EX-99.3 4 exhibit_99-3.htm EXHIBIT 99.3

 
Exhibit 99.3
 
Kenon Holdings Ltd and its subsidiaries
Registration Number: 201406588W
 
Annual Report
Year ended December 31, 2017
 
KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

 
Kenon Holdings Ltd

Consolidated Financial Statements
as at December 31, 2017, 2016 and 2015 and for the years then ended

Contents
 
 
Page
   
F-1 – F-2
   
F-3 – F-6
   
F-7 – F-95
   
F-96
   
F-97 – F-102
1
 
 

 
 
Directors’ statement

We are pleased to submit this annual report to the members of the Company together with the audited financial statements for the financial year ended December 31, 2017.

In our opinion:
(a)
the financial statements set out on pages F-7 to F-102 are drawn up so as to give a true and fair view of the financial position of the Group and of the Company as at December 31, 2017 and the financial performance, changes in equity and cash flows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and

(b)
at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

The Board of Directors has, on the date of this statement, authorized these financial statements for issue.

Directors

The directors in office at the date of this statement are as follows:

Cyril Pierre-Jean Ducau
 
Lawrence Charney
 
N. Scott Fine
 
Aviad Kaufman
 
Antoine Bonnier
 
Foo Say Mui
(Appointed on May 30, 2017)
Arunava Sen
(Appointed on May 30, 2017)
Kenneth Cambie
(Resigned on March 21, 2017)
Vikram Talwar
(Resigned on June 22, 2017)

Directors’ interests

According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50, (the Act), particulars of interests of directors who held office at the end of the financial year (including those held by their spouses and infant children) in shares, debentures, warrants and share options in the Company and in related corporations (other than wholly-owned subsidiaries) are as follows:

Name of director and corporation in which interests are held
 
Holdings at beginning of the year/date of appointment
   
Holdings at end of the year/date of resignation
 
             
Kenneth Cambie
           
Kenon Holdings Ltd - Ordinary shares
   
4,995
     
4,995
 
                 
Laurence Neil Charney
               
Kenon Holdings Ltd - Ordinary shares
   
18,220
     
32,482
 
                 
Nathan S. Fine
               
Kenon Holdings Ltd - Ordinary shares
   
14,216
     
27,265
 
                 
Vikram Talwar
               
Kenon Holdings Ltd - Ordinary shares
   
14,216
     
24,686
 
                 
Foo Say Mui
   
3,085
     
3,085
 
Kenon Holdings Ltd - Ordinary shares
               
                 
Arunava Sen
   
3,085
     
3,085
 
Kenon Holdings Ltd - Ordinary shares
               
 

 
Except as disclosed in this statement, no director who held office at the end of the financial year had interests in shares, debentures, warrants or share options of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year.

Except as disclosed under the “Share options” section of this report, neither at the end of, nor at any time during the financial year, was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Share options and share plans

During the financial year, there were:

(i)
no options granted by the Company to any person to take up unissued shares in the Company; and

(ii)
no shares issued by virtue of any exercise of option to take up unissued shares of the Company.

As at the end of the financial year, there were no unissued shares of the Company under option plan.

Auditors

The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors
 
/s/ Cyril Pierre-Jean Ducau
Cyril Pierre-Jean Ducau
Director
 
/s/ Arunava Sen
Arunava Sen
Director

April 9, 2018
 
F-2

 
 
 
KPMG LLP
16 Raffles Quay #22-00
Hong Leong Building
Singapore 048581
Telephone
Fax
Internet               
+65 6213 3388
+65 6225 0984
www.kpmg.com.sg
 
Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Kenon Holdings Ltd.:
 
Opinion on the Consolidated Financial Statements
We have audited the consolidated financial statements of Kenon Holdings Ltd. (the ‘Company’) and its subsidiaries (the ‘Group’), which comprise the statements of financial position of the Group and Company as of December 31, 2017 and 2016, and the related consolidated statements of profit and loss, other comprehensive income (loss), changes in equity, and cash flows for the years in the three-year period ended December 31, 2017, and the related notes (collectively, the ‘consolidated financial statements’).

In our opinion based on our audits, and the report of the other auditors, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group and financial position of the Company as of December 31, 2017 and 2016, and the results of the Group’s operations and cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with the provisions of the Singapore Companies Act, Chapter 50 (the ‘Act’) and Financial Reporting Standards in Singapore (‘FRSs’).

We did not audit the combined financial statements of certain discontinued operations relating to Distribuidora de Electricidad de Occidente, S. A. ('DEOCSA') and Distribuidora de Electricidad de Oriente, S. A. ('DEORSA'), which statements reflect total assets constituting approximately $844 million of consolidated total assets as of December 31, 2016, and constituting approximately $16 million and $36 million of both profit for the year from discontinued operations and profit/(loss) for the year, for the years ended December 31, 2017 and 2016, respectively. Those combined financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for DEOCSA and DEORSA, is based solely on the reports of the other auditors.

Basis for Opinion  
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group and Company, and have fulfilled our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Other Information
Management is responsible for the other information included in the annual report. The other information comprises the Directors’ Statement included in the annual report, but does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express an opinion or any form of assurance on it.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
 
KPMG LLP (Registration No.T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
F-3

 
Responsibilities of Management and Those Charged With Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the provisions of the Act and FRSs’; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern in accordance with FRSs, and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these consolidated financial statements.

As part of an audit in accordance with GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
 
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.
 
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
 
Conclude on the Company's ability to continue as a going concern and conclude on the appropriateness of management's use of the going concern basis of accounting.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies and material weaknesses in internal control that we identified during our audit.

Report on Other Legal and Regulatory Requirements  
In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiary corporations incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.
 
/s/ KPMG LLP
KPMG LLP
Public Accountants and
Chartered Accountants

Singapore
April 9, 2018
 
F-4

 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Distribuidora de Electricidad de Occidente, S.A. and
Distribuidora de Electricidad de Oriente, S.A.
(Guatemalan Entities)

Opinion on the Combined Financial Statements

We have audited the combined statement of financial position of Distribuidora de Electricidad de Occidente, S.A. (DEOCSA) and Distribuidora de Electricidad de Oriente, S.A. (DEORSA, and together with DEOCSA, the "Combined Entities") as of December 31, 2017,and 2016 and the related combined statements of profit or loss and other comprehensive income, changes in shareholders· equity, and cash flows for each of the two years in the period ended December 31 , 2017 (collectively referred to as the "combined financial statements"). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Combined Entities as of December 31, 2017 and 2016, and the combined results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These combined financial statements are the responsibility of the Combined Entities' management. Our responsibility is to express an opinion on the Combined Entities' combined financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Combined Entities in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud. The Combined Entities are not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Combined Entities' internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opin ion.
 
F-5


Emphasis of a Matter

As discussed in Note 30c of the Combined Entities' combined financial statements, in 2011, the previous owners of DEORSA and DEOCSA acquired the companies through a leveraged buy-out transaction. Years after the transaction, the Guatemalan Tax Authority (Superintendencia de Administraci6n Tributaria, or the "SAT") raised questions concerning tax deductions for interest expenses and amortization of goodwill that derived from that transaction. This culminated in the issuance in February 2015 of two binding tax opinions, one for DEOCSA and another for DEORSA (the "Binding Opinions") addressing the deductions. The government of Guatemala changed in January 2016. After the new government took power, in July 2016, the SAT filed a complaint against DEORSA and DEOCSA (the "Complaint") in disregard of its own conclusions stated in the Binding Opinions, which Opinions remain in force as of this date. The Complaint requests the payment of alleged back taxes, interest, and fines in relation to tax years 201 1 and 2012. On August 9, 2016, the court hearing the Complaint ordered the Combined Entities to pay Q.130,499 thousand (US$17,171 thousand) in alleged back taxes immediately, plus interest and fines within 60 days following the court order, as a condition to lift an order freezing the bank accounts of the Combined Entities. Pursuant to this and another court order of 12 December 2016, on August 10, 2016, the Combined Entities paid Q. 130,499 thousand (US$17, 171 thousand) to the SAT corresponding to the alleged back taxes, and, on December 13, 2016, they paid Q192,974 thousand (US$25,721 thousand) corresponding to the alleged fines and interest. Due to the actions of the government and in order to avoid the initiation of complaints concerning tax years 2013, 2014, and 2015, and the corresponding imposition of further fines and interest, the Combined Entities followed the instructions of the SAT and paid the alleged back taxes and interest for those years in the 'following manner: on 9 August 2016, the Combined Entities paid a total of Q.137,505 thousand (US$18,093 thousand) for the years 2014 and 2015; and on 19 August 2016, they paid a total of US$13, 189 thousand (Q.100,236 thousand) for the year 2013. In addition, during 2017 and 2016 the Combined Entities made additional payments of income tax in advance by Q.55,535 thousand (US$7,527 thousand) and Q.40, 729 thousand (US$5,393 thousand), respectively also considering non-deductible the items related to goodwill's amortization and interests (until May 2017) that were subject to the tax claim. Finally, in January 2018 a new payment of Q.9,545 thousand (US$1,298 thousand) was made. The abovementioned measures were adopted in order not to put at risk the continuing operation and prevent irreversible damage to the Combined Entities. All payments were made under protest and subject to a broad reservation of rights, including but not limited to seeking restitution of such payments. The Combined Entities and their legal and tax advisors are of the view that the deductions for interest expenses and amortization of goodwill are legitimate tax deductions and are confident of their position under applicable legal frameworks. The Combined Entities are defending against the SAT Complaint and considering all available remedies with respect to this matter. Hence, the Combined Entities' Management considers, based on the opinion of its tax and legal advisors that the receivable generated by these payments is more likely than not to be recovered as a result of the final outcome of this claim and of the other recourses to be initiated by the Combined Entities. As of December 31 2017 and 2016, the total tax claim amounts to US$89,516 thousand (Q657,477 thousand) and US$80,023 thousand (Q.601 ,943 thousand), respectively. This tax claim has been recorded as Non-current tax receivable (see Note 20).

