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Evento IFRS: adaptation of international accounting standards in EDP Energias do Brasil Group
 

Evento IFRS: adaptation of international accounting standards in EDP Energias do Brasil Group

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    Evento IFRS: adaptation of international accounting standards in EDP Energias do Brasil Group Evento IFRS: adaptation of international accounting standards in EDP Energias do Brasil Group Presentation Transcript

    • IFRS: adaptation of international accounting standards in EDP Energias do Brasil Group São Paulo, January 17, 2011 Rio de Janeiro, January 18, 2011
    • DisclaimerThis presentation may include statements that represent expectations regarding future events or resultsaccording to the Brazilian and international regulations on securities. These statements are based oncertain presumptions and analyses made by the Company according to its experience and theeconomic environment as well as market conditions and expected future events, many of which arebeyond the Company’s control. Important factors that may lead to significant differences betweenactual results and the statements of expectations regarding future events or results include theCompany’s business strategy, Brazilian and international economic conditions, technology, financialstrategy, developments of the public services industry, hydrological conditions, conditions of the financialmarket, uncertainty regarding the results of its future operations, plans, goals, expectations andintentions, among others. Due to these factors, the Company’s actual results may differ significantly fromthose indicated or implicit in the statements of expectations regarding future events or results.The information and opinions contained here should not be understood as a recommendation forpotential investors and no investment decision should be based on the veracity, up to date orcompleteness of these opinions or information. None of the Company’s advisors or parties relatedthereto or their representatives will have any responsibility for any losses that may arise from the use orfrom the content of this presentation.This material includes statements on future events subject to risks and uncertainties, which are based onthe current expectations and forecasts involving future events and trends that may affect Companybusiness. These statements include projections of economic growth and demand and the supply ofpower, besides information on competitive position, regulatory environment, potential growthopportunities and other subjects. Numerous factors may adversely affect the estimates andpresumptions on which these statements are based.
    • Overview • IFRS is the world standard for accounting pratices, with full application in the adherent countries since 2005 • Based on na approach on essence over form and judgmental nature of the accounting criteria • In Brazil it begins in 2005 through Comitê de Pronunciamentos Contábeis, whose objective is the issuance of technical pronouncements that lead to the convergence of local accounting into international standards • 15 Pronouncements and 2 Guidelines applicable in 2008, were published in 2007/2008 • 27 Pronouncements, 10 Interpretations and 1 Guideline were published in 2009 for application in 2010, with retroactive effect to January 1, 2009 • EDP Energias do Brasil has reported in IFRS basis to its controlling shareholder since 2005Nota: o gráfico ilustra o desempenho do risco-país - EMBI (JP Morgan) 2
    • Important MessagesThe International Standards CPCs/IFRS does not affect: The relationship with clients; The Companies’ strategy; The Companies’ operational management; The Companies’ financial management; The ability to generate cash flow;
    • Impact of the CPCs by business area Energias do Brasil Group Commercializatio Generation Transmission Distribution Others n CPC 27 CPC 27CPCs with an impact onthe financial statements ICPC 01 / CPC 20 / CPC 17 and notes to the statements CPC 04 CPC 06 / CPC 25 / CPC 26/ CPC 32 / CPC 33 / ICPC 03 / ICPC 08 / ICPC 09 CPC 38/39/40/ CPC 38/39/40/ OCPC 03 OCPC 03 CPC 15 4
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combination (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations (IFRIC 4, SIC 15 and SIC 27)
    • CPC 15 – Business Combination (IFRS 3) and ICPC 09A Business Combination is an operation involving the acquisition of companies or other event in whichthe acquirer obtains control of one or more businesses. Parent Company Parent Company Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary New acquisition Spin-offs Mergers/TakeoversThis pronouncement applies to all the Business Combinations occurring as of January 1, 2009. Theinterpretation allows it to be applied to operations prior to this date if this expresses its business better. 6
    • CPC 15 – Business Combination (IFRS 3) and ICPC 09 Effects on the parent company / Consolidated Effects on the subsidiary balance sheet PPA* withAbsorption Recording of Recording appraisal of the assets and Appraisal of the initial reports of Appraisal individual liabilities at proforma of acquisition property, proforma ofaccounts of the + fair value previously + property, plant and cost and goodwill / + plant and equipment + property, plant and acquired not equipment negative and equipment company considered goodwill intangible assets (*)The recognized goodwill will be amortized over the concession period, since, according to ICPC 09, if it ispossible to obtain, in an objective and reliable manner, the part of the amount of the price paid that isnot allocable to the other assets and liabilities or to the concession right, it can also be amortized over theremaining period of the concession right, on an individual basis. However, it cannot be amortized on aconsolidated basis.Negative goodwill should be recognized immediately through income.
