Ispro. The gross consideration with respectIspro is a wholly-owned company of PBC, dedicated to the sale of the shares amounted to a total of NIS 224 million. PBC reportedly stated that, for its position, the sale of Gav Yam shares, as stated above, brings PBCrental building segment, primarily commercial centers and logistical areas. In order to comply with the Concentration Law, with respecton October 10, 2019, Ispro’s debentures were fully redeemed and Ispro ceased being a reporting corporation. In April 2020, an agreement was reached to the holdingsale 100% of PBCPBC’s holdings in Gav-Yam, where PBC are not the controlling shareholder in Gav-Yam following the said transactions.Ispro. As a resultconsequence of the aforementioned sales, DIC is expected to record, duringagreement for the fiscal year 2020, an increase in capital attributed tosale of ISPRO’s shares, the Company’s owners in the amount between NIS 500 million and NIS 600 million.On January 17, 2019, DIC’s BoardCompany has reclassified net assets totaling ARS 15,473 as “Group of Directors resolved to perform a dividend distribution in cash of NIS 40 million, and a dividen payment in kind of IDBD’s debentures (Series I),Assets available for NIS 64 million, according to the market value of the debentures (Series I) on the distribution date. The total distributed dividend amounted to a sum of NIS 104 million, which was paid on February 3, 2019.Sale”.
It should be noted that the financial position
Type of IDBDBusiness
PBC (i) operates rental buildings and its subsidiaries at the Operations Center in Israel does not affect the financial position of the Company and subsidiaries at the Operations Center in Argentina. In addition, the commitments(ii) develops residential properties and other covenants resulting from IDBD’s financial debt do not have impact on the Company since such indebtedness has no recourse against usconstruction projects.
(i) Operation of Rental Properties
PBC owns and it is not granted by IRSA’s assets.
manages different kinds of rental properties, which can be grouped as follows:
IDBD’sIndustrial and Logistics investee companies. Characterized by areas with a large single space, service yards and large operational areas. Mainly located in peripheral areas, close to airports and seaports, given low rent prices and that construction requires large areas of land.
As of June 30, 2019, the investee companiesCommercial and Recreational Centers. These include commercial centers, which are held by IDBDlocated in central areas or areas near major junctions at highways from major cities, conference centers and recreational centers. These primarily include IDB Tourism and Clal, which we reportedPBC’s share in our financial statements as discontinued operations, as well as IDBG (50%) and Modiin Energy (20%), which are treated as investee companies accounted by the treated at the equity method.Dolphin Commitment to inject capital in IDBD
As of the date of this annual report, IDBD's cash flow and its ability to meet its financial debt commitments, faced the following challenges: As of June 30, 2019, IDBD had negative equity at that date, negative operating cash flow and a low credit rating of its debentures that caused that certain bondholders hire a representative and legal advisors to evaluate a potential procedure for declaring the insolvency of IDBD. Despite these potential claims, the Board of Directors of IDBD had a cash flow forecast for a period of 24 months that assumes that IDBD will receive, among other things, cash from the realization of private investments which are directly owned by IDBD, in such way that IDBD expects to fulfill all its obligations for the next 24 months. Additionally, IRSA’s Board of Directors has approved a commitment to make capital contributions in Dolphin for up to NIS 210, in accordance with a schedule of commitments acquired by Dolphin with IDBD as described below between September 2019 and September 2021. IRSA is the guarantor of these commitments. For more information see “Item 4. Information about the Company – Operation in Israel”.
IDBD’s undertakings shall be immediately canceled: (A) if any of the bondholders adopts a resolution at a meeting of (all or some of) IDBD’s bondholders with respect to the filing of legal proceedings against IDBD of any kind, including, demanding immediate repayment of (all or some of) the debt to IDBD’s bondholders, the realization of collateral or any other matter of a similar nature to the aforesaid matters. (B) If a legal proceedings of any kind is filed by the trustee or the representation of (all or some of) the bondholders against IDBD, including, demanding immediate repayment of (all or some of) the bonds or the realization of collateral.
On August 31, 2019, Dolphin Netherlands irrevocably undertook to make capital injections into IDBD in a total amount of NIS 210 million in three equal annual payments (NIS 70 million each) on September 2, in each of the years 2019-2021 (“the Payments” and “the Payment Dates,” respectively). The Payments as aforesaid will be made in return for shares of IDBD or as a deferred loan on similar terms to the subordinated loans that were advanced in the past by Dolphin Netherlands to IDBD. Should IDBD not have the cash flow resources required for the purpose of and with respect to the financing of the Seller of Clal shares Loan, IDBD shall have the right to demand an advance of a sum of up to NIS 40 million on account of the second payment, subject to the approval of the Audit Committee and the Board of Directors of IDBD that such finance is required. On September 2019, IDBD received the first part of the payment from Dolphin Netherlands in the amount of NIS 70 million.In addition, IRSA unilaterally and irrevocably undertook to Dolphin Netherlands that it would transfer to Dolphin Netherlands, upon its request, the amounts that it needs in order to comply with Dolphin’s Undertaking (“IRSA’s Undertaking”). If Dolphin Netherlands does not make the capital injections in accordance with Dolphin’s Undertaking, then the rights of Dolphin Netherlands pursuant to IRSA’s Undertaking will be assigned to IDBD automatically, and IDBD will have a right to enforce the IRSA Undertaking. The IDBD Undertaking will expire automatically if: (a) an insolvency proceeding is filed against IDBD (whether voluntarily or involuntarily) and is valid on any of the Payment Dates, in which case the relevant Payment Date will be postponed for a period of 90 days and the relevant Payment will be transferred to IDBD only if the proceedings is canceled during the aforesaid period of 90 days; (b) an insolvency order is passed pursuant to Israeli applicable law; and (c) a receiver, trustee, special manager or any functionary of this kind (temporary or permanent) is appointed for IDBD, or a similar order is made (with respect to insolvency of the company) by the court.DIC investee companiesAs of June 30, 2019, the main consolidated companies directly held by DIC are Property &Building Ltd. (68.82%), Cellcom (44.1% in capital, 47.0% in voting rights), and Elron (61.1%). Shufersal is a primary associate company (26.0%).In addition, other main investments include the debenture from Dolphin IL (which was received in the transaction involving the sale of the IDBD’s holdings in DIC in November 2017, as stated above).
SegmentsWithin the Operations Center in Israel, the Company operates in the following segments though IDBD and DIC:Real Estate (DIC)PBC operates in Israel and in the United States, within two separate operating segments: the income producing property segment and the residential construction segment. PBC has other investments in agriculture through Mehadrin. As of June 30, 2019, PBC owns rental properties in Israel for approximately 1,235,000 square meters (as compared with approximately 1,180,000 square meters as of December 31, 2018), the HSBC Tower in New York with an area of approximately 80,000 square meters, which according to a valuation dated April 30, 2019 is estimated in an approximate amount of US$ 935 million, and the Tivoli project in Las Vegas The marketing and distribution of the Tivoli project is carried out through a local team engaged in marketing itself and through intermediaries, through direct contact with leasable area of approximately 31,000 square meters of office spaces and approximately 31,000 square meters of commercial space, as of June 30, 2019 the occupancy rate stands of approximately 97%,potential tenants, as well as land reserves of approximately 643,000 square metersthrough advertising and participation in Israelconferences.PBC’s properties in Israel and in the United States are as follows:
Areas rented for the use of offices and high tech industries (“Office and Hi-Tech Uses”).
Business parks and office buildings for hi-tech industries.industries. In the field of income-producing properties, Gav-Yam (as of June 30, 2020, held by PBC through Gav-Yam, has expertiseat a rate of 29.9%) engages in the provisioninitiation, planning, development, construction (through contractors), marketing, rental, maintenance and management of solutions for the special requirements of this industry,high-tech parks, business and builds designatedindustrial parks, office buildings, which are adjusted to the needs of the lessees,commercial areas, logistics buildings and also provides management services for those buildings. On July 1, 2019, PBC sold approximately 11.7% of its equity interestparking lots, nationwide in Gav-Yam's through private agreements. After this transaction, the holding of PBC in Gav-Yam changed from 51.7% to 40.0%. Additionally,Israel, focusing on September 1, 2019, PBC sold approximately an additional 5.14% of Gav-Yam, therefore the stake of PBC in Gav-Yam went from 51.7% to 34.9%. It is estimated that as a result of these sales, PBC will lose control over Gav-Yam and will deconsolidate said investment.areas Demand.
During its years of activity in the field of income-producing properties, Gav-Yam has developed two specializations in this field. One is the establishment of business and industrial parks, and the other is designated construction. In addition, Gav-Yam, itself and/or through wholly owned subsidiaries, provides a variety of maintenance and management services to its customers throughout the lease term.
Gav-Yam's activity in the field of income-producing properties is divided into three stages - initiation and construction, marketing and rental for customers and provision of management services throughout the lease period.
Office buildings.buildings PBC’s. These office buildings are located in high demand areas, and most are leased, at high occupancy rates, generally for long lease periods. Areas for office use are characterized by areas used as parking lots, which constitute an inseparable part of the buildings. PBC’s activities abroadmainly consist ofThese include the HSBC Tower on Fifth Avenue in New York.York City.
Areas rented for industry, workshop, logistics and storage uses (“Industry and Logistics Uses”).Management of rental buildings.
PBC’s areas for industry and logistics uses in Israel are The field of income-producing assets is characterized by areas with a large single space, service yardswide range of clients, including companies and large operational areas. In light of the rent which can be collected for areas of this kind, which is relatively low, and the fact that their construction generally requires construction on large areas of land, PBC concentrates, as do other companies operating in the segment, most of its industrial areas in periphery areassmall business clients and in areas located close to airports and seaports.
Shopping malls, commercial centers and recreational areas (“Uses for Commercial and Recreational Centers”).
PBC’s areas which are leased to commercial and recreational centers in Israel include commercial centers, which are located in central areas or areas near major junctions at highways from major cities, conference centers and recreational centers. The areas of PBC which are rented for commercial purposes abroad primarily include its share in the Tivoli project in Las Vegas.private clients.
PBC alsooften contracts with its customers on medium- and long-term leases, and the leases in Israel are usually for unprotected tenancy and index-linked rents. PBC policy is to enter into, as far as possible, long-term contracts with quality tenants.
Ancillary services in the field of income-producing properties in Israel.
PBC provides ancillary services to the areas of income-producing real estate it owns that are leased in Israel, including management services and maintenance, services, primarily to lesseesmainly for tenants in areas which are used for office and commercial purposes.
Geographical distribution
PBC divides its properties into two main regions - Israel and the United States, and five sub-regions: in Israel - North, Center and South; in the United States - Northeast and West.(ii) Residential Construction
In Israel, PBC is primarily dueengaged in the factinitiation, planning, development, construction and sale of quality residential neighborhoods and unique projects that it establishes in Central Israel, rent is significantly higher than the average rent in Northern and Southern Israel. The common uses in Central and Northern Israel are offices, hi-tech and commerce, while in Southern Israel most properties are used for logistics and industry, as well as commerce.areas of demand.
In the United States, PBC’s properties are located in various states, with different economic characteristics. In the United States rent in the Northeast is significantly higher than the average rent in the Western United States region, and vary by locations and uses (luxury office and commercial buildings in the Northeastern region, as compared to commercial centers in the Western United States region), as well as the location of the properties (large city centers such as New York, as compared toPBC has residential neighborhoods in the Western region).
However, even within each region (bothland reserves, in Israel, US and in the United States), there are differences among sites, as well as difference, in some cases, between the various properties in each site, due to the characteristics of the property.
Mix of lessees
The revenue-generating properties segment is characterized by a wide variety of customers, including large and small companies and business customers, as well as private customers.
PBC leases include mainly medium and longer-term rental contracts, and in general, rental contracts in Israel involve unprotected leases, and rental rates are linked to the consumer price index. The policy of PBC is to prefer long-term contracts with high-quality lessees.
Leased properties are tailored to the specific requirements of the customer. Given the cost of customizing properties to the lessee’s specific needs, related for buildings of this kind are signed for long periods, and generally include options for the lessee to extend the term period. Additionally, some of the Group’s lessees perform, at their own expense, improvements of the leased properties, and adapt them to their needs. Such investments by lessees are more efficient than transferring to other areas.India.
Presented belowIn the field of residential construction, there are many bodies that initiate, locate, plan and establish residential neighborhoods and residential projects of various types. In Israel, there are entrepreneurial companies, some of which have an executive arm and some, such as PBC, contract with contractors to carry out construction work.
The products sold by PBC as part of its residential construction business are the housing units offered for sale. The housing units are being built both in the format of entire residential neighborhoods, which include full environmental development and ancillary community services, and in smaller residential projects.
In some of the projects, PBC works together with partners. Project management and marketing is usually performed by PBC. The construction financing of the projects is carried out both by PBC's own means and through bank support for the project.
The types of projects in which PBC operates in this field are diverse and include construction on land purchased or leased long-term by PBC (most projects) as well as combination transactions of various types. PBC also has activities in the field of urban renewal.
As of December 31, 2019, the balance of approved construction rights for the projects in which PBC was a partner amounted to approximately 685 residential units (of which 447 units belong to PBC), where approximately 301 residential units are currently in construction (of which 203 units belong to PBC), out of which approximately 268 residential units were sold). In 2019, construction and marketing of 62 residential units began (as compared with construction and marketing of 86 residential units in 2018). In2019In 2019, 139 residential units were sold (as compared with 205 residential units in 2018). In 2019, PBC’s revenues from the sale of residential units and lands imputed to the income statement amounted to approximately NIS 336 million, as compared with approximately NIS 517 million in 2018.
HSBC
The HSBC Tower was closed beginning on March 15, 2020, in accordance with directives issued by New York State and New York City. Access to the tower and to its services is permitted to tenants defined as “essential” in accordance with the city’s by laws and regulations. As of August 20, 2020, the collection rate at the tower during the months April - June 2020 amounted to approximately 98% of total rent charged. New York City, where the HSBC Tower is located, is currently in phase 4 of New York State’s reopening plan. The tower remains active and open for “essential” businesses and for tenants who choose to work from the offices, subject to restricted occupancy guidelines of up to 50%.
IDBD
Tivoli Project - IDBG is engaged, through a real estate corporation, in the construction and operation of a commercial and office project in Las Vegas, Nevada (USA) ("The Tivoli project")
The Tivoli project is a corporate chartreal estate project, located near the prestigious Summerlin neighborhood in Las Vegas, intended for mixed use, mainly of PBCcommerce and its subsidiaries,offices and as a unique center for entertainment and shopping. Tivoli project includes three parts of about 80 thousand square meters (the "commercial area"), out of which approximately 62 thousand square meters have been built so far.
The first two parts of the Tivoli project are open to the public in a total area of 670 thousand square feet (approximately 62 thousand square meters), which includes approximately 330 thousand square feet (approximately 31 thousand square meters) of commercial space and approximately 340 thousand square meters (approx. 31 thousand square meters) office space.
As of June 30, 2019:
(1) Gav-Yam isIt should also be noted that GW has rights to build 300 housing units near the Tivoli project. As of December 31, 2019, IDBD and PBC held the entire share capital of IDBG, in equal parts. In February 2020, the loans that had been extended by PBC to IDBG were converted, in a public company whose securities are listed for trading on the TASE. Most of Gav-Yam’s activities aremanner that IDBD's share in IDBG's share capital and in the revenue-generating properties segment, primarily hi-tech parks, business parks, officesright to the repayment of the shareholder's loans to a rate of 25.82% (the remaining 74.18% are held by PBC). In June 2020, IDBD and logistical centers, as well as construction and marketing, together with a partner, of a residential neighborhood in Haifa. In July 2019 and September 2019, PBC sold 11.7% and 5.1%of Gav-Yam’s issued share capital, respectively. Our stake in Gav-Yam decreased from 51.7% to 34.9%. The gross consideration with respect tosigned on an agreement for the sale of the sharesIDBD's entire rights on IDBG for consideration of USD 27.8 million. The approval of the transaction was subject, inter alia, to the approval of PBC's general meeting, which was convened on June 23, 2020 and which decided not to approve the commitment. Following the abovementioned, as of June 30, 2020, the holding rates of IDBD and PBC in IDBG are 25.82% and 74.18%, respectively.
Following the outbreak of the Corona virus, on March 24, 2020, the center in the Tivoli project was closed, pursuant to the directives issues by the Governor of the State of Nevada. During the course of the period in which the center was closed, a number of restaurants worked in a format of deliveries and take away. Furthermore, vital activities, such as banks and clinics were allowed to operate. The center management activity was reduced to the minimum necessary for business that operated in the center in that period and some of the activities were discontinued completely (such as parking, cleaning and gardening services and etcetera). This reduction has led to a saving of approximately 36% in the center's operating expenses in the relevant period.
The occupancy rate in the project stood at approximately 73% before the outbreak of the Corona virus. During the course of the period of the closure, a number of tenants encountered difficulties and gave notice of the cessation of their activity in the project. Furthermore, a number of tenants announced that they would not be extending their rental agreements in the project, which are about to expire. However, during this period of time a number of new contracts were signed. The rental fees for March 2020 were collected without any significant change as compared with previous months. In April and May 2020 approximately 70% of the rental fees for offices and approximately 25% of the rental fees for commercial areas and restaurants have been collected up to now. For June 2020, 82% of the the rental fees have been collected so far. As of this time, the project's management has not set a uniform policy in connection with the granting of reliefs for tenants and a specific discussion is held opposite each tenant. Tivoli’s management continues working to complete the collection for the above mentioned periods.
The valuation of the Tivoli project in Las Vegas was updated in the first quarter of 2020 to USD 233 million from USD 237 millionas of 31.3.2019. As a result, PBC recorded a lossin the amount of NIS 11 million, while DIC’s share in the aforementioned loss amounted to a total of NIS 4568 million; IDBD recorded its share in the net loss in the amount of NIS 4 million, which was recorded under discontinued operations
At present, it is not possible to estimate the full effect of the coronavirus pandemic on the Tivoli project’s results in 2020. However, at this stage, PBC estimates that the damage will be limited to a few millions of USD, where despite the expected decline in NOI, the project’s current cash flows, along with increased efficiency measures which have been implemented, will allow the project to maintain a positive cash balance.
Gav-Yam
Gav Yam - As of July 2020, the management of Gav Yam estimated that, in the long term, in light of its financial strength, as reflected, inter alia, in its high balances of available cash and cash equivalents, its low leverage ratio, the average lifetime of its debt and the comfortable distribution thereof, the fact that all of Gav Yam’s properties are unpledged, and in light of the broad geographical and sectoral distribution of Gav Yam’s properties, as well as their status, locations and occupancy rates, and the fact that the vast majority of properties are used for IT, office, logistics and industrial purposes (and not for commerce or retail), with an emphasis on the quality of lessees, and the distribution of revenues from them, all reduce the exposure of Gav Yam’s businesses to the crisis and/or to significant instability, and it has tools at its disposal in order to appropriately deal with the economic crisis described above.
Residential construction segment in Israel
According to the assessment of PBC, at this stage there are no indications of a decline in the fair value of PBC’s inventory of apartments, inter alia, in light of the average sale prices in the period after the coronavirus outbreak, and in light of the fact that payments from apartment buyers are continuing to be received in an orderly fashion. In addition, PBC promotes and complements conditions in a number of projects for obtaining building permits, but since the outbreak of the corona virus there has been a difficulty in working with the authorities which causes delays in granting the necessary permits for the construction of projects.
PBC position isbelieves that its financial strength and the above sales of Gav-Yam shares results in PBC complying with the provisions of the Law for promoting competition and reducing concentration 5701-2013 with respect to PBC's holdings in Gav-Yam, as PBC, after said transactions, is no longer the controlling shareholder in Gav-Yam. As a result of the loss of control PBC will cease consolidating Gav-Yam's financial reports in its Financial Reports and present its investment in Gav-Yam on the basis of equity.
(2) Matam is the rights holder to revenue-generating properties in Science Based Industries Park, one of the largest hi-tech industry parks in Israel, located in the southern suburbs of the city of Haifa.
(3) Ispro is a wholly owned company of PBC, whose activities primarily include revenue-generating properties, primarily commercial centers and logistical areas. In August 2019, Ispro’s audit committee and board of directors approved the performance of a full prepayment of Ispro’s debentures (Series B), which are listed on the Tel Aviv Stock Exchange Ltd. (the “TASE”), at a total cost of NIS 131 million, subject to court approval, in accordance with sections 25(f) and 25(h) of the Israeli Law to Promote Competition and Reduce Concentration, 5774-2013 (the “Concentration Law”). On October 10, 2019, after approval of the court, the debentures were fully redeemed. The prepayment of Ispro’s debentures (Series B) will result in the delisting of allstatus of its debentures fromproperties, cash balances, and the TASE. As a result, Isprocurrent cash flows which it is generating, will cease being a reporting corporation,allow it to continue financing its activities and will no longer be considered a “tier company”, as this term is defined in the Concentration Law. On September 2019 Ispro received court approval for the full redemption of Ispro debentures Series B in prepayment, on October 10, 2019.service its liabilities.
(4) Neveh-Gad - a private company wholly owned by PBC, whose activities are primarily in the residential construction segment.
(5)Agriculture
Mehadrin. Mehadrin is a public company whose securities are listed for trading on the TASE. Most of Mehadrin’s activities are in the agricultural segment. Hadarim PropertiesUntil September 2019, We and Phoenix Holdings Ltd. (which holds,(“Phoenix”), which held, through a wholly owned subsidiary, 41.4% of Mehadrin) areMehadrin, were considered to be joint holders, by virtuecontrollers of Mehadrin since, pursuant to the terms of a shareholders agreement, between them, ofPBC and Phoenix controlled approximately 86.8% of the voting rights and of the rightrights to appoint directors in Mehadrin.
In August On September 18, 2019, the Phoenix Board of Directors approved the distributiondistributed of all shares of Mehadrin held indirectly by Phoenix Holdings Ltd. ("Phoenix"), constituting 41.4% of the issued and paid-up share capital of Mehadrin,it owned as a dividend in kind to Phoenix shareholders. The distribution date was one September 18, 2019 Phoenix also notified PBC that upon finalization of the distribution, the shareholders' agreement between PBC and Phoenix would expire vis-à-vis the parties' holdings of Mehadrin shares,Phoenix’ shareholders, thereby terminating the joint control of the parties of Mehadrin.
