at the inception of a lease, are recorded as income in the periods in which they are known and can be determined. Rent reviews are recognized when such reviews have been agreed with tenants.

The Group’s lease contracts also provide that common area maintenance charges and collective promotion funds of the Group’s shopping malls are borne by the corresponding lessees, generally on a proportionally basis. These common area maintenance charges include all expenses necessary for various purposes including, but not limited to, the operation, maintenance, management, safety, preservation, repair, supervision, insurance and enhancement of the shopping malls. The lessor is responsible for determining the need and suitability of incurring a common area expense. The Group makes the original payment for such expenses, which are then reimbursed by the lessees. The Group considers that it acts as a principal in these cases. Service charge income is presented separately from property operating expenses. Property operating expenses are expensed as incurred.

Rental and services - Offices and other rental properties 

Rental income from offices and other rental properties include rental income from offices leased out under operating leases, income from services and expenses recovery paid by tenants. 

Rental income from offices and other rental properties is recognized in the Statements of Income on a straight-line basis over the term of the leases. When lease incentives are granted, they are recognized as an integral part of the net consideration for the use of the property and are therefore recognized on the same straight-line basis. 

A substantial portion of the Group’s leases require the tenant to reimburse the Group for a substantial portion of operating expenses, usually a proportionate share of the allocable operating expenses. Such property operating expenses include necessary expenses such as property operating, repairs and maintenance, security, janitorial, insurance, landscaping, leased properties and other administrative expenses, among others. The Group manages its own rental properties. The Group makes the original payment for these expenses, which are then reimbursed by the lessees. The Group considers that it acts as a principal in these cases. The Group accrues reimbursements from tenants as service charge revenue in the period the applicable expenditures are incurred and is presented separately from property operating expenses. Property operating expenses are expensed as incurred.

Revenue from supermarkets 

Revenue from the sale of goods in the ordinary course of business is recognized at the fair value of the consideration collected or receivable, net of returns and discounts. When the credit term is short and financing is that typical in the industry, consideration is not discounted. When the credit term is longer than the industry’s average, in accounting for the consideration, the Group discounts it to its net present value by using the client’s risk premium or the market rate. The difference between the fair value and the nominal amount is accounted for under financial income. If discounts are granted and their amount can be measured reliably, the discount is recognized as a reduction of revenue. 

Revenues from supermarkets have been recognized in discontinued operations. See Note 4.G.

Revenue from communication services and sale of communication equipment 

Revenue derived from the use of communication networks by the Group, including mobile phones, Internet services, international calls, fixed line calls, interconnection rates and roaming service rates, are recognized when the service is provided, proportionally to the extent the transaction has been realized, and provided all other criteria have been met for revenue recognition. 

Revenue from the sale of mobile phone cards is initially recognized as deferred revenue and then recognized as revenue as they are used or upon expiration, whichever takes place earlier. 

A transaction involving the sale of equipment to a final user normally also involves a service sale transaction. In general, this type of sale is performed without a contractual obligation by the client to consume telephone services for a minimum amount over a predetermined period. As a result, the Group records the sale of equipment separately and recognizes revenue pursuant to the transaction value upon delivery of the equipment to the client. Revenue from telephone services is recognized and accounted for as they are provided. When the client is bound to make a minimum consumption of services during a predefined period, the contract formalizes a transaction of several elements and, therefore, revenue from the sale of equipment is recorded at an amount that should not exceed its fair value, and is recognized upon delivery of the equipment to the client and provided the criteria for recognition are met. The Group ascertains the fair value of individual elements, based on the price at which it is normally sold, after taking into account the relevant discounts.

Revenue derived from long-term contracts is recognized at the present value of future cash flows, discounted at market rates prevailing on the transaction date. Any difference between the original credit and its net present value is accounted for as interest income over the credit term. 

2.26.

Cost of sales 

The cost of sales of supermarkets, includes the acquisition costs for the products less discounts granted by suppliers, as well as all expenses associated with storing and handling inventories. It also includes operational and management costs for shopping malls held by the Group as part of its real estate investments. 

The Group’s cost of sales in relation to the supply of communication services mainly includes the costs to purchase equipment, salaries and related expenses, service costs, royalties, ongoing license dues, interconnection and roaming expenses, cell tower lease costs, depreciation and amortization expenses and maintenance expenses directly related to the services provided. 

2.27.

Cost of borrowings and capitalization

The costs for general and specific loans that are directly attributable to the acquisition, construction or production of suitable assets for which a prolonged period is required to place them in the conditions required for their use or sale, are capitalized as part of the cost of those assets until the assets are substantially ready for use or sale. The general loan costs are capitalized according to the average debt rate of the Group. Foreign exchange differences for loans in foreign currency are capitalized if they are considered an adjustment to interest costs. The interest earned on the temporary investments of a specific loan for the acquisition of qualifying assets are deducted from the eligible costs to be capitalized. The rest of the costs from loans are recognized as expenses in the period in which they are incurred.

2.28.

Share capital 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds. 

When any Group’s subsidiary purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. When such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and related income tax effects, is included in equity. 

Instruments issued by the Group that will be settled by the Company delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset are classified as equity.

2.29.

Comparability of information 

As required by IFRS 3, the information of IDBD and DIC is included in the Consolidated Financial Statements of the Group from the date that control was obtained, that is from October 11, 2015, and the prior periods were not modified by this situation. Therefore, the consolidated financial information for periods after the acquisition is not comparable with prior periods. Additionally, results for the fiscal year ended June 30, 2018 and 2017 includes 12 full months of results from IDBD and DIC, for the period beginning April 1st through March 31, while results for the fiscal year ended June 30, 2016 includes the results from IDBD for the period beginning October 11, 2015 through March 31, 2016; both adjusted for significant transactions that took place between April 1st. and June 30. Hence, the result for the reported periods are not comparable. 

Furthermore, during the fiscal year ended as of June 30, 2018 and 2016, the Argentine Peso devalued against the US Dollar and other currencies by around 73% and 65%, respectively, which has an impact in comparative information presented in the Financial Statements, due mainly to the currency exposure of our income and costs from the "Offices" segment, and our assets and liabilities in foreign currency. During the fiscal year ended as of June 30, 2017, the devaluation of the Argentine Peso against the US Dollar was not significant. 

