TELEFÓNICA CELULAR DEL PARAGUAY S.A. Annual Consolidated Financial Statements As of and for the year ended 31 December, PDF

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TELEFÓNICA CELULAR DEL PARAGUAY S.A. Annual Consolidated Financial Statements As of and for the year ended 31 December, 2015 March 14, 2016 Telefónica Celular del Paraguay S.A. Consolidated Financial Statements

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TELEFÓNICA CELULAR DEL PARAGUAY S.A. Annual Consolidated Financial Statements As of and for the year ended 31 December, 2015 March 14, 2016 Telefónica Celular del Paraguay S.A. Consolidated Financial Statements TABLE OF CONTENTS CORPORATE INFORMATION... 5 BUSINESS ACTIVITIES... 5 IFRS CONSOLIDATED FINANCIAL STATEMENTS... 5 NEW AND AMENDED IFRS ACCOUNTING STANDARDS, CHANGES IN ACCOUNTING POLICIES... 6 JUDGMENTS AND CRITICAL ESTIMATES... 8 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity A/ THE GROUP A.1. SUBSIDIARIES B/ PERFORMANCE B.1. REVENUE B.2. EXPENSES B.3. SEGMENTAL INFORMATION B.4. PEOPLE B.5. TAXATION C/ CAPITAL STRUCTURE AND FINANCING C.1. SHARE CAPITAL, SHARE PREMIUM AND RESERVES C.2. DIVIDEND DISTRIBUTIONS C.3. DEBT AND FINANCING C.4. CASH AND DEPOSITS C.5. NET DEBT D/ FINANCIAL RISK MANAGEMENT D.1. INTEREST RATE RISK D.2. FOREIGN CURRENCY RISKS D.3. CREDIT AND COUNTERPARTY RISK D.4. LIQUIDITY RISK D.5. CAPITAL MANAGEMENT E/ LONG-TERM ASSETS E.1. INTANGIBLE ASSETS E.2. PROPERTY, PLANT AND EQUIPMENT F/ OTHER ASSETS AND LIABILITIES F.1. TRADE RECEIVABLES F.2. INVENTORIES Telefónica Celular del Paraguay S.A. Consolidated Financial Statements F.3. TRADE PAYABLES F.4. PREPAYMENTS AND ACCRUED INCOME F.5. CURRENT AND NON-CURRENT PROVISIONS AND OTHER LIABILITIES G/ ADDITIONAL DISCLOSURE ITEMS G.1 FEES TO AUDITORS G.2. CAPITAL AND OPERATIONAL COMMITMENTS G.3. CONTINGENT LIABILITIES G.4. NON-CASH INVESTING AND FINANCING ACTIVITIES G.5. RELATED PARTY BALANCES AND TRANSACTIONS Millicom Board of Directors H/ SUBSEQUENT EVENTS Telefónica Celular del Paraguay S.A. Consolidated Financial Statements CORPORATE INFORMATION Telefónica Celular del Paraguay S.A. (the Company ), a Paraguayan Company, and its subsidiaries: Teledeportes Paraguay S.A. and Lothar Systems S.A. (the Group or Telecel ) is a Paraguayan group providing communications, information, entertainment and solutions in Paraguay. The Company maintains multiple license contracts with Comision Nacional de Telecomunicaciones (Conatel), the regulator of the telecommunications system in Paraguay, to operate cellular and cable telephony business in Paraguay. The Company was formed in Telecel is a wholly owned subsidiary of Millicom International III N.V. The ultimate parent company is Millicom International Cellular S.A. a Luxembourg Société Anonyme whose shares are traded on the Stockholm stock exchange under the symbol MIC and over the counter in the US under the symbol MIICF. The general administration of the Company is located at Zavala Cue esq. Artilleria, Fernando De La Mora, Paraguay. The Board of Directors ( Board ) approved these consolidated financial statements for issuance on February 28, BUSINESS ACTIVITIES Telecel is a leading telecommunications and media group operating in Paraguay. It provides a wide range of mobile communications and cable services, as well as other related products, including digital media and e-commerce, to residential, business and wholesale customers. IFRS CONSOLIDATED FINANCIAL STATEMENTS Basis of Preparation The consolidated financial statements of the Group are presented in Paraguayan Guaraní and all values are rounded to the nearest million (PYG million) except when otherwise indicated. The consolidated financial statements have been prepared on a historical cost basis except for certain financial assets and liabilities that have been measured at fair value. The consolidated financial statements for the year ended 31 December, 2015 have been prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standard Board (IASB). The preparation of financial statements in conformity with IFRS requires management to exercise its judgment in the process of applying the Group s accounting policies. It also requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although, these estimates are based on management s best knowledge of current events and actions, actual results may ultimately differ from these estimates. This section contains the Group s significant accounting policies that relate to the financial statements as a whole. Significant accounting policies specific to one note are included within that note. Accounting policies relating to non-material or non-applicable items are not included in these financial statements. Consolidation The consolidated financial statements of the Group comprise the financial statements of the Company and its subsidiaries as at 31 December of each year. The financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. All intra-group balances, transactions, income and expenses, and profits and losses resulting from intra-group transactions are eliminated. 