(6) IDB Group USA Investments Inc. (“IDBG”) is On November 27, 2019, PBC approved the distribution of all its shares in Mehadrin as a company incorporateddividend in kind. As a result, DIC received approximately 31.4% of the share capital of Mehadrin. Additionally, in the United States. IDBG was incorporated in 2005 and is held in equal parts by PBC and IDBD, for the purposefirst quarter of investing in real estate projects in the USA. The real estate corporation GW holds the rights to a commercial and office areas (which is being built in stages) Tivoli project (“GW” project). IDBG holds, directly and indirectly, the entire2020, DIC acquired approximately 8.8% of Mehadrin’s issued share capital, and voting rights of GW. The Tivoli project is comprised of three phases,such that its holding rate in a space ofMehadrin increased to approximately 868,000 square feet of retail, office and hotel space (in this section: the “Project”)40.2%. The first two phases,aforementioned acquisitions of Mehadrin shares resulted in a spaceDIC gaining control of approximately 670,000 square feet were completed and comprising of approximately 337,000 square feet of office, and approximately 333,000 square feet of retail. Occupancy rate as of the end of June 2019 is73%. The third phase of the Project remains under development with no completion date specified at this time. IDBG obtained an independent third-party appraisal of its investment property. The valuation was performed mainly by discounting the future cash flows anticipated to be derived from the Project. The discount rates used by the independent appraisers was 8.5% as of March 31, 2019, and June 30, 2018, and was selected based on the type of property and its intended use, its location and the quality of the lessees. The capitalization rates used was 6.5% as of March 31, 2019 and June 30, 2018. The valuation concluded that the fair value of the property as at June 30, 2019 to be US$ 248 million (June 30, 2018 - US$249 million), including US$18 million in respect of a parcel of land adjacent to the Project – see below. GW had a mortgage loan from KeyBank that bore interest at the 30-day LIBOR plus 5.0%. The loan was repaidin December 2018. GW has a loan from a local bank in the USA (“Lender”), whose balance as of June 30, 2019, is US$ 70 million. The loan agreement was signed in December 2018 for a period of three years ending On January 1, 2022, at fixed annual interest of 5.75%, in parallel with a contract with IDBG in addition to the loan agreement from an Israeli financing institution detailed below. The project is fully pledged in favor of the Lender with a first-degree lien. Upon the closing, lender funded proceeds in the amount of US$10 million into a block accounted maintained by IDBG to be used for TI needs.In connection with the loan, the Company has undertaken to comply with a covenant of Loan to Value (“LTV”) of no more than 40%. The calculated LTV as of June 30, 2019 is 28%.Mehadrin. In addition, as from December 31, 2020, the company shall maintain a minimum DSCR (as defined). On January 3, 2017, IDBG signed an agreement for the receipt of a loan from an Israeli financing institution for US$ 41.4 million. The loan bore an annual fixed interest rate of 7%. On January 6, 2019 IDBG signed an addendum to the loan agreement.The loan principal, which will be repaid in a single bullet payment at the
end of 24 months,in the amount of NIS 153 million, with fixed annual interest of 5.93% (“Loan Interest”)or at a rate of 7.93% as long as a default occurs as set out later in this section, which will be paid every three months.All other terms of the agreement including collaterals, Indemnification and subordination of shareholders loans remain in effect as per the original loan agreement.In connection with the loan, IDBG has undertaken to comply with a covenant of LTV (as defined) of no more than 50%. The calculated LTV as of June 30, 2019 is 45%. In June 2019, Maalot reduced the rating of IDB Development’s debentures (Series I), which guaranteed, jointly and severally with PBC, in favor of the lender, from BB to CC. According to the loan agreement, as of June 30, 2019, lowering the rating allowed the lender to call the loan for immediate repayment and also led to an increase of the interest rate to 7.93%. In accordance with the position of Property & Building's legal counsel, as of report date, IDBG has a good argument against calling the loan for immediate repayment, if such a step is taken. The aforementioned loan was classified in IDBG’s financial statements under current liabilities.In the second quarter of 2018, PBC initiated an active program to locate a buyer for a parcel of land adjacent to the Project intended for multi-family residential development, which land was classified in investment property. In August 2018 GW signed a contract to sell the land in consideration of US$18 million. The contract provides that GW was entitled to additional consideration of up to US$2.5 million if certain conditions were achieved. Due to non-existence of contingent term, the agreement was canceled. In July 2019, after the said cancellation, GW signed a PSA to sale the residential land, in consideration of $18 million with another purchaser. The closing of the contract is subject to, among others, performance of due diligence procedures by the purchaser and receipt of certain local municipality approvals. The parcel of land has been reclassified from investment property to land held for sale in current assets, at its carrying amount (after revaluation) of US$18 million.
On September 20, 2019 ended the loan term under the Framework agreement of September 6, 2015 pursuant to which PBC granted to IDBG credit facility of US$50 million. In accordance with the provisions of the Framework Agreement, the conversion mechanism set forth in the Framework Agreement shall be implemented in such a way that the full balance of PBC's debt under the Framework Agreement will be converted into IDBG share capital, which will be allocated by IDBG to the Company, and PBC will be entitled to repayment of the owner's loans in accordance with its share in the share capital after such conversion. The ratio of the conversion of the debt balance to such share capital will be determined by an external valuator in accordance with the mechanism set out in the framework agreement. PBC and IDBD provided loans to IDBG for the purpose of financing projects. Until December 31 2009, the loans bore annual interest of 12%. Since January 1 2010, loans received in 2005-2007 bear interest of LIBOR plus a margin of 8.63%. Loans received in 2008 and thereafter do not bear interest. In January 2019, PBC and IDBD decided to reduce the accrued interest on the said loans and part of the principal of the loans, excluding a loan principal of2020, DIC purchased approximately US$100 million (“the adjusted principal”). The difference between the book value of the loan and the adjusted principal was recognized as a capital reserve from transactions with controlling shareholders in the amount of approximately US$73 million. Subsequently, IDBG has decided to designate the said loans as a liability measured through profit and loss. As of June 30, 2019 the loans fair value was estimated for approximately US$93 million. As a result, IDBG recorded finance income of approximately US$7 million in the first half of 2019. The repayment date of the loans is December 31, 2034. The loans are presented in the non-current liabilities.
The following are the main Rental Properties and Properties under development of PBC as of June 30, 2019:
| Property's Name | Fair Value (in million of Ps.) | | Date of acquisition by PBC | Banking / financial institution - Encumbrances |
Properties in construction
| | | | |
Ispro planet - Beer Sheva - Phase 2 | 381
| In progress
| | - |
| Commercial centers | | | | |
| Kiryat Ono Mall | 5,967 | | 2007 | - |
| Shopping Center Modi’in A | 2,709 | 2005 | - | |
| Ispro planet -BeerSheva –Phase 1 | 3,079 | 2016 | - | - |
High-tech buildings, offices and industry | | | | |
| HSBC | 39,779 | 1927-1984 | 2010 | Bank / Financial institution |
| Matam park - Haifa | 21,504 | 1979-2018 | 1999 | |
| Herzeliya North | 14,696 | 1996-2015 | 1970 | - |
| Gav-Yam Center - Herzeliya | 8,199 | 1997-2006 | 1990 | |
| Neyar Hadera Modi’in | 2,501 | 2010-2016 | 2010 | - |
| Holon | 3,052 | 1960-1985 | | |
| Gav yam park - Beer Sheva | 3,949 | 2013-2018 | 2011 | Bank and Financial institution |
| ToHa1 Tel Aviv | 6,969 | 2011-2018 | 2010 | |
| Rehovot | 2,845 | 1995-2019 | 1995 | |
| Others (including trade centers) | 25,989 | - | - | - |
Activities of PBC in the residential construction segment in Israel
PBC’s residential construction segment develops and sells residential units. The residential units are developed within residential neighborhoods, including full environmental development and associated community services. PBC’s residential construction segment also includes the identification and development of new lands including urban renewal projects (demolition-construction). As of June 30, 2019, the balance of approved construction rights for the projects in which PBC was a partner amounted to approximately 971 residential units (of which 498 units belong to PBC), where approximately 301 residential units are currently in construction (of which 230 units belong to PBC). In 2018, began the construction of and marketing of 86 residential units. In the first half of 2019, 93 residential units were sold (as compared with approximately 105 residential units in the first half of last year). In the first half of 2019, PBC’s revenues from the sale of residential units amounted to approximately NIS 174 million, as compared with approximately NIS 194 million in the first half of 2018. In the first half of 2019, 69 housing units were occupied, compared to 379 housing units in the first half of last year. The decline in occupation stems from the timing of project completion. PBC builds and markets, in the residential construction segment in Israel, as of June 30, 2019, approximately 301 residential units, of which 247 were sold, in 3 different complexes throughout the country. In addition, PBC is marketing 48 units whose construction was completed.
In June 2018 Gav-Yam’s General Assembly approved the transaction for a combination deal with Shufersal Real Estate (in this section: “Shufersal”) regarding land of 8,800 sqm owned by Shufersal in Ra’anana. According to the agreement Shufersal will sell to Gav-Yam 69.5% of the land in exchange for Gav-Yam Building on the land a project of offices and retail with a total gross area of 41,000 sqm and a parking lot of 1,000 places. The transaction was also approved by Shufersal’s general assembly. The transaction is conditional upon the approval of a detailed zoning plan for the project.
In July 2018, PBC issued NIS 507 million par value debentures (Series I) by way of expanding the series for a total gross consideration of NIS 500 million, which reflects an unlinked yield of 4.27%. In May 2019, PBC issued NIS 516 million par value of debentures from its existing series (Series I) by way of a series extension, for a total gross consideration of NIS 519 million, which reflects an effective interest rate of 4.15% per year.
In March 2019, the Board of Directors of PBC resolved to perform a dividend in the amount of NIS 114 million. DIC share of the dividend summed to NIS 78 million.
Supermarkets (DIC)
Shufersal is a public company, which is included under the Tel Aviv 35 index, which was incorporated in Israel, whose shares and debentures are listed for trading on the TASE. It is primarily engaged in the ownership and management of a supermarket chain - the largest and leading chain in Israel, in terms of sales volume. Shufersal is also active in the real estate industry and in the customer club credit card segment. In December 2017 Shufersal completed the acquisition of the entire share capital of Be Drugstores Ltd. (formerly New Pharm Drugstores Ltd.)(“Be”), which operates in the drugstore sector.
In June 2018, a transaction was completed in which DIC sold 16.6%3.5% of the issued share capital of Shufersal, forMehadrin, at a total net considerationcost of NIS 84814 million, according to which DIC’s holdingssuch that its holding rate in Shufersal decreasedMehadrin increased to approximately 33.6% and therefore ceased to be the controlling shareholder of Shufersal and as of such date Shufersal has no controlling shareholder.Thus, after the date of the said sale DIC ceased to consolidate the financial statements of Shufersal. Accordingly, commencing from the closing date of the said sale, Shufersal ceases to be classified as a “second tier company” (nor is it a “first tier company”), within the meaning of these terms in the Reduced Concentration Law. In November 2018, DIC completed an additional transaction for the sale of shares of Shufersal for a total consideration of NIS 416 million, according to which DIC’s holdings in Shufersal decreased from 33.6% to 26.02%.
In January 2019, Shufersal issued debentures, by way of a new series (Series G), at a scope of NIS 555 million par value. The debentures bear interest at an annual rate of 3.52% (unlinked). The gross issuance consideration amounted to a total of NIS 555 million. The aforementioned issuance was performed according to an effective interest rate of 3.69%.
As of December 31, 2018 Shufersal Group employs approximately 15.6 thousand employees (equivalent to 13.4 full time jobs) (with no material changes with respect to June 30, 2019) and had in 2018 an annual revenues of NIS 12.8 billion.
In Israel, the retail segment business’s results are subject to seasonal fluctuations as a result of the consumption behavior of the population proximate to the Passover holidays (March and/or April) and Rosh Hashanah and Sukkoth holidays (September and/or October). This also affects the balance sheet values of inventory, customers and suppliers.
In 2019, the Passover holiday takes place at the middle of April, compared to 2018 when it was at the end of March. The timing of the holiday affects Shufersal’s sales and special offers in the second quarter of 2019, compared to last year. The Passover holiday in the second quarter of 2019 had a bigger effect on Shufersal’s results than in the corresponding quarter in 2018, therefore analysis of the results for the first half of the year compared to the corresponding period in 2018 better represents the changes between periods.
On June 5, 2018, a wholly-owned subsidiary of Shufersal entered into an agreement with Amot Investments Ltd. (“Amot”) whereby the subsidiary will acquire from Amot 25% of the lease rights that Amot has in a vacant real estate in the Modi’in industrial zone, for the purpose of establishing an automated logistic center (without the automated equipment per the below) (in this section: “the Project”), where the ownership of the parties in the project will be: 25% owned by Shufersal's subsidiary and 75% owned by Amot, in unspecified parts, and Shufersal will lease the logistics center, which will serve as an automated center for the Shufersal’s online operations. The total investments in respect of the establishment of the automated centers in Modi’in and Kadima, as aforesaid, are estimated at approximately NIS 600 million, with most of the said amount being in respect of the payment for the automation equipment and construction, and will be spread over a period of four years.
Shufersal operates in four operating segments: the retail segment, the real estate segment, the credit card customer club management segment and, the Be segment, as described below:
Retail segment. This segment includes the retail marketing of food and other products in Shufersal branches and the manufacture of frozen and fresh baked products that are sold mainly in the Shufersal’s branches. As of December 31, 2018, Shufersal operated under this segment 285 branches (as compared with 272 branches at the end of 2017)43.7%.
Shufersal owns the largest supermarket chain in Israel in terms of sales volume.
As of December 2018, Shufersal operates two type of groups of branches in this Segment, the “Discount Branches Group” and the “Neighborhood Branches Group”. These two groups include four different formats and an on-line format “Shufersal Online” and organic food stores, throughout the country, with the aim of satisfying its customers and providing them a buying experience that differs and varies in each of the formats. As of December 31, 2018 the number of branches under the various formats are as follows: The Neighborhood Branches Group: 81 branches in the neighborhood branch format (“My Shufersal”), with an emphasis on offering convenience, availability, and personalized service, as well as 59 branches in the very small branches format in neighborhoods and city centers, operated primarily by franchisees (“Shufersal Express”); The activity in the neighborhood branches group also includes the “Organic Market” activity. Shufersal operates within its branches, as of December 31, 2018, and 78 health markets throughout the country, under the brand “Shufersal Green,” and also operates 6 independent stores under the brand “Organic Market.” Discount Branches Group: 110 branches in the discount branch format (“Shufersal Deal”), discount branches with emphasis on lower prices throughout the yearwhich also includes non-food categories and 26 branches ("YESH") which are specialy dedicated to the conservative religious public with strict kosher products.
Shufersal have a mix of varied products organized in a number of sales departments and sub departments in each store, including, in the health areas (“Shufersal Green”), and also includes, among other things, products sold under the private label of Shufersal, with the view of offering the consumer a quality product, strengthening price perception (a quality product for cheaper prices than similar products in the same category), developing consumer loyalty and improving profitability of the categories in which the private label is sold. The area of manufacturing frozen and fresh baked products is operated by a wholly owned subsidiary of Shufersal. In March 2019, Shufersal launched a new and more advanced website, following Shufersal's efforts to continually improve its service experience for its clients. As of 2018, the retail segment includes "Shufersal for Businesses" under which Shufersal launched in January 2018 a "Cash and Carry" store for businesses.Telecommunications
Real estate segment. The real estate activities of Shufersal were separated, beginning on April 1, 2013, into Shufersal Real Estate Ltd. (“Shufersal Real Estate”), a wholly owned subsidiary whose assets include both branches which are rented to Shufersal (which are classified in Shufersal’s Consolidated Financial Statements as fixed assets) and real estate properties which are rented out to third parties (which are classified as investment property). The aforementioned properties do not include Shufersal’s logistical center in Rishon Letzion (and the proximate branch thereto), and Shufersal’s new logistical center in Shoham. The real estate activity includes: (A) Real estate development as an independent business segment; and (B) Integrating Shufersal’s primary activity in the retail segment, including: development of existing properties, acquisition of lands for future development and operating regional and local operating branches, and improving surrounding commercial areas to increase the scope of activity in the complex where Shufersal's branches are located.
Presented below are details regarding the real estate properties which are owned by Shufersal Real Estate as of December 31, 2018(*):
| | | Total area (thousands of square meters) | Fair value (NIS millions) | Rent and annual management fees (NIS thousands) in 2018(2) | NOI (NIS thousands) in 2018 (3) | |
| Branches rented to Shufersal | 71 | Approx.134 | 1,753(1) | 127,801 | 120,993 | 6.9% |
| Properties under construction which will be rented to Shufersal and to externals | 1 | Approx.2 | 7(1)(5) | - | - | - |
| Real estate properties which will be rented to externals (4) | 2 | Approx.50 | 120 | - | - | - |
| Real estate properties rented to externals | 20 | Approx.54 | 544 | 49,245 | 29,204 | 5.4% |
| Total | 94 | Approx.240 | 2,424 | 177,046 | 150,197 | 6.2% |
(*) All theinformation in table above is as of December 31, 2018. As of June 30, 2019, there were no material changes with respect to the above information.
(1) The fair value is in accordance with the presentation of these properties in the books of Shufersal Real Estate. In the books of Shufersal, these properties are classified according to their amortized cost of acquisition, and not at fair value.
(2) Including income from Miscellaneous.
(3) NOI at Shufersal Real Estate - Shufersal Real Estate’s gross profit in annual terms.
(4) In April 2018 a subsidiary of the Company and a subsidiary of DIC have entered into a combination deal regarding land of 8,800 sqm in Ra’anana (the "Land") which Land is owned by Shfersal. Under this transaction Shufersal (through its subsidiary) shall sell to DIC's subsidiary 69.5% of the Land in return for the receipt of development and construction services from such DIC's subsidiary (the "Combination Project"). Upon completion of the Combination Project Shufersal (through its subsidiary) shall own 30.5% of the Combination Project and DIC's subsidiary shall own 65.5% of the Combination Project. As of the date herof the zoning plan for the Combination Project was yet to be recieved.
(5) The balance of the depreciated cost in Shufersal’s books is approximately NIS 999 million.
Credit cards. Until January 11, 2018, the credit-card company that issued the credit cards to the Shufersal’s customers was Leumi Card Ltd. (“Leumi Card”), by virtue of an agreement dated July 19, 2006 between the parties, for issuance and operation of the credit cards to the Shufersal’s customers. On August 28, 2017, Shufersal notified Leumi Card that it did not wish to renew the Leumi Card agreement, and accordingly, the agreement was terminated on January 18, 2018.
As of January 18, 2018, the credit cards are issued to Shufersal’s customers by Israel Credit Cards Ltd. and Diners Club Israel Ltd. (jointly - “CAL”), pursuant to a memorandum of understanding signed between Shufersal and CAL on November 2, 2017. During the first half of 2018, Shufersal established the new credit card club. As of December 31, 2018,the amount of valid credit cards held by Shufersal’s customers is approximately 510,000 CAL credit cards and approximately 215,000 Leumi Card credit cards.
With respect to the credit cards issued by Leumi Card until January 18, 2018 (the "Leumi Card Credit Cards"), the Cards will continue to be operated by Leumi Card, pursuant to the Leumi Card Agreement, and their holders will be entitled to use and enjoy their customary benefits until expiration date named on the cards.
Be segment. Following completion of the transaction to acquire Be Drugstores Ltd. (formerly “New Pharm”), a chain of stores, which is primarily engaged in the sale of cosmetics, convenience products and toiletries, as well as drugs and nutritional supplements, on December 20, 2017, Shufersal began operating in the Be segment as well. In December 2018, Shufersal re-launched the chain under the brand name “Be”. As of December 31, 2018, Be Drugstores operates in the drugstore sector through 73 branches that sell mainly cosmetics, convenience and toiletry products, medicine and food supplements.
Telecommunications (DIC)
Cellcom is a public company which was incorporated in Israel, whose shares are listed for trading on the TASE and on the New York Stock Exchange, and whose debentures are listed for trading on the TASE.As of June 30, 2020, we owned 46.2% of the shares and had 48.4% of voting rights of Cellcom.
Cellcom operates and sells to its customers various communication services. Cellcom’s activity is divided in two main segments, “Cellular” and “Fixed-line”. The cellular segment includes the cellular communications services, end user cellular equipment and supplemental services. The fixed-line segment includes landline and long distance telephone services, internet infrastructure and connectivity services, television services, transmission services end user fixed-line equipment and supplemental services.
In June 2018, Cellcom issued shares and options to the public in Israel and received net proceeds of NIS 275 million. In addition, in June 2018, DIC entered into a swap transaction with a banking institution in connection with Cellcom shares, whereby DIC acquired an additional 1% of the issued and paid-up share capital of Cellcom (the “Swap Transaction”). The Swap Transaction is a differential transaction only, for a period of 90 days, at the end of which DIC will be obligated to resell the said shares. As part of the said issuance, DIC acquired shares and warrants for Cellcom shares at a cost of NIS 146 million. In December 2018, DIC acquired another approximately 0.6 million Cellcom shares, at a cost of NIS 15 million. In January 2019, DIC acquired another approximately 0.2% of Cellcom’s issued share capital, in consideration of a total cost of NIS 4 million, and DIC’s stake in Cellcom’s issued share capital increased to 44.1% of the issued and paid-up share capital of Cellcom (not including the swapped shares) and 47% of the voting rights in Cellcom (directly and indirectly).
In January 2019, Cellcom received a tax assessment on a best judgment basis with respect to the 2014 tax year from the Tax Authority, in general with respect to timing differences. According to the tax assessment, insofar as its arguments are rejected, Cellcom will be required to pay additional income tax with respect to 2014, in the amount of NIS 56 million (including interest and linkage differentials). Cellcom filed an objection to this tax assessment. Cellcom estimates that this assessment is not likely to have a material impact on its financial statements.Segments
Cellular Segment. Cellcom’s activity inCellcom is the mobile segment includes the provisionlargest provider of mobile communicationcellular communications services in Israel the salebased upon number of mobile equipment to end users,subscribers and other supplementary services. Cellcom holds a general license from the Ministryestimated market share as of Communication which is valid until the end of January 2022 (the “Mobile License”). - At the end of 2018, Cellcom had approximately 2.851 million cellular subscribers.June 30, 2020. Cellcom offers a broad range of services including cellular telephony, roaming services through our 2G, 3G and 4G network. There is intense competition in all aspects of the cellular communications marketfor tourists in Israel with a penetration rate (the ratio of cellularand for its subscribers to the Israeli population) of approximately 120%, representing approximately 10.4 million cellular subscribers as of December 31, 2018, and the average annual churn rate in Israel in 2018 is estimated to be 37%, higher than the churn rates in other developed economies. Cellular´s churn rate for 2018 totaled to 43.2%, compared to 45.8% in 2017. The monthly cellular Average Revenue per User (“ARPU”) for 2018 totaled NIS 51.3 (US$14.2), compared to NIS 57.1 (US$15.8) in the second quarter last year. The decrease in ARPU resulted mainly from the ongoing erosion in the prices of cellular services, resulting from the intense competition in the cellular market.
Cellcom compete for market and revenue share with nine other cellular communications operators: five mobile network operators (Partner, Pelephone, Hot Mobile, Golan and Xfone) and four mobile virtual network operators (Rami Levy Hashikma Communications Marketing Ltd., or Rami Levy, Azi Communications Ltd., Free Telecom Ltd. and Cellact Communications Ltd.).