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combination (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations (IFRIC 4, SIC 15 and SIC 27)
    • CPC 20 – Borrowing Costs (IAS 23) Before CPC20 After CPC20Interest Capitalization Allowed MandatoryStamped LoansUnstamped Loans Generation DistributionImpact on the companies from the Group All* Transmission Others* When the conditions for interest capitalization are fulfilled (having an eligible asset and borrowing costsincurred concomitantly)N.B. : before the application of CPC 20, in Distribution and Transmission it was not possible to apply thecapitalization of financial charges due to the delay in the reception of the stamped loans.
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combination (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations (IFRIC 4, SIC 15 and SIC 27)
    • CPC 25 - Provisions, Contingent Liabilities and Contingent Assets It will Present Uncertain probably Obligation as to term generate resulting PROVISION and future from past amount economic events benefits Type of obligation Recording PublicationPresent obligation that probably requires paymentsPossible obligation or present obligation that might require, but will probablynot require future paymentsThere is a possible obligation or present obligation where the likelihood ofpayments is remote
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combination (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations l (IFRIC 4, SIC 15 and SIC 27)
    • CPC 27 and ICPC 10 Property, Plant & Equipment (IAS 16)Objective: to establish the accounting treatment for property, plant and equipment, so that the users offinancial statements can discern information on the entity’s investment in its property, plant andequipment, as well as its changes.Main points to be considered in accounting: the recognition of assets; the determination of their bookvalues; rates, depreciation values and losses due to devaluation to be recognized in relation to theseassets. Initial Adoption Adjustments of Property, Plant and Deemed Cost Equipment Administration Foreign The deemed cost should be used if it is verified that the Costs Exchange Debt value of the asset is unadjusted, i.e. either much higher, or Variation visibly lower.This pronouncement applies to all the property, plant and equipment recorded at the companiesincluded in the scope of the pronouncement, as from January 1, 2009, although the effect is always witha basis on retroaction to the origin of the creation or acquisition of the asset. 13
    • CPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)Effects on the Companies included in the Scope Effects on the parent company/Consolidated Balance SheetWrite-off of the Companies Write-off inSums Added to Impacted Property, PlantProperty, Plant andand Equipment CESA Equipment Write-off in Property, Plant and as = = Equipment Energest and ReductionAdministrative Investco of and Reduction of Shareholders’ EquityApportionment Pantanal Shareholders’ in the years Equity2008 and 2009 Depreciation rates: As established by Aneel (Brazilian Electricity Regulatory Agency). Companies that are entitled to compensation at the end of the concession: all the public utility providersor independent producers, of hydropower. Companies that are not entitled to compensation at the end of the concession: wind farms and thermalpower plants (Cenaeel, Elebrás and Pecém). Assets that are reversible or subject to compensation: all those that are included in accounts 132, withthe exception of account 13206 (not associated with the concession), which in the case of generation hasimmaterial values. 14
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combination (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations (IFRIC 4, SIC 15 and SIC 27) 15
    • CPC 28 – Investment propertyInvestment property is the real estate (land, building or part of a building) maintained by the owner toobtain income or capital appreciationl, and that is not available for use in the production or supply ofgoods or services, for administrative purposes or for sale in the ordinary course of business. Do I have a lease on a property of mine? Isn’t the property used in my operating Do I receive income under this lease? activity/business? No X Yes Subtract the value of property, plant and equipment and classify as Investment Property Income 16
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combinations (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations (IFRIC 4, SIC 15 and SIC 27) 17
