IBERSOL Annual Report 2018

ANNUAL REPORT 2018 IFRS 16 removes the classification of leases as operational or financial (for the lessor - the leasing customer), treating all leases as financial leases. Short-term leases (less than 12 months) and leases of low-value assets (such as per- sonal computers) are exempt from application of the requirements of the standard. IFRS 16 defines the principles for the recognition, measurement and presentation of leases, replacing IAS 17 - Locations and their interpretive guidelines. IFRS 16 distinguishes leases and service contracts taking into account whether an asset is identified that is controlled. Distinctions of operating leases (off-balance sheet) and finance leases (included in the balance sheet) are eliminated at the level of the lessee and are replaced by a model in which an asset identified with a right of use and a corresponding liability for all leases, except for short-term contracts (up to 12 months). The “right of use” is initially measured at cost and subsequently at the net cost of de- preciation and impairment, adjusted by the remeasurement of the lease liability. The lease liability is initially measured based on the present value of the lease liabilities to date. Subsequently, the lease liability is adjusted by the financial update of said amount, as well as the possible modifications of the lease contracts. As of December 31, 2018, the Group had liabilities related to operating leases in the amount of Euro 357 Million (Note 33), which is not discounted for the present mo- ment. IAS 17 does not require recognition of the right to use as an asset or future payments as liabilities. The Group will adopt this standard as of January 1, 2019 and has decided to apply the modified retrospective method to the consolidated accounts and will not restate the comparative accounts in the first year of adoption. In the transition, the right of use will be measured by the same amount of liabilities with leases. At the date of publication of these consolidated financial statements, the Group has already performed an exhaustive analysis of all existing leases and their technical framework, taking into account the provisions of IFRS 16. Thus, it is possible to esti- mate the magnitude of the impacts inherent to its adoption in Assets and Liabilities, which should be between 260 and 290 million euros. This interval results from the sensitivity analyzes carried out at the level of the incremental financing rates that should be considered in the scope of updating the present value of the lease pay- ments amount, as of January 1, 2019. Compared to the same items in the Consolidated Income Statement, if this stand- ard were not adopted, it is estimated that EBITDA (earnings before interest, taxes, depreciation and amortization) is higher, since leases operating costs are not recog- nized. In turn, the net results should have a lower value, as it incorporates the amorti- zations of rights of use and interest on the total liabilities cleared on January 1, 2019. 231