Cellcom's services include basic cellular telephony services,abroad, text and multimedia messaging, advanced cellular content and data services and other value-added services in the areas of music, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure . Cellcom operates an LTE 4 generation network and alsoan HSPA 3.5 Generation network enabling advanced high speed broadband multimedia services, in addition to GSM/GPRS/EDGE networks. Cellcom Israel offers Israel's broadest and largest customer service infrastructure including telephone, customer service centers, retail stores, and service and sale centers, distributed nationwide. Cellcom Israel further provides OTT TV services, internet infrastructure and connectivity services and international roamingcalling services, as well as landline telephone services in Israel. As of June 30, 2020, Cellcom provided cellular communications services to approximately 2,734 million subscribers in Israel, with an estimated market share as of December 31, 2019 of approximately 26%.
Cellcom offers cellular subscribers a wide selectionvariety of handsets from various leading global manufacturersusage and repairsector pricing plans and bundles combining cellular services on most handsets offered. Not allwith other communications services its group offers, including quatro bundles (internet infrastructure service and connectivity, landline telephony, cable television service and cellular services). Cellcom offer two methods of payment: post-paid and pre-paid. Post-paid services are supported by all handsets or by all networks.
Cellcom provides Golan Telecomoffered to subscribers who are willing to pay for its services through banking and Xfone national roamingcredit arrangements, such as credit cards and direct debits. Pre-paid services underare offered to cellular subscribers who pay for its Sharing Agreements. Cellcom further provide the Joint Corporations services as a subcontractor.prior to obtaining them. The majority of Cellcom’s sales are post-paid.
Basic cellular services
The main cellular service is basic cellular telephony and data transfer, upload and download (in supporting handsets). Both are included in packages price plans. In addition, Cellcom offers many other services with enhancements and additional features to our basic cellular telephony service, including voice mail, cellular fax, call waiting, call forwarding, caller identification and conference calling.
Data services can be used with handsets (in supporting models), cellular modems and tablets. Cellcom provides their customers with a variety of "internet data packages" for that purpose.
Cellcom also offers both an outbound roaming service to Cellcom’s our subscribers when traveling outside of Israel and an inbound roaming service to visitors to Israel who can “roam” on Cellcom’s network.
Value-added services
In addition to basic cellular telephony and data services, Cellcom offers many value-added services, such as SMS and MMS, cloud backup and content services such as “Cellcom Volume” (music application) and “Cellcom tv” application. Business subscribers are offered with multi SMS, M2M (machine to machine), "Double Net" services allowing combined usage of cellular and landline networks in order to insure continuous service, work force management, vehicles management applications and IOT (internet of things) solutions such as "smart city" end-to-end cellular and fixed line solutions.
Handsets
Cellcom sells a wide selection of handsets (which for purposes of this report may include other types of communications end-user equipment, such as tablets) designed to meet individual preferences. Prices of handsets vary based on handset features and special promotions. Cellcom offers a variety of installment plans for handsets and discounts for short term installment plans, although in most cases, handsets are to be paid for in 36 monthly installments. Cellcom is also required to provide cellular services to subscribers who did not purchase their handsets from it, provided that the handset model complies with the standards set by the Ministry of Communications.
Cellcom also sells streamers and tablets to promote its data services. In addition, Cellcom sells added value products to its customers, such as smart watches.
Fixed Line Segmentline services.
Cellcom’s activity in Cellcom fixed line services include its internet infrastructure (for private customers based mostly on the landline wholesale market and increasingly on its independent fiber-optic infrastructure and for business customers based on ourits landline infrastructure) and connectivity services, Over the TopOTT TV services (“OTT TV”) services, ILD services, landline telephony services and transmission services (for business customers). Cellcom also offersoffer bundles of these services, including a triple offering (internet service including infrastructure and connectivity, landline telephony, TV service) and quatro offering (internet services, landline telephony, TV service and cellular services). offering. Cellcom also offersoffer landline transmission and data services to selected business customers and telecommunications operators (including transmission revenues from Golan and Xfone according to the network sharing agreement as of April 2017 and 2018, repectively)2017), using its fiber-optic infrastructure and complementary microwave links, IP switchboard services and operation and management of business telecommunications systems. Additional services include cloud services and data protection products solutions based on products and services offered by Cellcom and by third party vendors and IOT solutions such as "smart city"“smart city” end-to-end cellular and fixed line solutions. For more information see “Cellcom- Golan Telecom Agreement”
Networks and Infrastructure
Internet infrastructureCellular Segment. Cellcom have built an extensive, durable and Connectivityadvanced cellular network system, enabling to offer high-quality services to substantially the entire Israeli populated territory, while using a cost-effective design, utilizing shared components for its networks, where applicable. Cellcom seek to satisfy quality standards that are important to its subscribers, such as high voice quality, high data throughput rate, low “blocked call” rate (average rate of call attempts that fail due to insufficient network resources), low “dropped call” rate (average rate of calls that are terminated not in the ordinary course) and deep indoor coverage. Therefore, Cellcom have made substantial capital expenditures and expect to continue to be required to make substantial capital expenditures on its network system, though, pursuant to its Sharing Agreements, radio capital expenditures for the shared networks will be divided among the sharing parties.
Fixed line services. Cellcom provides, Internet services - connectivity and infrastructure, multichannel TV services, international Call Services, Wireline communication Services and other fixed-line services. Cellcom optical transmission network is strategically deployed in order to cover the major portion of Israel’s business parks from Nahariya in the north to Beer Sheva in the south and Afula and Jerusalem in the east, consisting of approximately 1,980 kilometers. The fiber-optic network is monitored by a major provider of internet connectivity services. Priorfault-management system that performs real-time monitoring in order to provide high quality service. In order to efficiently complete its transmission network’s coverage to the formationmajority of theits cell sites and business landline wholesale market, the Israeli internet market was characterizedand transmission subscribers, Cellcom uses a microwave network as a complementary solution in those areas that are not served by a separation between the internet infrastructure providers (mainly Bezeq and Hot) and the internet connectivity service providers. Consequently, the internet customer was required to enter into a contractual arrangement with both types of these providers. The infrastructure provider is responsible for the connection of the customer from his computer or other device to the infrastructure provider's operator. The internet service provider is responsible for providing access to the customer from the infrastructure provider's operator, through its own operator, to the local and global internetfiber-optic network. As of May 2015, following the inception of the landline wholesale market, Cellcom (and other operators) provides end-to-end internet service (infrastructure and connectivity) using Bezeq's infrastructure and more recently, over Cellcom independent fiber-optic internet infrastructure. Cellcom sells internet infrastructure services bundled with internet connectivity, as well as with other services.
As of December 31, 2018,2019, Cellcom provides end-to-end internet service,had approximately 2,808 microwave links to approximately 269,000 households.
both its cell sites and its landline and transmission subscribers. In addition,February 2020, Cellcom, offers its internet subscribers value added services, such as data protection services to its private subscribersthe shareholders of Golan Telecom and connectivity integration solutionsGolan Telecom executed a binding memorandum of understanding for the acquisition of Golan Telecom entire capital stock. For more information see: “Significant acquisitions, dispositions and global communications solutions to itsdevelopment of business customers, including firewalls, anti-virus and anti-spam software, overseas internet connectivity services and server hosting services. In addition, Cellcom provides internet connectivity services that offer the ability to filter the content viewed by the internet users.
OTT TV servicesAs of December 2014, Cellcom offers OTT TV services, branded ' Cellcom tv' mostly to private customers. Cellcom tv is a hybrid OTT-DTT TV service provided to the Israeli market. The service includes a set-top box that enables linear channels, including based on the Israeli digital terrestrial television (DTT) broadcasting, other commercial channels and Video on Demand library subscription (SVoD), music streaming service and additionaladvanced features such as cloud recording and VoD playlist channels, for a highly competitive price. Cellcom tv service can generally also be accessed by smartphones, tablets, Smart TV and additional TV services' equipment like Apple TV and Android TV devices (TV anywhere). Cellcom’s VoD catalogue and linear channels offer international and local content from top content suppliers. As of December 31, 2018, Cellcom provides OTT TV services to approximately 219,000 households. – Operation Center in Israel - Cellcom- Golan Telecom Agreement ”
International Long Distance (“ILD”) servicesOthers
CellcomModiin Energy
Modiin is one of the major playersa limited partnership engaged in the Israeli ILD market. Cellcom’s principal servicefield of oil and natural gas exploration and is traded on the Tel Aviv Stock Exchange. IDBD operates in the ILD market is the provisionfield of outgoingoil and incoming telephone calls with substantially worldwide coverage. Cellcom provide these services mostly to post-paid customers, but also to pre-paid customers mainlygas through the sale of calling cards. Most of the customers of the pre-paid services are foreign workers who reside in Israel.
Landline telephony services
Cellcom offers advanced, voice and data landline services to selected business customers. Cellcom also offers basic landline telephony services to private customers by VOB technology. Landline telephony service enables an end user to conduct a telephone conversation with another end user who uses either another landline or a cellular telephone or computer, either in Israel or overseas.
Cellcom estimates that its current market share in the Israeli landline telephony market is not material.
Internet of Things (“IOT”)
IOT solutions provide the ability to connect various devices to the internet. Cellcom, together with strategic partners, offers IOT solutions based on a variety of communications solutions, including landline (WiFi) and cellular. Cellcom offers smart city solutions which include a central management and control system to manage the various solutions, water and electricity meter readout from a-far, smart parking, smart and efficient street lighting, smart cameras which include analytic capabilities for security solutions, smart sensors for efficient waste disposal, various environmental factors and flood alert, stress buttons for educational institutions as well as WiFi and broadband communication capabilities in public areas.
Internet services - access and infrastructure – Bezeq and Hot are the two main internet infrastructure providers for the private sector in Israel and offering internet infrastructure services to both ISPs and end-users. Bezeq and as of 2018 Hot as well, also provide internet infrastructure services to operators which do not own infrastructure, within the framework of the wholesale landline market. In 2014, IBC also began distributing its infrastructure and providing broadband services in selected areas, and in 2016 and 2017, respectively, Partner and Cellcom began extending their existing independent fiber optic infrastructures into residential areas. IBC’s license allows it to provide broadband infrastructure services on the fiber optic infrastructure of the Electric Corporation to other license holders, and to large business customers. In July 2019, Cellcom and Israel Infrastructure Fund III ("IIF"), acquired 70% of IBC's share capital, through a joint venture (the "IBC Investment Transaction"). See details below regarding Cellcom's relationship with IBC.
Internet services - access and infrastructure.
As of September 30, 2018, internet infrastructure services were provided by Bezeq and Hot to approximately 1.05 million and 711,000 households in Israel, respectively, with an immaterial quantity by IBC. Internet services are provided, as of the reporting date, by the three major internet providers: Cellcom, Bezeq International, Smile Telecom (a subsidiary of Partner) and additional small providers, including Xfone Communication Ltd.Modiin. As of December 31, 2018, Cellcom had approximately 269,000 households subscribed to our end-to-end internet services. The internet provider market is highly competitive, saturated and characterized by relatively low barriers to entry. The competition primarily focuses on the ability to offer high internet connectivity speeds relative to price. Internet infrastructure service using Hot's infrastructure (maximum tariffs for Hot's wholesale internet infrastructure services - higher than those set for Bezeq's services - were published by the MOC on June 2017)31,2019, Modiin has recently bagun. Effective inclusion of Hot's infrastructurerights in onshore oil assets in the wholesale market may increase the amount of potential subscribers to Cellcom's triple playUnited States and bundle offerings.in one oil asset in Israel (marine oil asset).
In August 2018, Elron
Elron is a holding company which constitutes the Minister of Communication, (“MOC”), resolved to allow IBC to apply for a general unique (infrastructure) license, in lieu of its current license. The new license, granted to IBC upon completiontechnology investment arm of the IBC Investment Transaction, includes, among others, a deployment requirement to at least 40% of Israel’s households in 10 years from receipt of the license, as opposed to a universal deployment requirement in IBC’s previous license.
In July 2019, the IBC Investment Transaction was completed and includes the following final agreements (entered in March 2019) which in addition to ordinary and customary conditions include, among others, the following: (1) purchaser agreement – Cellcom and IIF entered into partnership agreements to purchase 70% of IBC’s share capital jointly and by a limited partnership (in establishment) jointly owned in equal parts or the purchaser. The purchaser agreement includes an obligation to additional investment of up to NIS 200 million by Cellcom and IIF pro rata to theirIDB Group. Elron has significant holdings in the purchaser over a periodselect number of 3 years and specific arrangements regarding the breach of obligation of a party to invest its share and regarding a deadlock situation. (2) Share Purchase Agreement (SPA) - the purchaser, IBC and Israel Electric Company (IEC) and shareholders and other main creditors of IBC entered into agreement to purchase 70% of IBC’s issued and outstanding share capital by the purchaser’s investment in IBCstart-up companies in the amountfield of NIS 104 million (subject to consideration adjustment mechanism regarding current capital, net of IBC on the closing date), (The consideration) to be provided in part as investment and in part as shareholders’ loan. The remaining 30% of IBC’s issued and outstanding share capital will be held by IEC. The consideration will be used to pay all debts of IBC (other than a specifc amount to IEC). (3) Service agreement with IEC - IBC and IEC entered into an agreement updating
IBC’s existing agreement on usage rights and services for IBC’s fiber optic network, which is deployed on IEC’s infrastructure. The service agreement with IEC includes updated and improved pricing and arrangements for IBC’s exclusive right to deploy optical fibers on IEC’s electricity network and other services provided by IEC to IBC in connection therewith. The purchaser agreement entered into force upon the engagement.
In addition, in July 2019 Cellcom and IIF entered an agreement and completed a transaction for the sale of Cellcom’s independent fiber infrastructure in residential areas, as at the end of 2019 to IBC (the “Fiber Sale Agreement”) in a consideration of NIS 180 million. Upon the completion of the sale, the IRU agreement, including Cellcom’s commitment to acquire an irrevocable right to use a percentage of the homes connected to IBC’s fiber infrastructure will apply to the acquired infrastructure from Cellcom.
Cellcom paid a total of NIS 55 million (out of a total of NIS 110 million) for the indirect holding in IBC. Most of the amount was given indirectly, as a shareholder loan, to IBC. Cellcom received a total of NIS 180 million for its independent fiber optic infrastructure in residential neighborhoods, which was entirely financed through shareholder loans which were given to IBC indirectly by Cellcom and the IIF, each in the amount of NIS 90 million. An additional consideration will be paid with respect to future distribution performed by Cellcom.
Multi-channel television services.
Multichannel pay-tv services are dominated by Hot (the incumbent TV provider and monopoly in this field) and YES (a subsidiary of Bezeq) with approximately 777,000 and 587,000 households, respectively, as of September 30, 2018. Cellcom began operating in this segment at the end of December 2014, through a hybrid television service which includes DTT broadcasts (television channels provided by the digital cable television broadcast network which operates in Israel and is distributed for free by the Second Authority for Television and Radio (Idan+) (“DTT Broadcasts”) and OTT TV services (television over internet), with approximately 219,000 households subscribed to Cellcom tv services. In June 2017, Partner launched its OTT TV solution which includes Netflix’s (American internet based VOD content provider) application integration (and offering for a limited period), and as of December 31, 2018 Partner provides this service to approximately 106,000 households. In August and October 2017, respectively, Hot and Yes each launched an OTT TV low cost brand solution – branded Hot Next and Sting, respectively (Hot's OTT TV solution is also to be marketed by Rami Levy). Also, Netflix and Amazon Prime, another American internet based VOD content provider, provide their services to viewers in Israel, as complementary service to the existing competitors' content. In March and September 2014, the Antitrust Commissioner published the following requirements as a condition for the merger in the Bezeq group, in order to facilitate opening up the multi-channel television market to competition by reducing barriers to entry in the television segment. in general, Bezeq will not charge a feeto internet providers with respect to the consumption of internet provider services which are due to multi-channel television broadcasts, and all of the existing exclusivity arrangements to which Bezeq and Yes are party will be canceled, with respect to non-original production television content, and the engagement of exclusivity arrangements of this kind will be prohibited in the future;
International call services - Cellcom is a large provider of international call services. Cellcom’s main competitors are Bezeq (through its subsidiary - Bezeq International) and Partner (through its subsidiary - Smile Telecom), and additionally, there are other competitors, such as Xfone Communication Ltd., Rami Levy, Golan and Hot, through their wholly owned subsidiaries or related companies. As of September 30, 2018, Cellcom’s market share is estimated at approximately 27%. The international call service market is highly competitive, with the competition primarily based on the operator’s ability to offer attractive pricing. Regulatory changes in this market have resulted in increased competition. In recent years, the use of alternative communication technologies, such as voice over IP, have resulted in reduction of the telephone market, and particularly, international telephone services. This trend is expected to continue in the future at a moderate rate.As of September 30, 2018, Cellcom’s market share is estimated at approximately 27%.
cybersecurity, enterprise software, medical device, etc.
Local landline servicesIDB Tourism
The landline telephone market has been controlled for many years by Bezeq,IDB Tourism is a monopolywholly-owned subsidiary of IDBD, which was incorporated in Israel and commenced it operations in 1934. In 2014, IDB Tourism’s management decided to focus its business activity on the sale of tourism services, in the landline telephone market, which held approximately 2/3framework of tourism packages that were adapted to the preferences of the landline telephone market share (and a larger market share among business customers), accordingIsraeli public, to the publicationsincoming tourists to Israel. Until 2015, IDB Tourism held three major companies operating in the field of tourism: Terminal 1 Holdings Ltd. (formerly - Diesenhaus Ltd.), Open Sky Ltd, and Israir Airlines & Tourism Ltd. (“Israir”), (Israir, Diesenhaus, Open Sky and related parties will be referred to hereinafter as “the IDB Tourism Group”).
In July 2020, Israir signed an agreement to have access, if needed, a loan in an amount of NIS 75 million with a 75% guarantee from the State. In addition, Israir received approval from another banking corporation and from the Ministry of Finance to receive another State-guaranteed loan at a rate of 75% and in the amount of approximately NIS 61 million, while the Bank gave its agreement in principle to increase the loan to NIS 100 million. The increase ot the said loan is subject to the approval of the Ministry of Communication, and Hot. Additional providersFinance, which has agreed to positively consider increasing the volume of the state-guaranteed loan to a higher percentage in about two months, depending on the landline telephone services market include Cellcom, Cellcom Fixedline (wholly owned by Cellcom), Partner-012 Smile and Bezeq International.situation at that time.
Cellcom’s penetration into the landline telephone market is an important component in Cellcom’s ability to offer a comprehensive package of services to its subscribers. As of the reporting date, Cellcom offers landline telephone services to business customers, and through VOB technology, to its private customers.
Cellcom estimates that its market share in the landline telephone services market is immaterial. Insofar as the wholesale landline market will include landline telephone, Cellcom will be able to offer home landline telephone services to its private customers through the wholesale market.
CellcomIn June 2018, the Ministry of Communications decided not to extend the approval given to Bezeq for landline telephone service in resale model as a temporary 14 month alternative for wholesale landline telephony service, and to obligate Bezeq to provide landline telephony service from August 1, 2018. Bezeq and Hot expressed their willingness to provide telephony wholesale service, but as of June 30, 2019, no such service is provided.Supermarkets
Other landline services
Transmission services and data communication services are provided by Bezeq, Hot, Partner and Cellcom, and are intended for business customers and communication operators. In 2018,Shufersal is the competition in this segment increased, primarily due to the plans offered by Hot and Partner.
Fixed assets and facilities
Most of Cellcom’s fixed assets include the mobile network equipment, which includes base sites which are distributed throughout the country, which provide broad communication coverage for the vast majority of populated areas in the country, as well as a transmission network (which includes optic fibers in a total length of approximately 1,980 km., and microwave infrastructure), which provides connectivity for Cellcom between most of its base sites, and through which Cellcom also provides, to select business customers, transmission services, data transfer and advanced landline communication services. In 2018, Cellcom's Long-Term Evolution (“LTE”) network covers mostowner of the populationlargest supermarket chain in Israel. In December 2017 the Group completed the acquisition of Israel and in 2019 Cellcom intends to continue the deploymententire issued share capital of this network in order to enable higher data throughput rate.Be Drugstores Ltd. (formerly New Pharm Drugstores Ltd.) (“Be
Cellcom has”). Shufersal is a backup network for disaster recovery with respect to its engineering systems,public company, which is included under the Tel Aviv 35 index, which was intended to increase network resiliencyincorporated in case of damage to one of its components,Israel, whose shares and has adopted a business continuity plan and a disaster recovery plan in accordance withdebentures are listed for trading on the requirements of its license.
During 2018, Cellcom invested NIS 648 million (US$186 million) in fixed assets and intangible assets and others.TASE.
As June 30, 2020, Shufersal operates 379 branches throughout Israel, of December 31, 2018, Cellcom rents 74 servicewhich 298 are Shufersal stores and 81 are Be stores. Shufersal’s total commercial space encompasses approximately 543,000 square meters, of which 513,000 square meters are Shufersal stores and 30,000 square meters are Be stores, as well as 8 delivery centers encompassing 22,000 square meters, all located in Israel. Shufersal employs about 17 thousand employees (about 14.8 thousand calculated positions) and pointshas annual revenues of sale. Additionally, Cellcom rents from various entities sites for the purpose of the construction, maintenance and operation of communication facilities which are used in Cellcom’s communication network. Based on past experience, Cellcom encounters difficulties in extending the leases of approximately 5% of the sites used for communication facilities.about NIS 14 billion.
In June 2013, Cellcom renewed the permission agreement with the Israel Land Administration, which manages the lands of the Development Authority and the Jewish National Fund, for the use of land for the construction and operation of small broadcast facilities.
The permission agreement determined that, subject to the receipt of advance approval from the land managers, which will be given at the request of Cellcom with respect to each site, Cellcom is entitled to build and operate transmission facilities on land, during the permission period, and specific permissions and contracts which will be signed following the permission agreement are cancelable by the land managers, by providing advance notice, in case of certain events. Additionally, the permission agreement includes a prohibition on the transfer of control of Cellcom without providing a definition of the term control for this purpose.
Cellcom has two main rental properties in Israel: (1) A long term agreement for its technological center in Netanya, with an area of approximately 11,000 square meters. The rental is for a period of ten years, from August 2011, and Cellcom has the option to extend the agreement for an additional period of 5 years, while in the event that Cellcom does not exercise the option, it will be required to pay compensation of approximately NIS 11 million. In January 2015, Cellcom rented approximately 1,100 square meters through a sublease for a period of five years, and in 2016, Cellcom rented, through a sublease, an additional area of approximately 5,000 square meters, for a period of 6 years. The sublessees have the option to extend the sublease for an additional period, under certain conditions; and (2) A long term agreement for Cellcom headquarters in Netanya, with an area of approximately 58,000 square meters (of which, approximately 26,000 square meters are used for underground parking) until December 2022, which can be extended by two additional periods of 5 years each. beginning in 2015, Cellcom has leased, through subleases, approximately one quarter of the leased area for periods of up to five years. The lessees have the option to extend the sublease for additional periods. Cellcom also has two additional properties which it leases: one in Haifa, with an area of approximately 8,900 square meters, and the other in Rosh Ha’ayin, with an area of approximately 3,300 square meters.