Other Matters

This report is intended solely for the information and use of the Board of Directors of Kenon Holdings Ltd. and the external auditors of IC Power Ltd. ("ICP") and Kenon Holdings Ltd., solely in connection with the audit of ICP's consolidated financial statements as of December 31, 2017 and 2016 and for each of the two years in the period ended December 31, 2017, and is not intended to be and should not be used by anyone other than these specified parties.
 
/s/ Deloitte
 
Panama, Republic of Panama
March 23, 2018
We have served as the Combined Entities' auditor since 2016.
 
F-6


Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Financial Position as at December 31, 2017 and 2016
 
         
As at December 31
 
         
2017
   
2016
 
   
Note
   
$ thousands
 
                   
Current assets
                 
Cash and cash equivalents
  5      
1,417,388
     
326,635
 
Short-term investments and deposits
 
6
     
7,144
     
89,545
 
Trade receivables, net
 
7
     
44,137
     
284,532
 
Other current assets, including derivatives
 
8
     
35,752
     
49,773
 
Income tax receivable
          
220
     
11,459
 
Inventories
 
9
     
-
     
91,659
 
Total current assets
           
1,504,641
     
853,603
 
                         
Non-current assets
                       
Investments in associated companies
 
10
     
121,694
     
208,233
 
Deposits, loans and other receivables, including derivative instruments
 
12
     
106,717
     
176,775
 
Deferred payment receivable
 
13
     
175,000
     
-
 
Deferred taxes, net
 
27
     
-
     
25,104
 
Property, plant and equipment, net
 
14
     
616,164
     
3,497,300
 
Goodwill and intangible assets, net
 
15
     
1,641
     
376,778
 
Total non-current assets
           
1,021,216
     
4,284,190
 
                         
Total assets
           
2,525,857
     
5,137,793
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-7

 
Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Financial Position as at December 31, 2017 and 2016, continued
 
         
As at December 31
 
         
2017
   
2016
 
   
Note
   
$ thousands
 
Current liabilities
                 
Loans and debentures
 
16
     
447,956
     
482,813
 
Trade payables
 
17
     
58,895
     
285,612
 
Other payables, including derivative instruments
 
18
     
82,522
     
91,303
 
Guarantee deposits from customers
 
19
     
-
     
56,833
 
Provisions
 
20
     
44,342
     
119,531
 
Income tax payable
           
172,607
     
8,671
 
Total current liabilities
           
806,322
     
1,044,763
 
                         
Non-current liabilities
                       
Loans, excluding current portion
 
16
     
503,785
     
1,972,926
 
Debentures, excluding current portion
 
16
     
84,758
     
856,670
 
Derivative instruments
 
18
     
-
     
44,637
 
Deferred taxes, net
 
27
     
52,753
     
225,354
 
Trade payables
 
17
     
-
     
44,057
 
Income tax payable
           
26,811
     
-
 
Other non-current liabilities
           
81
     
55,182
 
Total non-current liabilities
           
668,188
     
3,198,826
 
                         
Total liabilities
           
1,474,510
     
4,243,589
 
                         
Equity
 
22
                 
Share capital
           
1,267,210
     
1,267,450
 
Shareholder transaction reserve
           
3,540
     
26,559
 
Translation reserve
           
(1,592
)
   
(21,745
)
Capital reserve
           
19,297
     
11,575
 
Accumulated deficit
           
(305,337
)
   
(602,598
)
Equity attributable to owners of the Company
     
983,118
     
681,241
 
Non-controlling interests
           
68,229
     
212,963
 
Total equity
           
1,051,347
     
894,204
 
                         
Total liabilities and equity
           
2,525,857
     
5,137,793
 

The accompanying notes are an integral part of the consolidated financial statements.
F-8

 
Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Profit & Loss for the years ended December 31, 2017, 2016 and 2015
 
         
For the year ended December 31
 
         
2017
    2016*
 
 
2015*
 
   
Note
   
$ thousands
 
Continuing Operations
                           
Revenue
         
365,704
     
324,253
     
325,899
 
Cost of sales and services (excluding depreciation)
 
24
     
(267,136
)
   
(251,666
)
   
(244,816
)
Depreciation
           
(30,102
)
   
(26,697
)
   
(25,435
)
Gross profit
           
68,466
     
45,890
     
55,648
 
Selling, general and administrative expenses
 
25
     
(56,292
)
   
(47,095
)
   
(49,726
)
Gain from distribution of dividend in kind
           
     
     
209,710
 
Write back/(impairment) of assets and investments
 
10.C.a
     
28,758
     
(72,263
)
   
(6,541
)
Dilution gains from reductions in equity interest held in associates
           
     
     
32,829
 
Other expenses
           
(51
)
   
(229
)
   
(802
)
Other income
           
1,410
     
2,757
     
3,742
 
Operating profit/(loss) from continuing operations
           
42,291
     
(70,940
)
   
244,860
 
                                 
Financing expenses
 
26
     
(70,166
)
   
(47,276
)
   
(36,394
)
Financing income
 
26
     
2,904
     
7,724
     
10,721
 
Financing expenses, net
           
(67,262
)
   
(39,552
)
   
(25,673
)
Provision of financial guarantee
 
10.C.b.7
     
     
(130,193
)
   
 
Share in losses of associated companies, net of tax
 
10
     
(110,665
)
   
(186,215
)
   
(187,033
)
(Loss)/profit from continuing operations before income taxes
           
(135,636
)
   
(426,900
)
   
32,154
 
Income taxes
 
27
     
(72,809
)
   
(2,252
)
   
(9,043
)
(Loss)/Profit for the year from continuing operations
           
(208,445
)
   
(429,152
)
   
23,111
 
Profit and gain from sale of discontinued operations
 
1.B, 29
     
476,565
     
35,150
     
72,781
 
Profit/(loss) for the year
           
268,120
     
(394,002
)
   
95,892
 
                                 
Attributable to:
                               
Kenon’s shareholders
           
236,590
     
(411,937
)
   
72,992
 
Non-controlling interests
           
31,530
     
17,935
     
22,900
 
Profit/(loss) for the year
           
268,120
     
(394,002
)
   
95,892
 
                                 
Basic/diluted profit/(loss) per share attributable to Kenon’s shareholders (in dollars):
 
28
                         
Basic/diluted profit/(loss) per share
           
4.40
     
(7.67
)
   
1.36
 
Basic/diluted (loss)/profit per share from continuing operations
           
(4.00
)
   
(8.08
)
   
0.24
 
Basic/diluted profit per share from discontinued operations
           
8.40
     
0.41
     
1.12
 
 
* Restated (See Note 2E and 29)
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-9

 
Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Other Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015
 
   
For the year ended December 31
 
   
2017
   
2016
   
2015
 
   
$ thousands
 
                   
Profit/(loss) for the year
   
268,120
     
(394,002
)
   
95,892
 
                         
Items that are or will be subsequently reclassified to profit or loss
                       
Foreign currency translation differences in respect of foreign operations
   
29,320
     
157
     
(18,132
)
Change in fair value of derivatives used to hedge cash flows
   
19,489
     
14,397
     
(6,365
)
Group’s share in other comprehensive loss of associated companies
   
(1,239
)
   
(3,968
)
   
(623
)
Income taxes in respect of components other comprehensive (loss)/income
   
(6,142
)
   
(1,507
)
   
773
 
Total other comprehensive income/(loss) for the year
   
41,428
     
9,079
     
(24,347
)
Total comprehensive income/(loss) for the year
   
309,548
     
(384,923
)
   
71,545
 
                         
Attributable to:
                       
Kenon’s shareholders
   
270,175
     
(407,749
)
   
52,423
 
Non-controlling interests
   
39,373
     
22,826
     
19,122
 
                         
Total comprehensive income/(loss) for the year
   
309,548
     
(384,923
)
   
71,545
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-10

 

Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2017, 2016 and 2015
 
                                       
Non-
       
                                       
controlling
       
   
Attributable to the Kenon’s shareholders
   
interests
   
Total
 
         
Shareholder
                                     
   
Share
   
transaction
   
Translation
   
Capital
   
Accumulated
                   
   
Capital
   
reserve
   
reserve
   
reserves
   
deficit
   
Total
             
   
$ thousands
 
                                                 
Balance at January 1, 2017
   
1,267,450
     
26,559
     
(21,745
)
   
11,575
     
(602,598
)
   
681,241
     
212,963
     
894,204
 
Share based payments
   
(240
)
   
     
     
748
     
     
508
     
449
     
957
 
Dividend to holders of non-controlling interests in subsidiaries
   
     
     