The balances as of June 30, 2017 and 2016, which are disclosed for comparative porpoises arise from the Consolidated Financial Statements as of June 30, 2017. Certain items from prior fiscal years have been reclassified for consistency purposes. See Note 4.G. regarding the loss of control in Shufersal.

2.30.

Out-of-period adjustments

During the fiscal year ended June 30, 2017, the Group reclassified Ps. 31 into intangible assets, Ps. 224 into investment property, Ps. 59 into deferred tax liabilities and Ps. 133 into non-controlling interests, with modifications to such items by those amounts for the previous fiscal year. These reclassifications were not material to the Financial Statements previously issued, and are not material to these Consolidated Financial Statements, either individually or as a whole.

Significant judgments, key assumptions and estimates
12 Months Ended
Jun. 30, 2018
Significant Judgments Key Assumptions And Estimates  
Significant judgments, key assumptions and estimates
3. Significant judgments, key assumptions and estimates

 

Not all of these significant accounting policies require management to make subjective or complex judgments or estimates. The following is intended to provide an understanding of the policies that management considers critical because of the level of complexity, judgment or estimations involved in their application and their impact on the Consolidated Financial Statements. These judgments involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.

 

Estimation Main assumptions Potential implications Main references
Business combination - Allocation of acquisition prices Assumptions regarding timing, amount of future revenues and expenses, revenue growth, expected rate of return, economic conditions, discount rate, among other. Should the assumptions made be inaccurate, the recognized combination may not be correct. Note 4 – Acquisitions and dispositions
Recoverable amounts of cash-generating units (even those including goodwill), associates and assets.

The discount rate and the expected growth rate before taxes in connection with cash-generating units.

The discount rate and the expected growth rate after taxes in connection with associates.

Cash flows are determined based on past experiences with the asset or with similar assets and in accordance with the Group’s best factual assumption relative to the economic conditions expected to prevail.

Business continuity of cash-generating units.

Appraisals made by external appraisers and valuators with relation to the assets’ fair value, net of realization costs (including real estate assets).

Should any of the assumptions made be inaccurate, this could lead to differences in the recoverable values of cash-generating units.

Note 11 – Property, plant and equipment

Note 13 – Intangible assets

Control, joint control or significant influence Judgment relative to the determination that the Group holds an interest in the shares of investees (considering the existence and influence of significant potential voting rights), its right to designate members in the executive management of such companies (usually the Board of directors) based on the investees’ bylaws; the composition and the rights of other shareholders of such investees and their capacity to establish operating and financial policies for investees or to take part in the establishment thereof. Accounting treatment of investments as subsidiaries (consolidation) or associates (equity method) Note 2.3
Estimated useful life of intangible assets and property, plant and equipment Estimated useful life of assets based on their conditions. Recognition of accelerated or decelerated depreciation by comparison against final actual earnings (losses).

Note 11 – Property, plant and equipment

Note 13 – Intangible assets

Fair value valuation of investment properties Fair value valuation made by external appraisers and valuators. See Note 10. Incorrect valuation of investment property values

Note 10 – Investment properties

 

Income tax

The Group estimates the income tax amount payable for transactions where the Treasury’s Claim cannot be clearly determined.

Additionally, the Group evaluates the recoverability of assets due to deferred taxes considering whether some or all of the assets will not be recoverable.

Upon the improper determination of the provision for income tax, the Group will be bound to pay additional taxes, including fines and compensatory and punitive interest. Note 21 – Taxes
Allowance for doubtful accounts A periodic review is conducted of receivables risks in the Group’s clients’ portfolios. Bad debts based on the expiration of account receivables and account receivables’ specific conditions. Improper recognition of charges / reimbursements of the allowance for bad debt. Note 15 – Trade and other receivables
Level 2 and 3 financial instruments

Main assumptions used by the Group are:

 Discounted projected income by interest rate

 Values determined in accordance with the shares in equity funds on the basis of its Financial Statements, based on fair value or investment assessments.

 Comparable market multiple (EV/GMV ratio).

 Underlying asset price (Market price); share price volatility (historical) and market interest-rate (Libor rate curve).

Incorrect recognition of a charge to income / (loss). Note 14 – Financial instruments by category
 Probability estimate of contingent liabilities. Whether more economic resources may be spent in relation to litigation against the Group; such estimate is based on legal advisors’ opinions. Charge / reversal of provision in relation to a claim. Note 19 – Provisions
Qualitative considerations for determining whether or not the replacement of the debt instrument involves significantly different terms

The entire set of characteristics of the exchanged debt instruments, and the economic parameters represented therein:

Average lifetime of the exchanged liabilities; Extent of effects of the debt terms (linkage to index; foreign currency; variable interest) on the cash flows from the instruments.

Classification of a debt instrument in a manner whereby it will not reflect the change in the debt terms, which will affect the method of accounting recording. Note 13 – Financial instruments by category

Acquisitions and disposals
12 Months Ended
Jun. 30, 2018
Acquisitions And Disposals  
Acquisitions and disposals
4. Acquisitions and disposals

 

Operations Center in Argentina

 

  A) Sale of ADS and shares from IRSA CP

 

During October 2017 and February 2018, IRSA and its subsidiaries completed the sale in the secondary market of 10,420,075 ordinary shares of IRSA CP, par value Ps. 1 per share, represented by American Depositary Shares (“ADSs”), representing four ordinary shares each, which represents nearly 8.27% of IRSA CP capital for a total amount of Ps. 2,489 (US$ 140). After the transaction, IRSA’s direct and indirect interest in IRSA CP amounts to approximately 86.34%. This transaction was accounted in equity as an increase in the equity attributable to the parent for an amount of Ps. 272, net of taxes.