Intangible assets
Cellcom has the right to use frequencies for the provision of communication services in its communication networks.
In July 2018, following the Cellcom's previous reports regarding a frequencies migration Cellcom shall be required to execute to accord to European standards, the Ministry of Communications, or MOC, notified Cellcom that its 850MHZ frequencies allocation shall expire on February 1, 2022 and replaced by 900MHZ frequencies no later than March 22, 2021. The method and schedule in which such replacement will be executed, including interim frequencies allocations as required, shall be formed separately. The MOC noted Cellcom may use an interim leniency to the Planning and Building Law, allowing, under certain conditions, replacement of cell sites without obtaining a building permit. Cellcom is examining the implications of the MOC's notification and possible courses of action.
In August 2015, Cellcom was allocated 3 megahertz (“MHz”) in the 1800 MHz range for 4G networks (in light of Cellcom’s existing 1800 MHz frequencies). As opposed to the frequencies which were provided in the past to Cellcom, which are valid during Cellcom’s license period, the frequencies won by Cellcom, as part of the tender, were provided for a period of 10 years. Additionally, the network sharing agreements with Golan and Xfone, are realized, Cellcom will be able to enjoy use additional 2x10 MHz in the 1800 MHz frequencies of Golan and Xfone.
Cellcom is a member of the GSM association, which includes various operators from all over the world which use GSM technology, and which meet the standards of the association. As a member of the association, Cellcom is entitled to make use of the association’s intellectual property rights, including use of the GSM logo and trademark.
Cellcom has rights to a large number of trademarks and trade names which are registered under the names of Cellcom and Netvision, as applicable. Additionally, several patents are registered under Cellcom’s name.
In July 2019, the Ministry of Communications released a frequency tender that includes Generation 5 services, expected to run in the fourth quarter of 2019. The tender includes 30 MHz in the 700 MHz frequency band, 60 MHz in the 2600 MHz frequency band and 300 MHz in the 3500-3800 MHz frequencyband. The tender is open to mobile network operators only, except 100 MHz in the range of 3,500-3,600 MHz, which will be open to every contestant. New entrants will only be able to offer unique Generation 5 services. Cellular operators with a shared network will make a joint bid (subject to the prior approval of the Tender Committee). The tender sets a frequency limit for a new network / provider, coverage requirements, times and quality for winning in certain frequency areas. The tender also includes easements and incentives based on performance. Cellcom is studying the tender documents and cannot currently assess its implications for Cellcom.
Insurance (IDBD)
Clal
In August 2013, the Commissioner of the Capital Market, Insurance and Savings appointed a trustee for most of IDBD’s holdings in Clal Holdings Insurance Enterprises, and in December 2014 a time outline was established for the sale of its holdings of Clal Holdings Insurance Enterprises (“The Outline”). In April 2017, a ruling was given in which the Court ordered the trustee to sell 5% of the IDBD’s holding in Clal Holdings Insurance Enterprises, within 30 days (“The ruling”). In May and August 2017, and in January 2018, May 2018 and August 2018, IDBD cumulativelyDIC sold 25% of the shares of Clal Holdings Insurance Enterprises, 5% at each time, and in parallel, IDBD entered into commitments with two banking corporations, in four swap transactions, according to which, at the end of a period of 24 months from the date of each sale transaction, accounting will take place between IDBD and those banking corporations in respect of the difference between the selling price of the shares being sold to a third party, and the selling price of the shares as of the date of the accounting.
In November 2018, IDBD executed another swap transaction regarding 5% of Clal’s shares that were sold by a third party. Pursuant to understandings between IDBD and the Commissioner (from December 2018), in January 2019, IDBD sold shares of Clal, constituting approximately 4.5%16.6% of the issued share capital of Clal, and also, concluded a swap transaction, executed by IDBD with a financing entity in May 2017, in respect of 1% of the issued and paid up share capital of Clal. Additionally, as part of said understandings with the Commissioner, IDBD has undertaken to refrain, in the future, from performing any swap transactions in addition to those, which currently apply to shares of Clal, as specified above, and to refrain from any extension of the current swap transactions in connection with shares of Clal. In March 2019, IDBD controlling shareholder submitted to the Commissioner a requestShufersal, for a control permit (the “Request”) in Clal which was withdrawn in July 2019. In April 2019, IDBD received a copy of the Commissioner’s letter, which was sent to the Trustee, in which the Commissioner notified the trustee, in accordance with the provisions of the outline, and after the Commissioner again evaluated the need for the sale, and its economic implications, and also in consideration of the provisions of the ruling given on April 5, 2017, that the Commissioner had instructed the trustee to continue working according to the outline in place of IDBD, in accordance with all of the authorities which were conferred upon him by virtue of the outline, and to work to sell 5% of the means of control in Clal Holdings Insurance Enterprises which are held by him. On May 2, 2019, IDBD entered into agreements with two third parties which are unrelated to IDBD (the “Buyers”), according to which each of the buyers will acquire shares of Clal Holdings Insurance Enterprises which constitute approximately 4.99% of its issued capital, in consideration of a cash payment of NIS 47.7 per share. Additionally, one of the buyers was provided the option to acquire additional shares of Clal Holdings Insurance Enterprises which constitute approximately 3% of its issued capital, for a period of 120 days, subject to the receipt of a holding permit, and at a price of NIS 50 per share. Additionally, on May 2, 2019, IDBD entered into an agreement with a third buyer, which is unrelated to IDBD, which will acquire the shares through a special purpose company (the “Additional Buyer”), according to which the additional buyer will receive from IDBD an option for a period of 50 days to acquire shares of Clal Holdings Insurance Enterprises which constitute up to approximately 4.99% of its issued capital and no less than 3% of its issued capital), intotal net consideration of NIS 47.7 per share.848 million, as a result of which DIC’s holdings in Shufersal decreased to approximately 33.6% and therefore ceased to be the controlling shareholder of Shufersal. Following certain other divestments from DIC, as of June 30, 2020, our equity interest in Shufersal was reduced to 26.02%. On August 28, 2019, the Additional buyer, gave notice that it was exercising the option given to it to acquire 3%July 26, 2020, DIC sold its entire stake in Shufersal, of the shares of Clal Holdings Insurance Enterprises, atapproximately 26%, for a pricetotal net consideration of NIS 50 per share.1,450 million.
Segments
The Company operates in four operating segments that are reported as business segments in its financial statements:
Retail segment. This segment includes the retail marketing of food and other products in the Shufersal’s stores and the manufacture of frozen and fresh baked products that are sold mainly in the Shufersal’s stores. As at June 30, 2020, the Shufersal’s retail segment activity is carried out in 298 stores having a wide geographical spread.
SharesReal Estate. In this segment we manage various types of Clal Holdings Insurance Enterprises which will be acquired as partproperties, including commercial centers and other properties related to the operation of our stores. The real estate activities of Shufersal were separated, beginning on April 1, 2013, into Shufersal Real Estate Ltd., a wholly owned subsidiary. This entity leases these properties both to Shufersal and to other third parties. This segment’s revenues include rental revenues based on actual amounts that the real estate segment charged the retail segment, and the operating profit of the exercisesegment includes also management fees that were charged to the subsidiaries of the option will not be charged in favor of IDBD; however, the buyer undertook to a negative charge in favor of IDBD (in other words, the only activity of the aforementioned special purpose company will be the holding of shares of Clal Holdings Insurance Enterprises, that it will not have any other activities and/or transactions, and it will not accept any other loan or debt, and will not sell and/or charge and/or confer any other right to its shares and to shares of Clal Holdings Insurance Enterprises which it will acquire during the loan period of, except if determined otherwise in the agreement). Restrictions were also established in respect of the sale of sharesof Clal Holdings Insurance Enterprises which it will acquire as part of its exercise of the option. The agreements with the buyers and the agreement with the additional buyer shall hereinafter be referred to as: the “Agreements”. The agreements include, inter alia, an undertaking by one of the buyers and by an additional buyer not to sell the acquired shares during agreed-upon periods. It is hereby clarified that each of the buyers and the additional buyer declared and undertook, towards IDBD, that no arrangements or understandings whatsoever have been reached between them and the other buyers and/or the additional buyer (as applicable),real estate segment. Presented below are details regarding the joint holdingreal estate properties which are owned by Shufersal Real Estate as of the shares of Clal Holdings Insurance Enterprises which form the subject of the agreements. The total scope of shares of Clal Holdings Insurance Enterprises which may be acquired by the aforementioned three buyers, insofar as the three agreements are completed, and the options thereunder exercised, amounts to approximately 18% of the issued capital of Clal Holdings Insurance Enterprises, of which, until proximate to the publication of the report, transactions have been executed with respect to approximately 10% of the issued capital of Clal Holdings Insurance Enterprises, as detailed below. IDBD requested the Commissioner’s consent for the update to the terms of the swap transactions, in a manner which will allow the sale of shares of Clal Holdings Insurance Enterprises which form the subject of the swap transactions, through over the counter transactions, to a certain buyer (instead of sale by way of distribution of the shares), and in a manner which allows IDBD to instruct the financial entities through whom the swap transactions were executed to execute the sales to the buyers and to the additional buyer.December 31, 2019:
After receiving| | | | | Rent and annual management fees |
| | | | | |
| | | | | |
| Stores rented to Shufersal | 71 | 134 | 1,818 | 131,348 |
| Properties under construction which will be rented to Shufersal | 1 | 2 | 1 | — |
| Rentable real estate properties to third parties | 20 | 54 | 586 | 50,949 |
| Real estate properties under construction which will be rented to externals | 2 | 50 | 134 | — |
| Total | 94 | 240 | 2,539 | 182,297 |
Credit card customers’ club management segment. This segment includes operating the Commissioner’s consent,credit card business and afterproviding credit to the Court’s dismissalholders of our credit cards. From January 18, 2018, the operation of the interim injunction IDBD executed the following transactions:credit card business is made by means of Israel Credit Card Ltd. and Diners Club Israel Ltd.
On May 3, 2019, IDBD sold 4.99%Be segment. Following completion of the sharestransaction to acquire New Pharm Drugstores Ltd. on December 20, 2017, which was rebranded as “Be”. As of Clal Holdings Insurance Enterprises which were held Mr. Moshe Terry,June 30, 2020this segment includes the operation of 81 drugstores in an over-the-counter transaction, at a price of NIS 47.7 per share (the “Sold Shares”). The total consideration in the aforementioned transaction was approximately NIS 132 million (after fees).Israel that sell mainly cosmetics, convenience and toiletry products, medicine and food supplements. In accordance with the provisions of section 6.9.2.3 of the trust deed for IDBD debentures (Series M), the consideration in respect of the sold shares will remain in the trust account which is charged in favor of IDBD debenture holders (Series M), and will serve, in IDBD discretion, to make a prepayment, or to make payments in accordance with the amortization schedule of IDBD debentures (Series M). After additional realization of the shares of Clal Holdings Insurance Enterprises, on May 8,December 2019, IDBDShufersal's Board of Directors resolved to executepassed a prepayment in the amount of approximately NIS 134.3 million par value of IDBD debentures (Series M). The prepayment, inthe total amount of NIS 142.9 million (including interest and payment of additional interest on the repaid part of the prepayment), was executed on May 28, 2019, and was paid out of the consideration from the sale of the aforementioned shares of Clal Holdings Insurance Enterprises, which was held by the trustee for the debentures (Series M). Accordingly, as of June 30, 2019, 8.54 million shares of Clal Holdings Insurance Enterprises remain, the consideration for which is charged in favor of the debenture holders (Series M). Additionally, the balance of the funds which are charged in the trust account in favor of the debenture holders (Series M) was NIS 11 million.
IDBD instructed the financing entity with which it engaged in a swap transaction in connection with shares of Clal Holdings Insurance Enterprises in May 2017, and which concluded on May 2, 2019, and which related to 2,215,521 shares of Clal Holdings Insurance Enterprises, which constitute approximately 4% of the issued capital of Clal Holdings Insurance Enterprises, to conclude the transaction through a sale to one of the buyers (the “Second Buyer”), at a price of NIS 47.7 per share. The swap transaction was concluded in return for a payment in a sum of NIS 28 million.
On June 16, 2019, the additional buyer notified IDBD of the exercise, in full, of the option to acquire shares of Clal Holdings Insurance Enterprises.
On July 29, 2019, a letter was received by IDBD, addressed to IDBD and to its Board members, from the additional buyer’s attorney (the “Letter”). Inter alia, in the letter it was assertedresolution that the Company had breached the agreement by not completing the execution thereof on time, and that the additional buyer insists that the Company complete immediately all of the actions which are required in order to complete the agreement. It was further stated that insofar as the Company does not do so, the additional buyer intends to take all measures which are at its disposal in accordance with the law to enforce the agreement, and to receive payment, from the Company and its Board members, for any damage or financial loss which it may incur. IDBD clarifies that the agreement specifies the principal terms of the loan, and also specifies that the parties undertake to work in collaboration and in good faith towards signing a detailed loan agreement, based on the principles of the loan as detailed in the agreement, and that the foregoing shall not derogate from the obligation to provide the loan. As of the present date, the negotiations between the parties in connection with the terms of the loan agreement have not yet been completed, and therefore, in light of the circumstances, according to IDBD position, the deadline for implementation of the agreement has not yet passed. IDBD is continuing to work on preparing for the completion of the agreement, and as part of the foregoing, is working, inter alia, to evaluate alternatives to the provision of the loan. IDBD received preliminary indications from financial institutions that theyShufersal would provide partial financing in an amount of approximately 50% of the amount of the loan to the additional buyer pursuant to the aforesaid agreement. It should be noted that IDBD intends to continue to act to receive additional outside financing
In August 2019, IDBD gave notice that it is examining the holding of a competitive proceeding for the sale of shares that constitute 5% of the issued capital of Clal Holdings Insurance Enterprises, in accordance with the timetable determined in the outline, for consideration that may be paid in cash and/or in return for tradable securities (including IDBD’s bonds). For the purpose of making the aforesaid sale, and insofar as will be necessary (in view of making the aforesaid sale insofar as it will be made for non-cash consideration), IDBD is examining with the controlling owner the possibility that the controlling owner of IDBD will make a capital injection into the company. Such an injection of capital may be made conditionally and in several stages, over a period that will be determined. Within the framework of the aforesaid proceeding, on August 27, 2019, IDBD received a binding offer from entities (“the Managers”) representing classified investors (which the managers confirmed are not acting in a manner that gives them joint control of Clal Holdings Insurance Enterprises, or a joint holding, together with others, of the means of control in Clal Holdings Insurance Enterprises, in an amount that would require a permit in accordance with the provisions of the Control of Financial Services (Insurance) Law, 5741-1981, for the acquisition of up to 26% of the shares of Clal Holdings Insurance Enterprises on the terms and in accordance with the mechanisms stated therein (“the Transaction”).
According to the offer, the transaction may be made in return for cash, or in return for the Company’s (series I) bonds or in return for IDBD (series N) bonds, or with a combination of the aforesaid, at the discretion of IDBD according to the scope of the Transaction that it will be interested in making, on the basis of details of the situation report that was attached to the offer, which gives details of the irremovable offers that were received from the Managers, for the purchase of shares of Clal Holdings Insurance Enterprises. From the details that were attached to the aforesaid offer, it appears that insofar as a transaction will be made in accordance with the terms of the offer, on a scale of approximately 5% of the shares of Clal Holdings Insurance Enterprises, at a price of NIS 52.5 per share of Clal Holdings Insurance Enterprises, in return for (series I) bonds and (series N) bonds of the company, at a ratio of approximately 1:3 (i.e., for each NIS 3 of liability (par) value of the (series I) bonds that will serve as consideration in the transaction, there will be consideration of NIS 1 of liability (par) value of (series N) bonds that will be used as consideration in the transaction), then the price for the (series I) bonds of IDBD will be 75 agorot and the price for the (series N) bonds of IDBD will be 79 Agorot. Insofar as IDBD will accept the offer, it intends to act with respect to it in accordance with a Letter of Undertaking to the bondholders, which the Board of Directors of the company approved on August 29, 2019. Pursuant to the terms of the offer, IDBD resolved to give the Managers exclusivity for the Transaction, until September 5, 2019, at 12:00 noon. Accordingly, and in view of the terms of the offer, it will be valid subject to obtaining the approval of the Board of Directors of IDBD, until September 2, 2019.
With respect to the aforesaid offer, on August 28, 2018, in response to IDBD request, IDBD received a letter from the Commissioner that, inter alia, the Capital Market, Insurance and Savings Authority has no objection to the sale of shares of Clal Holdings Insurance Enterprises in the format of the transactions as stated above (‘the Transactions’), provided that all the following conditions are fulfilled: (a) at least 5% of the means of control in Clal Holdings Insurance Enterprises will be sold out of the means of control currently held by the Trustee; (b) the sale of the shares that are the subject of the Transactions will not be mademerge, by way of a swap transaction, but by meansstatutory merger with BE, under which Shufersal would absorb all of another sale technique which will not create a connection between IDBD, aBE's activities, liabilities and assets without consideration, and BE would be liquidated without liquidation.
Distribution
Most merchandise is distributed to our stores through our network of distribution centers. Common carriers ship general merchandise to and from our distribution centers. Vendors or third party relateddistributors ship certain food items and other merchandise directly to it or anyone acting on its behalfour stores. Merchandise sold through our digital channels is distributed to our online guests via common carriers (from stores, distribution centers, vendors and third party distributors) and through guest pick-up at our stores. Using our stores as fulfillment points allows improved product availability and delivery times and also reduces shipping costs. We continue to expand other delivery options, including store drive-up and delivery.
Seasonality
In Israel, the shares of Clal Holdings Insurance Enterprises,retail segment business’s results are subject to seasonal fluctuations as a result of which,the consumption inter aliabehavior, there is an increase in the property or economic exposure of the aforesaid with respect to Clal Holdings Insurance Enterprises, and it should be submitted for the approval of the Commissioner before it will be carried out in practice by September 10, 2019; each buyer of shares of Clal Holdings Insurance Enterprises within the framework of the Transactions, and all the controlling owners in it, insofar as the buyer is a corporation (up proximate to the ultimate owner), Passover holidays (March and/or anyone who acts for him April) and Rosh Hashanah and Sukkoth holidays (September and/or on his behalf, in trust or not in trust, shall send a written undertaking that he, or a corporation held by him or acting on his behalf, is not acting “together with others” (as this term is defined in the Control of Financial Services (Insurance) Law, 5741-1981, “the Control Law”), in a manner that gives him control of Clal Holdings Insurance Enterprises, or a joint holding with others of the means of control in Clal Holdings Insurance Enterprises in an amount that requires a permit pursuant to the provisions of the Control Law. Moreover, the Commissioner said in his letter that notwithstanding what is stated in his letter to the Trustee, the last date for making the sale of 5% of the means of control in Clal Holdings Insurance Enterprises held by the Trustee in accordance with the outline, whether by IDBD or by the Trustee, will be September 15, 2019. Moreover, with respect to IDBD requests to grant consents to an update of the terms of IDBD current swap transactions with respect to shares of Clal Holdings Insurance Enterprises (‘the swap transactions’), so that it will be possible for the third parties that bought the shares of Clal Holdings from IDBD within the framework of the swap transactions to sell their holdings in Clal Holdings Insurance Enterprises that are the subject of the swap transactions by means of over-the counter transactions, to specific and designated buyers as IDBD shall direct (instead of a sale by way of the distribution of the shares); and it will be allowed to order the financial institutions through which the swap transactions were made to make the sales to the aforesaid specific buyers; and for its consent to give a short time for the sale of the shares that will be sold within the framework of the closing/conclusion of the swap transactions, so that they will be sold by September 15, 2019 – the Commissioner said in his letter of August 28, 2019, that insofar as in IDBD opinion the transactions conflict with the bindings agreements of IDBD with respect to the manner of concluding IDBD’s existing swap transactions with respect to the shares of Clal Holdings Insurance Enterprises, the Commissioner shall not regard this as a breach of the outline for this purpose only, as long as they satisfy the aforesaid restrictions.October).
On August 31, 2019, the Board of Directors of IDBD (after it received the approval of the Audit Committee) gave its approval to accept an undertaking of Dolphin Netherlands to make an injection of capital into the Company (“the Undertaking”), the main points of which are as follows: Dolphin Netherlands irrevocably undertook to make capital injections into IDBD in a total amount of NIS 210 million in three equal annual payments (NIS 70 million each) on September 2, in each of the years 2019-2021 (“the Payments” and “the Payment Dates,” respectively). The Payments as aforesaid will be made in return for shares of IDBD or as a deferred loan on similar terms to the subordinated loans that were advanced in the past by Dolphin Netherlands to IDBD. Should IDBD not have the cash flow resources required for the purpose of and with respect to the financing of the Seller’s of Clal shares Loan, IDBD shall have the right to demand an advance of a sum of up to NIS 40 million on account of the second payment, subject to the approval of the Audit Committee and the Board of Directors of IDBD that such finance is required. On September 2019, IDBD received the first part of the payment from Dolphin Netherlands in the amount of NIS 70 million.Competition
Shufersal competes in this market primarily with the other supermarket chains, specialty stores (such as grocers, butchers, delis and bakeries), convenience stores in cities and gas stations, neighborhood grocery stores, open and closed markets, and other retailers.
The company (IRSA) unilaterally and irrevocably undertook to Dolphin Netherlands that it would transfer to Dolphin Netherlands, upon its request, the amounts that it needs in order to comply with the Undertaking (“IRSA’s Undertaking”). If Dolphin Netherlands does not make the capital injections in accordance with the Undertaking, then the rights of Dolphin Netherlands pursuant to IRSA’s Undertaking will be assigned to IDBD automatically, and IDBD will have a right to act to realize the IRSA Undertaking. The Undertaking will expire automatically in each of the following cases: (a) insolvency proceedings will be filed against IDBD (whether voluntarily or involuntarily) and they will be validon any of the Payment Dates, in which case the relevant Payment Date will be postponed for a period of 90 days and the relevant Payment will be transferred to IDBD only if the proceedings are canceled during the aforesaid period of 90 days. Of the proceedings are not cancelled within 90 days as aforesaid, the whole undertaking will expire; (b) an insolvency order will be given as stated in section 3 of the Insolvency and Economic Recovery Law, 5778-2018; and (c) a receiver, trustee, special manager or any functionary of this kind (temporary or permanent) will be appointed for IDBD, or a similar order is made (with respect to insolvency of the company) by the court.
