Electric Networks of Armenia CJSC

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Transcript of Electric Networks of Armenia CJSC

2019 CIS consolidated financial statement template without convenience translation - non-banking (English)Financial Statements for 2019
Contents
Independent Auditors’ Report 3 Statement of Financial Position 5 Statement of Profit or Loss and Other Comprehensive Income 6 Statement of Changes in Equity 7 Statement of Cash Flows 8 Notes to the Financial Statements 10
Electric Networks of Armenia CJSC
5 The statement of financial position is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 10 to 52.
Statement of Financial Position as at 31 December 2019
’000 AMD Note 31 December 2019 31 December 2018 Assets Property and equipment 12 158,822,487 135,047,313 Right of use assets 2,299,947 - Intangible assets 433,270 626,381 Prepayments for non-current assets 14 1,048,711 189,476 Other non-current assets 3,766 3,798 Non-current assets 162,608,181 135,866,968 Inventories 13 9,988,872 9,866,593 Current tax assets - 110,970 Trade and other receivables 15 25,563,949 23,149,085 Prepayments for non-current assets 14 518,339 2,839,663 Cash and cash equivalents 16 4,319,294 3,598,618 Current assets 40,390,454 39,564,929 Total assets 202,998,635 175,431,897 Equity Share capital 18,654,221 18,654,221 Additional paid-in capital 39,946,077 39,946,077 Retained earnings 18,316,967 6,552,867 Total equity 17 76,917,265 65,153,165 Liabilities Government grants 20 3,526,589 3,759,488 Loans and borrowings 19 48,549,099 59,298,510 Trade and other payables 21 11,243 3,352,522 Deferred tax liabilities 10 5,984,175 5,638,925 Lease liabilities 2,288,027 - Non-current liabilities 60,359,133 72,049,445 Government grants 20 244,146 244,145 Loans and borrowings 19 32,604,316 18,180,456 Trade and other payables 21 32,420,589 19,804,686 Current tax liabilities 367,381 - Lease liabilities 85,805 - Current liabilities 65,722,237 38,229,287 Total liabilities 126,081,370 110,278,732 Total equity and liabilities
202,998,635 175,431,897 The Company initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. See Note 5.
Electric Networks of Armenia CJSC
7 The statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 10 to 52.
Statement of Changes in Equity for 2019
’000 AMD Share capital
Total comprehensive income
Total comprehensive income for the year - - 10,753,037 10,753,037
Balance at 31 December 2018 18,654,221 39,946,077 6,552,867 65,153,165
Balance at 1 January 2019 18,654,221 39,946,077 6,552,867 65,153,165
Total comprehensive income
Total comprehensive income for the year - - 11,764,100 11,764,100
Balance at 31 December 2019 18,654,221 39,946,077 18,316,967 76,917,265
The Company initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. See Note 5.
Electric Networks of Armenia CJSC
8 The statement of cash flows is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 10 to 52.
Statement of Cash Flows for 2019 ’000 AMD Note 2019 2018 Cash flows from operating activities Profit for the year 11,764,100 10,753,037 Adjustments for: Depreciation and amortization 9,888,559 8,791,206 Impairment losses/(reversal) 74,814 34,392 Loss on disposal of property and equipment 671,863 135,707 Write-down of inventories (15,343) (12,636) Amortisation of government grants (232,898) (240,587) Net finance costs 4,247,907 3,287,169 Income tax expense 2,152,621 1,265,043 Changes in: Inventories (106,936) (2,504,828) Trade and other receivables (2,924,493) 2,413,119 Trade and other payables 2,074,731 (982,575) Cash flow from operations before income taxes and interest paid
27,594,925 22,939,047
Income tax paid (1,334,000) (300,000) Net cash flows from operating activities 26,260,925 22,639,047 Cash flows from investing activities Acquisition of property and equipment (25,362,408) (16,266,236) Acquisition of intangible assets (45,412) (322,432) Proceeds from sale of property and equipment 151,576 93,788 Placement of bank deposits - (14,542,997) Proceeds from bank deposits - 14,477,800 Interest received 23,355 558,041 Net cash flows used in investing activities (25,232,889) (16,002,036) Cash flow from financing activities Proceeds from borrowings 154,243,915 124,057,600 Repayment of borrowings (149,601,272) (124,124,026) Interest paid (4,415,605) (4,678,660) Payment of lease liabilities* (285,400) - Net cash flows used in financing activities (58,362) (4,745,086) Net increase in cash and cash equivalents 969,674 1,891,925 Cash and cash equivalents at 1 January 3,598,618 1,852,297 Effect of movements in exchange rates on cash and cash equivalents
(248,998) (145,604)
Cash and cash equivalents at 31 December 16 4,319,294 3,598,618
* See Notes 5 and 29.
Electric Networks of Armenia CJSC
Statement of Cash Flows for 2019
9 The statement of cash flows is to be read in conjunction with the notes to, and forming part of, the financial statements set out on pages 10 to 52.
The Company initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. The Company has classified: – cash payments for the principal portion of lease payments as financing activities; – cash payments for the interest portion as financing activities consistent with the presentation of
interest payments chosen by the Company; and – short-term lease payments and payments for leases of low-value assets as operating activities. The Company has not restated comparative information.