     
     
     
     
(33,848
)
   
(33,848
)
Capital reduction to non-controlling interests in subsidiaries
   
     
     
     
     
     
     
(13,805
)
   
(13,805
)
Sale of Colombian assets
   
     
     
     
     
     
     
(8,890
)
   
(8,890
)
Non-controlling interests in respect of business combination
   
     
     
     
     
     
     
(50
)
   
(50
)
Sale of subsidiaries - Latin America and Caribbean businesses
   
     
     
(5,650
)
   
2,045
     
     
(3,605
)
   
(170,513
)
   
(174,118
)
Dilution of investment in subsidiary (see Note 23)
   
     
     
299
     
(4,691
)
   
62,210
     
57,818
     
42,550
     
100,368
 
Fair value of shareholder loan
   
     
(23,019
)
   
     
     
     
(23,019
)
   
     
(23,019
)
                                                                 
Total comprehensive income for the year
                                                               
Net profit for the year
   
     
     
     
     
236,590
     
236,590
     
31,530
     
268,120
 
Other comprehensive income/(loss) for the year, net of tax
   
     
     
25,504
     
9,620
     
(1,539
)
   
33,585
     
7,843
     
41,428
 
                                                                 
Balance at December 31, 2017
   
1,267,210
     
3,540
     
(1,592
)
   
19,297
     
(305,337
)
   
983,118
     
68,229
     
1,051,347
 
 
The accompanying notes are an integral part of the consolidated financial statements.

F-11

 
Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2017, 2016 and 2015

                                       
Non-
       
                                       
controlling
       
   
Attributable to the Kenon’s shareholders
   
interests
   
Total
 
         
Shareholder
                                     
   
Share
   
transaction
   
Translation
   
Capital
   
Accumulated
                   
   
Capital
   
reserve
   
reserve
   
reserves
   
deficit
   
Total
             
   
$ thousands
 
                                                 
Balance at January 1, 2016
   
1,267,210
     
     
(16,916
)
   
2,212
     
(191,292
)
   
1,061,214
     
202,341
     
1,263,555
 
Share based payments
   
240
     
     
     
307
     
     
547
     
285
     
832
 
Dividend to holders of non-controlling interests in a subsidiary
   
     
     
     
     
     
     
(35,255
)
   
(35,255
)
Acquisition of non- controlling interest in subsidiary
   
     
     
     
     
670
     
670
     
20,325
     
20,995
 
Contribution from non-controlling interest
   
     
     
     
     
     
     
2,441
     
2,441
 
Transactions with controlling shareholder (see Note 10.C.b.7)
   
     
3,540
     
     
     
     
3,540
     
     
3,540
 
Gain in fair value of shareholder loan (see Note 10.C.b.5)
   
     
23,019
     
     
     
     
23,019
     
     
23,019
 
Total comprehensive income for the year
                                                               
Net (loss)/profit for the year
   
     
     
     
     
(411,937
)
   
(411,937
)
   
17,935
     
(394,002
)
Other comprehensive (loss)/income for the year, net of tax
   
     
     
(4,829
)
   
9,056
     
(39
)
   
4,188
     
4,891
     
9,079
 
                                                                 
Balance at December 31, 2016
   
1,267,450
     
26,559
     
(21,745
)
   
11,575
     
(602,598
)
   
681,241
     
212,963
     
894,204
 


 
The accompanying notes are an integral part of the consolidated financial statements.

F-12

 
Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2017, 2016 and 2015
 
                                       
Non-
       
                                       
controlling
       
   
Attributable to the Kenon’s shareholders
   
interests
   
Total
 
         
Former
                                     
         
Parent
                                     
   
Share
   
company
   
Translation
   
Capital
   
Accumulated
                   
   
Capital
   
investment
   
reserve
   
reserves
   
deficit
   
Total
             
   
$ thousands
 
                                                 
Balance at January 1, 2015
   
     
1,227,325
     
28,440
     
(25,274
)
   
     
1,230,491
     
207,207
     
1,437,698
 
Transactions with owners, recognized directly in equity
                                                               
Share based payments
   
     
     
     
556
     
     
556
     
320
     
876
 
Dividend to holders of non-controlling interests in a subsidiary
   
     
     
     
     
     
     
(12,340
)
   
(12,340
)
Acquisition of non- controlling interest in subsidiary
   
     
     
     
     
(1,222
)
   
(1,222
)
   
(18,078
)
   
(19,300
)
Reclassification of net loss (pre spin-off)
   
     
8,552
     
     
     
(8,552
)
   
     
     
 
Contribution from former parent company
   
     
34,271
     
     
     
     
34,271
     
     
34,271
 
Issuance of shares of subsidiary to holders of non-controlling interests
   
     
     
     
     
     
     
6,110
     
6,110
 
Distribution of dividend in kind (see note 10.C.c)
   
(14,062
)
   
     
498
     
     
(241,741
)
   
(255,305
)
   
     
(255,305
)
Issuance of common stock and reclassification of former parent company investment in connection with the spin-off
   
1,281,272
     
(1,283,550
)
   
(28,440
)
   
30,718
     
     
     
     
 
Post spin-off restatement
   
     
13,402
     
     
     
(13,402
)
   
     
     
 
Total comprehensive income for the year
                                                               
Net profit for the year
   
     
     
     
     
72,992
     
72,992
     
22,900
     
95,892
 
Other comprehensive (loss)/income for the year, net of tax
   
     
     
(17,414
)
   
(3,788
)
   
633
     
(20,569
)
   
(3,778
)
   
(24,347
)
                                                                 
Balance at December 31, 2015
   
1,267,210
     
     
(16,916
)
   
2,212
     
(191,292
)
   
1,061,214
     
202,341
     
1,263,555
 
 
The accompanying notes are an integral part of the consolidated financial statements.

F-13

 
Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2017, 2016 and 2015
 
   
For the year ended December 31
 
   
2017
   
2016
   
2015
 
   
$ thousands
 
                   
Cash flows from operating activities
                 
Profit/(loss) for the year
   
268,120
     
(394,002
)
   
95,892
 
Adjustments:
                       
Depreciation and amortization
   
178,461
     
172,381
     
120,047
 
(Write back)/impairment of assets and investments
   
(8,314
)
   
72,263
     
6,541
 
Financing expenses, net
   
275,799
     
171,118
     
110,816
 
Share in losses of associated companies, net
   
109,980
     
185,592
     
186,759
 
Capital (gains)/losses, net *
   
(25,529
)
   
2,534
     
4,506
 
Gain from changes in interest held in associates
   
     
     
(32,829
)
Gain from distribution of dividend in kind
   
     
     
(209,710
)
Provision for financial guarantee
   
     
130,193
     
 
Bad debt expense
   
7,866
     
4,896
     
 
Share-based payments
   
957
     
832
     
876
 
Income taxes
   
278,447
     
59,334
     
62,378
 
     
1,085,787
     
405,141
     
345,276
 
Change in inventories
   
1,291
     
(40,076
)
   
4,361
 
Change in trade and other receivables
   
(62,436
)
   
(68,634
)
   
35,491
 
Change in trade and other payables
   
(568,364
)
   
22,835
     
(29,800
)
Change in provisions and employee benefits
   
2,021
     
(41,243
)
   
(33,426
)
Cash generated from operating activities
   
458,299
     
278,023
     
321,902
 
Income taxes paid, net
   
(66,830
)
   
(116,429
)
   
(36,218
)
Dividends received from investments in associates
   
382
     
743
     
4,487
 
Net cash provided by operating activities
   
391,851
     
162,337
     
290,171
 

* Mainly relate to (gains)/losses from disposal of property, plant and equipment.
 
The accompanying notes are an integral part of the consolidated financial statements.

F-14

 
Kenon Holdings Ltd and subsidiaries
Consolidated Statements of Cash Flows, continued
For the years ended December 31, 2017, 2016 and 2017
 
         
For the year ended December 31
 
         
2017
   
2016
   
2015
 
   
Note
   
$ thousands
 
Cash flows from investing activities
                       
Proceeds from sale of property, plant and equipment and intangible assets
         
4,727
     
426
     
539
 
Short-term deposits and loans, net
         
(4,876
)
   
222,451
     
(83,408
)
Cash paid for businesses purchased, less cash acquired
         
     
(206,059
)
   
(9,441
)
Sale of subsidiaries - Latin America and Caribbean businesses, net of cash disposed off
  29      
792,585
     
     
 
Sale of Colombian assets, net of cash disposed off
           
600
     
     
 
Investment in associates
           
     
(111,153
)
   
(129,241
)
Sale of securities held for trade and available for sale, net
           
     
17,334
     
13,217
 
Acquisition of property, plant and equipment
           
(227,601
)
   
(280,955
)
   
(515,838
)
Acquisition of intangible assets
           
(10,412
)
   
(9,598
)
   
(16,844
)
Proceeds from realization of long-term deposits
           
4,655
     
     
 
Interest received
           
6,825
     
6,143
     
7,924
 
Payment of consideration retained
           
     
(2,204
)
   
(3,795
)
Payment to release financial guarantee
           
(72,278
)
   
(36,023
)
   
 
Energuate Purchase Adjustment
           
10,272
     
     
 
Insurance claim received
           
80,000
     
     
 