On August 15, 2019, IDBD received a copy of a letter of the Commissioner that was sent to Trustee, that according to the provisions of the outline, and after the Commissioner examined once again the need for a sale and its economic repercussions, and in view of the provisions of the judgment of April 5, 2017, the Commissioner ordered the Trustee to continue to act according to the outline instead of IDBD, in accordance with all the powers that were granted to him by virtue of the outline, and to act to sell 5% of the means of control in Clal Holdings Insurance Enterprises held by him. The Commissioner said in his letter that the aforesaid sale should not be made by way of a swap transaction, but by means of another sale technique that would not create any connection between IDBD, a party related to it or anyone acting on its behalf, on the one hand, and the shares of Clal Holdings Insurance Enterprises, on the other, as a result of which, inter alia, there would be an increase in the property or economic exposure of the aforesaid with respect to Clal Holdings Insurance Enterprises and it should be submitted for the Commissioner’s approval before it would actually be performed by September 2, 2019. As stated below, this date has been postponed to September 15, 2019.
On September 3, 2019, the swap transaction was closed, in relation to 548,155 shares of Clal Holdings Insurance Enterprises, which account for about 1% of the issued share capital of Clal Holdings Insurance Enterprises, which were sold to a number of purchasers through off-market transactions, at NIS 52.5 per share. On September 4, 2019 IDBDsold shares of Clal Holdings Insurance Enterprises, constituting approximately 5% of the issued share capital of Clal Holdings Insurance Enterprises, held by the Trustee, in an off-market transaction, at a price of NIS 52.5. The total value in the said transaction is approximately NIS 145.4 million. The said consideration was deposited in a pledged trust account in favor of the Company's debentures (Series M). In addition, on September 4, 2019, IDBD purchased NIS 131,995,306 face value of IDBD's (Series I)debentures, at a price of 75 Agorot per NIS 1 face value of IDBD's (Series I) debentures; And NIS 58,857,269 face value of IDBD (Series N) debentures, at a price of 79 Agorot per NIS 1 face value IDBD (Series N) debentures. As of this reporting date, ClalHoldings Insurance Enterprises is held by IDBD at approximately 15.3% (of which approximately 10.4% is through the Trustee), following the execution of the transaction as described above. The investment in Clal Holdings Insurance Enterprises includes, in addition to the said holding, also investment through swap transactions relative to the shares of Clal insurance business at a rate of 20%, as reported by IDBD. In accordance with International Accounting Rules, the Company is exposed to changes in the value of the stock exchange for approximately 35.3% of Clal Holdings Insurance Enterprises's shares (including approximately 4.99% of Clal Holdings Insurance Enterprises under an option agreement whereby the Company entered into a purchase of Clal Holdings Insurance Enterprises's shares at a fixed price).
To be noted that Clal’s activity is considered a discontinued activity. IDBD’s holdings in Clal are held by a trustee appointed by the Israeli Commissioner.
Clal is a public company which was incorporated in accordance withunder the laws of the State of Israel. Clal is one of the leading insurance and long-term savings groups in Israel. The shares of Clal have been listed for trading on the stock exchange since 1988. Clal is part of the IDBD Group, which holds as of September 5, 2019 about 15.3% of its shares (of which approximately 10.4% through Mr. Moshe Terry) and through swap transactions on approximately 20% of additional shares. Clal offers a wide range of services and products to private and corporate customers, such as, inter alia, non-life insurance, health insurance, travel insurance, study fund, provident funds, pension funds, etc. As of December 31, 2018,2019, Clal Insurance employs over 4,6004,500 people and markets its products through 1,897 insurance agents, all of whom provide quality service and professional support to their customers. As of June 30,December 31, 2019, Clal has NIS 207220 billion in assets under asset. Furthermore,management (out of which, approximately NIS 188 billion are assets managed for others). Clal is constantly analyzing the market to understand trends and changesdivides its operations in the industry and adjusting accordingly. Clal Insurance consists of three insurance segments: Non-Life Insurance, Long-Term Savings and Health.
Non-Life InsuranceAs of June 30, 2020, IDBD’s stake in Clal’s outstanding share capital was 8.5% directly and 2.1% through swaps.
Segments.
Non-Life Insurance. The General Insurance domain in Clal Group is among the largest in Israel. As of September 30, 2018,December 31, 2019, Clal holds 10.3% market share of the premiums in the in the Non-Life Insurance Division and offers coverage to private and corporate customers. Clal markets its products through 1,450 non-life insurance agents, all of whom provide quality service and professional support to their customers. The Non-Life Insurance Segment offers a wide range of insurance plans: automotive, property, liability, marine insurance, personal accidents, guarantees and additional services. It`s vision is to provide professional and high-level service to company`s agents and customers, through constant improvements and new product development.
Life Insurance and Long-Term Savings
. As of June 30, 2018, TheDecember 31, 2019, the Long-Term Savings Division holds a 13.7% market share of the long-term savings market, as defined by the Commissioner of Insurance and have assets in an approximate amount of NIS 149,472 billion. As at June 30, 2018,December 31, 2019, Clal holds 17.3% market share of the premiums in the in the Life Insurance Division. There is no single customer or a limited number of customers of which Clal is dependent. Clal has no single customer whose revenues constitute 10% or more of Clal's total revenues in the Consolidated Financial Statements. Clal markets insurances policies, from time to time and in the normal course of business, to companies in the IDBD Group (both policyholders in collective insurance, both as members of central provident funds and as employers depositing for pension savings for long-term savings products). This does not exceed 5% of the Clal'sClal’s total revenues in this segment. The Long-Term Savings segment manages long-term assets, including life insurance, pension andprovidentand provident funds. The segment also provides comprehensive solutions to private and corporate customers in all sectors of the Israeli economy. Among the division'sdivision’s customers are large corporations and many residents of the State of Israel. Its objectives are to support the company'scompany’s distribution channels and become a professional benchmark, helping to improve company business results, profitability and value, while emphasizing quality of service. The segment offers a variety of savings options, enabling its customers to maintain a strong, solid economic foundation in the event of death, accident or loss of earning capacity. It also offers a variety of pension funds designed to guarantee a monthly income for life in the event of retirement, disability, or death, enabling economic stability for the future even in difficult times.
On July 26, 2018, Clal'sClal’s Board of Directors resolved to change the organizational structure of Clal Group, and from September 1, 2018, the life insurance and pension and provident divisions merged into the long-term savings division. In addition, a new a customer and distribution division established.
Health Insurance
Insurance.The Health Insurance segment offers a wide range of products for individuals, families and groups, specializing in comprehensive solutions for specific market segments such as women and children. As of June 30, 2018,December 31, 2019. Clal Insurance holds a 17.4% market share of the premiums in the health insurance market in Israel and offers health insurance products such as surgeries in Israel and overseas, transplants, medications, critical illness, long-term care, personal accidents, travel and more. Health Insurance segment vision istois to establish Clal as a leading, innovative and professional company in the field of health and nursing care insurance, while providing a professional and timely service to its agents and customers. The segment focuses on technological innovation as well as on developing a range of innovative health insurance products, enabling flexibility in creating health insurance packages tailored for each client, based on his needs and financial status. Each package is either derived from existing packages, or custom-built for each customer. Clal markets most of its products through 852 health agents, all of whom provide quality service and professional support to their customers. The Health Insurance segment is constantly growing, and is proud to provide quality service to 400,000 members insured under private insurance plans as well as an additional 2,000,000 members insured under group insurance plans.
The engagement of Clal Insurance in collective long-term care insurance agreements of members of the Maccabi and Leumit health funds, which will be completed in December 2018 and March 2019, respectively, as of December 2017, the value of these funds is NIS 2,997 million. In May 2018, Maccabi and Clalit Health Funds published new tenders for the selection of an insurer for group long-term care insurance for members of the health funds (the “Tender"), in a format different from the format in Clal Insurance's existing agreement with Maccabi) in such a manner that the winning insurer will bear only 20% of the insurance risk. Clal Insurance's proposal to continue providing group long-term care insurance services to Maccabi insurers did not win the public tender held by Maccabi, and therefore Clal Insurance will continue to insure Maccabi's policyholders in the current format,as stated, until December 31, 2018. It should be noted that according to publications in the press the insurance company Phoenix won both the tender and the fund Clalit Health Services and the Maccabi Health Fund tender, and chose to be insurers of the Maccabi health fund It should be noted that according to the Commissioner's instructions, an insurance company cannot make more than one agreement for long-term care insurance for members of the health fund (or some of them) if the total number of insurees it insures in one agreement or more, as stated above, exceeds 50% of the number of insureds in all the existing agreements for long-term care insurance for members of the health fund, unless the Commissioner approved otherwise and under the terms he approved. To the best of Clal’s knowledge at this stage Clalit Health Services has not yet issued an official notice in connection with the results of the tender. Clal Insurance is studying the results of the tender and its implications and the assessments required of it.
Others with respect to IDBD
Includes the assets and income from other miscellaneous businesses, such as oil and gas assets.
Others with respect to DIC
Includes the assets and income from other miscellaneous businesses, such as technological developments, electronics, and other sundry activities.
IDBG segment:
IDBD holds 50% of IDBG which was incorporated under the laws of Delaware (the remaining 50% is held by PBC). IDBG is a real estate corporation in the construction and operation of a commercial and office project in Las Vegas, Nevada (USA). IDBG activity was presented under the area of activity of PBC in projects in Las Vegas.
For futher details regarding the IDBG and the Tivoli project please see above PBC Segment.
IDB Tourism segment (discontinued segment)
IDB Tourism is a wholly-owned subsidiary of IDBD, which was incorporated in Israel and commenced it operations in 1934. In 2014, IDB Tourism’s management decided to focus its business activity on the sale of tourism services, in the framework of tourism packages that were adapted to the preferences of the Israeli public, to the incoming tourists to Israel. Until 2015, IDB Tourism held three major companies operating in the field of tourism: Terminal 1 Holdings Ltd. (formerly - Diesenhaus Ltd.), Open Sky Ltd, and Israir Airlines & Tourism Ltd. (“Israir”), (Israir, Diesenhaus, Open Sky and related parties will be referred to hereinafter as "the IDB Tourism Group").
IDBD is examining alternatives in connection with the sale of its holdings in IDBG Tourism and/or in Israir and therefore IDBD is continuing to treat IDB Tourism as held for sale and as a discontinued operation, in its financial statements as of June 30, 2019, in accordance with IFRS 5. It shall be noted that, in August 2018, after the date of the statement of IDBD retained Giza Zinger Even Ltd. and with Epsilon Underwriting and Issuing Ltd. (together: the "Consultants"), a company that is under the control of DIC, for the purpose of advising on the sale and the disposal of the IDBD's operations in the tourism and aviation field. The Consultants will be entitled to fees that are comprised of a retainer and a success fee in respect of the services, which will be payable at the time of the completion of a transaction (insofar as there may be one).
In August 2018, IDB Tourism entered into a memorandum of understanding with Dizenhaus B.T.C. Ltd. (the "Purchaser"), the sale of 50% of the issued share capital of a company that managed the incoming tourism operations and which is held by Israir in consideration for an amount of NIS 26 million (the “transaction”). In November 2018, the parties signed on the transaction and the transaction between Israir and P.A.O.O. Holdings Ltd., the controlling shareholder in the Purchaser, which substituted the purchaser in this transaction. The consideration, in an amount of NIS 26 million was paid in full at that time of the completion of the transaction. As from the time of the completion of the transaction, Israir and the purchaser will manage the incoming tourism operations under a joint control agreement and as a result Israir has discontinued the consolidation of this activity in its financial statements as from the time of the completion of the transaction.
Following the transaction, IDB Tourism recorded a capital gain of NIS 29 million, in respect of its share in the difference between the consideration plus the fair value of said investment balance in incoming tourism and the value of the investment as per Israir’s books as of June 30, 2019. The consolidated financial statements of IDBD do not reflect said gain as the investment in IDB Tourism is reported in IDBD’s financial statements as an asset held for sale, according to the fair value of the investment, less disposal costs.On August 29, 2019, DIC's Audit Committee approved entering into an agreement with IDBD, PBC, Gav-Yam and Elron share and distribute among them the cost and expenses of offices to which the companies will move its offices in the ToHa project on Totzeret Ha’aretz Street in Tel Aviv. Such offices are being leased from Gav-Yam and Amot Hashkaot Ltd., for parking spaces for 5 years or upon the expiration of the two option periods (of five years each).Legal Framework
Operations Center in Argentina
Regulation and Government Supervision
The laws and regulations governing the acquisition and transfer of real estate, as well as municipal zoning ordinances, apply to the development and operation of our properties. Currently, Argentine law does not specifically regulate shopping mall leases. Since our shopping mall leases generally diverge from ordinary commercial leases, we have developed contractual provisions which are tailored to the commercial relationship with our shopping mall tenants.
Leases
Argentine law imposes certain restrictions on property owners, including:
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a prohibition to include in leases automatic price adjustment clauses based on indexes; and
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a minimum lease term of twothree years for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease requires a shorter term.
Rent increases
There are contradictory court rulings regarding whether rents may be increased during the term of a lease. For example, Section 10 of the Law No. 23,928, as amended by Public Emergency Law No. 25,561 prohibits a rent adjustment under leases subject to indexes, such as the consumer price index or the wholesale price index. Most of our leases have rent increase clauses that are not based on any official index. As of the date of this annual report, no tenant has filed any legal action against us challenging incremental rent increases, but we cannot assure that such actions will not be filed in the future and, if any such actions were successful, that they will not have an adverse effect on our business and results of operations.
Lease term limits
Under the Argentine Civil and Commercial Code lease terms may not exceed 20 years (for residential purpose) or fifty years (all other purposes). Generally, terms in our leases range from 3three to 10ten years.
Rescission rights
The Argentine Civil and Commercial Code provides that tenants may terminate leases with other destiny than home destiny, early after the first six months of the effective date. Such termination is subject to penalties which range from one to one and a half months of rent. If the tenant terminates the agreement during the first year of the lease, the penalty is one and a half month’s rent and if termination occurs after the first year of lease, the penalty is one month’s rent.
Other
The Argentine Civil and Commercial Code, among other rules, repealed the Urban Lease Law No. 23,091, which set forth a rule similar to the one described above, but established the obligation to give at least 60 days’ prior notice of exercise of the tenant’s unilateral termination right. There are no court rulings to date with respect to the new regulations related to: (i) the tenant’s unilateral termination right; or (ii) the possibility of agreeing a penalty different from that described above upon such termination.
While current policy discourages government regulation of leases, there can be no assurance that additional regulations will not be imposed in the future by Congress, including regulations similar to those previously in place. Furthermore, most of our leases provide that the tenants pay all costs and taxes related to the property in proportion to their respective leasable areas. In the event of a significant increase in such costs and taxes, the government may respond to political pressure to intervene by regulating this practice, thereby adversely affecting our rental income.
The Argentine Civil and Commercial Code enables landlords to pursue what is known as an “executory proceeding” if a tenant fails to pay rent when due. In executory proceedings, debtors have fewer defenses available to prevent foreclosure, making these proceedings substantially shorter, as the origin of the debt is not in question and the trial should focus on the formalities of the contract. The Argentine Civil and Commercial Code also permits special eviction proceedings, which are carried out in the same way as ordinary proceedings. The Argentine Civil and Commercial Code also requires that a residential tenant receive at least 10 days’ prior notice when a landlord demands payment of rent due if a breach prior to eviction occurs but does not impose any such requirement for other leases. However, court cases pending resolution and numerous procedural hurdles have resulted in significant delays to eviction proceedings in the commercial context, which generally last from six months to two years from the date of filing of the suit for eviction.
Development and use of the land
In the City of Buenos Aires, where the vast majority of our properties are located, we are subject to the following regulations:
Buenos Aires Urban Planning Code
The Buenos Aires Urban Planning Code (Código de Planeamiento Urbano de la Ciudad de Buenos Aires) generally restricts the density and use of property and regulates physical features of improvements to property, such as height, design, set back and overhang, consistent with the city’s urban planning policy. The Secretary of Urban Planning of the City of Buenos Aires (Secretar’aSecretaría de Planeamiento Urbano) is responsible for implementing and enforcing the Buenos Aires Urban Planning Code.
Buenos Aires Building Code
The Buenos Aires Building Code (Código de Edificación de la Ciudad de Buenos Aires) complements the Buenos Aires Urban Planning Code regulating the use and development of property in the City of Buenos Aires. The Building Code requires developers to obtain building permits, including submitting architectural plans for review of the Secretary of Work and Public Services, to monitor regulatory compliance.
Buenos Aires Authorizations and Licenses Code
The Authorizations and Licenses Code (Código de Habilitaciones de la Ciudad de Buenos Aires) sets forth the conditions under which authorizations or licenses to operate may be granted. The General Bureau of Authorizations and Licenses is responsible for implementing and enforcing the Authorizations and Licenses Code. Outside the city of Buenos Aires, City, our real estate activities are subject to similar municipal zoning, building, occupation and environmental regulations, which must also comply with national standards. In some jurisdictions we may also be subject to regulation of large commercial areas, which require approval of the location of these areas. We believe that all of our real estate properties are in material compliance with relevant laws, ordinances and regulations.
Sales and ownership
Real Estate Installment Sales Law
The Real Estate Installment Sales Law No. 14,005, as amended by Law No. 23,266 and Decree No. 2015/85, or “Real Estate Installment Sales Act,” imposes a series of requirements on contracts for the sale of subdivided real estate property including, for example, that the purchase price for a property is payable in installments. The law requires, among other things:
Registration of intent to sell the property in subdivided plots with the Real Estate Registry in the jurisdiction where the property is located. Registration is only permitted for unencumbered property. Mortgaged property may only be registered if creditors agree to divide the debt in accordance with subdivided plots. Creditors may be judicially compelled to agree to the partition.
Preliminary registration with the Real Estate Registry of the purchase instrument within 30 days after its execution.
Once the property is registered, the installment sale must be completed in a manner consistent with the Real Estate Installment Sales Act. If a dispute arises over the title between the purchaser and third party creditors of the seller, the installment purchaser who has duly registered the purchase instrument will have title to the plot. The purchaser can demand conveyance of title after at least 25% of the purchase price has been paid, although the seller may record a mortgage over the subject property to secure payment of the balance of the purchase price.
After paymentpaying of 25% of the purchase price or advancementadvancing of at least 50% of construction, the Real Estate Installment Sales Act prohibits termination of the sales contract for failure by the purchaser to pay the balance of the purchase price but gives the seller the right to enforce under any mortgage on the property.
Buildings Law
Buildings Law No. 19,724 (Ley de Pre horizontalidad) was repealed by the Argentine Civil and Commercial Code which provides that for purposes of execution of sales agreements for units under construction, the owner or developer must purchase insurance in favor of prospective purchasers against the risk of frustration of the development pursuant to the agreement for any reason. A breach of this obligation precludes the owner from exercising any right against the purchaser—such as demanding payment of any outstanding installments due—unless he/she fully complies with their obligations, but does not prevent the purchaser from exercising its rights against the seller.
Protection of the Disabled
The Law for Protection of the Disabled No. 22,431, enacted on March 16, 1981, as amended, provides that properties under construction or that are being remodeled must provide access for handicapped persons. Public spaces, entrances, hallways, elevators and common use facilities must be designed to provide mobility for impaired individuals. Buildings developed before enactment of the Protection for the Disabled Law must be reformatted to provide requisite access. Buildings that, because of their architectural design, may not be adapted to the use by the physically impaired, are exempted from these requirements.
Other regulations
Consumer relations, consumer or end user protection
Article 42 of the Argentine Constitution establishes that consumers and users of goods and services have a right to protection of health, safety and economic interests in a consumer relationship. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers and end users in a consumer relationship, in the arrangement and execution of contracts. The Consumer Protection Law, and the applicable sections of the ArgentineCivilArgentine Civil and Commercial Code are intended to regulate the constitutional right conferred under the Constitution on the weakest party to the consumer relationship and prevent potential abuses deriving from the stronger bargaining position of vendors of goods and services in a market economy where standard form contracts are widespread.
These laws deem void and unenforceable contractual provisions included in consumer contracts, that:
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deprive obligations of their nature or limit liability for damages;
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imply a waiver or restriction of consumer rights and an extension of seller rights; and
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impose the shifting of the burden of proof from the consumer to the seller in order to protect the consumers.
In addition, the Consumer Protection Law imposes penalties ranging from warnings to the forfeiture of concession rights, privileges, tax regimes or special credits to which the sanctioned party may be entitled, including closing down establishments for a term of up to 30 days.
The Consumer Protection Law and the Argentine Civil and Commercial Code define consumers or end users as the individuals or legal entities that acquire or use goods or services, free of charge or for a price for their own final use or benefit or that of their family or social group. The protection under the laws afforded to consumers and end users encompasses the entire consumer relationship, from the offering of the product or service, to cover more than just those relationships established by means of a contract. Providers of goods and services include those who produce, import, distribute or commercialize goods or supply services to consumers or users (but excludes professionals whose services require a college degree or higher who are required to register in officially recognized professional organizations).
The Argentine Civil and Commercial Code defines a consumer agreement as one that is entered into between a consumer or end user and an individual or entity that manufactures goods or provides services to consumers for private, family or social use. The Consumer Protection Law imposes a range of penalties for violation of its provisions, from warnings to the forfeiture of concession rights, and establishes joint and several liability of each participant in the chain of distribution or whose trademark on the thing or service for damages caused to consumers derived from a defect or risk inherent in the thing or the provision of a service.
The Consumer Protection Law excludes the services supplied by professionals that require a college degree and registration in officially recognized professional organizations or by a governmental authority. However, this law regulates the advertisements that promote the services of such professionals.
The Consumer Protection Law determines that the information contained in the offer addressed to undetermined prospective consumers binds the offeror during the period when the offer is made until its public revocation. Further, it determines that specifications included in advertisements, announcements, prospectuses, circulars or other media bind the offeror and are considered part of the contract entered into by the consumer.
Pursuant to Resolution No. 104/2005 issued by the Secretariat of Technical Coordination reporting to the Argentine Ministry of Treasury, Consumer Protection Law adopted Resolution No. 21/2004 issued by the Mercosur’s Common Market Group, persons engaged in internet commerce must disclose precisely the characteristics of the products and/or services offered and the sale terms. Failure to comply with the terms of the offer is deemed an unjustified denial to sell and may give rise to sanctions.
On September 17, 2014, the Argentine Congress enacted Law No. 26,993 called “Conflict Resolution in Consumer Relationships System” law that provides for creation of new administrative and judicial procedures. The law created a bicameral administrative system: the Preliminary Conciliation Service for Consumer Relations (Servicio de Conciliación Previa en las Relaciones de Consumo), or “COPREC,” and the Consumer Relations Audit, and a number of courts assigned to the resolution of conflicts between consumers and providers (Fuero Judicial Nacional de Consumo). The amount of any filed claim may not exceed a fixed amount equivalent to 55 adjustable minimum wages, as determined by the Ministry of Labor, Employment and Social Security. The claim must be filed with the administrative agency. If an agreement is not reached, the claimant may file the claim in court. While COPREC is currently in full force and effect, the court system (Fuero Judicial Nacional de Consumo) is still pending. Therefore, any current claim must be filed with existing courts. A considerable number of claims pending against us are expected to be settled within the framework of this system.