 

  B) Acquisition of Philips Building

 

On June 5, 2017, the Group, through IRSA CP, acquired the Philips Building located in Saavedra, Autonomous City of Buenos Aires, next to the DOT Shopping Mall. The building has a constructed area of 10,142 square meters and is intended for office development and lease. The acquisition price was US$ 29 million, which was fully paid up as of June 30, 2017. Furthermore, IRSA CP has signed a bailment contract with the seller for a term of 7 months and 15 days, which has expired automatically on January 19, 2018.

 

Operations Center in Israel

 

  A) Purchase of DIC shares by Dolphin

 

As mentioned in Note 7, in connection with the Promotion of Competition and Reduction of Concentration Law in Israel, Dolphin Netherlands B.V. made a non-binding tender offer for the acquisition of all DIC shares held by IDBD. For purposes of the transaction, a committee of independent directors has been set up to assess the tender offer and negotiate the terms and conditions. The Audit Committee has issued an opinion without reservations as to the transaction in accordance with the terms of section 72 et al. of the Capital Markets Law N° 26,831.

 

On November 2017, Dolphin IL, a subsidiary of Dolphin Netherlands B.V., has subscribed the final documents for the acquisition of the total shares owned by IDBD in DIC.

 

The transaction has been made for an amount of NIS 1,843 (equivalent to NIS 17.20 per share of DIC). The consideration was paid NIS 70 in cash (equivalent to Ps. 348 as of the date of the transaction) and NIS 1,773 (equivalent to Ps. 8,814 as of the date of the transaction) were financed by IDBD to Dolphin, maturing in five years, with the possibility of an extension of three additional years in tranches of one year each, that will accrue an initial interest of 6.5% annually, which will increase by 1% annually in case of extension for each annual tranch. Furthermore, guarantees have been implemented for IDBD, for IDBD bondholders and their creditors, through pledges of different degree of privilege over DIC shares resulting from the purchase. Moreover, a pledge will be granted in relation to 9,636,097 (equivalent to 6.38%) of the shares of DIC that Dolphin currently holds in the first degree of privilege in favor of IDBD and in second degree of privilege in favor of IDBD's creditors. This transaction has no effect in the Groups consolidation structure and has been accounted in equity as a decrease in the equity attributable to the parent for an amount of Ps. 114.

 

  B) Purchase of IDBD shares to IFISA

 

On December 2017, Dolphin Netherlands BV, has executed a stock purchase agreement for all of the shares that IFISA held of IDBD, which amounted to 31.7% of the capital stock. In this way, as of that date, Dolphin holds the 100% of IDBD's shares.

 

The transaction was made at a price of NIS 398 (equivalent to NIS 1.894 per share and approximately to Ps. 1,968 as of the date of the transaction). As consideration of the transaction all receivables from IFISA to Dolphin have been canceled plus a payment of USD 33.7 (equivalents to Ps. 588 as of the date of the transaction). This transaction was accounted in equity as a decrease in the equity attributable to the parent for an amount of Ps. 2,923.

 

  C) Partial sale of Clal

 

On May 1, 2017, August 30, 2017, January 1, 2018 and May, 2018 continuing with the instructions given by the Commissioner of Capital Markets, Insurance and Savings of Israel, IDBD has sold in each of the abovementioned dates a 5% of its stake in Clal through a swap transaction. The consideration was set at an amount of approximately NIS 644.5 (equivalent to approximately Ps. 3,228 considering exchange date at each date). After the completion of the transaction, IDBD’s interest in Clal was reduced to 34.8% of its share capital.

 

  D) Agreement for New Pharm acquisition

 

On April 6, 2017, Shufersal entered into an agreement (the "agreement") with Hamashbir 365 Holdings Ltd. ("the seller" or "Hamashbir") for the purchase of the shares of New Pharm Drugstores Ltd. ("New Pharm"), representative of 100% of that Company’s share capital ("the shares sold"). On December 20, 2017, the transaction was completed and Shufersal became the sole shareholder of New Pharm prior to the sale of a Shufersal store and approval of the transaction by the antitrust commission. The price paid, net of the respective adjustments to the transaction price, was NIS 126 (equivalent to Ps. 630 at the date of the transaction).

 

The following table resumes consideration and fair value of the acquired assets and the liabilities assumed:  

 

December 2017 

Fair value of identifiable assets and assumed liabilities:

 

Properties, plant and equipment   200 
Inventories   380 
Trade and other receivables   335 
Cash and cash equivalents   25 
Borrowings   (260)
Trade and other payables   (930)
Employee benefits   (25)
Provisions   (15)
Total net identifiable assets   (290)
Goodwill (pending allocation)   920 
Total   630 

 

If New Pharm had been acquired since the beginning of the year, the Group's consolidated statement of income for the year ended June 30, 2018 would show a net pro-forma discontinued operations result of Ps. 12,189.

 

  E) Increase of interest in Cellcom

 

On June 27, 2018, Cellcom raised its share capital for a gross total of NIS 280 million (approximately Ps. 2,212 as of that date). DIC took part in such raise by acquiring 6,314,200 shares for a total amount of NIS 145.9 million (approximately Ps. 1,152). In addition, on June 26, 2018, DIC engaged in a swap transaction with a bank for 1,150,000 shares of Cellcom from third parties. The following are the main characteristics of the transaction:

 

  · DIC has the voting rights but not the economic rights over the shares under the swap transaction,
  · The maturity of the swap is 90 days
  · The impact in results of the swap transaction is the difference of the price per share between the subscription date and the date of its cancellation.

 

After the abovementioned transactions the equity interest that DIC has on Cellcom rose from 42.07% to 43.14% and the percentage of voting rights rose from 45.45% to 46.16% without considering the swap transaction.

 

  F) Negotiations between Israir and Sun d’Or

 

On June 30, 2017 IDB Tourism was at an advanced stage of negotiations with Sun d’Or International Airlines Ltd. (“Sun d’Or”), a subsidiary of El Al Israel Airlines Ltd. ("El Al"), and on July 2, 2017 an agreement was signed, which has been rejected by the Antitrust Commission on January 10, 2018.