Net cash provided by/(used in) investing activities
           
584,497
     
(399,638
)
   
(736,887
)
                                 
Cash flows from financing activities
                               
Dividend paid to non-controlling interests
           
(29,443
)
   
(32,694
)
   
(12,340
)
Proceeds from issuance of shares to holders of non-controlling interests in subsidiaries
           
100,478
     
9,468
     
6,110
 
Payment of issuance expenses related to long term debt
           
(34,391
)
   
     
 
Payment of consent fee
           
(4,547
)
   
     
 
Receipt of long-term loans and issuance of debentures
           
1,938,877
     
799,481
     
333,549
 
Repayment of long-term loans and debentures
           
(1,506,553
)
   
(444,976
)
   
(138,270
)
Short-term credit from banks and others, net
           
(126,287
)
   
(5,477
)
   
123,053
 
Contribution from former parent company
           
     
     
34,271
 
Payment of swap unwinding and early repayment fee
           
(46,966
)
   
     
 
Purchase of non-controlling interest
           
(13,805
)
   
     
(20,000
)
Interest paid
           
(180,242
)
   
(151,241
)
   
(93,858
)
Net cash provided by financing activities
           
97,121
     
174,561
     
232,515
 
                                 
Increase/(decrease) in cash and cash equivalents
           
1,073,469
     
(62,740
)
   
(214,201
)
Cash and cash equivalents at beginning of the year
           
326,635
     
383,953
     
610,056
 
Effect of exchange rate fluctuations on balances of cash and cash equivalents
           
17,284
     
5,422
     
(11,902
)
Cash and cash equivalents at end of the year
           
1,417,388
     
326,635
     
383,953
 
 
The accompanying notes are an integral part of the consolidated financial statements. 

F-15

 
Kenon Holdings Ltd.
Notes to the consolidated financial statements
 
Note 1 – Financial Reporting Principles and Accounting Policies
 
A.
The Reporting Entity
 
Kenon Holdings Ltd (the “Company” or “Kenon”) was incorporated on March 7, 2014 in the Republic of Singapore under the Singapore Companies Act. Our registered office and principal place of business is located at 1 Temasek Avenue #36-01, Millenia Tower, Singapore 039192.
 
The Company is a holding company and was incorporated to receive investments spun-off from their former parent company, Israel Corporation Ltd. (“IC”). The Company was formed to serve as the holding company of several businesses (together referred to as the “Group”).
 
Kenon shares are traded on New York Stock Exchange (“NYSE”) and on Tel Aviv Stock Exchange (“TASE”) (NYSE and TASE: KEN).
 
B.
Sale of power business
 
In December 2017, Kenon, through its wholly-owned subsidiary Inkia Energy Limited (“Inkia”), sold its Latin American and Caribbean power business to an infrastructure private equity firm, I Squared Capital (“ISQ”). As a result, the Latin American and Caribbean businesses were classified as discontinued operations. Associated results of operations are separately reported for all periods presented. See Note 29 for further information.
 
C.
Definitions
 
In these consolidated financial statements -
 
1.
 Subsidiaries – Companies whose financial statements are fully consolidated with those of Kenon, directly or indirectly.
 
2.
 Associates – Companies in which Kenon has significant influence and Kenon’s investment is stated, directly or indirectly, on the equity basis.
 
3.
 Investee companies – subsidiaries and/or associated companies.
 
4.
 Related parties – within the meaning thereof in International Accounting Standard (“IAS”) 24 “Related Parties”.
 
Note 2 – Basis of Preparation of the Financial Statements
 
A.
Declaration of compliance with Singapore Financial Reporting Standards (“FRS”)
 
The consolidated financial statements were prepared by management of the Group in accordance with Singapore Financial Reporting Standards (“FRS”) as issued by the Accounting Standards Council (“ASC”).
 
The consolidated financial statements were approved for issuance by the Company’s Board of Directors on April 9, 2018.
 
B.
Functional and presentation currency
 
These consolidated financial statements are presented in US dollars, which is Kenon’s functional currency, and have been rounded to the nearest thousands, except when otherwise indicated. The US dollar is the currency that represents the principal economic environment in which Kenon operates.
 
C.
Basis of measurement
 
The consolidated financial statements were prepared on the historical cost basis, with the exception of the following assets and liabilities:
 
Derivative financial instruments.
Deferred tax assets and liabilities.
Provisions.
Assets and liabilities in respect of employee benefits.
Investments in associates.
 
F-16

 
Note 2 – Basis of Preparation of the Financial Statements (Cont’d)
 
For additional information regarding measurement of these assets and liabilities – see Note 3 “Significant Accounting Policies”.
 
D.
Use of estimates and judgment
 
The preparation of consolidated financial statements in conformity with FRS requires management to make judgments, 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 these estimates.
 
The preparation of accounting estimates used in the preparation of the consolidated financial statements requires management of the Group to make assumptions regarding circumstances and events that involve considerable uncertainty. Management prepares the estimates based on past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
 
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
 
Following the Group’s business combination (“Note 11.A.1”), the Group had implemented additional accounting policies under the group of companies and information about assumptions made by management of the Group with respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are set forth below:
 
1.
Useful life of property, plant and equipment
 
Property, plant and equipment is depreciated using the straight-line method over its estimated useful life.
 
At every year-end, or more often if necessary, management examines the estimated useful life of the property, plant and equipment by comparing it to the benchmark in the relevant industry, taking into account the level of maintenance and functioning over the years. If necessary, on the basis of this evaluation, the Group adjusts the estimated useful life of the property, plant and equipment. A change in estimates in subsequent periods could materially increase or decrease future depreciation expense.
 
2.
Recoverable amount of non-financial assets and Cash Generating Units
 
Each reporting date, the management of the Group examines whether there have been any events or changes in circumstances which would indicate impairment of one or more of its non-financial assets or Cash Generating Units (“CGUs”). When there are indications of impairment, an examination is made as to whether the carrying amount of the non-financial assets or CGUs exceeds their recoverable amount, and if necessary, an impairment loss is recognized. Assessment of the impairment of goodwill and of other intangible assets having an indeterminable life is performed at least once a year or when signs of impairment exist.
 
The recoverable amount of the asset or CGU is determined based on the higher of the fair value less selling costs of the asset or CGU and the present value of the future cash flows expected from the continued use of the asset or CGU in its present condition, including the cash flows expected upon retiring the asset from service and its eventual sale (value in use).
 
The future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
 
The estimates regarding future cash flows are based on past experience with respect to this asset or similar assets (or CGUs), and on the Group’s best possible assessments regarding the economic conditions that will exist during the remaining useful life of the asset or CGU.
 
The estimate of the future cash flows relies on the Group’s budget and other forecasts. Since the actual cash flows may differ, the recoverable amount determined could change in subsequent periods, such that an additional impairment loss needs to be recognized or a previously recognized impairment loss needs to be reversed.
 
3.
Fair value of derivative financial instruments
 
The Group is a party to derivative financial instruments used to hedge foreign currency risks, interest risks and price risks. The derivatives are recorded based on their respective fair values. The fair value of the derivative financial instruments is determined using acceptable valuation techniques that characterize the different derivatives, maximizing the use of observable inputs. Fair value measurement of long-term derivatives takes into account the counterparties credit risks. Changes in the economic assumptions and/or valuation techniques could give rise to significant changes in the fair value of the derivatives.
 
F-17

 
Note 2 – Basis of Preparation of the Financial Statements (Cont’d)
 
4.
Separation of embedded derivatives
 
Management of the Group exercises significant judgment in determining whether it is necessary to separate an embedded derivative from a host contract. If it is determined that the embedded derivative is not closely related to the host contract and that it is necessary to separate the embedded derivative, this component is measured separately from the host contract as a financial instrument at fair value through profit or loss. Otherwise, the entire instrument is measured in accordance with the measurement principles applicable to the host contract.
 
Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss, as financing income or expenses.
 
5.
Deferred tax assets
 
Deferred tax assets are recorded in relation to unutilized tax losses, as well as with respect to deductible temporary differences. Since such deferred tax assets may only be recognized where it is probable that there will be future taxable income against which said losses may be utilized, use of discretion by management of the Group is required in order to assess the probability that such future taxable income will exist. Management’s assessment is re-examined on a current basis and deferred tax assets are recognized if it is probable that future taxable income will permit recovery of the deferred tax assets.
 
6.
Business Combinations
 
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase gain is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
 
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are recognized in profit or loss.
 
Any contingent consideration is measured at fair value at the acquisition date. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in profit or loss.
 
7.
Loss of control
 
Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any NCI and the other components of equity related to the subsidiary. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. The difference between the sum of the proceeds and fair value of the retained interest, and the derecognized balances is recognized in profit or loss under other income or other expenses. Subsequently, the retained interest is accounted for as an equity-accounted investee or as an available-for-sale asset depending on the level of influence retained by the Group in the relevant company.
 
The amounts recognized in capital reserves through other comprehensive income with respect to the same subsidiary are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the subsidiary had itself realized the same assets or liabilities.
 
8.
Contingent Liabilities
 
From time to time, the Group is involved in routine litigation that arises in the ordinary course of business. Provisions for litigation are recognized as set out in Note 3(P). Contingent liabilities for litigation and other claims do not result in provisions, but are disclosed in Note 21. The outcomes of legal proceedings with the Group are subjected to significant uncertainty and changes in factors impacting management’s assessments could materially impact the consolidated financial statements.
 