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
10
Note Page Note Page
3. Functional and presentation currency 12
4. Use of estimates and judgements 12
5. Changes in significant accounting policies 12
6. Revenue 14 7. Purchased power 17
8. Other expenses 17
10. Income taxes 18
12. Property and equipment 21
13. Inventories 22
14. Prepayments for non-current assets 22
15. Trade and other receivables 23
16. Cash and cash equivalents 23 17. Capital and reserves 23
18. Capital management 24 19. Loans and borrowings 25
20. Government grants 28
22. Fair values and risk management 29
23. Leases 37 24. Capital commitments 38
25. Contingencies 39
28. Basis of measurement 40
29. Significant accounting policies 41 30. New standards and interpretations not yet
adopted 52
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
11
1. Reporting entity
Organisation and operations Electric Networks of Armenia CJSC (the “Company“) is a closed joint stock company incorporated in the Republic of Armenia. The Company’s registered office is 127 A. Armenakyan Street, Yerevan 0047, Republic of Armenia. The Company’s principal activity is purchase and regulated distribution of electricity to residential and non-residential customers in the Republic of Armenia. The Company has an exclusive license for distribution of electricity within the Republic of Armenia. Tariffs for sold electricity and purchased power are determined by the Public Services Regulatory Commission (“PSRC”) of the Republic of Armenia. At 31 December 2019 the Company is owned by Tashir Capital cjsc (70%) and Liormand Holdings Ltd. (30 %). The Company is ultimately controlled by a single individual, Mr. Samvel Karapetyan. Related party transactions are disclosed in Note 26.
Armenian business environment The Company’s operations are located in Armenia. Consequently, the Company is exposed to the economic and financial markets of Armenia which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in Armenia. The financial statements reflect management’s assessment of the impact of the Armenian business environment on the operations and the financial position of the Company. The future business environment may differ from management’s assessment.
2. Basis of accounting
Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). This is the first set of the Company’s annual financial statements in which IFRS 16 Leases has been applied. The related changes to significant accounting policies are described in Note 5.
Going concern As at 31 December 2019 the Company’s current liabilities exceeded its current assets by AMD 25,331,783 thousand. However, the Company's profit before income tax and cash flows from operating activities for the year ended 31 December 2019 amounted to AMD 13,916,721 thousand and AMD 26,260,925 thousand, respectively, and the management expects the Company to continue making profits and generate sufficient cash flows in future years to settle liabilities as they fall due. Considering the above facts, management believes that there are no significant uncertainties regarding the ability of the Company to continue as a going concern.
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
12
3. Functional and presentation currency The national currency of the Republic of Armenia is the Armenian Dram (“AMD”), which is the Company’s functional currency and the currency in which these financial statements are presented. All financial information presented in AMD has been rounded to the nearest thousand, except when otherwise indicated.
4. Use of estimates and judgements The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in Note 22(c) – measurement of ECL allowances for trade receivables. Measurement of fair values When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in Note 22 – financial instruments.
5. Changes in significant accounting policies IFRS 16 The Company initially applied IFRS 16 Leases from 1 January 2019. The Company applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 January 2019.
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
13
Accordingly, the comparative information presented for 2018 is not restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in IFRS 16 have not generally been applied to comparative information.
Definition of a lease Previously, the Company determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining whether an Arrangement contains a Lease. The Company now assesses whether a contract is or contains a lease based on the definition of a lease, as explained in Note 29(m). On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Company applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 January 2019.
As a lessee As a lessee, the Company leases many assets including land, property and transport vehicles. The Company previously classified leases as operating leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Company. Under IFRS 16, the Company recognises right-of-use assets and lease liabilities for part of these leases – i.e. these leases are on-balance sheet.
(i) Leases classified as operating leases under IAS 17 Previously, the Company classified land, property and transport vehicle leases as operating leases under IAS 17. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate as at 1 January 2019 (see Note 5 d(i)). Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments: the Company applied this approach to all its leases. The Company used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Company: - did not recognise right-of-use assets and liabilities for leases for which the lease term ends within
12 months of the date of initial application; - excluded initial direct costs from the measurement of the right-of-use asset at the date of initial
application.
As a lessor The Company is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor. The Company does not have sub-leases.
Impact on financial statements
(i) Impact on transition* On transition to IFRS 16, the Company recognised additional right-of-use assets and additional lease liabilities as summarised below.
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
14
Right-of-use assets – property and equipment 2,350,773
Lease liabilities 2,350,773 * For the impact of IFRS 16 on profit or loss for the period, see Note 23(a). For the impact of
IFRS 16 on EBITDA see Note 11. For the details of accounting policies under IFRS 16 and IAS 17, see Note 29(m).
When measuring lease liabilities for leases that were classified as operating leases, the Compnay discounted lease payments using its incremental borrowing rate at 1 January 2019. The weighted- average rate applied is 9.4%. A number of other new standards and amendments to the existing standards are effective from 1 January 2019 but they do not have a material effect on the Company’s financial statements, except the one described above.