Antitrust Law
Law No. 27,442, as amended, or the “Antitrust Law,” prevents collusive practices by market participants and requires administrative approval for transactions that according to the Antitrust Law constitute an economic concentration. According to this law, mergers, transfers of goodwill, acquisitions of property or rights over shares, capital or other convertible securities, or similar transactions by which the acquirer controls or substantially influences a company, are considered as an economic concentration. Whenever an economic concentration involves a company or companies and the aggregate volume of business in Argentina of the companies concerned exceeds 100 million mobile units, the respective concentration must be submitted for approval to the CNDC. The request for approval may be filed, either prior to the transaction or the implementing of the control take.
For the purpose of determining the volume of the business mentioned on the paragraph before, the CNDC will annually inform the amount in legal currency that will apply during the corresponding year. For that purpose, the CNDC will consider the mobile unit value current at the last business day of the previous year. When a request for approval is filed, the CNDC may (i) authorize the transaction, (ii) subordinate the transaction to the accomplishment of certain conditions or (iii) reject the authorization.
The Antitrust Law provides that economic concentrations in which the transaction amount and the value of the assets subject to acquisition or disposition do not exceed 20 million mobile units each do not require approval. When the amount of the transactions consummated in the preceding 12 months exceeds in aggregate 20 million mobile units or 60 million mobile units in the preceding 36 months, these transactions require CNDC approval.
As our consolidated annual sales volume and our parent’s consolidated annual sales volume exceed Ps.200.0ARS 200.0 million, we must give notice to the CNDC of any concentration provided for under the Antitrust Law.
Money laundering
For more information about money laundering see, “Item 10. Additional Information—E. Money Laundering”.
Environmental LawReal Estate
Our “Real Estate” segment mainly includes assets and operating results derived from DIC’s subsidiary PBC. As of June 30, 2020, we owned a 72.4 % equity interest in PBC. PBC is a leading real estate company that operates rental buildings and develops residential properties and other construction projects. It has operations in Israel, the United States and other countries.
PBC operates in the field of income-producing properties in Israel and the United States, within the areas of activity reported as three business segments in the financial statements of PBC - the income-producing properties sector in Israel, the income-producing properties sector in the US and IDBG.
As of December 31, 2019, PBC owns areas designated for rent in Israel, amounting to approximately 42,000 square meters (compared to an area of approximately 41,000 square meters on December 31, 2018). Additionally, PBC owns income-producing properties in the United States - HSBC Tower in New York, in an area of about 80,000 square meters and half of the Tivoli project, a commercial and office project, in Las Vegas in an area of about 62,000 thousand square meters.
Following an agreement in which PBC entered into in January 2020 for the sale of its entire holdings in Ispro, Ispro's activitiy is classified in the financial statements of PBC as of December 31, 2019, as discontinued operations.
Geographical distribution
The table below sets forth geographic distribution by market of our rental properties as of December 31, 2019:
| Number of Producing Properties | | Percentage of Portfolio GLA | |
| Israel | | | | |
| Center (offices) . | 5 | 18,000 | 9.8% | 76% |
| Center (commercial) | 1 | 12,000 | 6.5% | 83% |
| Subtotal | 6 | 30,000 | 16.3% | 79.2% |
| United States | | | | |
| Northeast (offices) | 1 | 80,000 | 43.5% | 98% |
| West (commercial)* | 10 | 62,000 | 33.7% | 74% |
| Subtotal | 11 | 142,000 | 77.2% | 87% |
Other (Parking) | - | 12,000 | 6.5% | |
| Total | 17 | 184,000 | 100% | 85.8% |
*Refers to 100% of IDBG’s rights in Great Wash Park LLC. As of December 31, 2019, IDBG’s entire share capital was held by IDBD and PBC in equal parts (50%).
PBC’s properties can be grouped by the country and region in which they are located. PBC classifies its properties into two main regions: (i) Israel, and (ii) United States; and in three sub-regions: (i) Central (in Israel), and (ii) Northeast and (iii) West (both in the United States). As of December 31, 2019, the average rent per square meter in Israel – Central is NIS 65 for office use and NIS 50 for commercial use; the average rent per square meter in United States – Northeast is USD 78 (for office use) and in United States -West USD 31 (for commercial use). The average occupancy rate in Israel – Central is 76% for office use and 83% for commercial use; the average occupancy rate in United States – Northeast is 98% (for office use) and in United States - West is 74% (for commercial use). The distinction between the two sub regions is due to the difference in the characteristics of the two countries. Also, PBC distinguishes between different regions within the US as detailed above, when in its opinion the difference between the regions in the USA is mainly due to the fact that the properties are located in different countries, with different economic characteristics. The average rent in the Northeastern United States is significantly higher than the average rent in the western United States, the difference in rent is due, among other things, to the location and the various uses - an office tower and luxury commerce in the northeastern United States, compared to a mixed use center (commerce and offices) in the western United States, and the location of properties - in central New York in the northeastern United States, compared to a location adjacent to a residential neighborhood in the western United States.
However, even within each region (both in Israel and in the United States), there are differences among sites, as well as differences, in some cases, among the various properties at each site, mainly due to the characteristics of the property.
Relevant Subsidiaries
As of June 30, 2020, the most significant subsidiaries of PBC are the following:
Gav-Yam. Gav-Yam is a public company whose securities are listed for trading on the TASE. In July 2019 and September 2019, in order to comply with the Concentration Law, PBC sold 11.7% and 5.1% of Gav-Yam’s issued share capital, respectively. Our stake in Gav-Yam decreased from 51.7% to 34.9%. In May 2020, PBC sold approximately 5% of Gav-Yam’s issued share capital, such that its stake in Gav-Yam decreased from approximately 34.9% to approximately 29.9%.
Ispro. Ispro is a wholly-owned company of PBC, dedicated to the rental building segment, primarily commercial centers and logistical areas. In order to comply with the Concentration Law, on October 10, 2019, Ispro’s debentures were fully redeemed and Ispro ceased being a reporting corporation. In April 2020, an agreement was reached to sale 100% of PBC’s holdings in Ispro. As a consequence of the agreement for the sale of ISPRO’s shares, the Company has reclassified net assets totaling ARS 15,473 as “Group of Assets available for Sale”.
Type of Business
PBC (i) operates rental buildings and (ii) develops residential properties and other construction projects.
(i) Operation of Rental Properties
PBC owns and manages different kinds of rental properties, which can be grouped as follows:
Industrial and Logistics. Characterized by areas with a large single space, service yards and large operational areas. Mainly located in peripheral areas, close to airports and seaports, given low rent prices and that construction requires large areas of land.
Commercial and Recreational Centers. These include commercial centers, which are located in central areas or areas near major junctions at highways from major cities, conference centers and recreational centers. These primarily include PBC’s share in the Tivoli project in Las Vegas The marketing and distribution of the Tivoli project is carried out through a local team engaged in marketing itself and through intermediaries, through direct contact with potential tenants, as well as through advertising and participation in conferences.
Business parks and office buildings for hi-tech industries. In the field of income-producing properties, Gav-Yam (as of June 30, 2020, held by PBC at a rate of 29.9%) engages in initiation, planning, development, construction (through contractors), marketing, rental, maintenance and management of high-tech parks, business and industrial parks, office buildings, commercial areas, logistics buildings and parking lots, nationwide in Israel, focusing on areas Demand.
During its years of activity in the field of income-producing properties, Gav-Yam has developed two specializations in this field. One is the establishment of business and industrial parks, and the other is designated construction. In addition, Gav-Yam, itself and/or through wholly owned subsidiaries, provides a variety of maintenance and management services to its customers throughout the lease term.
Gav-Yam's activity in the field of income-producing properties is divided into three stages - initiation and construction, marketing and rental for customers and provision of management services throughout the lease period.
Office buildings. These office buildings are located in high demand areas, and most are leased, at high occupancy rates, generally for long lease periods. Areas for office use are characterized by areas used as parking lots, which constitute an inseparable part of the buildings. These include the HSBC Tower in New York City.
Management of rental buildings.
The field of income-producing assets is characterized by a wide range of clients, including companies and large and small business clients and private clients.
PBC often contracts with its customers on medium- and long-term leases, and the leases in Israel are usually for unprotected tenancy and index-linked rents. PBC policy is to enter into, as far as possible, long-term contracts with quality tenants.
Ancillary services in the field of income-producing properties in Israel.
PBC provides ancillary services to the areas of income-producing real estate it owns that are leased in Israel, including management services and maintenance, mainly for tenants in areas used for office and commercial purposes.
(ii) Residential Construction
In Israel, PBC is engaged in the initiation, planning, development, construction and sale of quality residential neighborhoods and unique projects that it establishes in areas of demand.
PBC has residential land reserves, in Israel, US and India.
In the field of residential construction, there are many bodies that initiate, locate, plan and establish residential neighborhoods and residential projects of various types. In Israel, there are entrepreneurial companies, some of which have an executive arm and some, such as PBC, contract with contractors to carry out construction work.
The products sold by PBC as part of its residential construction business are the housing units offered for sale. The housing units are being built both in the format of entire residential neighborhoods, which include full environmental development and ancillary community services, and in smaller residential projects.
In some of the projects, PBC works together with partners. Project management and marketing is usually performed by PBC. The construction financing of the projects is carried out both by PBC's own means and through bank support for the project.
The types of projects in which PBC operates in this field are diverse and include construction on land purchased or leased long-term by PBC (most projects) as well as combination transactions of various types. PBC also has activities in the field of urban renewal.
As of December 31, 2019, the balance of approved construction rights for the projects in which PBC was a partner amounted to approximately 685 residential units (of which 447 units belong to PBC), where approximately 301 residential units are currently in construction (of which 203 units belong to PBC), out of which approximately 268 residential units were sold). In 2019, construction and marketing of 62 residential units began (as compared with construction and marketing of 86 residential units in 2018). In2019In 2019, 139 residential units were sold (as compared with 205 residential units in 2018). In 2019, PBC’s revenues from the sale of residential units and lands imputed to the income statement amounted to approximately NIS 336 million, as compared with approximately NIS 517 million in 2018.
HSBC
The HSBC Tower was closed beginning on March 15, 2020, in accordance with directives issued by New York State and New York City. Access to the tower and to its services is permitted to tenants defined as “essential” in accordance with the city’s by laws and regulations. As of August 20, 2020, the collection rate at the tower during the months April - June 2020 amounted to approximately 98% of total rent charged. New York City, where the HSBC Tower is located, is currently in phase 4 of New York State’s reopening plan. The tower remains active and open for “essential” businesses and for tenants who choose to work from the offices, subject to restricted occupancy guidelines of up to 50%.
IDBD
Tivoli Project - IDBG is engaged, through a real estate corporation, in the construction and operation of a commercial and office project in Las Vegas, Nevada (USA) ("The Tivoli project")
The Tivoli project is a real estate project, located near the prestigious Summerlin neighborhood in Las Vegas, intended for mixed use, mainly of commerce and offices and as a unique center for entertainment and shopping. Tivoli project includes three parts of about 80 thousand square meters (the "commercial area"), out of which approximately 62 thousand square meters have been built so far.
The first two parts of the Tivoli project are open to the public in a total area of 670 thousand square feet (approximately 62 thousand square meters), which includes approximately 330 thousand square feet (approximately 31 thousand square meters) of commercial space and approximately 340 thousand square meters (approx. 31 thousand square meters) office space.
As of June 30, 2020 approximately 73% of the commercial and office space has been leased. Around August 20, 2020, Great Wash Park LLC “GW” is working to market the rest of the areas designated for rent. The third part of the Tivoli project is planned to include commercial and office space, with a total area of about 196 thousand square feet (about 18 thousand square meters). The third part is still in the planning stages and an estimated construction date has not yet been set.
It should also be noted that GW has rights to build 300 housing units near the Tivoli project. As of December 31, 2019, IDBD and PBC held the entire share capital of IDBG, in equal parts. In February 2020, the loans that had been extended by PBC to IDBG were converted, in a manner that IDBD's share in IDBG's share capital and in the right to the repayment of the shareholder's loans to a rate of 25.82% (the remaining 74.18% are held by PBC). In June 2020, IDBD and PBC signed on an agreement for the sale of the IDBD's entire rights on IDBG for consideration of USD 27.8 million. The approval of the transaction was subject, inter alia, to the approval of PBC's general meeting, which was convened on June 23, 2020 and which decided not to approve the commitment. Following the abovementioned, as of June 30, 2020, the holding rates of IDBD and PBC in IDBG are 25.82% and 74.18%, respectively.
Following the outbreak of the Corona virus, on March 24, 2020, the center in the Tivoli project was closed, pursuant to the directives issues by the Governor of the State of Nevada. During the course of the period in which the center was closed, a number of restaurants worked in a format of deliveries and take away. Furthermore, vital activities, such as banks and clinics were allowed to operate. The center management activity was reduced to the minimum necessary for business that operated in the center in that period and some of the activities were discontinued completely (such as parking, cleaning and gardening services and etcetera). This reduction has led to a saving of approximately 36% in the center's operating expenses in the relevant period.
The occupancy rate in the project stood at approximately 73% before the outbreak of the Corona virus. During the course of the period of the closure, a number of tenants encountered difficulties and gave notice of the cessation of their activity in the project. Furthermore, a number of tenants announced that they would not be extending their rental agreements in the project, which are about to expire. However, during this period of time a number of new contracts were signed. The rental fees for March 2020 were collected without any significant change as compared with previous months. In April and May 2020 approximately 70% of the rental fees for offices and approximately 25% of the rental fees for commercial areas and restaurants have been collected up to now. For June 2020, 82% of the the rental fees have been collected so far. As of this time, the project's management has not set a uniform policy in connection with the granting of reliefs for tenants and a specific discussion is held opposite each tenant. Tivoli’s management continues working to complete the collection for the above mentioned periods.
The valuation of the Tivoli project in Las Vegas was updated in the first quarter of 2020 to USD 233 million from USD 237 millionas of 31.3.2019. As a result, PBC recorded a lossin the amount of NIS 11 million, while DIC’s share in the aforementioned loss amounted to a total of NIS 8 million; IDBD recorded its share in the net loss in the amount of NIS 4 million, which was recorded under discontinued operations
At present, it is not possible to estimate the full effect of the coronavirus pandemic on the Tivoli project’s results in 2020. However, at this stage, PBC estimates that the damage will be limited to a few millions of USD, where despite the expected decline in NOI, the project’s current cash flows, along with increased efficiency measures which have been implemented, will allow the project to maintain a positive cash balance.
Gav-Yam
Gav Yam - As of July 2020, the management of Gav Yam estimated that, in the long term, in light of its financial strength, as reflected, inter alia, in its high balances of available cash and cash equivalents, its low leverage ratio, the average lifetime of its debt and the comfortable distribution thereof, the fact that all of Gav Yam’s properties are unpledged, and in light of the broad geographical and sectoral distribution of Gav Yam’s properties, as well as their status, locations and occupancy rates, and the fact that the vast majority of properties are used for IT, office, logistics and industrial purposes (and not for commerce or retail), with an emphasis on the quality of lessees, and the distribution of revenues from them, all reduce the exposure of Gav Yam’s businesses to the crisis and/or to significant instability, and it has tools at its disposal in order to appropriately deal with the economic crisis described above.
Residential construction segment in Israel
According to the assessment of PBC, at this stage there are no indications of a decline in the fair value of PBC’s inventory of apartments, inter alia, in light of the average sale prices in the period after the coronavirus outbreak, and in light of the fact that payments from apartment buyers are continuing to be received in an orderly fashion. In addition, PBC promotes and complements conditions in a number of projects for obtaining building permits, but since the outbreak of the corona virus there has been a difficulty in working with the authorities which causes delays in granting the necessary permits for the construction of projects.
PBC believes that its financial strength and the status of its properties, cash balances, and the current cash flows which it is generating, will allow it to continue financing its activities and service its liabilities.
Agriculture
Mehadrin. Mehadrin is a public company whose securities are listed for trading on the TASE. Most of Mehadrin’s activities are in the agricultural segment. Until September 2019, We and Phoenix Holdings Ltd. (“Phoenix”), which held, through a wholly owned subsidiary, 41.4% of Mehadrin, were considered to be joint controllers of Mehadrin since, pursuant to the terms of a shareholders agreement, PBC and Phoenix controlled approximately 86.8% of the voting rights and rights to appoint directors in Mehadrin. On September 18, 2019, Phoenix distributed of all shares of Mehadrin it owned as a dividend in kind to Phoenix’ shareholders, thereby terminating the joint control of the parties of Mehadrin. On November 27, 2019, PBC approved the distribution of all its shares in Mehadrin as a dividend in kind. As a result, DIC received approximately 31.4% of the share capital of Mehadrin. Additionally, in the first quarter of 2020, DIC acquired approximately 8.8% of Mehadrin’s issued share capital, such that its holding rate in Mehadrin increased to approximately 40.2%. The aforementioned acquisitions of Mehadrin shares resulted in DIC gaining control of Mehadrin. In the second quarter of 2020, DIC purchased approximately 3.5% of the issued share capital of Mehadrin, at a total cost of NIS 14 million, such that its holding rate in Mehadrin increased to approximately 43.7%.
Telecommunications
Cellcom is a public company which was incorporated in Israel, whose shares are listed for trading on the TASE and on the New York Stock Exchange, and whose debentures are listed for trading on the TASE. As of June 30, 2020, we owned 46.2% of the shares and had 48.4% of voting rights of Cellcom.
Segments
Cellular Segment. Cellcom is the largest provider of cellular communications services in Israel based upon number of subscribers and estimated market share as of June 30, 2020. Cellcom offers a broad range of services including cellular telephony, roaming services for tourists in Israel and for its subscribers abroad, text and multimedia messaging, advanced cellular content and data services and other value-added services in the areas of music, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure . Cellcom operates an LTE 4 generation network and an HSPA 3.5 Generation network enabling advanced high speed broadband multimedia services, in addition to GSM/GPRS/EDGE networks. Cellcom Israel offers Israel's broadest and largest customer service infrastructure including telephone, customer service centers, retail stores, and service and sale centers, distributed nationwide. Cellcom Israel further provides OTT TV services, internet infrastructure and connectivity services and international calling services, as well as landline telephone services in Israel. As of June 30, 2020, Cellcom provided cellular communications services to approximately 2,734 million subscribers in Israel, with an estimated market share as of December 31, 2019 of approximately 26%.
Cellcom offers cellular subscribers a variety of usage and sector pricing plans and bundles combining cellular services with other communications services its group offers, including quatro bundles (internet infrastructure service and connectivity, landline telephony, cable television service and cellular services). Cellcom offer two methods of payment: post-paid and pre-paid. Post-paid services are offered to subscribers who are willing to pay for its services through banking and credit arrangements, such as credit cards and direct debits. Pre-paid services are offered to cellular subscribers who pay for its services prior to obtaining them. The majority of Cellcom’s sales are post-paid.
Fixed line services. Cellcom fixed line services include its internet infrastructure (for private customers based mostly on the landline wholesale market and increasingly on its independent fiber-optic infrastructure and for business customers based on its landline infrastructure) and connectivity services, OTT TV services, ILD services, landline telephony services and transmission services (for business customers). Cellcom also offer bundles of these services, including a triple offering (internet service including infrastructure and connectivity, landline telephony, TV service) and quatro offering. Cellcom also offer landline transmission and data services to selected business customers and telecommunications operators (including transmission revenues from Golan according to the network sharing agreement as of April 2017), using its fiber-optic infrastructure and complementary microwave links, IP switchboard services and operation and management of business telecommunications systems. Additional services include cloud services and data protection products solutions based on products and services offered by Cellcom and by third party vendors and IOT solutions such as “smart city” end-to-end cellular and fixed line solutions. For more information see “Cellcom- Golan Telecom Agreement”
Networks and Infrastructure
Cellular Segment. Cellcom have built an extensive, durable and advanced cellular network system, enabling to offer high-quality services to substantially the entire Israeli populated territory, while using a cost-effective design, utilizing shared components for its networks, where applicable. Cellcom seek to satisfy quality standards that are important to its subscribers, such as high voice quality, high data throughput rate, low “blocked call” rate (average rate of call attempts that fail due to insufficient network resources), low “dropped call” rate (average rate of calls that are terminated not in the ordinary course) and deep indoor coverage. Therefore, Cellcom have made substantial capital expenditures and expect to continue to be required to make substantial capital expenditures on its network system, though, pursuant to its Sharing Agreements, radio capital expenditures for the shared networks will be divided among the sharing parties.
Fixed line services. Cellcom provides, Internet services - connectivity and infrastructure, multichannel TV services, international Call Services, Wireline communication Services and other fixed-line services. Cellcom optical transmission network is strategically deployed in order to cover the major portion of Israel’s business parks from Nahariya in the north to Beer Sheva in the south and Afula and Jerusalem in the east, consisting of approximately 1,980 kilometers. The fiber-optic network is monitored by a fault-management system that performs real-time monitoring in order to provide high quality service. In order to efficiently complete its transmission network’s coverage to the majority of its cell sites and business landline and transmission subscribers, Cellcom uses a microwave network as a complementary solution in those areas that are not served by its fiber-optic network. As of December 31, 2019, Cellcom had approximately 2,808 microwave links to both its cell sites and its landline and transmission subscribers. In February 2020, Cellcom, the shareholders of Golan Telecom and Golan Telecom executed a binding memorandum of understanding for the acquisition of Golan Telecom entire capital stock. For more information see: “Significant acquisitions, dispositions and development of business – Operation Center in Israel - Cellcom- Golan Telecom Agreement ”
Others
Modiin Energy
Modiin is a limited partnership engaged in the field of oil and natural gas exploration and is traded on the Tel Aviv Stock Exchange. IDBD operates in the field of oil and gas through Modiin. As of December 31,2019, Modiin has rights in onshore oil assets in the United States and in one oil asset in Israel (marine oil asset).
Elron
Elron is a holding company which constitutes the technology investment arm of the IDB Group. Elron has significant holdings in a select number of start-up companies in the field of cybersecurity, enterprise software, medical device, etc.
IDB Tourism
IDB Tourism is a wholly-owned subsidiary of IDBD, which was incorporated in Israel and commenced it operations in 1934. In 2014, IDB Tourism’s management decided to focus its business activity on the sale of tourism services, in the framework of tourism packages that were adapted to the preferences of the Israeli public, to the incoming tourists to Israel. Until 2015, IDB Tourism held three major companies operating in the field of tourism: Terminal 1 Holdings Ltd. (formerly - Diesenhaus Ltd.), Open Sky Ltd, and Israir Airlines & Tourism Ltd. (“Israir”), (Israir, Diesenhaus, Open Sky and related parties will be referred to hereinafter as “the IDB Tourism Group”).
