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Investments in associates and joint ventures
 12 Months Ended
Jun. 30, 2018
Investments In Associates And Joint Ventures  
Investments in associates and joint ventures
8. Investments in associates and joint ventures

 

Changes if the Group’s investments in associates and joint ventures for the fiscal years ended June 30, 2018 and 2017 were as follows:

 

  June 30, 2018   June 30, 2017
Beginning of the year 7,813   16,835
Increase in equity interest in associates and joint ventures 343   1,102
Issuance of capital and contributions (ii) 156   160
Capital reduction (284)   (32)
Decrease for control obtainment  -   (59)
Distribution of non-controlling interest  -   107
Decrease of interest in associate (339)    -
Share of (loss) / profit (701)   378
Cumulative translation adjustment 3,056   232
Transfer to loans to associates (i) (190)    -
Dividends (ii) (319)   (250)
Distribution for associate liquidation (iii) (72)    -
Incorporation of deconsolidated subsidiary, net (see Note 4.G.) 12,763    -
Reclassification to held for sale (44)   (10,709)
Others 16   49
End of the year (iv) 22,198   7,813

 

(i)  Corresponds to a reclassification made at the time of formalizing the loan repayment terms with the associate in the Operations Center in Israel.

(ii)  See Note 29.

(iii) Corresponds to the distribution of the income from Baicom’s liquidation.

(iv) Includes Ps. (2,452) and Ps. (72) reflecting interests in companies with negative equity as of June 30, 2018 and 2017, respectively, which are disclosed in “Provisions” (see Note 18).


Below is a detail of the investments and the values of the stake held by the Group in associates and joint ventures for the years ended as of June 30, 2018 and 2017, as well as the Group's share of the comprehensive results of these companies for the years ended on June 30, 2018, 2017 and 2016:

 

Name of the entity   % ownership interest   Value of Group's interest in equity   Group's interest in comprehensive income / (loss)
  June 30, 2018 June 30, 2017 June 30, 2016   June 30, 2018 June 30, 2017   June 30, 2018 June 30, 2017 June 30, 2016
Associates                      
New Lipstick (1)   49.90% 49.90% 49.90%   (2,452) (72)   (2,380) (201) (64)
BHSA (2)   29.91% 30.66% 30.66%   2,250 1,693   618 83 259
Condor (3)   18.90% 28.72% 25.53%   696 634   450 53 (27)
Adama (4)   N/A N/A 40.00%   N/A N/A   N/A N/A 4,141
PBEL   45.40% 45.40% 45.40%   1,049 768   389 262 194
Shufersal (7)   33.56% N/A N/A   12,763 N/A   N/A N/A N/A
Other associates   0.00% 0.00% 0.00%   2,610 1,552   978 (322) 465
Joint ventures                      
Quality (5)   50.00% 50.00% 50.00%   1,062 482   541 119 155
La Rural S.A.   50.00% 50.00% -   94 113   14 15  -
Mehadrin (6)   45.41% 45.41% 45.41%   2,272 1,312   961 309 433
Other joint ventures   N/A N/A N/A   1,854 1,331   804 292 446
Total associates and joint ventures           22,198 7,813   2,375 610 6,002

 

Name of the entity   Place of business / Country of incorporation   Main
activity		   Common shares 1 vote   Latest financial statements issued  
        Share capital (nominal value)   Profit / (loss) for the year   Shareholders’ equity
Associates                        
New Lipstick (1)   U.S.   Real estate   N/A    -   (*)  (11)   (*)    (178)
BHSA (2)   Argentina   Financial   448,689,072   (***)  1.500   (***)  2.238   (***)  8.719
Condor (3)   U.S.   Hotel   2,198,225   N/A    (*) 1    (*) 109
Adama (4)   Israel   Agrochemical   N/A   N/A   N/A   N/A
PBEL   India   Real estate   450   (**) 1   (**) (76)   (**) (465)
Shufersal (7)   Israel   Retail   79,282,087   N/A   N/A   N/A
Other associates               N/A   N/A   N/A
Joint ventures                        
Quality (5)   Argentina   Real estate   120,827,022   242   1,079   2,113
La Rural S.A.   Argentina   Organization of events   714,498   1   78   157
Mehadrin (6)   Israel   Agriculture   1,509,889   (**) 3   (**) 57   (**) 595
Other joint ventures            -   N/A   N/A   N/A