5 Telefónica Celular del Paraguay S.A. Consolidated Financial Statements IFRS CONSOLIDATED FINANCIAL STATEMENTS (Continued) Foreign currency Items included in the financial statements of each of the Group s entities are measured and presented in Paraguayan Guaraní, the currency of the primary economic environment in which the entity operates ( the functional currency ). Transactions denominated in a currency other than the functional currency are translated into the functional currency using exchange rates prevailing on transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions, and on translation of monetary assets and liabilities denominated in currencies other than the functional currency at year-end exchange rates, are recognized in the consolidated income statement. The following table presents the Paraguayan Guaraní translation rates to the U.S. dollar as of 31 December 2015 and 2014 and average rates for the Year ended 31 December Country Currency 2015 Average rate 2015 Year-end rate 2014 Year-end rate United States Dollars 5, , , The effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the cash flow statement in order to reconcile cash and cash equivalents at the beginning and end of the year. NEW AND AMENDED IFRS ACCOUNTING STANDARDS, CHANGES IN ACCOUNTING POLICIES The following IFRS standards and amendments to standards have been adopted by the Group for the first time for the financial year beginning on 1 January These have not had a material impact on the Group. IFRIC 21, Levies, which provides guidance on when to recognise a levy imposed by a government; IFRS 3; Business Combinations, IFRS 8, Operating Segments, IFRS 13, Fair Value Measurement; IAS 16, Property, plant and equipment; IAS 24, Related party disclosures; and IAS 38, Intangible Assets. The following IFRS standards, amendments and interpretations issued are not effective for the financial year beginning 1 January 2015 and have not been early adopted by the Group. Amendments to IFRS 10, Consolidated financial statements and IAS 28, Investments in associates and joint ventures. These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. Group does not expect a significant impact from the adoption of these amendments and intend to adopt this amendment to IFRS 10 no later than the compulsory adoption date of 1 January Amendment to IAS 1, Presentation of financial statements on the disclosure initiative. These amendments are as part of the IASB initiative to improve presentation and disclosure in financial reports. The Group is yet to assess IAS 1 amendment s full impact and intends to adopt this amendment no later than the compulsory adoption date of 1 January Annual improvements These set of amendments impacts 4 standards: IFRS 5, Non-current assets held for sale and discontinued operations regarding methods of disposal, IFRS 7, Financial instruments: Disclosures, (with consequential amendments to IFRS 1) regarding servicing contracts, IAS 19, Employee benefits regarding discount rates, IAS 34, Interim financial reporting regarding disclosure of information. Those amendments are not expected to have a significant impact for the Group. Effective date of adoption is 1 January Telefónica Celular del Paraguay S.A. Consolidated Financial Statements NEW AND AMENDED IFRS ACCOUNTING STANDARDS, CHANGES IN ACCOUNTING POLICIES (CONTINUED) IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was originally issued in November 2009 and October 2010 and subsequently amended in July It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value, and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. A final standard on hedging (excluding macro-hedging) has been issued in November 2013 which aligns hedge accounting more closely with risk management and allows to continue hedge accounting under IAS 39. The Group is yet to assess IFRS 9 s full impact and intends to adopt IFRS 9 no later than the compulsory adoption date of 1 January 2018 for classification, measurement and