In July 2020, Israir signed an agreement to have access, if needed, a loan in an amount of NIS 75 million with a 75% guarantee from the State. In addition, Israir received approval from another banking corporation and from the Ministry of Finance to receive another State-guaranteed loan at a rate of 75% and in the amount of approximately NIS 61 million, while the Bank gave its agreement in principle to increase the loan to NIS 100 million. The increase ot the said loan is subject to the approval of the Ministry of Finance, which has agreed to positively consider increasing the volume of the state-guaranteed loan to a higher percentage in about two months, depending on the situation at that time.
Supermarkets
Shufersal is the owner of the largest supermarket chain in Israel. In December 2017 the Group completed the acquisition of the entire issued share capital of Be Drugstores Ltd. (formerly New Pharm Drugstores Ltd.) (“Be”). Shufersal is a public company, which is included under the Tel Aviv 35 index, which was incorporated in Israel, whose shares and debentures are listed for trading on the TASE.
As June 30, 2020, Shufersal operates 379 branches throughout Israel, of which 298 are Shufersal stores and 81 are Be stores. Shufersal’s total commercial space encompasses approximately 543,000 square meters, of which 513,000 square meters are Shufersal stores and 30,000 square meters are Be stores, as well as 8 delivery centers encompassing 22,000 square meters, all located in Israel. Shufersal employs about 17 thousand employees (about 14.8 thousand calculated positions) and has annual revenues of about NIS 14 billion.
In June 2018, DIC sold 16.6% of the issued share capital of Shufersal, for a total net consideration of NIS 848 million, as a result of which DIC’s holdings in Shufersal decreased to approximately 33.6% and therefore ceased to be the controlling shareholder of Shufersal. Following certain other divestments from DIC, as of June 30, 2020, our equity interest in Shufersal was reduced to 26.02%. On July 26, 2020, DIC sold its entire stake in Shufersal, of approximately 26%, for a total net consideration of NIS 1,450 million.
Segments
The Company operates in four operating segments that are reported as business segments in its financial statements:
Retail segment. This segment includes the retail marketing of food and other products in the Shufersal’s stores and the manufacture of frozen and fresh baked products that are sold mainly in the Shufersal’s stores. As at June 30, 2020, the Shufersal’s retail segment activity is carried out in 298 stores having a wide geographical spread.
Real Estate. In this segment we manage various types of properties, including commercial centers and other properties related to the operation of our stores. The real estate activities of Shufersal were separated, beginning on April 1, 2013, into Shufersal Real Estate Ltd., a wholly owned subsidiary. This entity leases these properties both to Shufersal and to other third parties. This segment’s revenues include rental revenues based on actual amounts that the real estate segment charged the retail segment, and the operating profit of the segment includes also management fees that were charged to the subsidiaries of the real estate segment. Presented below are details regarding the real estate properties which are owned by Shufersal Real Estate as of December 31, 2019:
| | | | | Rent and annual management fees |
| | | | | |
| | | | | |
| Stores rented to Shufersal | 71 | 134 | 1,818 | 131,348 |
| Properties under construction which will be rented to Shufersal | 1 | 2 | 1 | — |
| Rentable real estate properties to third parties | 20 | 54 | 586 | 50,949 |
| Real estate properties under construction which will be rented to externals | 2 | 50 | 134 | — |
| Total | 94 | 240 | 2,539 | 182,297 |
Credit card customers’ club management segment. This segment includes operating the credit card business and providing credit to the holders of our credit cards. From January 18, 2018, the operation of the credit card business is made by means of Israel Credit Card Ltd. and Diners Club Israel Ltd.
Be segment. Following completion of the transaction to acquire New Pharm Drugstores Ltd. on December 20, 2017, which was rebranded as “Be”. As of June 30, 2020this segment includes the operation of 81 drugstores in Israel that sell mainly cosmetics, convenience and toiletry products, medicine and food supplements. In December 2019, Shufersal's Board of Directors passed a resolution that Shufersal would merge, by way of a statutory merger with BE, under which Shufersal would absorb all of BE's activities, liabilities and assets without consideration, and BE would be liquidated without liquidation.
Distribution
Most merchandise is distributed to our stores through our network of distribution centers. Common carriers ship general merchandise to and from our distribution centers. Vendors or third party distributors ship certain food items and other merchandise directly to our stores. Merchandise sold through our digital channels is distributed to our online guests via common carriers (from stores, distribution centers, vendors and third party distributors) and through guest pick-up at our stores. Using our stores as fulfillment points allows improved product availability and delivery times and also reduces shipping costs. We continue to expand other delivery options, including store drive-up and delivery.
Seasonality
In Israel, the retail segment business’s results are subject to seasonal fluctuations as a result of the consumption behavior proximate to the Passover holidays (March and/or April) and Rosh Hashanah and Sukkoth holidays (September and/or October).
Competition
Shufersal competes in this market primarily with the other supermarket chains, specialty stores (such as grocers, butchers, delis and bakeries), convenience stores in cities and gas stations, neighborhood grocery stores, open and closed markets, and other retailers.
Insurance
Clal is a public company which was incorporated under the laws of the State of Israel. Clal is one of the leading insurance and long-term savings groups in Israel. The shares of Clal have been listed for trading on the stock exchange since 1988. As of December 31, 2019, Clal employs over 4,500 people and markets its products through 1,897 insurance agents, all of whom provide quality service and professional support to their customers. As of December 31, 2019, Clal has NIS 220 billion in assets under management (out of which, approximately NIS 188 billion are assets managed for others). Clal divides its operations in three insurance segments: Non-Life Insurance, Long-Term Savings and Health.
As of June 30, 2020, IDBD’s stake in Clal’s outstanding share capital was 8.5% directly and 2.1% through swaps.
Segments.
Non-Life Insurance. The General Insurance domain in Clal Group is among the largest in Israel. As of December 31, 2019, Clal holds 10.3% market share of the premiums in the in the Non-Life Insurance Division and offers coverage to private and corporate customers. Clal markets its products through 1,450 non-life insurance agents, all of whom provide quality service and professional support to their customers. The Non-Life Insurance Segment offers a wide range of insurance plans: automotive, property, liability, marine insurance, personal accidents, guarantees and additional services. It`s vision is to provide professional and high-level service to company`s agents and customers, through constant improvements and new product development.
Life Insurance and Long-Term Savings. As of December 31, 2019, the Long-Term Savings Division holds a 13.7% market share of the long-term savings market, as defined by the Commissioner of Insurance and have assets in an approximate amount of NIS 149,472 billion. As at December 31, 2019, Clal holds 17.3% market share of the premiums in the in the Life Insurance Division. There is no single customer or a limited number of national, provincialcustomers of which Clal is dependent. Clal markets insurances policies, from time to time and municipal environmental provisions. Article 41in the normal course of business, to companies in the IDBD Group (both policyholders in collective insurance, both as members of central provident funds and as employers depositing for pension savings for long-term savings products). This does not exceed 5% of the Argentine Constitution, as amendedClal’s total revenues in 1994,this segment. The Long-Term Savings segment manages long-term assets, including life insurance, pension and provident funds. The segment also provides thatcomprehensive solutions to private and corporate customers in all Argentine inhabitants have the right to a healthy and balanced environment fit for human development and have the duty to preserve it. Environmental damage requires that the person or entity responsible assume the obligation to restore the subject property as provided by applicable law. The authorities must enforce the protection of this right, the rational use of natural resources, the preservationsectors of the naturalIsraeli economy. Among the division’s customers are large corporations and cultural heritagemany residents of the State of Israel. Its objectives are to support the company’s distribution channels and become a professional benchmark, helping to improve company business results, profitability and value, while emphasizing quality of biodiversity, and shallservice. The segment offers a variety of savings options, enabling its customers to maintain a strong, solid economic foundation in the event of death, accident or loss of earning capacity. It also provideoffers a variety of pension funds designed to guarantee a monthly income for environmental information and education. The National Government must establish minimum standardslife in the event of retirement, disability, or death, enabling economic stability for environmental protection whereas Provincial and Municipal Governments must set specific standards and regulatory provisions.the future even in difficult times.
On November 6, 2002,July 26, 2018, Clal’s Board of Directors resolved to change the organizational structure of Clal Group, and from September 1, 2018, the life insurance and pension and provident divisions merged into the long-term savings division. In addition, a new a customer and distribution division established.
Health Insurance. The Health Insurance segment offers a wide range of products for individuals, families and groups, specializing in comprehensive solutions for specific market segments such as women and children. As of December 31, 2019. Clal holds a 17.4% market share of the premiums in the health insurance market in Israel and offers health insurance products such as surgeries in Israel and overseas, transplants, medications, critical illness, long-term care, personal accidents, travel and more. Health Insurance segment vision is to establish Clal as a leading, innovative and professional company in the field of health and nursing care insurance, while providing a professional and timely service to its agents and customers. The segment focuses on technological innovation as well as on developing a range of innovative health insurance products, enabling flexibility in creating health insurance packages tailored for each client, based on his needs and financial status. Each package is either derived from existing packages, or custom-built for each customer. Clal markets most of its products through 852 health agents, all of whom provide quality service and professional support to their customers. The Health Insurance segment is constantly growing, and is proud to provide quality service to 400,000 members insured under private insurance plans as well as an additional 2,000,000 members insured under group insurance plans.
Legal Framework
Operations Center in Argentina
Regulation and Government Supervision
The laws and regulations governing the acquisition and transfer of real estate, as well as municipal zoning ordinances, apply to the development and operation of our properties. Currently, Argentine law does not specifically regulate shopping mall leases. Since our shopping mall leases generally diverge from ordinary commercial leases, we have developed contractual provisions which are tailored to the commercial relationship with our shopping mall tenants.
Leases
Argentine law imposes certain restrictions on property owners, including:
●
a minimum lease term of three years for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease requires a shorter term.
Lease term limits
Under the Argentine Congress passed Law No. 25,675Civil and Commercial Code lease terms may not exceed 20 years (for residential purpose) or fifty years (all other purposes). Generally, terms in our leases range from three to regulate the minimum standards for the achievement of a sustainable environment and the preservation and protection of biodiversity and to fix environmental policy goals. This law establishes the activities that are subject to an environmental impact assessment and sets forth certain requirements applicable thereto. In addition, such Law sets forth the duties and obligations triggered by any damage to the environment and provides for restoration of the environment to its former condition or, if that is not technically feasible, for payment of compensation in lieu thereof. This Law also fosters environmental education and provides for certain minimum reporting obligations to be fulfilled by natural and legal entities.ten years.
In addition, the CNV Rules require reporting of any events of any nature and fortuitous acts that seriously hinder or could potentially hinder performance of our activities, including any events that generate or may generate significant impacts on the environment, providing details on the consequences thereof.Rescission rights
The Argentine Civil and Commercial Code introducedprovides that tenants may terminate leases with other destiny than home destiny, early after the first six months of the effective date. Such termination is subject to penalties which range from one to one and a half months of rent. If the tenant terminates the agreement during the first year of the lease, the penalty is one and a half month’s rent and if termination occurs after the first year of lease, the penalty is one month’s rent.
Other
The Argentine Civil and Commercial Code, among other rules, repealed the Urban Lease Law No. 23,091, which set forth a rule similar to the one described above, but established the obligation to give at least 60 days’ prior notice of exercise of the tenant’s unilateral termination right. There are no court rulings to date with respect to the new regulations related to: (i) the tenant’s unilateral termination right; or (ii) the possibility of agreeing a penalty different from that described above upon such termination.
While current policy discourages government regulation of leases, there can be no assurance that additional regulations will not be imposed in the future by Congress, including regulations similar to those previously in place. Furthermore, most of our leases provide that the tenants pay all costs and taxes related to the property in proportion to their respective leasable areas. In the event of a significant increase in such costs and taxes, the government may respond to political pressure to intervene by regulating this practice, thereby adversely affecting our rental income.
The Argentine Civil and Commercial Code enables landlords to pursue what is known as an “executory proceeding” if a novel featuretenant fails to pay rent when due. In executory proceedings, debtors have fewer defenses available to prevent foreclosure, making these proceedings substantially shorter, as the acknowledgementorigin of collective rights,the debt is not in question and the trial should focus on the formalities of the contract. The Argentine Civil and Commercial Code also permits special eviction proceedings, which are carried out in the same way as ordinary proceedings. The Argentine Civil and Commercial Code also requires that a residential tenant receive at least 10 days’ prior notice when a landlord demands payment of rent due if a breach prior to eviction occurs but does not impose any such requirement for other leases. However, court cases pending resolution and numerous procedural hurdles have resulted in significant delays to eviction proceedings in the commercial context, which generally last from six months to two years from the date of filing of the suit for eviction.
Development and use of the land
In the City of Buenos Aires, where the vast majority of our properties are located, we are subject to the following regulations:
Buenos Aires Urban Planning Code
The Buenos Aires Urban Planning Code (Código de Planeamiento Urbano de la Ciudad de Buenos Aires) generally restricts the density and use of property and regulates physical features of improvements to property, such as height, design, set back and overhang, consistent with the city’s urban planning policy. The Secretary of Urban Planning of the City of Buenos Aires (Secretaría de Planeamiento Urbano) is responsible for implementing and enforcing the Buenos Aires Urban Planning Code.
Buenos Aires Building Code
The Buenos Aires Building Code (Código de Edificación de la Ciudad de Buenos Aires) complements the Buenos Aires Urban Planning Code regulating the use and development of property in the City of Buenos Aires. The Building Code requires developers to obtain building permits, including submitting architectural plans for review of the Secretary of Work and Public Services, to monitor regulatory compliance.
Buenos Aires Authorizations and Licenses Code
The Authorizations and Licenses Code (Código de Habilitaciones de la Ciudad de Buenos Aires) sets forth the conditions under which authorizations or licenses to operate may be granted. The General Bureau of Authorizations and Licenses is responsible for implementing and enforcing the Authorizations and Licenses Code. Outside the city of Buenos Aires, our real estate activities are subject to similar municipal zoning, building, occupation and environmental regulations, which must also comply with national standards. In some jurisdictions we may also be subject to regulation of large commercial areas, which require approval of the location of these areas. We believe that all of our real estate properties are in material compliance with relevant laws, ordinances and regulations.
Sales and ownership
Real Estate Installment Sales Law
The Real Estate Installment Sales Law No. 14,005, as amended by Law No. 23,266 and Decree No. 2015/85, or “Real Estate Installment Sales Act,” imposes a series of requirements on contracts for the sale of subdivided real estate property including, for example, that the purchase price for a property is payable in installments. The law requires, among other things:
Registration of intent to sell the property in subdivided plots with the Real Estate Registry in the jurisdiction where the property is located. Registration is only permitted for unencumbered property. Mortgaged property may only be registered if creditors agree to divide the debt in accordance with subdivided plots. Creditors may be judicially compelled to agree to the partition.
Preliminary registration with the Real Estate Registry of the purchase instrument within 30 days after its execution.
Once the property is registered, the installment sale must be completed in a manner consistent with the Real Estate Installment Sales Act. If a dispute arises over the title between the purchaser and third party creditors of the seller, the installment purchaser who has duly registered the purchase instrument will have title to the plot. The purchaser can demand conveyance of title after at least 25% of the purchase price has been paid, although the seller may record a mortgage over the subject property to secure payment of the balance of the purchase price.
After paying of 25% of the purchase price or advancing of at least 50% of construction, the Real Estate Installment Sales Act prohibits termination of the sales contract for failure by the purchaser to pay the balance of the purchase price but gives the seller the right to a healthy and balanced environment. Accordingly,enforce under any mortgage on the property.
Buildings Law
Buildings Law No. 19,724 (Ley de Pre horizontalidad) was repealed by the Argentine Civil and Commercial Code expressly sets forthwhich provides that for purposes of execution of sales agreements for units under construction, the lawowner or developer must purchase insurance in favor of prospective purchasers against the risk of frustration of the development pursuant to the agreement for any reason. A breach of this obligation precludes the owner from exercising any right against the purchaser—such as demanding payment of any outstanding installments due—unless he/she fully complies with their obligations, but does not protect an abusive exerciseprevent the purchaser from exercising its rights against the seller.
Protection of individual rights if such exercise couldthe Disabled
The Law for Protection of the Disabled No. 22,431, enacted on March 16, 1981, as amended, provides that properties under construction or that are being remodeled must provide access for handicapped persons. Public spaces, entrances, hallways, elevators and common use facilities must be designed to provide mobility for impaired individuals. Buildings developed before enactment of the Protection for the Disabled Law must be reformatted to provide requisite access. Buildings that, because of their architectural design, may not be adapted to the use by the physically impaired, are exempted from these requirements.
Other regulations
Consumer relations, consumer or end user protection
Article 42 of the Argentine Constitution establishes that consumers and users of goods and services have an adverse impacta right to protection of health, safety and economic interests in a consumer relationship. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers and end users in a consumer relationship, in the arrangement and execution of contracts. The Consumer Protection Law, and the applicable sections of the Argentine Civil and Commercial Code are intended to regulate the constitutional right conferred under the Constitution on the environmentweakest party to the consumer relationship and prevent potential abuses deriving from the stronger bargaining position of vendors of goods and services in a market economy where standard form contracts are widespread.
These laws deem void and unenforceable contractual provisions included in consumer contracts, that:
●
deprive obligations of their nature or onlimit liability for damages;
●
imply a waiver or restriction of consumer rights and an extension of seller rights; and
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impose the collectiveshifting of the burden of proof from the consumer to the seller in order to protect the consumers.
In addition, the Consumer Protection Law imposes penalties ranging from warnings to the forfeiture of concession rights, privileges, tax regimes or special credits to environmental safety in general. For additional information see “Item 3. Key Information—Risk Factors—Risk Relating to Our Business—Our business is subject to extensive regulation and additional regulationswhich the sanctioned party may be imposed in the future.”entitled, including closing down establishments for a term of up to 30 days.
Environmental matters
We have consistently acted responsibly regarding the environment in the management of our operating activities by preventing and minimizing the potential adverse environmental impacts of our activities. We have adopted an environmental impact policy, which is used as a reference for the realization of our investments.
We are subject to environmental legislation under a series of laws, ordinances, norms, and national, provincial and municipal regulations of Argentina. Environmental obligations vary depending on the project site, the site’s environmental conditions, current and prior uses,The Consumer Protection Law and the activityArgentine Civil and Commercial Code define consumers or end users as the individuals or legal entities that acquire or use goods or services, free of charge or for a price for their own final use or benefit or that of their family or social group. The protection under the laws afforded to be developed. Compliance with environmental laws may result in prior project delays or imposed additional requirements that may result in substantial costs,consumers and curtail or infringe our commercial activities. Before purchasing land or carrying out an investment, we undertake or contract independent consultants to carry out an environmental assessmentend users encompasses the entire consumer relationship, from the offering of the plotproduct or service, to identify possible environmental contingencies, as well as analyzing the possible environmental impactcover more than just those relationships established by means of the investmenta contract. Providers of goods and services include those who produce, import, distribute or the developmentcommercialize goods or supply services to be carried out. Historically, our operations have not been negatively affected by the existenceconsumers or potential existence of pollutants, nor by the failureusers (but excludes professionals whose services require a college degree or higher who are required to obtain environmental approvals or permits.
We intend to continue implementing plans for further improvement, following our trajectory of respect for the environment, compliance with the current regulations and optimizing the use of resources.register in officially recognized professional organizations).
Operations CenterThe Argentine Civil and Commercial Code defines a consumer agreement as one that is entered into between a consumer or end user and an individual or entity that manufactures goods or provides services to consumers for private, family or social use. The Consumer Protection Law imposes a range of penalties for violation of its provisions, from warnings to the forfeiture of concession rights, and establishes joint and several liability of each participant in Israelthe chain of distribution or whose trademark on the thing or service for damages caused to consumers derived from a defect or risk inherent in the thing or the provision of a service.
IDBDThe Consumer Protection Law excludes the services supplied by professionals that require a college degree and DIC invest, either directlyregistration in officially recognized professional organizations or throughby a governmental authority. However, this law regulates the advertisements that promote the services of such professionals.
The Consumer Protection Law determines that the information contained in the offer addressed to undetermined prospective consumers binds the offeror during the period when the offer is made until its subsidiaries, associatespublic revocation. Further, it determines that specifications included in advertisements, announcements, prospectuses, circulars or other media bind the offeror and joint ventures in companies that operate in various sectorsare considered part of the economy in Israel. Both companies are directly affectedcontract entered into by the political, economic, military and regulatory conditions of Israel. The main regulations applicable to IDBD’s and DIC’s business are described below. For more information, see “Risk Factors–Risks related to IDBD and IDBD’s subsidiaries.”consumer.
General regulations applicablePursuant to our businessResolution No. 104/2005 issued by the Secretariat of Technical Coordination reporting to the Argentine Ministry of Treasury, Consumer Protection Law adopted Resolution No. 21/2004 issued by the Mercosur’s Common Market Group, persons engaged in Israelinternet commerce must disclose precisely the characteristics of the products and/or services offered and the sale terms. Failure to comply with the terms of the offer is deemed an unjustified denial to sell and may give rise to sanctions.
Proper ConductOn September 17, 2014, the Argentine Congress enacted Law No. 26,993 called “Conflict Resolution in Consumer Relationships System” law that provides for creation of Banking Business
IDBDnew administrative and DICjudicial procedures. The law created a bicameral administrative system: the Preliminary Conciliation Service for Consumer Relations (Servicio de Conciliación Previa en las Relaciones de Consumo), or “COPREC,” and certainthe Consumer Relations Audit, and a number of their affiliates are subjectcourts assigned to supervisionthe resolution of conflicts between consumers and providers (Fuero Judicial Nacional de Consumo). The amount of any filed claim may not exceed a fixed amount equivalent to 55 adjustable minimum wages, as determined by the Israeli SupervisorMinistry of Banks relatingLabor, Employment and Social Security. The claim must be filed with the administrative agency. If an agreement is not reached, the claimant may file the claim in court. While COPREC is currently in full force and effect, the court system (Fuero Judicial Nacional de Consumo) is still pending. Therefore, any current claim must be filed with existing courts. A considerable number of claims pending against us are expected to “Proper Conduct of Banking Business” which impose, among others limits on the aggregate principal amount of loans a financial institution can have outstanding to a single borrower, a group of related borrowers, and to the largest borrowers and groups of related borrowers of a banking entity (as these terms are defined in the aforesaid directives). IDBD and DIC, their controlling shareholders and their affiliates are considered a single group of borrowers for purposes of this regulation. These restrictions limit the ability of IDBD and DIC, and their affiliates to borrow from a single bank in Israel, their ability to make investments where they require bank lines of credit, to invest in companies that have loans outstanding from banks in Israel, and to make business transactions together with groups that have such credit outstanding. In the period from 2013 and until the date of publication of the report, the concentration of credit risk of IDBD and DIC, and their affiliates decreased as a result of a reduction in the amount of utilized credit for the group that includes IDBD and DIC, including as a result of a change of control that resulted in a re-characterization of the group for purposes of applicable regulation. However, inrecent years, and until the publication date of the report, the scope of credit used from the banking system in Israel to the group of borrowers which includes DIC has decreased, including due to the change in its control,be settled within the framework of the debt settlement in IDB Holdings and the sale of the Group’s holdings in Adama shares.