 

  (1) New Lipstick's equity comprises a rental office building in New York City known as the “Lipstick Building” with related debt. Metropolitan, a subsidiary of New Lipstick, has renegotiated its non-recourse debt with IRSA, which amounted to US$ 113.1, and obtained a debt reduction of US$ 20 by the lending bank, an extension to April 30, 2020 and an interest rate reduction from LIBOR + 4 b.p. to 2 b.p. upon payment of US$ 40 in cash (US$ 20 in September 2017 and US$ 20 in October 2017), of which IRSA has contributed with US$ 20. Following the renegotiation, Metropolitan’s debt amounts to US$ 53.1. Additionally, Metropolitan has agreed to exercise on or before February 1, 2019 the purchase option on part of the land where the property is built and, to deposit the sum of money corresponding to 1% of the purchase price. Furthermore, Metropolitan has agreed to cause IRSA and other shareholders to furnish the bank, on or before February 1, 2020, with a payment guarantee with acceptable financial ratios fot the Bank for the outstanding balance of the purchase price, or a letter of credit in relation to the loan balance then outstanding.
  (2) BHSA is a full-service commercial bank offering a wide variety of banking activities and related financial services to individuals, small- and medium-sized companies and large corporations. The effect of Treasury shares was considered. Share market value is Ps. 6.65 per share
  (3) Condor is a hotel-focused real estate investment trust (REIT). Share market value as of June 30, 2018 is Ps. 10.70 per share.
  (4) Adama is specialized in the chemical industry, mainly, in the agrochemical industry. See note 4.I.
  (5) Quality is engaged in the operation of the San Martín premises (formerly owned by Nobleza Piccardo S.A.I.C. y F.).
  (6) Mehadrin is a company engaged in the production and exports of citrus, fruits and vegetables. The Group has a joint venture agreement in relation to this company. Share market value as of June 30, 2018 is NIS 18.78 per share.
  (7) Share market value as of June 30, 2018 is NIS 2.24 per share

 

  (*) Amounts in millions of US Dollars under USGAAP. Condor’s year-end falls on December 31, so the Group estimates their interest with a three-month lag, including material adjustments, if any.
  (**) Amounts in millions of NIS.
  (***) The balances as of June 30, 2018 correspond to the Financial Statements of BHSA prepared in accordance with BCRA standards. For the purpose of the valuation of the investment in the company, necessary adjustments to adequate the Financial Statements to IFRS have been considered.
 

Set out below is summarized financial information of the associates and joint ventures considered to be material to the Group:

 

  Current Assets   Non-current Assets   Current Liabilities   Non-current Liabilities   Net assets   % of ownership interest held   Interest in associate and joint venture   Goodwill and others   Book value
As of 06.30.18                                  
Associates                                  
BHSA 56,150   24,837   44,697   28,560   7,730 (iv) 29.9% (iii) 2,312   (62)   2,250
PBEL 1,965   418   584   5,468   (3,669)   45.0%   (1,651)   2,700   1,049
Shufersal 21,982   38,606   24,072   22,100   14,416   33.6%   4,838   7,925   12,763
Joint ventures                                  
Quality Invest (ii) 5   2,820   64   648   2,113   50.0%   1,057   5   1,062
Mehadrin 6,367   5,665   4,860   2,478   4,694   45.4%   2,132   140   2,272
As of 06.30.17                                  
Associates                                  
BHSA 36,762   18,228   33,675   15,548   5,767 (iv) 30.66% (iii) 1,768   (75)   1,693
PBEL 1,469   272   181   4,302   (2,742)   45.40%   (1,245)   2,013   768
Shufersal 12,764   23,482   16,556   12,983   6,707   39.33%   2,638   1,202   3,840
Joint ventures                                  
Quality Invest (ii) 18   1,486   82   466   956   50.00%   478   4   482
Mehadrin 3,439   3,520   2,900   1,502   2,557   45.41%   1,161   151   1,312
 