E.
Revision of the comparative figures
 
During the last quarter of 2017 the Group sold its IC Power businesses in Latin America. Comparative figures were restated to ensure comparability with current year’s presentation (see Note 29).
 
F-18

 
Note 3 – Significant Accounting Policies
 
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements, unless otherwise stated.
 
A.
Basis for consolidation/ combination
 
(1)
Business combinations
 
The Group accounts for all business combinations according to the acquisition method.
 
The acquisition date is the date on which the Group obtains control over an acquiree. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taken into account when assessing control.
 
The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred less the net amount of the fair value of identifiable assets acquired less the fair value of liabilities assumed.
 
If the Group pays a bargain price for the acquisition (meaning including negative goodwill), it recognizes the resulting gain in profit or loss on the acquisition date.
 
The Group recognizes contingent consideration measured at fair value at the acquisition date. The contingent consideration that meets the definition of a financial instrument that is not classified as equity will be measured at fair value through profit or loss; except for non-derivative financial instrument contingent consideration which will be measured through other comprehensive income.
 
Furthermore, goodwill is not adjusted in respect of the utilization of carry-forward tax losses that existed on the date of the business combination.
 
Costs associated with acquisitions that were incurred by the acquirer in the business combination such as: finder’s fees, advisory, legal, valuation and other professional or consulting fees are expensed in the period the services are received.
 
(2)
Subsidiaries
 
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date when control ceased. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company.
 
The Company has no interest in structured entities as of December 31, 2017 and 2016.
 
(3)
Non-Controlling Interest (“NCI”)
 
NCI comprises the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent company, and they include additional components such as: share-based payments that will be settled with equity instruments of the subsidiaries and options for shares of subsidiaries.
 
NCIs are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
 
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
 
Transactions with NCI, while retaining control
 
Transactions with NCI while retaining control are accounted for as equity transactions. Any difference between the consideration paid or received and the change in NCI is included directly in equity.
 
Allocation of comprehensive income to the shareholders
 
Profit or loss and any part of other comprehensive income are allocated to the owners of the Group and the NCI. Total comprehensive income is allocated to the owners of the Group and the NCI even if the result is a negative balance of NCI.
 
Furthermore, when the holding interest in the subsidiary changes, while retaining control, the Group re-attributes the accumulated amounts that were recognized in other comprehensive income to the owners of the Group and the NCI.
 
Cash flows deriving from transactions with holders of NCI while retaining control are classified under “financing activities” in the statement of cash flows.
 
F-19

 
 
Note 3 – Significant Accounting Policies (Cont’d)
 
(4)
Investments in equity-accounted investees
 
The Group’s interests in equity-accounted investees comprise interests in associates and a joint-venture.
 
Associates are entities in which the Group has the ability to exercise significant influence, but not control, over the financial and operating policies. In assessing significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account.
 
Joint-venture is an arrangement in which the Group has joint control, whereby the Group has the rights to assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
 
Associates and joint-venture are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group’s share of the income and expenses in profit or loss and of other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.
 
The Group’s share of post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment.
 
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to zero. When the Group’s share of long-term interests that form a part of the investment in the investee is different from its share in the investee’s equity, the Group continues to recognize its share of the investee’s losses, after the equity investment was reduced to zero, according to its economic interest in the long-term interests, after the aforesaid interests were reduced to zero. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any long-term interests that, in substance, form part of the entity’s net investment in the associate, the recognition of further losses is discontinued except to the extent that the Group has an obligation to support the investee or has made payments on behalf of the investee.
 
(5)
Loss of significant influence
 
The Group discontinues applying the equity method from the date it loses significant influence in an associate and it accounts for the retained investment as a financial asset, as relevant.
 
On the date of losing significant influence, the Group measures at fair value any retained interest it has in the former associate. The Group recognizes in profit or loss any difference between the sum of the fair value of the retained interest and any proceeds received from the partial disposal of the investment in the associate or joint venture, and the carrying amount of the investment on that date.
 
Amounts recognized in equity through other comprehensive income with respect to such associates are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself disposed the related assets or liabilities.
 
(6)
Change in interest held in equity accounted investees while retaining significant influence
 
When the Group increases its interest in an equity accounted investee while retaining significant influence, it implements the acquisition method only with respect to the additional interest obtained whereas the previous interest remains the same.
 
When there is a decrease in the interest in an equity accounted investee while retaining significant influence, the Group derecognizes a proportionate part of its investment and recognizes in profit or loss a gain or loss from the sale under other income or other expenses.
 
Furthermore, on the same date, a proportionate part of the amounts recognized in equity through other comprehensive income with respect to the same equity accounted investee are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself realized the same assets or liabilities.

F-20



Note 3 – Significant Accounting Policies (Cont’d)
 
(7)
Intra-group Transactions
 
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
 
(8)
Reorganizations under Common Control Transactions
 
Common control transactions that involve the setup of a new group company and the combination of entities under common control are recorded using the book values of the parent company.
 
B.
Foreign currency
 
(1)
Foreign currency transactions
 
Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions.
 
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items measured at historical cost would be reported using the exchange rate at the date of the transaction.
 
Foreign currency differences are generally recognized in profit or loss, except for differences relating to qualifying cash flow hedges to the extent the hedge is effective which are recognized in other comprehensive income.
 
(2)
Foreign operations
 
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated into US dollars at exchange rates at the dates of the transactions.
 
Foreign operation translation differences are recognized in other comprehensive income.
 
When the foreign operation is a non-wholly-owned subsidiary of the Group, then the relevant proportionate share of the foreign operation translation difference is allocated to the NCI.
 
When a foreign operation is disposed of such that control or significant influence is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal.
 
Furthermore, when the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate part of the cumulative amount of the translation difference that was recognized in other comprehensive income is reattributed to NCI.
 
The Group disposes of only part of its investment in an associate that includes a foreign operation, while retaining significant influence, the proportionate part of the cumulative amount of the translation difference is reclassified to profit or loss.
 
Generally, foreign currency differences from a monetary item receivable from or payable to a foreign operation, including foreign operations that are subsidiaries, are recognized in profit or loss in the consolidated financial statements.
 
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and are presented within equity in the translation reserve.

 
F-21

 
Note 3 – Significant Accounting Policies (Cont’d)
 
C.
Financial instruments
 
The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit and loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.
 
The Group classifies non- financial liabilities into the other financial liabilities categories.
 
(1)
Non-derivative financial assets and financial liabilities - recognition and de-recognition
 
The Group initially recognizes loans and receivables and debt securities issued on the date that they are originated. All other financial assets and financial liabilities are recognized initially on the trade date.
 
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership are transferred and does not retains control over the transferred asset. Any interest in such derecognized financial asset that is created or retained by the Group is recognized as a separate asset or liability.
 
The Group derecognizes a financial liability when its contractual obligations are discharged, or cancelled or expire.
 
Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
 
(2)
Non-derivative financial assets – measurement

Financial assets at fair value through profit and loss
 
A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, including any interest or dividend income, are recognized in profit or loss.
     
Held-to-maturity financial assets
 
These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
     
Loans and receivables
 
These assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method, less any impairment losses.
     
Available-for-sale financial assets
 
These assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognized in Other Comprehensive Income (“OCI”) and accumulated in the fair value reserve. When these assets are derecognized, the gain or loss accumulated in equity is reclassified to profit or loss.
 
F-22

 
Note 3 – Significant Accounting Policies (Cont’d)
 
(3)
Non-derivative financial liabilities - Measurement
 
Non-derivative financial liabilities include loans and credit from banks and others, debentures, trade and other payables and finance lease liabilities.
 
Non-derivative financial liabilities are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.
 
(4)
Derivative financial instruments and hedge accounting
 
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures.
 
Derivatives are recognized initially at fair value; any directly attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.
 
(5)
Cash flow hedges
 
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in OCI and accumulated in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
 
The amount accumulated in equity is retained in OCI and reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss.
 
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to profit or loss.
 
(6)
Financial guarantees
 
A financial guarantee is initially recognized at fair value. In subsequent periods, a financial guarantee is measured at the higher of the amount recognized in accordance with the guidelines of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and the liability initially recognized under IAS 39 Financial Instruments: Recognition and Measurement and subsequently amortized in accordance with the guidelines of IAS 18 Revenue. Any resulting adjustment of the liability is recognized in profit or loss.
 
D.
Cash and Cash Equivalents
 
In the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.
 
E.
Property, plant and equipment, net
 
(1)
Recognition and measurement
 
Items of property, plant and equipment comprise mainly power station structures, power distribution facilities and related offices. These items are measured at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
 
The cost of materials and direct labor;
 
Any other costs directly attributable to bringing the assets to a working condition for their intended use;
 
When the Group has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and
 
Capitalized borrowing costs.
 
If significant parts of an item of property, plant and equipment items have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
 
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss in the year the asset is derecognized.

F-23

 
Note 3 – Significant Accounting Policies (Cont’d)
 
(2)
Subsequent Cost
 
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group, and its cost can be measured reliably.
 
(3)
Depreciation
 
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.
 
