As required by IAS 1, the information on 2018 contained in this consolidated annual report is presented for solely comparative purposes with the information on 2019 and consequently does not in itself constitute the Group’s consolidated financial statements for 2018.

 

First application of IFRS 16

As a result of applying IFRS 16 from 1 January 2019, there are certain items in the consolidated financial statements at 31 December 2019 that are not comparable with the previous year (see Note 2.1.1).

 

Conversion of NH Argentina’s financial statements

During 2018, the economic crisis in Argentina worsened considerably, and this situation has led to a substantial increase in the inflation rate and has surpassed 100% in the last three years. These events led Argentina to be considered a hyperinflationary economy from the third quarter 2018 onwards, in accordance with accounting standards. As a result, the Group applied IAS 29 “Financial Reporting in Hyperinflationary Economies” to the Group’s business in Argentina in the third quarter of 2018 in accordance with accounting standards.

Given Argentina’s consideration as a hyperinflationary country, the financial statements are adjusted for inflation (see Note 4.23), the most significant impact is the restatement of non-current assets and liabilities from the date of acquisition, last revaluation or first application of IFRS by the inflation index. The difference between the pre-tax result and the net result corresponds to the recognition of deferred tax (see Note 18) for the adjustments for inflation of net assets that, according to current tax legislation in Argentina, are not tax deductible.

The first application of IAS 29 from 1 January 2018 led to an increase of 46 million euros in consolidated reserves and an increase in the value of minority interests of 7 million euros, recorded mainly under “Property, Plant and Equipment” (an increase of 71 million euros in net book value upon first application, see Note 8) and under deferred tax liabilities (an increase of 18 million euros in the value of liabilities at the time of first application, see Note 19).

Additionally, the Group decided to classify the historical translation differences associated with the devaluation of the currency in Argentina to consolidated reserves. This had a negative effect on the consolidated reserves of 96,862 thousand euros and, therefore, the total effect of hyperinflation at the time of first-time application lead to lower reserves in fully consolidated companies amounting to 50,724 thousand euros.

After this first application, the impact of the application of IAS 29 during 2018 had a negative net effect on the reserves of consolidated companies amounting to 27 million euros. This is composed of the effect of the devaluation of the currency that compensates for the increase in equity because of the restatement of non-monetary items due to hyperinflation. On the other hand, “Property, plant and equipment” increased by 1.8 million euros (see Note 8), and the deferred tax liability increased by 1.2 million euros (see Note 19) with respect to the first application at 1 January 2018. Also, the net effect in the profit and loss account of the application of IAS 29 is recorded as income of 635 thousand euros, under the heading “Results from exposure to hyperinflation” (IAS 29) in the 2018 consolidated comprehensive profit and loss statement.

The main impacts from applying IAS 29 in 2019 have had a positive effect on equity of 1.9 million euros, an increase in property, plant and equipment of 1.5 million euros, a decrease in deferred tax liabilities of 1.2 million euros (see Note 19) and an expense of 85 thousand euros under the heading “Results from exposure to hyperinflation” (IAS 29) of the consolidated comprehensive profit and loss.