 

As a consequence of this process, the Group’s Financial Statements as of June 30, 2018 and 2017 present the investment in Israir as assets and liabilities held for sale, and a loss of nearly NIS 56 (approximately equivalent to Ps. 231 as of December 31, 2016 when it was reclassified to discontinued operation), as a result of measuring these net assets at the estimated recoverable value. The Group is evaluating the reasons for the objection and has appealed this situation. The group evaluated that the criteria to continue classifying the investment as discontinued operations as established by IFRS 5 are maintained.

 

  G) Changes of interest in Shufersal

 

During the fiscal year ended June 30, 2017, the Group – through DIC and several transactions – increased its interest in Shufersal capital stock by 7.7% upon payment of a net amount of NIS 235 (equivalent to approximately Ps. 935) and in March 2017, DIC sold 1.38% of Shufersal in an amount of NIS 50 (equal to Ps. 210 as of that date) Additionally, on December 24, 2017, DIC sold Shufersal shares, decreasing its stake from 53.30% to 50.12%. The consideration with respect to the sale of the shares amounted to NIS 169.5 (equivalent to Ps. 847 on the day of the transaction). Both transactions were accounted for as an equity transaction generating an increase in the equity attributable to the controlling shareholder in the amount of Ps. 287 and Ps. 385 respectively.

 

On June 16, 2018 DIC announced the sale of a percentage of its stake in Shufersal to institutional investors. The same was completed on June 21, 2018. The percentage sold amounted to 16.56% and the net amount charged was approximately NIS 848 (equivalent to Ps. 6,420 on the day of the transaction), consequently DIC lost control of Shufersal, so the Group deconsolidated the subsidiary on that date. 

 

Below are the details of the sale: 

 

 06.30.2018 

Cash received   6,420 
Remediation of the fair value of the remaining interest   13,164 
Total   19,584 
Net assets disposed including goodwill   (8,501)
Gain from the sale of a subsidiary, net of taxes (*)   11,083 

 

(*) Includes Ps. 2,643 as a result of the sale and Ps. 8,440 as a result of the remeasurement at the fair value of the new stake. 

The following table details the net assets disposed: 

 

 06.30.2018 

Investment properties   4,489 
Property, plant and equipment   29,001 
Intangible assets   7,108 
Investments in associates and joint ventures   401 
Restricted assets   91 
Trade and other receivables   12,240 
Investments in financial assets   2,846 
Derivative financial instruments   23 
Inventories   6,276 
Cash and cash equivalents   5,579 
TOTAL ASSETS   68,054 
Borrowings   21,310 
Deferred income tax liabilities   2,808 
Trade and other payables   23,974 
Provisions   447 
Employee benefits   1,279 
Salaries and social security liabilities   2,392 
Income tax and MPIT liabilities   8 
TOTAL LIABILITIES   52,218 
Non-controlling interest   7,335 
Net assets disposed including goodwill   8,501 

 

 

  H) Interest increase in DIC

 

On September 23, 2016 Tyrus acquired 8,888,888 of DIC’s shares from IDBD for a total amount of NIS 100 (equivalent to Ps. 401 as of that date), which represent 8.8% of the Company’s outstanding shares at such date.

 

During March 2017, IDBD exercised all of DIC’s Series 5 and 6 warrants for nearly NIS 210 (approximately equivalent to Ps. 882 as of that date), thereby increasing its direct interest in DIC to nearly 70% of such company’s share capital as of that date and the Group's equity interest to 79.47%. Subsequently, third parties not related to the Group, exercised their warrants, thus diluting the Group’s interest in DIC to 77.25%. This transaction was accounted for as an equity transaction generating a decrease in equity attributable to the controlling shareholder in the amount of Ps. 413.

 

  I) Sale of Adama

 

On August 2016, Koor and a subsidiary of ChemChina executed an agreement to obtain the 40% of the shares of Adama held by Koor. The price of the transaction included a payment in cash of US$ 230 plus the total repayment of the non-recourse loan and its interests, which had been granted to Koor by a Chinese bank. On November 22, 2016, the sale transaction was finalized and Koor received cash in the amount of US$ 230. As of June 30, 2017, the Company recorded a gain of Ps. 4,216 pursuant to the sale. Our share in the results of Adama was retrospectively classified as discontinued operations in the Group’s Consolidated Statements of Income as from July 17, 2016 (Note 32).

 

  J) Partial sale of equity interest in PBC

 

DIC sold 12% of its equity interest in PBC for a total consideration of NIS 217 (equivalent to approximately
Ps. 810); as a result, DIC’s interest in PBC has declined to 64.4%. This transaction was accounted for as an equity transaction generating an increase in equity attributable to the controlling shareholder in the amount of Ps. 34.

 

  K) Partial sale of equity interest in Gav Yam

 

On December 5, 2016, PBC sold 280,873 shares of its subsidiary Gav-Yam Land Corporation Ltd. for an amount of NIS 391 (equivalent to Ps. 1,616 as of that date). As a result of this transaction, the equity interest has decreased to 55.06%.  This transaction was accounted for as an equity transaction generating an increase in equity attributable to the controlling shareholder in the amount of Ps. 184.

Financial risk management and fair value estimates
12 Months Ended
Jun. 30, 2018
Financial Risk Management And Fair Value Estimates  
Financial risk management and fair value estimates
5. Financial risk management and fair value estimates

 

The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, interest rate risk, indexing risk due to specific clauses and other price risks), credit risk, liquidity risk and capital risk. Within the Group, risk management functions are conducted in relation to financial risks associated to financial instruments to which the Group is exposed during a certain period or as of a specific date.

 

The general risk management policies of the Group seek both to minimize adverse potential effects on the financial performance of the Group and to manage and control the financial risks effectively. The Group uses financial instruments to hedge certain risk exposures when deemed appropriate based on its internal management risk policies, as explained below.

 

Given the diversity of characteristics corresponding to the business conducted in its operations centers, the Group has decentralized the risk management policies geographically based on its two operations centers (Argentina and Israel) in order to identify and properly analyze the various types of risks to which each subsidiary is exposed.