recognition provisions and the transition date for prospective application of hedge accounting provisions is not yet determined. IFRS 15, Revenue from Contracts with Customers, which establishes a five-step model related to revenue from customers. Under IFRS 15 revenue is recognised at amounts that reflect the consideration that an entity expects to be entitled in exchange for transferring products or services to a customer. The Group is currently assessing IFRS 15 s full impact and intends to adopt IFRS 15 no later than the compulsory adoption date of 1 January 2018 IFRS 16 Leases was issued on 13 January It replaces IAS 17 Leases. The major change introduced by the new Standard is that leases will be brought onto companies balance sheets, increasing the visibility of their assets and liabilities. IFRS 16 removes the classification of leases as either operating leases or finance leases (for the lessee - the lease customer), treating all leases as finance leases. Short-term leases (less than 12 months) and leases of low-value assets (such as personal computers) are exempt from the requirements. The new Standard is effective 1 January Early application is permitted (as long as the recently issued revenue Standard, IFRS 15 Revenue from Contracts with Customers is also applied). The application of this Standard will affect net debt and leverage ratios of the Group as all lease liabilities will be brought onto the balance sheet. The Group is yet to assess IFRS 16 s full impact. IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses issued by the IASB in January 2016 and effective 1 January Amendments to IAS 38 and IAS 16: clarification of acceptable methods of depreciation and amortization issued by the IASB in July 2014 and applicable as of 1 January There are no other IFRS s or IFRIC interpretations that are not yet effective that are expected to have a material impact on the Group. 7 Telefónica Celular del Paraguay S.A. Consolidated Financial Statements NEW AND AMENDED IFRS ACCOUNTING STANDARDS, CHANGES IN ACCOUNTING POLICIES (CONTINUED) In addition to the above changes and amendments, the following changes in accounting policies have been adopted by The Group on a voluntary basis for the financial year beginning on 1 January 2015: The Group prepares its Consolidated Statement of Comprehensive Income, which includes the Statement of Profit and Loss and Other Comprehensive Income for the period. In 2015, the Group voluntarily changed the presentation of the income statement from function to nature of costs compared to the income statement for the year ended 31 December This was done in order to align the presentation of the Income Statement with Millicom International Cellular S.A, the Group s parent company. A reconciliation to the former presentation of the income statement for the year ended 31 December 2014 is shown next: PYG millions Former presentation Reclassification New presentation Revenue 3,228,925-3,228,925 Cost of sales (1,083,508) 286,163 (797,345) Gross profit 2,145, ,163 2,431,580 Sales and marketing (584,899) 584,899 - General and administrative expenses (742,310) 742,310 - Operating expenses - (874,812) (874,812) Depreciation - (301,007) (301,007) Amortisation - (109,696) (109,696) Other operating income (expenses), net - (327,857) (327,857) Operating profit 818, ,208 JUDGMENTS AND CRITICAL ESTIMATES The preparation of IFRS financial statements requires management to use judgment in applying accounting policies. It also requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates are based on management s best knowledge of current events and actions, and actual results may ultimately differ from these estimates. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in each note and are summarized below: Judgments Management apply judgment in accounting treatment and accounting policies in preparation of these financial statements. In particular a significant level of judgment is applied regarding the following items: Contingent liabilities - whether or not a provision should be recorded for any potential liabilities (see note G.3.). Leases whether the substance of leases meets the IFRS criteria for recognition as finance or operating leases or services contracts, or elements of each (see note G.2.2.). Control whether Telecel, through voting rights and potential voting rights attached to shares held, or by way of shareholders agreements or other factors, has the ability to direct the relevant activities of the subsidiaries it consolidates (see notes A.1.). Deferred tax assets recognition based likely timing and level of future taxable profits together with future tax planning strategies (see note B.5.3.). Acquisitions allocation of the purchase price between the fair value of existing and newly identified assets and goodwill, the measurement of property, plant and equipment and intangible assets, and the assessment of useful lives (see notes E.1.1., E.1.5., E.2.1.). 