4. Argentina - Hyperinflationary economy: impact of the application of IAS 29

As from July 1, 2018, the Argentine economy has been considered hyperinflationary based on the criteria established by “IAS 29 - Financial reporting in hyperinflationary economies”. This designation is determined following an assessment of a series of qualitative and quantitative circumstances, including the presence of a cumulative inflation rate of more than 100% over the previous three years.

For the purposes of preparing the consolidated financial statements at December 31, 2020 and in accordance with IAS 29, certain items of the statements of financial position of the investees in Argentina have been remeasured by applying the general consumer price index to historical data in order to reflect changes in the purchasing power of the Argentine peso at the reporting date for those companies.

Bearing in mind that the Enel Group acquired control of the Argentine companies on June 25, 2009, the remeasurement of the non-monetary financial statement figures was conducted by applying the inflation indices starting from that date. In addition to being already reflected in the opening statement of financial position, the accounting effects of that remeasurement also include changes during the period. More specifically, the effect of the remeasurement of non-monetary items, the equity items and the income statement items recognized in 2020 was recognized in a specific line of the income statement under financial income and expense. The associated tax effect was recognized in taxes for the year.

In order to also take account of the impact of hyperinflation on the exchange rate of the local currency, the income statement balances expressed in the hyperinflationary currency have been translated into the Group’s presentation currency (euro) applying, in accordance with IAS 21, the closing exchange rate rather than the average rate for the year in order to adjust these amounts to present values.

The cumulative changes in the general price indices at December 31, 2018, December 31, 2019 and December 31, 2020 are shown in the following table.

Periods Cumulative change in general consumer price index
From July 1, 2009 to December 31, 2018 346.30%
From January 1, 2019 to December 31, 2019 54.46%
From January 1, 2020 to December 31, 2020 35.41%

 

In 2020, the application of IAS 29 generated net financial income (gross of tax) of €57 million.

The following tables report the effects of IAS 29 on the balance at December 31, 2020 and the impact of hyperinflation on the main income statement items for 2020, differentiating between that concerning the revaluation on the basis of the general consumer price index and that due to the application of the closing exchange rate rather than the average exchange rate for the period, in accordance with the provisions of IAS 21 for hyperinflationary economies.

Millions of euro        
  Cumulative hyperinflation effect at Dec. 31, 2019 Hyperinflation effect for the period Exchange differences Cumulative hyperinflation effect at Dec. 31, 2020
Total assets 857 313 (208) 962
Total liabilities 164 86 (58) 192
Equity 693 227(1) (150) 770

(1) The figure includes profit for 2020, equal to €25 million.

Millions of euro      
  IAS 29 effect IAS 21 effect Total effect
Revenue 119 (199) (80)
Costs 169(1) (177)(2) (8)
Operating profit (50) (22) (72)
Net financial expense (4) (4) (8)
Net income/(expense) from hyperinflation 57 - 57
Pre-tax profit/(loss) 3 (26) (23)
Income taxes 28 (3) 25
Loss for the year (owners of the Parent and non-controlling interests) (25) (23) (48)
Attributable to owners of the Parent - (10) (10)
Attributable to non-controlling interests (25) (13) (38)

(1) Includes impact on depreciation, amortization and impairment losses of €49 million.
(2) Includes impact on depreciation, amortization and impairment losses of €(18) million.