    • CPC 33 – Employee Benefits (IAS 19) CPC 33 Employee Benefits covers all the forms of remuneration granted by a sponsoring entity/employer in exchange for the services rendered by the employees, with the exception of share-based payments. Pay for work provided SEVERERANCE BENEFITS SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS - Severance pay - Salary OTHER LONG-TERM BENEFITS - Private pension - FGTS – Government severance - Overtime - Paid leave - Post-employment medical care indemnity fund for employees- Vacations and 13th month salary - Length of service additional - Length of service bonus paid - Notice period - Profit sharing and gainsharing in the post-employment period - Voluntary Redundancy Program paid in the following year (PDV) Benefits Vacations and 13th month salary Defined contribution Defined benefit These should be presented net of provisions in liabilities. Without responsibility for With responsibility for actuarial actuarial and investment risks. and investment risks. Recognition will begin to be performed in Other income/expenses inOutside the scope of CPC 33 shareholders’ equity, instead of recording it in net income for the year Inside the scope of CPC 33
    • CPC 33 – Employee Benefits (IAS 19)Examples of the application of this CPC at the EDP Brasil Group Changes in the presentation of vacations and Recognition of actuarial gains and losses as 13th month salary in the Balance Sheet Other Compreensive Income Previous Application Previous Application 2009 2010 2009 2010Assets LiabilitiesCurrent Assets Current LiabilitiesAdvances to employees (other) 3,000 5,000 Post-employment Benefits 27,000 27,000Liabilities Non-current LiabilitiesCurrent Liabilities Post-employment Benefits 104,000 90,000Advances to employees (other) 50,000 56,000 Application CPC 33 Application CPC 33 2009 2010 2009 2010Assets LiabilitiesCurrent Assets Current LiabilitiesAdvances to employees (other) - - Post-employment Benefits 27,000 27,000Liabilities Non-current LiabilitiesCurrent Liabilities Post-employment Benefits 134,000 120,000Advances to employees (other) 47,000 51,000 Shareholders’ equityVacation pay and 13th month salary advances should Other Comprehensive Income (30,000) (30,000)be presented net of provisions in liabilities 19
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combination (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations (IFRIC 4, SIC 15 and SIC 27) 20
    • ICPC 01 – Service Concession ArrangementBefore the application of ICPC 01 After the application of ICPC 01* (IFRIC 12) Infrastructure associated with the concession acquired / built Infrastructure associated with the concession acquired / built Useful life of the item Item 1 Item 2 . . . Item X Concession date Fixed Assets Intangible Assets Financial Assets (depreciated during (right to the concession) compensation) * The standard will be applied prospectively as from 01/01/2009. Bifurcated Template only applicable to Distribution. The template of Transmission is of Financial Assets, yet this template has not yet been designed in the market. 21
    • ICPC 01 – Service Concession Arrangement Example of the effect by disco (IFRIC 12) Before After ASSETS Current Assets Non-current Assets 1,300,000 1,100,000 Receivable from the Granting Authority 0 150,000 Property, Plant and Equipment 1,250,000 5,000 Intangible Assetsl 50,000 945,000 LIABILITIES Current Liabilities Non-current Liabilities (200,000) 0 Special Obligations (200,000) 0 INCOME/EXPENSES Expenses 95,000 95,000 Depreciation 85,000 500 Amortization 10,000 94,500 22
    • CPC 17 – Construction Contracts (IAS 11) Only applicable to the Distribution and Transmission companies of the EDP Energias do BrasilGroup, due to the application of ICPC 01; There are no adjustments to be made in the Financial Statements; Requires some items of additional disclosure in the Financial Statements of the companies thathave the application of this CPC, such as Revenue and Cost of Construction. 23
    • CPCs issued in 2009 for application until Dec 2010 General ContentsCPC 15 and ICPC 09 Business Combination (IFRS 3)CPC 20 Borrowing Costs (IAS 23)CPC 25 Provisions, Contingent Liabilities and Contingent AssetsCPC 27 and ICPC 10 Property, Plant and Equipment (IAS 16)CPC 28 Investment PropertyCPC 33 Employee Benefits (IAS 19)ICPC 01 and CPC 17 Service Concession Arrangement (IFRIC12) and Construction Contracts (IAS11)ICPC 03 Leasing Operations (IFRIC 4, SIC 15 and SIC 27) 24
    • ICPC 03 – Leasing Operations (IFRIC 4, SIC 15 and SIC 27)Process for definition of inclusion for ICP03: Signing of the Contract Legally, is it a Lease? Yes – CPC06 No Financial Is there an implicit lease? - It is a Specific Asset; - Right of use; We should - Ability to operate and control; record the asset - Transfers the risks and benefits of the asset. Yes No We should record the We should record the asset in our property, amount in the plant and equipment company’s operating income/expenses There are no leases in the EDP Brasil Group.