8 Telefónica Celular del Paraguay S.A. Consolidated Financial Statements JUDGMENTS AND CRITICAL ESTIMATES (CONTINUED) Estimates Estimates are based on historical experience and other factors, including reasonable expectations of future events. These factors are reviewed in preparation of the financial statements, although due to inherent uncertainties in the evaluation process, actual results may differ from original estimates. Estimates are subject to change as new information becomes available and may significantly affect future operating results. Significant estimates have been applied in respect of the following items: Accounting for property, plant and equipment, and intangible assets in determining fair values at acquisition dates (see note E.2.1.). Useful lives of property, plant and equipment and intangible assets (see notes E.1.1., E.2.1.). Provisions, in particular provisions for asset retirement obligations, legal and tax risks (see note F.5.,G.3.). Revenue recognition (see note B.1.1.). Impairment testing including WACC and Long term growth rate (see note E.1.6.). Impairment testing Future business performance (see notes E.1.2., E.1.6., E.2.2.) 9 Consolidated Statement of Comprehensive Income PYG millions Notes Year ended 31 December 2015 Year ended 31 December 2014 (i) Revenue B.1. 3,172,136 3,228,925 Cost of sales B.2. (750,630) (797,345) Gross profit 2,421,506 2,431,580 Operating expenses B.2. (985,629) (874,812) Depreciation E.2. (307,182) (301,007) Amortisation E.1. (119,142) (109,696) Other operating income (expenses), net (74,083) (327,857) Operating profit 935, ,208 Interest expense (150,526) (117,593) Interest and other financial income 8,934 7,937 Exchange loss, net (431,045) (35,484) Profit before tax 362, ,068 Income tax expense B.5. (54,581) (116,085) Net profit and comprehensive income for the period. 308, ,983 Attributable to: Equity holders of the company 308, ,983 (i) Presentation of the income statement from cost of sales to operating profit has been amended compared to the income statement reported in 2014 for the year ended 31 December The accompanying notes are an integral part of these consolidated financial statements 10 Consolidated Statement of Financial Position PYG millions Notes Year ended 31 December 2015 Year ended 31 December 2014 ASSETS Non-Current Assets Intangible assets, net E , ,541 Property, plant and equipment, net E.2. 1,745,816 1,522,801 Deferred taxation B.5. 20,757 43,463 Other non-current assets 24,982 22,828 Total Non-Current Assets 2,582,046 2,273,633 Current Assets Inventories 62,669 87,635 Trade receivables, net F , ,572 Amounts due from related parties G , ,422 Prepayments and accrued income F , ,920 Supplier advances for capital expenditure 38,395 5,941 Other current assets 84,940 71,850 Cash and cash equivalents C , ,100 Total Current Assets 1,546,165 1,241,440 TOTAL ASSETS 4,128,211 3,515,073 EQUITY AND LIABILITIES EQUITY Share capital and Premium C ,008 93,000 Legal reserve C.1. 50,110 50,110 Retained profits 42, ,099 Profit for the period / year attributable to equity holders 308, ,983 Parents ownership interests 674,446 1,059,192 TOTAL EQUITY 674,446 1,059,192 LIABILITIES Non-current Liabilities Debt and financing C.3. 2,303,132 1,481,167 Provisions and other non-current liabilities F , ,470 Total non-current liabilities 2,519,929 1,673,637 Current Liabilities Debt and financing C.3. 87,040 89,951 Payables and accruals for capital expenditure 301, ,989 Other trade payables 102,220 80,952 Amounts due to related parties G.5. 64,045 98,270 Accrued interest and other expenses 197, ,297 Current tax liabilities 8,568 28,890 Provisions and other current liabilities F , ,895 Total current liabilities 933, ,244 TOTAL LIABILITIES 3,453,765 2,455,881 TOTAL EQUITY AND LIABILITIES 4,128,211 3,515,073 The accompanying notes are an integral part of these consolidated financial statements. 11 Consolidated Statement of Cash Flows PYG millions Notes Year ended 31 December 2015 Years ended 31 December 2014 Cash flows from operating activities Profit before taxes 362, ,068 A
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