The following useful lives shown on an average basis are applied across the Group:
 
 
Years
Roads, buildings and leasehold improvements
2 – 50
Installations, machinery and equipment:
 
Thermal power plants
10 – 35
Hydro-electric plants
70 – 90
Wind power plants
25
Power generation and electrical
20
Dams
18 – 80
Office furniture, motor vehicles and other equipment
3 – 16
Substations, medium voltage equipment and transf.MV/LV
30 – 40
Meters and connections
10 – 25
 
Depreciation methods, useful lives and residual values are reviewed by management of the Group at each reporting date and adjusted if appropriate.
 
F.
Intangible assets, net
 
(1)
Recognition and measurement
 
Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment; and any impairment loss is allocated to the carrying amount of the equity investee as a whole.
   
Research anddevelopment
Expenditures on research activities is recognized in profit and loss as incurred.
 
Development activities involve expenditures incurred in relation to the design and evaluation of future power plant projects before the technical feasibility and commercial viability is fully completed, however the Group intends to and has sufficient resources to complete the development and to use or sell the asset.
 
At each reporting date, the management of the Group performs an evaluation of each project in order to identify facts and circumstances that suggest that the carrying amount of the assets may exceed their recoverable amount.
 
Concessions
 
Intangible assets granted by the Energy and Mining Ministry of Guatemala to DEORSA and DEOCSA to operate power distribution business in defined geographic areas, and acquired as part of business combination. The Group measures Concessions at cost less accumulated amortization and any accumulated impairment losses.

Customer relationships
Intangible assets acquired as part of a business combination and are recognized separately from goodwill if the assets are separable or arise from contractual or other legal rights and their fair value can be measured reliably. Customer relationships are measured at cost less accumulated amortization and any accumulated impairment losses.
 
Other intangible assets
Other intangible assets, including licenses, patents and trademarks, which are acquired by the Group and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.
 
F-24

 
Note 3 – Significant Accounting Policies (Cont’d)
 
(2)
Amortization
 
Amortization is calculated to charge to expense the cost of intangible assets less their estimated residual values using the straight-line method over their useful lives, and is generally recognized in profit or loss. Goodwill is not amortized.
 
The estimated useful lives for current and comparative year are as follows:
 
 
·
Concessions
33 years*
 
·
Customer relationships
1-12 years
 
·
Software costs
5 years
 
·
Others
5-27 years
 
* The concessions are amortized over the remaining life of the licenses from the date of the business combination.
 
Amortization methods and useful lives are reviewed by management of the Group at each reporting date and adjusted if appropriate.
 
G.
Subsequent expenditure
 
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill is expensed as incurred.
 
H.
Transfer of assets from customers
 
In the distribution industry, an entity may receive from its customers items of property, plant and equipment that must be used to connect those customers to a network and provide them with ongoing access to supply electricity. Alternatively, an entity may receive cash from customers for the acquisition or construction of such items of property, plant and equipment. In these cases, where the Group determines that the items qualify for recognition as an asset, the transferred assets are recognized as part of the property plant and equipment in the statement of financial position in accordance with IAS 16 and measured the cost on initial recognition at its fair value.
 
The transfer of an item of property, plant and equipment is an exchange for dissimilar goods or services. Consequently, the Group recognize revenue in accordance with IAS 18. The timing of the recognition of the revenue arising from the transfer will take place once the Company has control on the assets and the customers are connected to the distribution network.
 
I.
Service Concession arrangements
 
The Group has examined the characteristics, conditions and terms currently in effect under its electric energy distribution license and the guidelines established by IFRIC 12. On the basis of such analysis, the Group concluded that its license is outside the scope of IFRIC 12, primarily because the grantor does not control any significant residual interest in the infrastructure at the end of the term of the arrangement and the possibility of renewal.
 
The Group accounts for the assets acquired or constructed in connection with the Concessions in accordance with IAS 16 Property, plant and equipment.
 
J.
Leases
 
(1)
Lease assets
 
Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.
 
Asset held under other leases are classified as operating leases and are not recognized in the Group’s consolidated statement of financial position.
 
F-25

 
Note 3 – Significant Accounting Policies (Cont’d)
 
(2)
Lease payments
 
Payments made under operating leases, other than conditional lease payments, are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
 
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate if interest on the remaining balance of the liability.
 
K.
Inventories
 
Inventories are measured at the lower of cost and net realizable value. Inventories consist of fuel, spare parts, materials and supplies. Cost is determined by using the average cost method.
 
L.
Trade Receivable, net
 
Trade receivables are amounts due from customers for the energy and capacity in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
 
Evidence of impairment of financial assets
 
The Group considers evidence of impairment for trade receivables at both a specific asset and collective level. All individually significant trade receivables are assessed for specific impairment. All individually significant trade receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Trade receivables with similar risk characteristics that are not individually significant are collectively assessed for impairment.  In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
 
M.
Borrowing costs
 
Specific and non-specific borrowing costs are capitalized to qualifying assets throughout the period required for completion and construction until they are ready for their intended use. Non-specific borrowing costs are capitalized in the same manner to the same investment in qualifying assets, or portion thereof, which was not financed with specific credit by means of a rate which is the weighted-average cost of the credit sources which were not specifically capitalized. Foreign currency differences from credit in foreign currency are capitalized if they are considered an adjustment of interest costs. Other borrowing costs are expensed as incurred. Income earned on the temporary investment of specific credit received for investing in a qualifying asset is deducted from the borrowing costs eligible for capitalization.
 
N.
Impairment
 
(1)
Non-derivative financial assets
 
Financial assets not classified as at fair value through profit or loss, including an interest in an equity- account investee, are assessed by management of the Group at each reporting date to determine whether there is objective evidence of impairment.
 
Objective evidence that financial assets are impaired includes:

·
Default or delinquency by a debtor;
·
Restructuring of an amount due to the Group on terms that the Group would not consider otherwise;
·
Indications that a debtor or issuer will enter bankruptcy;
·
Adverse changes in the payment status of borrowers or issuers;
·
The disappearance of an active market for a security; or
·
Observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.
 
F-26

 
Note 3 – Significant Accounting Policies (Cont’d)
 
For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost.
 
Financial Assets measured at amortized costs
 
The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.
 
In assessing collective impairment, the group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.
 
An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss.
 
Available-for-sale financial assets
Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortization) and the current fair value, less any impairment loss previously recognized in profit or loss. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed through profit or loss; otherwise, it is reversed through OCI.

Equity-account investees
An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognized in profit or loss, and is reversed if there has been a favorable change in the estimates used to determine the recoverable amount and only to the extent that the investment’s carrying amount, after the reversal of the impairment loss, does not exceed the carrying amount of the investment that would have been determined by the equity method if no impairment loss had been recognized.
 
(2)
Non-financial Assets
 
At each reporting date, management of the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment or whenever impairment indicators exist.
 
For impairment testing, assets are grouped together into smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Goodwill arising from a business combination is allocated to CGUs or group of CGUs that are expected to benefit from these synergies of the combination.
 
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
 
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.
 
Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
 
An impairment loss in respect of goodwill is not reversed. For other assets, an assessment is performed at each reporting date for any indications that these losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
 
F-27

 
Note 3 – Significant Accounting Policies (Cont’d)
 
O.
Employee benefits
 
(1)
Short-term employee benefits
 
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled.
 
(2)
Bonus plans transactions
 
The Group’s senior executives receive remuneration in the form of share-appreciations rights, which can only be settled in cash (cash-settled transactions). The cost of cash-settled transactions is measured initially at the grant date. With respect to grants made to senior executives of OPC Energy Ltd (“OPC”), this benefit is calculated by determining the present value of the settlement (execution) price set forth in the plan. The liability is re-measured at each reporting date and at the settlement date based on the formulas described above. Any changes in the liability are recognized as operating expenses in profit or loss.
 
(3)
Termination Benefits
 
Severance pay is charged to income statement when there is a clear obligation to pay termination of employees before they reach the customary age of retirement according to a formal, detailed plan, without any reasonable chance of cancellation, The benefits given to employees upon voluntary retirement are charged when the Group proposes a plan to the employees encouraging voluntary retirement, it is expected that the proposal will be accepted and the number of employee acceptances can be estimated reliably.
 
(4)
Defined Benefit Plans
 
The calculation of defined benefit obligation is performed at the end of each reporting period by a qualified actuary using the projected unit credit method. Remeasurements of the defined benefit liability, which comprise actuarial gains and losses and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in OCI. Interest expense and other expenses related to defined benefit plan are recognized in profit or loss.
 
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
 
(5)
Share-based compensation plans
 
Qualifying employees are awarded grants of the Group’s shares under the Group’s 2014 Share Incentive Plan. The fair value of the grants are recognized as an employee compensation expense, with a corresponding increase in equity. The expense is amortised over the service period – the period that the employee must remain employed to receive the benefit of the award. At each balance sheet date, the Group revises its estimates of the number of grants that are expected to vest. It recognises the impact of the revision of original estimates in employee expenses and in a corresponding adjustment to equity over the remaining vesting period.
 
P.
Provisions
 
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
 
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
 
F-28


Note 3 – Significant Accounting Policies (Cont’d)
 
Q.
Revenue recognition
 
(1)
Revenue from electricity
 
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue comprises the fair value for the sale of electricity, net of value-added-tax, rebates and discounts and after eliminating sales within the Group. Revenues from the sale of energy are recognized in the period during which the sale occurs. The revenues of the Company are primarily from the sale of electricity to private customers and to Israel Electric Company Ltd. (“IEC”).
 