 

The Group’s principal financial instruments in the Operation Center in Argentina comprise cash and cash equivalents, receivables, payables, interest bearing assets and liabilities, other financial liabilities, other investments and derivative financial instruments. The Group manages its exposure to key financial risks in accordance with the Group’s risk management policies.

 

The Group’s management framework in the Operation Center in Argentina includes policies, procedures, limits and allowed types of derivative financial instruments. The Group has established a Risk Committee, comprising members of senior management and a member of Cresud’s Audit Committee (Parent Company of IRSA), which reviews and oversees management’s compliance with these policies, procedures and limits and has overall accountability for the identification and management of risk across the Group.

 

Given the diversity of the activities conducted by IDBD, DIC and its subsidiaries, and the resulting risks, IDBD and DIC manage the exposure to their own key financial risks and those of its wholly-owned subsidiaries (except for IDB Tourism) in conformity with a centralized risk management policy, with the non-wholly owned IDBD and DIC subsidiaries being responsible for establishing the risk policy, taking action to cover market risks and managing their activities in a decentralized way. Both IDBD and DIC as holding and each subsidiary are responsible for managing their own financial risks in accordance with agreed global guidelines. The Chief Financial Officers of each entity are responsible for managing the risk management policies and systems, the definition of hedging strategies, insofar as applicable and based on any restriction that may be apply as a result of financial debt, the supervision of its implementation and the answer to such restrictions. The management framework includes policies, procedures, limits and allowed types of derivative financial instruments.

 

This section provides a description of the principal risks that could have a material adverse effect on the Group’s strategy in each operations center, performance, results of operations and financial condition. The risks facing the businesses, set out below, do not appear in any particular order of potential materiality or probability of occurrence.

 

The analysis of sensitivities to market risks included below are based on a change in one factor while holding all other factors constant. In practice this is unlikely to occur, and changes in some of the factors may be correlated – for example, changes in interest rate and changes in foreign currency rates.

 

This sensitivity analysis provides only a limited, point-in-time view. The actual impact on the Group’s financial instruments may differ significantly from the impact shown in the sensitivity analysis.

 

  (a) Market risk management

 

The market risk is the risk of changes in the market price of financial instruments with which the Group operates. The Group’s market risks arise from open positions in foreign currencies, interest-bearing assets and liabilities and equity securities of certain companies, to the extent that these are exposed to market value movements. The Group sets limits on the exposure to these risks that may be accepted, which are monitored on a regular basis.

 

Foreign Exchange risk and associated derivative financial instruments

 

The Group publishes its Consolidated Financial Statements in Argentine pesos but conducts operations and holds positions in other currencies. As a result, the Group is exposed to foreign currency exchange risk through exchange rate movements, which affect the value of the Group’s foreign currency positions. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.

 

The real estate, commercial and/or financial activities of the Group’s subsidiaries from the operations center in Argentina have the Argentine Peso as functional currency. An important part of the business activities of these subsidiaries is conducted in that currency, thus not exposing the Group to foreign exchange risk. Other Group's subsidiaries have other functional currencies, principally US Dollar. In the ordinary course of business, the Group, through its subsidiaries, transacts in currencies other than the respective functional currencies of the subsidiaries. These transactions are primarily denominated in US Dollars and New Israeli Shekel. Net financial position exposure to the functional currencies is managed on a case-by-case basis, partly by entering into foreign currency derivative instruments and/or by borrowings in foreign currencies, or other methods, considered adequate by the Management, according to circumstances.

 

Financial instruments are considered sensitive to foreign exchange rates only when they are not in the functional currency of the entity that holds them. The following table shows the net carrying amounts of the Company’s financial instruments nominated in US$ and NIS, broken down by the functional currencies in which the Company operates for the years ended June 30, 2018 and 2017. The amounts are presented in Argentine Pesos, the presentation currency of the Group:

 

1) Operations Center in Argentina 

 

 Net monetary position (Liability)/Asset 

Functional currency

June 30, 2018 

 

June 30, 2017 

 

US$ 

 US$ 

 

NIS 

Argentine Peso   (13,324)   (11,436)   - 
Uruguayan Peso   (368)   (131)   - 
US Dollar   -    -    1 
Total   (13,692)   (11,567)   1 

 

The Group estimates that, other factors being constant, a 10% appreciation of the US Dollar against the respective functional currencies at year-end for the Operations Center in Argentina would result in a net additional loss before income tax for the years ended June 30, 2018 and 2017 for an amount of Ps. 1,369 and Ps. 1,157, respectively. A 10% depreciation of the US Dollar against the functional currencies would have an equal and opposite effect on the statements of income.

 

On the other hand, the Group also uses derivatives, such as future exchange contracts, to manage its exposure to foreign currency risk. As of June 30, 2018 and 2017 the Group has future exchange contracts pending for an amount of US$ 47.3 and US$ 12.9, respectively.

 

2) Operations Center in Israel

 

As of June 30, 2018 and 2017, the net position of financial instruments in US Dollars, which exposes the Group to the foreign currency risk amounts to Ps. (7,180) and Ps. (4,376), respectively. The Group estimates that, other factors being constant, a 10% appreciation of the US Dollar against the Israeli currency would increase loss before income tax for the year ended June 30, 2018 for an amount of Ps. 718 (Ps. 438 loss in 2017).

 

Interest rate risk

 

The Group is exposed to interest rate risk on its investments in debt instruments, short-term and long-term borrowings and derivative financial instruments.

 

The primary objective of the Group’s investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, the Group diversifies its portfolio in accordance with the limits set by the Group. The Group maintains a portfolio of cash equivalents and short-term investments in a variety of securities, including both government and corporate obligations and money market funds.

 

The Group’s interest rate risk principally arises from long-term borrowings (Note 19). Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.

 

As of June 30, 2018 and 2017, 95.5% of the Group’s long-term financial loans in this operation center have a fixed interest rate so that IRSA is not significantly exposed to the fluctuation risk of the interest rate.

 

1) Operations Center in Argentina

 

The Group manages this risk by maintaining an appropriate mix between fixed and floating rate interest bearing liabilities. These activities are evaluated regularly to determine that the Group is not exposed to interest rate fluctuations that could adversely impact its ability to meet its financial obligations and to comply with its borrowing covenants.