  Revenues   Net income / (loss)   Total comprehensive income / (loss)   Dividend distribution   Cash of operating activities   Cash of investing activities   Cash of financing activities   Changes in cash and cash equivalents
Year ended 06.30.18 (i)                              
Associates                              
BHSA 11,144   2,238   2,238   200   6,912   1,304   (2,832)   6,180
PBEL 5   (355)   (352)    -   (49)   255   (222)   (16)
Shufersal 60,486   1,187   (76)   455   3,796   (4,877)   2,937   1,856
Joint ventures                              
Quality Invest (ii) 13   1,079   1,079    -   (80)    -   80    -
Mehadrin 7,249   343   348    -   395   26   (71)   350
Year ended 06.30.17 (i)                              
Associates                              
BHSA 6,821   625   625    -   (6,439)   475   2,124   (3,840)
PBEL 300   (292)   (186)    -   202   (37)   (160)   5
Shufersal 47,192   1,000   (7)   (265)   2,883   (1,590)   (1,798)   (505)
Joint ventures                              
Quality Invest (ii) 26   237   237    -   (11)    -   11    -
Mehadrin 5,403   180   172    -   476   (76)   (53)   347
 
  (i) Information under GAAP applicable in the associate and joint ventures´ jurisdiction.
  (ii) In March 2011, Quality acquired an industrial plant located in San Martín, Province of Buenos Aires. The facilities are suitable for multiple uses. On January 20, 2015, Quality agreed with the Municipality of San Martin on certain re zoning and other urban planning matters (“the Agreement”) to surrender a non-significant portion of the land and a monetary consideration of Ps. 40 million, payable in two installments of Ps. 20 each, the first of which was actually paid on June 30, 2015. In July 2017, the Agreement was amended as follows: 1) a revised zoning plan must be submitted within 120 days as from the amendment date, and 2) the second installment of the monetary considerations was increased to Ps. 71 million payables in 18 equal monthly installments. On March 8, 2018, it was agreed with the well-known Gehl Study (Denmark) - Urban Quality Consultant - the elaboration of a Master Plan, generating a modern concept of New Urban District of Mixed Uses.
  (iii) Considering the effect of Treasury shares.
  (iv) Net of non-controlling interest.

 

BHSA

 

BHSA is subject to certain restrictions on the distribution of profits, as required by BCRA regulations.

 

As of June 30, 2018, BHSA has a remnant of 35.2 million Class C treasury shares of a par value of Ps. 1 received in 2009 as a result of certain financial transactions. The Annual Shareholders' Meeting decided to allocate 35.1 million of such shares to an employee compensation plan pursuant to Section 67 of Law 26,831. The remaining shares belong to third party holders of Stock Appreciation Rights, who have failed to produce the documentation required for redemption purposes. As of June 30, 2018, considering the effect of such treasury shares, the Group’s interest in BHSA amounts to 29.91%.

 

The Group estimated that the value in use of its investment in BHSA as of June 30, 2018 and 2017 amounted to Ps. 2,673, Ps. 4,134, respectively. The value in use was estimated based on the present value of future business cash flows. The main assumptions used were the following:

 

  - The Group considered 7 years as the horizon for the projection of BHSA cash flows.
  - The “Private BADLAR” interest rate was projected based on internal data and information gathered from external advisors.
  - The projected exchange rate was estimated in accordance with internal data and external information provided by independent consultants.
  - The discount rate used to discount actual dividend flows was 14.01% in 2018 and 12.99% in 2017.
  - The sensitivity to a 1% increase in the discount rate would be a reduction in the value in use of Ps. 237 for 2018 and of Ps. 506 for 2017. The sensitivity to a 1% increase in the "Private BADLAR" interest rate it would be an increase in the value in use of Ps. 292 for 2018 and of Ps. 476 for 2017.