(2)
Revenue from shipping services and related expenses (in associated company)
 
Revenue from cargo traffic is recognized in profit or loss in proportion to the stage of completion of the transaction at the balance sheet date. The stage of completion is assessed for each cargo by the reference to the time-based proportion. The operating expenses related to cargo traffic are recognized immediately as incurred. If the incremental expenses related to the cargo exceed the related revenue, the loss is recognized immediately in income statement.
 
(3)
Revenue from vehicles (in associated company)
 
  (i)
Sales of vehicles
 
Revenue from the sale of vehicles in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of value-added tax (“VAT”), consumption tax and other sales taxes, returns or allowances, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customers, recovery of the consideration is probable, the associated costs and possible return of vehicles can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
 
 (ii)
Rental income of vehicles
 
Rental income from operating leases is recognized as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease.
 
(iii)
Licensing income
 
License fee and royalties received for the use of the Group’s assets (such as platform technology and patent) are normally recognized in accordance with the substance of the agreement.
 
(4)
Revenue from biodiesel
 
Revenues are recorded if the material risks and rewards associated with ownership of the goods/merchandise sold have been assigned to the buyer. This usually occurs upon the delivery of products and merchandise.
 
Revenue is recorded to the extent that it is probable that the economic benefits will flow to the Group and the amount of the revenues can be reliably measured.
 
R.
Government grants
 
Government grants related to distribution projects are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recorded at the value of the grant received and any difference between this value and the actual construction cost is recognized in profit or loss of the year in which the asset is released.
 
Government grants related to distribution assets are deducted from the related assets. They are recognized in statement of income on a systematic basic over the useful life of the related asset reducing the depreciation expense.
 
S.
Deposits received from consumers
 
Deposits received from consumers, plus interest accrued and less any outstanding debt for past services, are refundable to the users when they cease using the electric energy service rendered by the Group. The Group has classified these deposits as current liabilities since the Group does not have legal rights to defer these payments in a period that exceed a year. However, the Group does not anticipate making significant payments in the next year.
 
F-29

 
Note 3 – Significant Accounting Policies (Cont’d)
 
T.
Transfer of assets from customers
 
In the power distribution industry, an entity may receive from its customer items in the form of property, plant and equipment that are used to connect these customers to a network with continuous access to power supply. Alternatively, an entity may receive cash from customers in return for the acquisition or construction of such items of property, plant and equipment. In such cases, where the Group determines that these items qualify for recognition as an asset, the transferred assets are recognized as part of the property plant and equipment in the statement of financial position in accordance with IAS 16 and measured its cost on initial recognition at its fair value.
 
U.
Guarantee deposits from customers
 
Deposits received from customers, plus interest accrued and less any outstanding debt for past services, are refundable to the users when they cease using the electric energy service rendered by the Group. The Group has classified these deposits as current liabilities since the Group does not have legal rights to defer these payments in a period that exceed a year. However, the Group does not anticipate making significant payments in the next year.
 
V.
Energy purchase
 
Costs from energy purchases either acquired in the spot market or from contracts with suppliers are recorded on an accrual basis according to the energy actually delivered. Purchases of electric energy, including those which have not yet been billed as of the reporting date, are recorded based on estimates of the energy supplied at the prices prevailing in the spot market or agreed-upon in the respective purchase agreements, as the case may be.
 
W.
Financing income and expenses
 
Financing income includes income from interest on amounts invested and gains from exchange rate differences. Interest income is recognized as accrued, using the effective interest method.
 
Financing expenses include interest on loans received, commitment fees on borrowings, and changes in the fair value of derivatives financial instruments presented at fair value through profit or loss, and exchange rate losses. Borrowing costs, which are not capitalized, are recorded in the income statement using the effective interest method.
 
In the statements of cash flows, interest received is presented as part of cash flows from investing activities. Dividends received are presented as part of cash flows from operating activities. Interest paid and dividends paid are presented as part of cash flows from financing activities. Accordingly, financing costs that were capitalized to qualifying assets are presented together with interest paid as part of cash flows from financing activities. Gains and losses from exchange rate differences and gains and losses from derivative financial instruments are reported on a net basis as financing income or expenses, based on the fluctuations on the rate of exchange and their position (net gain or loss).
 
The Group’s finance income and finance costs include:
·
Interest income;
·
Interest expense;
·
The net gain or loss on the disposal of available-for-sale financial assets;
·
The net gain or loss on financial assets at fair value through profit or loss;
·
The foreign currency gain or loss on financial assets and financial liabilities;
·
The fair value loss on contingent consideration classified as financial liability;
·
Impairment losses recognized on financial assets (other than trade receivables);
·
The net gain or loss on hedging instruments that are recognized in profit or loss; and
·
The reclassification of net gains previously recognized in OCI.
 
Interest income or expense is recognized using the effective interest method.
 
F-30

 
Note 3 – Significant Accounting Policies (Cont’d)
 
X.
Income taxes
 
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
 
(i) Current tax
 
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax liability arising from dividends.
 
Current tax assets and liabilities are offset only if certain criteria are met.
 
(ii) Deferred tax
 
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
 
Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
 
Temporary differences related to investments in subsidiaries and associates where the Group is able to control the timing of the reversal of the temporary differences and it is not probable that they will reverse it in the foreseeable future; and
 
Taxable temporary differences arising on the initial recognition of goodwill.
 
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profit improves.
 
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
 
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
 
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
 
Management of the Group regularly reviews its deferred tax assets for recoverability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income, projected future pre-tax and taxable income and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified.
 
Management believes the Group’s tax positions are in compliance with applicable tax laws and regulations. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The Group believes that its liabilities for unrecognized tax benefits, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows.
 
 (iii) Uncertain tax positions
 
A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will have to use its economic resources to pay the obligation.
 
Y.
Earnings per share
 
The Group presents basic and diluted earnings per share data for its ordinary share capital. The basic earnings per share are calculated by dividing income or loss allocable to the Group’s ordinary equity holders by the weighted-average number of ordinary shares outstanding during the period. The diluted earnings per share are determined by adjusting the income or loss allocable to ordinary equity holders and the weighted-average number of ordinary shares outstanding for the effect of all potentially dilutive ordinary shares including options for shares granted to employees.

F-31

 
Note 3 – Significant Accounting Policies (Cont’d)
 
Z.
Share capital – ordinary shares
 
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity.
 
Distribution of Non-Cash Assets to owners of the Company
 
The Group measures a liability to distribute non-cash assets as a dividend to the owners of the Group at the fair value of the assets to be distributed. The carrying amount of the dividend is remeasured at each reporting date and at the settlement date, with any changes recognized directly in equity as adjustments to the amount of the distribution. On settlement of the transaction, the Group recognized the difference, if any, between the carrying amounts of the assets distributed and the carrying amount of the liability in profit or loss. Distribution of non-cash assets are distributed to shareholders when the shareholder is given a choice of taking cash in lieu of the non-cash assets.
 
AA.
Discontinued operation
 
A discontinued operation is a component of the Group´s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
 
·
Represents a separate major line of business or geographic area of operations,
 
·
Is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or
 
·
Is a subsidiary acquired exclusively with a view to re-sell.
 
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.
 
In the cash flow, the net proceeds from discontinued operation is disclosed in a separate line. The changes based on operating, investing and financing activities are reported in Note 29.
 
AB.
Operating Segment and Geographic Information
 
The Company's co-CEOs and CFO are considered to be the Group's chief operating decision maker ("CODM").  Based on the internal financial information provided to the CODM, the Group has determined that it has two reportable segments in 2017, which are OPC segment and Qoros segment.  In addition to the segments detailed above, the Group has other activities, such as a shipping services and renewable energy businesses categorized as Other.
 
The CODM evaluates the operating segments performance based on Adjusted EBITDA. Adjusted EBITDA is defined as the net income (loss) excluding depreciation and amortization, financing income, income taxes and other items. Qoros is an associated company of the Group and the CODM evaluates the performance of Qoros based on the share of profit/loss.
 
The CODM evaluates segment assets based on total assets and segment liabilities based on total liabilities.
 
The accounting policies used in the determination of the segment amounts are the same as those used in the preparation of the Group's consolidated financial statement, Inter-segment pricing is determined based on transaction prices occurring in the ordinary course of business.
 
In determining of the information to be presented on a geographic basis, revenues are based on the geographic location of the customer and non-current assets are based on the geographic location of the assets.
 
The segment information were restated to only present results from continuing operations following the discontinued operations.
 
AC.
Transactions with controlling shareholders
 
Assets, liabilities and benefits with respect to which a transaction is executed with the controlling shareholders are measured at fair value on the transaction date. The Group records the difference between the fair value and the consideration in equity.
 
F-32

 
Note 3 – Significant Accounting Policies (Cont’d)
 
AD.
New standards and interpretations not yet adopted
 
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2018, and have not been applied in preparing these consolidated financial statements. The impact on the consolidated financial statements of the Group is described below:
 
1)
Financial Reporting Standard FRS 109 “Financial Instruments – replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. FRS 109 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39
 
The Standard is to be applied for annual periods commencing on or after January 1, 2018, with the possibility of early adoption. The Standard is to be applied retroactively, except in a number of circumstances. Management of the Group is examining the effects of FRS 109 on the financial statements with no plans for early adoption.
 