 

The Group occasionally manages its cash flow interest rate risk exposure by different hedging instruments, including but not limited to interest rate swap, depending on each particular case. For example, interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates or vice versa.

 

The interest rate risk policy is approved by the Board of Directors. Management analyses the Group’s interest rate exposure on a dynamic basis. Various scenarios are simulated, taking into consideration refinancing, renewal of existing positions and alternative financing sources. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. Trade payables are normally interest-free and have settlement dates within one year. The simulation is done on a regular basis to verify that the maximum potential loss is within the limits set by management.

 

Note 19 shows a breakdown of the Group’s fixed-rate and floating-rate borrowings per currency denomination and functional currency of the subsidiary that holds the loans for the fiscal years ended June 30, 2018 and 2017.

 

The Group estimates that, other factors being constant, a 1% increase in floating rates at year-end would increase net loss before income tax for the years ended June 30, 2018 and 2017 in the amount of Ps. 15.1 and Ps. 6.6, respectively. A 1% decrease in floating rates would have an equal and opposite effect on the Statement of Income.

 

2) Operations Center in Israel

 

IDBD manages the exposure to the interest rate risk in a decentralized way and it is monitored regularly by different management offices in order to confirm that there are no adverse effects over its ability to meet its financial obligations and to comply with its borrowings covenants.

 

As of June 30, 2018 and 2017, the 96.1% and 96.6%, respectively, of the Group’s long-term financial borrowings in this operations center are at fixed interest rate, therefore, IDBD is not significantly exposed to the interest rate fluctuation risk.

 

IDBD estimates that, other factors being constant, a 1% increase in floating rates at year-end would increase net loss before income tax for the year ended June 30, 2018, in Ps. 68, approximately (Ps. 21 approximately in 2017). A 1% decrease in floating rates would have an equal and opposite effect on the Statement of Income.

 

Risk of fluctuations of the Consumer Price Index ("CPI") of Israel

 

The Operations Center in Israel has financial liabilities indexed by the Israeli CPI. As of the date of this Consolidated Financial Statements, more than half of financial liabilities arising from the Operations Center in Israel were adjusted by the Israeli CPI.

 

Net financial position exposure to the Israeli CPI fluctuations is managed in a decentralized way on a case-by-case basis, by entering into different derivative financial instruments, as the case may be, or by other methods, considered adequate by the Management, based on the circumstances.

 

As of June 30, 2018, 44.8% of the loans are affected by the evolution of the CPI. A 1% increase in the CPI would generate a loss of Ps. 721 (Ps. 427 for 2017) and a decrease of 1% generates a profit of Ps. 706 (Ps. 427 for 2017).

 

Other price risks

 

The Group is exposed to equity securities price risk or derivative financial instruments because of investments held in entities that are publicly traded, which were classified on the Consolidated Statements of Financial Position at “fair value through profit or loss”. The Group regularly reviews the prices evolution of these equity securities in order to identify significant movements.

 

As of June 30, 2018 and 2017 the total value of Group’s investments in shares and derivative financial instruments of public companies amounts to Ps. 391 and Ps. 300, respectively.

 

In the Operations Center in Israel the investment in Clal is classified on the Statements of Financial Position at “fair value through profit or loss” and represents the most significant IDBD’s exposure to price risk. IDBD has not used hedging against these risks (Note 13). IDBD regularly reviews the prices evolution of these equity securities in order to identify significant movements.

 

The Group estimates that, other factors being constant, a 10% decrease in quoted prices of equity securities and in derivative financial instruments portfolio at year-end would generate a loss before income tax for the year ended June 30, 2018 of Ps. 31 (Ps. 24 in 2017) for the Operations Center in Argentina and a loss before income tax for the year ended June 30, 2018 of Ps. 1,225 (Ps. 856 in 2017) for the Operations Center in Israel. An increase of 10% on these prices would have an equal and opposite effect in the Statement of Income.

 

(b)        Credit risk management

 

The credit risk arises from the potential non-performance of contractual obligations by the parties, with a resulting financial loss for the Group. Credit limits have been established to ensure that the Group deals only with approved counterparties and that counterparty concentration risk is addressed and the risk of loss is mitigated. Counterparty exposure is measured as the aggregate of all obligations of any single legal entity or economic entity to the Group.

 

The Group is subject to credit risk arising from deposits with banks and financial institutions, investments of surplus cash balances, the use of derivative financial instruments and from outstanding receivables

 

In the Operations Center in Argentina, the credit risk is managed on a country-by-country basis. Each local entity is responsible for managing and analyzing the credit risk. In the Operations Center in Israel, under the policy established by IDBD’s board of directors, the management deposits excess cash in local banks which are not company creditors, in order to keep minimum risk values in cash balances.

 

The Group’s policy in each operations center is to manage credit exposure from deposits, short-term investments and other financial instruments by maintaining diversified funding sources in various financial institutions. All the institutions that operate with the Group are well known because of their experience in the market and high credit quality. The Group places its cash and cash equivalents, investments, and other financial instruments with various high credit quality financial institutions, thus mitigating the amount of credit exposure to any one institution. The maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents and short-term investments in the Statements of Financial Position.

 

1) Operations Center in Argentina

 

Trade receivables related to leases and services provided by the Group represent a diversified tenant base and account for 91.7% and 89.6% of the Group’s total trade receivables of the operations center as of June 30, 2018 and 2017, respectively. The Group has specific policies to ensure that rental contracts are transacted with counterparties with appropriate credit quality. The majority of the Group’s shopping mall, offices and other rental properties’ tenants are well recognized retailers, diversified companies, professional organizations, and others. Owing to the long-term nature and diversity of its tenancy arrangements, the credit risk of this type of trade receivables is considered to be low. Generally, the Group has not experienced any significant losses resulting from the non-performance of any counterpart to the lease contracts and, as a result, the allowance for doubtful accounts balance is low. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Group. If there is no independent rating, risk control assesses the credit quality of the customer, taking into account its past experience, financial position, actual experience and other factors. Based on the Group’s analysis, the Group determines the size of the deposit that is required from the tenant at inception. Management does not expect any material losses from non-performance by these counterparties. See details on Note 14.