6. Revenue
Revenue streams The Company generates revenue primarily from the regulated distribution and sale of electric energy. Other sources of revenue include income from network connection activities. ’000 AMD 2019 2018
Revenue from contracts with customers 192,776,198 180,146,941
Other revenue
Total revenue 194,062,397 181,411,820
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
15
Disaggregation of revenue from contracts with customers In the following table, revenue from contracts with customers is disaggregated by primary geographical regions, major products and service lines, type of customer and timing of revenue recognition. For the year ended 31 December Legal entities Households Total
’000 AMD 2019 2018 2019 2018 2019 2018
Primary geographical regions of electricity sales
Yerevan 51,420,345 47,627,017 34,598,728 32,262,237 86,019,073 79,889,254
Syunik 19,459,140 18,503,332 2,878,425 2,763,957 22,337,565 21,267,289
Ararat 11,966,705 11,577,042 6,799,416 6,332,439 18,766,121 17,909,481
Kotayk 10,480,287 9,317,101 7,241,915 6,776,009 17,722,202 16,093,110
Armavir 6,371,465 6,012,524 6,565,617 6,049,551 12,937,082 12,062,075
Lori 6,138,397 4,143,167 4,171,218 4,180,220 10,309,615 8,323,387
Shirak 3,074,340 2,914,923 3,843,223 3,925,088 6,917,563 6,840,011
Gegharkunik 2,920,130 2,743,471 3,186,295 3,266,291 6,106,425 6,009,762
Aragatsotn 2,516,916 2,401,475 2,584,736 2,499,453 5,101,652 4,900,928
Tavush 2,213,823 2,118,193 1,956,422 1,971,195 4,170,245 4,089,388
Vayots Dzor 1,020,319 967,927 1,045,067 1,038,874 2,065,386 2,006,801
Other 323,269 755,455 - - 323,269 755,455
117,905,136 109,081,627 74,871,062 71,065,314 192,776,198 180,146,941
Major service lines
118,350,216 109,628,356 75,712,181 71,783,464 194,062,397 181,411,820
Timing of revenue recognition Products and services transferred over time 118,350,216 109,628,356 75,712,181 71,783,464 194,062,397 181,411,820 Revenue from contracts with customers 118,350,216 109,628,356 75,712,181 71,783,464 194,062,397 181,411,820
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
16
Contract balances The following table provides information about receivables and contract liabilities from contracts with customers. ’000 AMD Note 31 December 2019 31 December 2018
Receivables, which are included in ‘trade and other receivables’ 15 23,385,489 21,287,807
Contract liabilities (1,964,827) (1,471,333) The contract liabilities relate to the advance consideration received from customers for connecting customers to power network of AMD 1,470,929 thousand (2018: AMD 904,034 thousand), for which revenue is recognised over time of power supply contract, and advance consideration received from customers for the supply of electricity of AMD 493,898 thousand (2018: AMD 567,299 thousand). The amount of AMD 1,056,664 thousand recognised in contract liabilities at the beginning of the period has been recognised as revenue for the period ended 31 December 2019. No information is provided about remaining performance obligations at 31 December 2019 that have an original expected duration of one year or less, as allowed by IFRS 15.
Performance obligations and revenue recognition policies Revenue is measured based on the consideration specified in a contract with a customer. The Company recognises revenue when it transfers control over a good or service to a customer. The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies. Type of product/ service
Nature and timing of satisfaction of performance obligations, including significant payment terms Revenue recognition policies
Sale of electric energy
The Company’s promise to customers is to supply electricity and the consideration for the electricity is determined based on customer’s monthly consumption. Payment terms are defined in “Electricity supply and usage rules” (ESUR) set by industry regulator Public Services Regulatory Commission’s (PSRC), according to which the Company should post relevant consumption information (monthly consumption quantities and total bill to be paid) for each consumer in the publicly available means by 10th of the month following the reporting month, after which the consumers should make cash payments in the 7-day period. No discounts are provided.
Customers simultaneously receive and consume the benefits of electricity supply as it is provided and the Company transfers control of the service over time, and therefore, satisfies a performance obligation and recognizes revenue over time. The variable consideration, which represents units of consumed electricity multiplied by the then effective tariffs, is measured by the data taken from meter readers at the end of each calendar month.
Connection to power network
The Company performs activities related to connecting its customers to the power network. Payment terms are defined in “Electricity supply and usage rules” (ESUR) set by industry regulator Public Services Regulatory Commission’s (PSRC), according to which 50% of the fees are paid in advance and the rest when the connection activity is completed. The length of each project depends on the network voltage and does not exceed 270 days per maximum terms set by the Regulator.
The activities related to the network connection do not result in the transfer of goods or services to Customers and as such are set-up activities. Thus, revenue is recognized over the electricity supply contract term. Advances received are included in contract liabilities.
Electric Networks of Armenia CJSC Notes to the Financial Statements for 2019
17
’000 AMD 2019 2018 Electricity for distribution 83,244,608 77,867,844 Available capacity 46,289,603 43,083,088 129,534,211 120,950,932…