The Group has examined FRS 109 in order to determine the qualitative impacts of the implementation. As of 31 December 2017, the Group considers that the overall impact of the implementation of FRS 109 will be immaterial to the Group.
 
The examination of the potential qualitative impacts was conducted, considering the following two main areas of FRS 109:
 
a)
Classification of financial assets
 
There are no material impacts expected concerning the classification and measurement of financial assets due to the types of financial assets held by the Group entities. The Group does not hold complex financial assets nor enters in complex structured financing transaction such as securitization transactions or factoring-arrangements.
 
b)
Impairment of financial assets
 
In general, the most important financial assets of the Group, trade receivables, do not contain a significant financing component. Therefore, the simplified approach as established in FRS 109 is recommended to be applied. According to FRS 109, provision matrix may be used to estimate expected credit losses (“ECL”) for these financial instruments without the use of hindsight of a default, and the matrix would include expectations of variations in credit risks of customers for the lifetime. Thus, the recognition of losses would be based on the maximum period over which ECL which is the maximum contractual period over which the entity is exposed to credit risk from the first day of the recognition of the receivable. The Group expects that the application of FRS 109 will impact its deferred payment obligations impairment assessment using the expected credit loss method. Using the expected credit loss method, the Group expects no significant impairment.
 
2)
Financial Reporting Standard FRS 115 “Revenues from Contracts with Customers” – The Standard replaces the presently existing guidelines regarding recognition of revenue from contracts with customers and provides two approaches for recognition of revenue: at one point in time or over time. The model includes five stages for analysis of transactions in order to determine the timing of recognition of the revenue and the amount thereof. In addition, the Standard provides new disclosure requirements that are more extensive that those currently in effect. The Standard is to be applied for annual periods commencing on January 1, 2018. The Group has examined the implications of implementation of the standard and does not expect its implementation to have a material effect on the financial statements.
 
3)
Financial Reporting Standard FRS 116 “Leases – The standard replaces IAS 17 – Leases and its related interpretations. The standard's instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in respect of the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required at present. The standard will become effective for annual periods commencing on or after January 1, 2019, with the possibility of early adoption, so long as the Group has also early adopted FRS 115 – Revenue from contracts with customers. The standard includes a number of alternatives for the implementation of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective implementation or implementation from the effective date while adjusting the balance of retained earnings at that date. The Group examined the expected effects of the implementation of the Standard, but is unable at this stage to reliably estimate the quantitative impact on its financial statements.

F-33


Note 3 – Significant Accounting Policies (Cont’d)
 
4)
Financial Reporting Standard FRS 102 “Share-based payments” – The amendment clarify that the measurement of cash-settled share-based payments (SBP) should follow the same approach as for equity-settled SBP;  as an exception, for classification purposes, a SBP transaction with employees is accounted for as equity-settled if the terms of the arrangement permit or require an entity to settle the transaction net by withholding a specified portion of the equity instruments to meet the statutory tax withholding requirement, and the entire SBP transaction would otherwise be classified as equity-settled if not for the net settlement feature; and  for modification of awards from cash-settled to equity-settled:
 
-
at the modification date, derecognise the liability for the original cash-settled SBP; and measure the equity-settled SBP at its fair value and recognise in equity to the extent that the goods or services have been received up to that date.
-
recognise in profit or loss immediately the difference between the carrying amount of the liability derecognised and the amount recognised in equity as at modification date.
 
As a practical simplification, the amendments can be applied prospectively so that prior periods do not have to be restated. Retrospective, or early, application is permitted if entities have the required information.

5)
Financial Reporting Standard FRS 28 “Investments in Associates and Joint Ventures” – The amendment clarifies that:
 
-
a venture capital organisation, or other qualifying entity, may elect to measure its investments in an associate or joint venture at fair value through profit or loss on an investment-by-investment basis.
-
a non-investment entity investor may elect to retain the fair value accounting applied by an investment entity associate or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity associate or joint venture.

6)
International Financial Reporting Interpretations Committee INT FRS 122 “Foreign Currency Transactions and Advance Consideration” – The Interpretation stipulates that the date of the transaction for the purpose of determining the exchange rate for recording a transaction in foreign currency that includes advance payments will be the date on which the Company first recognizes a non-monetary asset/liability in respect of the advance payment. When there are several payments or receipts in advance, the Company will set a transaction date for each payment/receipt separately. The Interpretation will be applied for annual periods commencing January 1, 2018, with the possibility of early adoption. The interpretation includes various alternatives for the implementation of the transitional provisions, such that companies may choose one of the following alternatives upon initial application: retroactive implementation; A prospective application from the first reporting period in which the entity first applied the Interpretation; Or a prospective application from the first reporting period presented in the comparative figures in the financial statements for the period in which the entity first applied the Interpretation. The Group examined the implications of applying the interpretation on its financial statements and intends to choose the transition alternative of prospective application effective from January 1, 2018. The Group has determined in the past that the "transaction date" used to determine the exchange rate for recording a foreign currency transaction that includes advance payments will be the date on which the Group first recognizes the non - monetary asset/liability in respect of the advance. As a result, it is not expected to have a material effect on the Group's financial statements.

F-34

 
Note 4 – Determination of Fair Value
 
A.
Business Combinations
 
The Group measures the value of the acquired assets, liabilities, and contingent liabilities considering the fair value basis from the date on which the Group took control. The criteria considered to measure the fair value of the main items were the following:
·
Fixed assets were valued considering the market value provided by an appraiser;
·
Intangibles consider the valuation of Concessions;
·
Deferred taxes were valued based on the temporary differences between the accounting and tax basis of the business combination;
·
Non-controlling interests were measured as a proportional basis of the net assets identified on the acquisition date
·
Intangibles consider the valuation of its Power Purchase Agreements (PPAs); and,
·
Contingent liabilities were determined over the average probability established by third party legal processes.
 
B.
Cash Generating Unit for impairment testing
 
See Note 15.C.
 
C.
Derivatives
 
See Note 32 regarding “Financial Instruments”.
 
D.
Non-derivative financial liabilities
 
Non-derivative financial liabilities are measured at their respective fair values, at initial recognition and for disclosure purposes, at each reporting date. Fair value for disclosure purposes, is determined based on the quoted trading price in the market for traded debentures, whereas for non-traded loans, debentures and other financial liabilities is determined by discounting the future cash flows in respect of the principal and interest component using the market interest rate as at the date of the report.
 
Note 5 – Cash and Cash Equivalents
 
   
As at December 31
 
   
2017
   
2016
 
   
$ thousands
 
Cash in banks
   
1,313,710
     
320,199
 
Time deposits
   
103,678
     
6,436
 
Cash and cash equivalents
   
1,417,388
     
326,635
 
 
The Group’s exposure to credit risk, interest rate risk and currency risk and a sensitivity analysis with respect to the financial assets and liabilities is detailed in Note 32 “Financial Instruments”.
 
 Note 6 – Short-Term investments and deposits

   
As at December 31
 
   
2017
   
2016
 
   
$ thousands
 
Restricted cash and short-term deposits (1)
   
7,085
     
89,475
 
Other
   
59
     
70
 
     
7,144
     
89,545
 
 
(1)
As at December 31, 2017, it mainly corresponds to the amount held in escrow account as collateral for contractual obligations, see Note 21.B(a). It earns interest at a market interest rate of 0.07%

F-35

 
Note 7 – Trade Receivables, Net
 
   
As at December 31
 
   
2017
   
2016
 
   
$ thousands
 
Trade Receivables
   
44,137
     
285,100
 
Less – allowance for doubtful debts
   
-
     
(568
)
     
44,137
     
284,532
 
 
Note 8 – Other Current Assets
 
   
As at December 31
 
   
2017
   
2016
 
   
$ thousands
 
Advances to suppliers
   
673
     
141
 
Prepaid expenses
   
1,818
     
6,039
 
Derivative instruments
   
1,471
     
1,831
 
Government agencies
   
7,408
     
14,677
 
Contingent consideration (a)
   
18,004
     
-
 
Other receivables (b)
   
6,378
     
27,085
 
     
35,752
     
49,773
 
 
(a)
This represents the contingent consideration receivable from ISQ as a part of the transaction described in Note 29.
 
(b)
As at December 31, 2016, this includes discontinued operations’ receivables of $16 million from insurance claims, transmission line sale, transaction costs and selective consumption tax on heavy fuel oil.
 
Note 9 – Inventories
 
   
As at December 31
 
   
2017
   
2016
 
   
$ thousands
 
Fuel and spare parts (a)
   
-
     
91,659
 
 
(a)
Inventories as at December 31, 2016 belongs to discontinued operations.

F-36

 
Note 10 – Investment in Associated Companies

A.
Condensed information regarding significant associated companies
 
1.
Condensed financial information with respect to the statement of financial position

   
ZIM
   
Qoros*
 
   
As at December 31
 
   
2017
   
2016
   
2017
   
2016
 
   
$ thousands
 
Principal place of business
 
International
   
China
 
Proportion of ownership interest
 
32%
   
32%
   
50%