 

On the other hand, property receivables related to the sale of trading properties represent 2.1%, 4.4% of the Group’s total trade receivables as of June 30, 2018 and 2017, respectively. Payments on these receivables have generally been received when due. These receivables are generally secured by mortgages on the properties. Therefore, the credit risk on outstanding amounts is considered very low.

 

2) Operations Center in Israel

 

IDBD’s primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate risk. IDBD generally enters into derivative transactions with high-credit-quality counterparties and, by policy, limits the amount of credit exposure to each counterparty. The amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which counterparty’s obligations exceed the obligations that IDBD has with that counterparty. The credit risk associated with derivative financial instruments is representing by the carrying value of the assets positions of these instruments.

 

The IDBD’s policy is to manage credit exposure to trade and other receivables within defined trading limits. All IDBD’s significant counterparties have internal trading limits.

 

Trade receivables from investment and development property activities are primarily derived from leases and services from shopping malls, offices and other rental properties; receivables from the sale of trading properties and investment properties (primarily undeveloped land and non-retail rental properties). IDBD has a large customer base and is not dependent on any single customer. The credits for sales from the activities of telecommunications and supermarkets do not present large concentrations of credit risk, not depending on a few customers and with most of their transactions in cash or with credit cards. (See Note 14 for details).

 

(c)            Liquidity risk management

 

The Group is exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to meet cash requirements, and the risk that financial assets cannot readily be converted to cash without loss of value. Failure to manage liquidity risks could have a material impact on the Group’s cash flow and Statements of Financial Position.

 

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding its existing and prospective debt requirements by maintaining diversified funding sources.

 

Each operation center monitors its current and projected financial position using several key internally generated reports: cash flow; debt maturity; and interest rate exposure. The Group also undertakes sensitivity analysis to assess the impact of proposed transactions, movements in interest rates and changes in property values on the key profitability, liquidity and balance sheet ratios.

 

The debt of each operation center and the derivative positions are continually reviewed to meet current and expected debt requirements. Each operation center maintains a balance between longer-term and shorter-term financings. Short-term financing is principally raised through bank facilities and overdraft positions. Medium- to longer-term financing comprises public and private bond issues, including private placements. Financing risk is spread by using a variety of types of debt. The maturity profile is managed in accordance with each operation center needs, by spreading the repayment dates and extending facilities, as appropriate.

 

The tables below show financial liabilities, including each operation center derivative financial liabilities groupings based on the remaining period at the Statements of Financial Position to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows and as a result, they do not reconcile to the amounts disclosed on the Statements of Financial Position. However, undiscounted cash flows in respect of balances due within 12 months generally equal their carrying amounts in the Statements of Financial Position, as the impact of discounting is not significant. The tables include both interest and principal flows.

 

Where the interest payable is not fixed, the amount disclosed has been determined by reference to the existing conditions at the reporting date.

  

1) Operations Center in Argentina 

June 30, 2018

 

Less than 1 year 

 

Between 1 and 2 years 

 

Between 2 and 3 years 

 

Between 3 and 4 years 

 

More than 4 years 

 

Total 

Trade and other payables   1,277    127    12    10    3    1,429 
Borrowings (excluding finance leases liabilities)   3,837    7,787    7,807    1,236    11,450    32,117 
Finance leases obligations   7    6    2    -    -    15 
Derivative Financial Instruments   -    -    -    -    46    46 
Total   5,121    7,920    7,821    1,246    11,499    33,607 

 

June 30, 2017

 

Less than 1 year 

 

Between 1 and 2 years 

 

Between 2 and 3 years 

 

Between 3 and 4 years 

 

More than 4 years 

 

Total 

Trade and other payables   752    8    6    2    5    773 
Borrowings (excluding finance leases liabilities)   1,656    529    528    525    6,749    9,987 
Finance leases obligations   2    1    1    -    -    4 
Derivative Financial Instruments   5    -    -    -    -    5 
Total   2,415    538    535    527    6,754    10,769 

 

2) Operations Center in Israel 

June 30, 2018

 

Less than 1 year 

 

Between 1 and 2 years 

 

Between 2 and 3 years 

 

Between 3 and 4 years 

 

More than 4 years 

 

Total 

Trade and other payables   12,080    1,191    1,326    -    -    14,597 
Borrowings   29,733    26,639    22,256    23,734    114,113    216,475 
Lease obligations   16    -    -    -    -    16 
Purchase obligations   3,921    1,823    639    347    229    6,959 
Derivative Financial Instruments   8    -    -    -    -    8 
Total   45,758    29,653    24,221    24,081    114,342    238,055 

 

June 30, 2017

 

Less than 1 year 

 

Between 1 and 2 years 

 

Between 2 and 3 years 

 

Between 3 and 4 years 

 

More than 4 years 

 

Total 

Trade and other payables   16,850    1,584    692    -    -    19,126 
Borrowings   23,733    18,084    20,837    13,353    67,537    143,544 
Lease obligations   10    5    5    5    -    25 
Purchase obligations   1,135    1,140    873    5    -    3,153 
Derivative Financial Instruments   62    76    -    -    -    138 
Total   41,790    20,889    22,407    13,363    67,537    165,986 

See Note 19 for a description of the commitments and restrictions related to loans and the ongoing renegotiations.

 

(d)        Capital risk management

 

The capital structure of the Group consists of shareholders’ equity and net borrowings. The Group’s equity is analyzed into its various components in the statements of changes in equity. Capital is managed so as to promote the long-term success of the business and to maintain sustainable returns for shareholders. The Group seeks to manage its capital requirements to maximize value through the mix of debt and equity funding, while ensuring that Group entities continue to operate as going concerns, comply with applicable capital requirements and maintain strong credit ratings.