    • Other CPCs that are applicable, yet less relevant (with less or no impact) SummaryCPC 18 – Investment in Associated Companies and Subsidiaries (IAS 28)Write off any negative goodwill recognized upon the acquisition of the investments;Impact on the EDP Brasil Group: write-off of negative goodwill with a positive impact on net income inthe amount of R$ 3MMCPC 31 – Non-Current Assets Held for Sale (IFRS 5)The greatest impact of this reclassification is with the disclosure requirements, as the accountingadjustment is only a reclassification between lines, unless it is necessary to perform a measurement at fairvalue of the items classified in this account.CPC 38, 39, 40 and OCPC 03 – Financial Instruments (IAS 32 and 39 and IFRS 7)Requires new information disclosure needs, not having an impact on the Financial Statements.ICPC 08 – Accounting for the Payment of Proposed DividendsThe recognition of dividends should be performed through recording of the compulsory minimumdividends (25% of net income) as a liability, whereas the rest should be kept in a specific account ofshareholders’ equity, until the final decision to be made by the partners; 26
    • Important point for the electric power sector It is not established by the CPCsRegulatory Assets and LiabilitiesRegulatory Assets and Liabilities are no longer registered, as they would notfulfill the concepts established by the Conceptual Framework forpreparation and presentation of the Financial Statements. 27
    • Effects on the Financial Statements of the application of the IFRS to the Controlling Shareholder September 30, 2010 Statement of Income September 30, 2010 Balance Sheet (R$ MM) (R$ MM) IFRS BRGAAP Variation IFRS BRGAAP VariationCurrent Assets 2,356 2,581 (225) Business volume 3,676 3,688 (13)Other Non-current Assets 1,258 1,008 249 Cost of sales 1,973 2,061 (88)Non-current Tax 798 530 268 Gross Margin 1,703 1,627 76Intangible Fixed Assets 3,043 1,122 1,921 Opex 473 485 (12)Tangible Fixed Assets 5,081 6,751 (1,670) Other costs/income 71 76 (4)Total Assets 12,536 11,992 544 Total Opex 544 561 (17)Current Liabilities 2,205 2,312 (107) EBITDA 1,159 1,067 92Other Non-current Liabilities 646 370 277 Amortization and Provisions 268 245 23Loans MLP 2,747 2,786 (39) EBIT 891 821 70Deferred Tax 472 174 298 Financial 175 163 12Total Liabilities 6,070 5,642 428 RAI 716 658 58Shareholders’ Equity 4,595 4,612 (18) Taxes 238 218 20Minority Interest 1,871 1,738 133 Minoritary Shareholders 94 97 (3)Total Liabilities +SE+MI 12,536 11,992 544 Net Income 384 343 41 There will be differences between the IFRS for the controlling shareholder and the local IFRS, due to the adoption timing; The greatest impacts caused by adjustment of assets/liabilities or harmonization of concepts are verified on the initial adoption date; 28