The Group assesses the adequacy of its capital requirements, cost of capital and gearing (i.e., debt/equity mix) as part of its broader strategic plan. The Group continuously reviews its capital structure to ensure that (i) sufficient funds and financing facilities are available to implement the Group’s property development and business acquisition strategies, (ii) adequate financing facilities for unforeseen contingencies are maintained, and (iii) distributions to shareholders are maintained within the Group’s dividend distribution policy. The Group also protects its equity in assets by obtaining appropriate insurance.

 

The Group’s strategy is to maintain key financing metrics (net debt to total equity ratio or gearing and debt ratio) in order to ensure that asset level performance is translated into enhanced returns for shareholders whilst maintaining an appropriate risk reward balance to accommodate changing financial and operating market cycles.

 

The following tables details the Group’s key metrics in relation to managing its capital structure. The ratios are within the ranges previously established by the Group’s strategy. 

Operation Center in Argentina 

 

 

June 30, 2018 

 

June 30, 2017 

 

June 30, 2016 

Gearing ratio (i)   40.83%   31.66%   29.91%
Debt ratio (ii)   40.58%   29.13%   25.27%

Operation Center in Israel 

 

 

June 30, 2018 

 

June 30, 2017 

 

June 30, 2016 

Gearing ratio (i)   82.85%   81.95%   82.74%
Debt ratio (ii)   148.46%   128.04%   137.75%

(i)

Calculated as total of borrowings over total borrowings plus equity attributable equity holders of the parent company.

(ii)

Calculated as total borrowings over total properties (including trading properties, property, plant and equipment, investment properties and rights to receive units under barter agreements). 

Segment information
12 Months Ended
Jun. 30, 2018
Segment Information  
Segment information
6. Segment information

 

IFRS 8 requires an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the CODM. According to IFRS 8, the CODM represents a function whereby strategic decisions are made and resources are assigned. The CODM function is carried out by the President of the Group, Mr. Eduardo S. Elsztain. In addition, and due to the acquisition of IDBD, two responsibility levels have been established for resource allocation and assessment of results of the two operations centers, through executive committees in Argentina and Israel. 

 

Segment information is reported from two perspectives: geographic presence (Argentina and Israel) and products and services. In each operations center, the Group considers separately the various activities being developed, which represent reporting operating segments given the nature of its products, services, operations and risks. Management believes the operating segment clustering in each operations center reflects similar economic characteristics in each region, as well as similar products and services offered, types of clients and regulatory environments. 

 

As of fiscal year 2018, the CODM reviews certain corporate expenses associated with each operation center in an aggregate manner and separately from each of the segments, such expenses have been disclosed in the "Corporate" segment of each operation center. Additionally, as of fiscal year 2018, the CODM also reviews the office business as a single segment and the entertainment business in an aggregate and separate manner from offices, including that concept in the "Others" segment. Segment information for years 2017 and 2016 has been recast for the purposes of comparability with the present year. 

 

Below is the segment information which was prepared as follows: 

 

·       Operations Center in Argentina: 

 

Within this operations center, the Group operates in the following segments: 

 

  o The “Shopping Malls” segment includes results principally comprised of lease and service revenues related to rental of commercial space and other spaces in the shopping malls of the Group.
  o The “Offices” segment includes the operating results from lease revenues of offices, other rental spaces and other service revenues related to the office activities.
  o The “Sales and Developments” segment includes the operating results of the development, maintenance and sales of undeveloped parcels of land and/or trading properties. Real estate sales results are also included.
  o The "Hotels" segment includes the operating results mainly comprised of room, catering and restaurant revenues.
  o The “International” segment includes assets and operating profit or loss from business related to associates Condor (hotels) and Lipstick (offices).
  o The “Others” segment primarily includes the entertainment activities through La Arena and La Rural S.A. and the financial activities carried out by BHSA and Tarshop.
  o The “Corporate” segment includes the expenses related to the corporate activities of the Operations Center in Argentina.

  

The CODM periodically reviews the results and certain asset categories and assesses performance of operating segments of this operations center based on a measure of profit or loss of the segment composed by the operating income plus the share of profit / (loss) of joint ventures and associates. The valuation criteria used in preparing this information are consistent with IFRS standards used for the preparation of the Consolidated Financial Statements, except for the following: 

 

  · Operating results from joint ventures are evaluated by the CODM applying proportional consolidation method. Under this method the profit/loss generated and assets are reported in the Statement of Income line-by-line based on the percentage held in joint ventures rather than in a single item as required by IFRS. Management believes that the proportional consolidation method provides more useful information to understand the business return. On the other hand, the investment in the joint venture La Rural S.A. is accounted for under the equity method since this method is considered to provide more accurate information in this case.

 

  · Operating results from Shopping Malls and Offices segments do not include the amounts pertaining to building administration expenses and collective promotion funds (“FPC”, as per its Spanish acronym) as well as total recovered costs, whether by way of expenses or other concepts included under financial results (for example default interest and other concepts). The CODM examines the net amount from these items (total surplus or deficit between building administration expenses and FPC and recoverable expenses).

  

The assets’ categories examined by the CODM are: investment properties, property, plant and equipment, trading properties, inventories, right to receive future units under barter agreements, investment in associates and goodwill. The sum of these assets, classified by business segment, is reported under “assets by segment”. Assets are allocated to each segment based on the operations and/or their physical location.

 

Within the Operations Center in Argentina, most revenue from its operating segments is derived from, and their assets are located in, Argentina, except for the share of profit / (loss) of associates included in the “International” segment located in USA. 

 

Revenues for each reporting segments derive from a large and diverse client base and, therefore, there is no revenue concentration in any particular segment. 

 

·       Operations Center in Israel:

 

Within this operations center, the Group operates in the following segments: 

 

  o The “Real Estate” segment in which, through PBC, the Group operates rental properties and residential properties in Israel, USA and other parts of the world and carries out commercial projects in Las Vegas, USA.
  o The “Supermarkets” segment in which, through Shufersal, reclassified to discontinued operations in the current year, the Group mainly operates a supermarket chain in Israel.
  o The “Telecommunications” segment includes Cellcom whose main activities include the provision of mobile phone services, fixed line phone services, data and Internet, among others.