In December 2013, the Law to Promote Competition and Reduce Concentration, 5774-2013, was published in the Official Gazette (hereinafter, in this section: the “Concentration Law”):system.According to the provisions of the Concentration Law, a pyramid structure for the control of “reporting corporations” (in general, corporations whose securities were offered to and are held by the public) is restricted to 2 tiers of reporting corporations (where a first tier company may not include a reporting corporation which does not have a controlling shareholder). In accordance with transitional provisions which were determined in the Concentration Law, a third tier company or higher tier company is no longer entitled to control reporting corporations, except for corporations as stated above which are under its control as of the publication date of the Law in the Official Gazette (herein, the “Publication Date”), regarding which it will be required to discontinue control by no later an December 2017 (the “2017 Requirement”). It is noted that so long as a reporting corporation is considered a second tier company in accordance with the law, it is not entitled to control reporting corporations, and insofar as, on the publication date, it holds control of reporting corporations, it must discontinue its control of such corporations by no later than December 2019 (the “2019 Requirement”).
On the date of the Concentration Law’s publication in the Official Gazette, IDBD was considered a second tier company, DIC was considered a third tier company, and the reporting corporations controlled by DIC were considered fourth and fifth tier companies. In May 2014, the control of IDBD changed as part of the completion of the creditors’ settlement in IDB Holding Corporation Ltd. (“IDBH”), and subsequently, IDBD and DIC ceased being considered a second and third tier companies, respectively, and as of that date IDBD and DIC were considered a first and second tier companies, respectively.
In November 2017, in accordance with the determination of an independent committee and the audit committee of DIC, respectively and after receipt of the required approvals (including regulatory approvals), sold its shares in DIC to Dolphin IL Ltd. (“Dolphin IL”), a private company incorporated in Israel, which is wholly owned by Dolphin Netherlands B.V. (“Dolphin Netherlands”), a corporation controlled by Mr. Eduardo Elsztain. As consideration, Dolphin IL issued debenture to IDBD in the amount of NIS 1.77 billion (the “Debenture”), and paid IDBD NIS 70 million in cash. Additionally, companies from the controlling shareholder group transferred 9,636,097 DIC shares which were held by it, to Dolphin IL. All of the said shares (116,416,950 shares) are pledged in favor of IDBD and / or in favor of its debenture holders, with liens of varying degrees, and serve as collateral in connection with IDBD’s debentures
After the consummation of such transaction, DIC started to be considered to be a first tier company, as defined in the Concentration Law, while Cellcom, Property and Building Corp. Ltd. (“PBC”), Elron and other companies (controlled by DIC) were considered to be second tier companies within the meaning of the Concentration Law. Therefore, as long as PBC is considered a second tier company, it needs to cease from controlling reporting corporations under its control (Ispro and Mehadrin) to comply with the 2019 Requirements. As of the date of this annual report, IDBD is considered a first tier company, with respect to the Concentration Law, and it no longer holds control of any “other tier companies.” Clalbit Financing Ltd. (“Clalbit Financing”), a company controlled by Clal Insurance Enterprises Holdings Ltd. (“Clal Insurance Holdings”), is considered as “other tier” (third) company as the term is defined in the Concentration Law. Therefore, should Clalbit Financing continue to be considered as “other tier”‘ company after December 11, 2019, Clal Insurance Holdings may be required to appoint a trustee or to perform actions pursuant to which Clalbit Finance will not be considered as other tier company. For more information, see “Regulation and Government Supervision—General regulations applicable to our business in Israel—Concentration Law.”
In October 2018,Antitrust Law
Law No. 27,442, as amended, or the “Antitrust Law,” prevents collusive practices by market participants and requires administrative approval for transactions that according to the Antitrust Law constitute an economic concentration. According to this law, mergers, transfers of goodwill, acquisitions of property or rights over shares, capital or other convertible securities, or similar transactions by which the acquirer controls or substantially influences a class action was filed withcompany, are considered as an economic concentration. Whenever an economic concentration involves a company or companies and the District Courtaggregate volume of business in Tel Aviv-Yafo (the “Motion”) by an applicant alleging to hold shares in DIC (the “Applicant”), against IDBD, against Dolphin IL, against Mr. Eduardo Elsztain (the controlling shareholder of IDBD and DIC), and in it, requesting (a) to hold that the sale of shares of DIC to Dolphin was not in compliance with the provisionsArgentina of the Concentration Law, (b) a trustee over DIC’s shares owned bycompanies concerned exceeds 100 million mobile units, the respondents and (c) the payment of monetary damagesrespective concentration must be submitted for approval to the public shareholdersCNDC. The request for approval may be filed, either prior to the transaction or the implementing of the control take.
For the purpose of determining the volume of the business mentioned on the paragraph before, the CNDC will annually inform the amount in legal currency that will apply during the corresponding year. For that purpose, the CNDC will consider the mobile unit value current at the last business day of the previous year. When a request for approval is filed, the CNDC may (i) authorize the transaction, (ii) subordinate the transaction to the accomplishment of certain conditions or (iii) reject the authorization.
The Antitrust Law provides that economic concentrations in which the transaction amount and the value of the assets subject to acquisition or disposition do not exceed 20 million mobile units each do not require approval. When the amount of the transactions consummated in the DIC for the alleged preservation of the pyramidal structurepreceding 12 months exceeds in IDBD’s group. The Applicant alleges that IDBD continues to be the controlling person of DIC and that the controlling shareholder of IDBD (in his capacity as chairman of the board of directors and controlling shareholder of DIC as well) had a personal interest separate from the personal interest of the minority shareholders of DIC,aggregate 20 million mobile units or 60 million mobile units in the manner of implementation of the Concentration Law’s provisions, and that he and IDBD breached the duty of good faith and the duty of decency toward DIC, and additionally the controlling shareholder of IDBD breached his duty of trust and duty of care toward DIC, this being, allegedly, due to the fact that the decision regarding the preferred alternative for complying with the Concentration Law’s Provisions was not brought before DIC’s general meeting. The Applicant further alleges deprivation of the minority shareholders of DIC.
preceding 36 months, these transactions require CNDC approval.
As partour consolidated annual sales volume and our parent’s consolidated annual sales volume exceed ARS 200.0 million, we must give notice to the CNDC of such reorganization, in July 2019 PBC sold 11.7% of Gav-Yam’s issued share capital, which resulted in PBC’s stake in Gav-Yam decreasing from 51.7% to 40.0%. In September 2019, PBC sold an additional 5.14% of Gav-Yam’s issued share capital, resulting in PBC’s stake in Gav-Yam further decreasing from 40.0% to 34.9%. As a result ofany concentration provided for under the sale of Gav Yam shares, PBC is in compliance with the 2019 requirements set forth in the Concentration Law, as PBC is no longer the controlling shareholder of Gav-Yam.Antitrust Law.
In August 2019, Ispro’s audit committee and board of directors approved the performance of a full prepayment of Ispro’s debentures (Series B), which are listed on the TASE at a total cost of NIS 131 million, subject to court approval, in accordance with sections 25(f) and 25(h) of the Concentration Law. The prepayment of Ispro’s debentures (Series B) will result in the delisting of all of its debentures from the TASE. As a result, Ispro will cease to be a reporting corporation and will no longer be considered a “tier company”, as this term is defined in the Concentration Law. In September 2019 Ispro received court approval for the full redemption of Ispro debentures Series B in prepayment which will take place on October 10, 2019.Money laundering
Once the transactions described above are completed, DIC will still have to assess what are its alternatives for PBC’s stake in Mehadrin, given that the Shareholders Agreement between Phenix and PBC was terminated and the concentration law does not allow DIC to have control over public companies at three tiers within its group structure.
These alternatives may include structural changes in some of the companies in the DIC group. If DIC fails to comply with the requirements of the concentration law, DIC may be subject to penalties or be the subject of other actions available under the law, including the loss of control.For more information about money laundering see, “Item 10. Additional Information—E. Money Laundering”.
Regulations applicable to each of the businesses in Israel
Real Estate
Our “Real Estate” segment mainly includes assets and operating results derived from DIC’s subsidiary PBC. As of June 30, 2020, we owned a 72.4 % equity interest in PBC. PBC is a leading real estate company that operates rental buildings and develops residential properties and other construction projects. It has operations in Israel, the United States and other countries.
PBC operates in the field of income-producing properties in Israel and the United States, within the areas of activity reported as three business segments in the financial statements of PBC - the income-producing properties sector in Israel, the income-producing properties sector in the US and IDBG.
As of December 31, 2019, PBC owns areas designated for rent in Israel, amounting to approximately 42,000 square meters (compared to an area of approximately 41,000 square meters on December 31, 2018). Additionally, PBC owns income-producing properties in the United States - HSBC Tower in New York, in an area of about 80,000 square meters and half of the Tivoli project, a commercial and office project, in Las Vegas in an area of about 62,000 thousand square meters.
Following an agreement in which PBC entered into in January 2020 for the sale of its entire holdings in Ispro, Ispro's activitiy is classified in the financial statements of PBC as of December 31, 2019, as discontinued operations.
Geographical distribution
The table below sets forth geographic distribution by market of our rental properties as of December 31, 2019:
| Number of Producing Properties | | Percentage of Portfolio GLA | |
| Israel | | | | |
| Center (offices) . | 5 | 18,000 | 9.8% | 76% |
| Center (commercial) | 1 | 12,000 | 6.5% | 83% |
| Subtotal | 6 | 30,000 | 16.3% | 79.2% |
| United States | | | | |
| Northeast (offices) | 1 | 80,000 | 43.5% | 98% |
| West (commercial)* | 10 | 62,000 | 33.7% | 74% |
| Subtotal | 11 | 142,000 | 77.2% | 87% |
Other (Parking) | - | 12,000 | 6.5% | |
| Total | 17 | 184,000 | 100% | 85.8% |
*Refers to 100% of IDBG’s rights in Great Wash Park LLC. As of December 31, 2019, IDBG’s entire share capital was held by IDBD and PBC in equal parts (50%).
PBC’s properties can be grouped by the country and region in which they are located. PBC classifies its properties into two main regions: (i) Israel, and (ii) United States; and in three sub-regions: (i) Central (in Israel), and (ii) Northeast and (iii) West (both in the United States). As of December 31, 2019, the average rent per square meter in Israel – Central is NIS 65 for office use and NIS 50 for commercial use; the average rent per square meter in United States – Northeast is USD 78 (for office use) and in United States -West USD 31 (for commercial use). The average occupancy rate in Israel – Central is 76% for office use and 83% for commercial use; the average occupancy rate in United States – Northeast is 98% (for office use) and in United States - West is 74% (for commercial use). The distinction between the two sub regions is due to the difference in the characteristics of the two countries. Also, PBC distinguishes between different regions within the US as detailed above, when in its opinion the difference between the regions in the USA is mainly due to the fact that the properties are located in different countries, with different economic characteristics. The average rent in the Northeastern United States is significantly higher than the average rent in the western United States, the difference in rent is due, among other things, to the location and the various uses - an office tower and luxury commerce in the northeastern United States, compared to a mixed use center (commerce and offices) in the western United States, and the location of properties - in central New York in the northeastern United States, compared to a location adjacent to a residential neighborhood in the western United States.
However, even within each region (both in Israel and in the United States), there are differences among sites, as well as differences, in some cases, among the various properties at each site, mainly due to the characteristics of the property.
Relevant Subsidiaries
As of June 30, 2020, the most significant subsidiaries of PBC are the following:
Gav-Yam. Gav-Yam is a public company whose securities are listed for trading on the TASE. In recentJuly 2019 and September 2019, in order to comply with the Concentration Law, PBC sold 11.7% and 5.1% of Gav-Yam’s issued share capital, respectively. Our stake in Gav-Yam decreased from 51.7% to 34.9%. In May 2020, PBC sold approximately 5% of Gav-Yam’s issued share capital, such that its stake in Gav-Yam decreased from approximately 34.9% to approximately 29.9%.
Ispro. Ispro is a wholly-owned company of PBC, dedicated to the rental building segment, primarily commercial centers and logistical areas. In order to comply with the Concentration Law, on October 10, 2019, Ispro’s debentures were fully redeemed and Ispro ceased being a reporting corporation. In April 2020, an agreement was reached to sale 100% of PBC’s holdings in Ispro. As a consequence of the agreement for the sale of ISPRO’s shares, the Company has reclassified net assets totaling ARS 15,473 as “Group of Assets available for Sale”.
Type of Business
PBC (i) operates rental buildings and (ii) develops residential properties and other construction projects.
(i) Operation of Rental Properties
PBC owns and manages different kinds of rental properties, which can be grouped as follows:
Industrial and Logistics. Characterized by areas with a large single space, service yards and large operational areas. Mainly located in peripheral areas, close to airports and seaports, given low rent prices and that construction requires large areas of land.
Commercial and Recreational Centers. These include commercial centers, which are located in central areas or areas near major junctions at highways from major cities, conference centers and recreational centers. These primarily include PBC’s share in the Tivoli project in Las Vegas The marketing and distribution of the Tivoli project is carried out through a local team engaged in marketing itself and through intermediaries, through direct contact with potential tenants, as well as through advertising and participation in conferences.
Business parks and office buildings for hi-tech industries. In the field of income-producing properties, Gav-Yam (as of June 30, 2020, held by PBC at a rate of 29.9%) engages in initiation, planning, development, construction (through contractors), marketing, rental, maintenance and management of high-tech parks, business and industrial parks, office buildings, commercial areas, logistics buildings and parking lots, nationwide in Israel, focusing on areas Demand.
During its years of activity in the field of income-producing properties, Gav-Yam has developed two specializations in this field. One is the establishment of business and industrial parks, and the other is designated construction. In addition, Gav-Yam, itself and/or through wholly owned subsidiaries, provides a variety of maintenance and management services to its customers throughout the lease term.
Gav-Yam's activity in the field of income-producing properties is divided into three stages - initiation and construction, marketing and rental for customers and provision of management services throughout the lease period.
Office buildings. These office buildings are located in high demand areas, and most are leased, at high occupancy rates, generally for long lease periods. Areas for office use are characterized by areas used as parking lots, which constitute an inseparable part of the buildings. These include the HSBC Tower in New York City.
Management of rental buildings.
The field of income-producing assets is characterized by a wide range of clients, including companies and large and small business clients and private clients.
PBC often contracts with its customers on medium- and long-term leases, and the leases in Israel are usually for unprotected tenancy and index-linked rents. PBC policy is to enter into, as far as possible, long-term contracts with quality tenants.
Ancillary services in the field of income-producing properties in Israel.
PBC provides ancillary services to the areas of income-producing real estate it owns that are leased in Israel, including management services and maintenance, mainly for tenants in areas used for office and commercial purposes.
(ii) Residential Construction
In Israel, PBC is engaged in the initiation, planning, development, construction and sale of quality residential neighborhoods and unique projects that it establishes in areas of demand.
PBC has residential land reserves, in Israel, US and India.
In the field of residential construction, there are many bodies that initiate, locate, plan and establish residential neighborhoods and residential projects of various types. In Israel, there are entrepreneurial companies, some of which have an executive arm and some, such as PBC, contract with contractors to carry out construction work.
The products sold by PBC as part of its residential construction business are the housing units offered for sale. The housing units are being built both in the format of entire residential neighborhoods, which include full environmental development and ancillary community services, and in smaller residential projects.
In some of the projects, PBC works together with partners. Project management and marketing is usually performed by PBC. The construction financing of the projects is carried out both by PBC's own means and through bank support for the project.
The types of projects in which PBC operates in this field are diverse and include construction on land purchased or leased long-term by PBC (most projects) as well as combination transactions of various types. PBC also has been continued shortageactivities in manpowerthe field of urban renewal.
As of December 31, 2019, the balance of approved construction rights for the projects in which PBC was a partner amounted to approximately 685 residential units (of which 447 units belong to PBC), where approximately 301 residential units are currently in construction (of which 203 units belong to PBC), out of which approximately 268 residential units were sold). In 2019, construction and marketing of 62 residential units began (as compared with construction and marketing of 86 residential units in 2018). In2019In 2019, 139 residential units were sold (as compared with 205 residential units in 2018). In 2019, PBC’s revenues from the sale of residential units and lands imputed to the income statement amounted to approximately NIS 336 million, as compared with approximately NIS 517 million in 2018.
HSBC
The HSBC Tower was closed beginning on March 15, 2020, in accordance with directives issued by New York State and New York City. Access to the tower and to its services is permitted to tenants defined as “essential” in accordance with the city’s by laws and regulations. As of August 20, 2020, the collection rate at the tower during the months April - June 2020 amounted to approximately 98% of total rent charged. New York City, where the HSBC Tower is located, is currently in phase 4 of New York State’s reopening plan. The tower remains active and open for “essential” businesses and for tenants who choose to work from the offices, subject to restricted occupancy guidelines of up to 50%.
IDBD
Tivoli Project - IDBG is engaged, through a real estate corporation, in the construction and operation of a commercial and office project in Las Vegas, Nevada (USA) ("The Tivoli project")
The Tivoli project is a real estate project, located near the prestigious Summerlin neighborhood in Las Vegas, intended for mixed use, mainly of commerce and offices and as a unique center for entertainment and shopping. Tivoli project includes three parts of about 80 thousand square meters (the "commercial area"), out of which approximately 62 thousand square meters have been built so far.
The first two parts of the Tivoli project are open to the public in a total area of 670 thousand square feet (approximately 62 thousand square meters), which includes approximately 330 thousand square feet (approximately 31 thousand square meters) of commercial space and approximately 340 thousand square meters (approx. 31 thousand square meters) office space.
As of June 30, 2020 approximately 73% of the commercial and office space has been leased. Around August 20, 2020, Great Wash Park LLC “GW” is working to market the rest of the areas designated for rent. The third part of the Tivoli project is planned to include commercial and office space, with a total area of about 196 thousand square feet (about 18 thousand square meters). The third part is still in the planning stages and an estimated construction date has not yet been set.
It should also be noted that GW has rights to build 300 housing units near the Tivoli project. As of December 31, 2019, IDBD and PBC held the entire share capital of IDBG, in equal parts. In February 2020, the loans that had been extended by PBC to IDBG were converted, in a manner that IDBD's share in IDBG's share capital and in the right to the repayment of the shareholder's loans to a rate of 25.82% (the remaining 74.18% are held by PBC). In June 2020, IDBD and PBC signed on an agreement for the sale of the IDBD's entire rights on IDBG for consideration of USD 27.8 million. The approval of the transaction was subject, inter alia, to the approval of PBC's general meeting, which was convened on June 23, 2020 and which decided not to approve the commitment. Following the abovementioned, as of June 30, 2020, the holding rates of IDBD and PBC in IDBG are 25.82% and 74.18%, respectively.
Following the outbreak of the Corona virus, on March 24, 2020, the center in the Tivoli project was closed, pursuant to the directives issues by the Governor of the State of Nevada. During the course of the period in which the center was closed, a number of restaurants worked in a format of deliveries and take away. Furthermore, vital activities, such as banks and clinics were allowed to operate. The center management activity was reduced to the minimum necessary for business that operated in the center in that period and some of the activities were discontinued completely (such as parking, cleaning and gardening services and etcetera). This reduction has led to a saving of approximately 36% in the center's operating expenses in the relevant period.
The occupancy rate in the project stood at approximately 73% before the outbreak of the Corona virus. During the course of the period of the closure, a number of tenants encountered difficulties and gave notice of the cessation of their activity in the project. Furthermore, a number of tenants announced that they would not be extending their rental agreements in the project, which are about to expire. However, during this period of time a number of new contracts were signed. The rental fees for March 2020 were collected without any significant change as compared with previous months. In April and May 2020 approximately 70% of the rental fees for offices and approximately 25% of the rental fees for commercial areas and restaurants have been collected up to now. For June 2020, 82% of the the rental fees have been collected so far. As of this time, the project's management has not set a uniform policy in connection with the granting of reliefs for tenants and a specific discussion is held opposite each tenant. Tivoli’s management continues working to complete the collection for the above mentioned periods.
The valuation of the Tivoli project in Las Vegas was updated in the first quarter of 2020 to USD 233 million from USD 237 millionas of 31.3.2019. As a result, PBC recorded a lossin the amount of NIS 11 million, while DIC’s share in the aforementioned loss amounted to a total of NIS 8 million; IDBD recorded its share in the net loss in the amount of NIS 4 million, which was recorded under discontinued operations
At present, it is not possible to estimate the full effect of the coronavirus pandemic on the Tivoli project’s results in 2020. However, at this stage, PBC estimates that the damage will be limited to a few millions of USD, where despite the expected decline in NOI, the project’s current cash flows, along with increased efficiency measures which have been implemented, will allow the project to maintain a positive cash balance.
Gav-Yam
Gav Yam - As of July 2020, the management of Gav Yam estimated that, in the long term, in light of its financial strength, as reflected, inter alia, in its high balances of available cash and cash equivalents, its low leverage ratio, the average lifetime of its debt and the comfortable distribution thereof, the fact that all of Gav Yam’s properties are unpledged, and in light of the broad geographical and sectoral distribution of Gav Yam’s properties, as well as their status, locations and occupancy rates, and the fact that the vast majority of properties are used for IT, office, logistics and industrial purposes (and not for commerce or retail), with an emphasis on the quality of lessees, and the distribution of revenues from them, all reduce the exposure of Gav Yam’s businesses to the crisis and/or to significant instability, and it has tools at its disposal in order to appropriately deal with the economic crisis described above.
Residential construction segment in Israel
According to the assessment of PBC, at this stage there are no indications of a decline in the fair value of PBC’s inventory of apartments, inter alia, in light of the average sale prices in the period after the coronavirus outbreak, and in light of the fact that payments from apartment buyers are continuing to be received in an orderly fashion. In addition, PBC promotes and complements conditions in a number of projects for obtaining building permits, but since the outbreak of the corona virus there has been a difficulty in working with the authorities which causes delays in granting the necessary permits for the construction of projects.
PBC believes that its financial strength and the status of its properties, cash balances, and the current cash flows which it is generating, will allow it to continue financing its activities and service its liabilities.
Agriculture
Mehadrin. Mehadrin is a public company whose securities are listed for trading on the TASE. Most of Mehadrin’s activities are in the agricultural industriessegment. Until September 2019, We and Phoenix Holdings Ltd. (“Phoenix”), which typicallyheld, through a wholly owned subsidiary, 41.4% of Mehadrin, were considered to be joint controllers of Mehadrin since, pursuant to the terms of a shareholders agreement, PBC and Phoenix controlled approximately 86.8% of the voting rights and rights to appoint directors in Mehadrin. On September 18, 2019, Phoenix distributed of all shares of Mehadrin it owned as a dividend in kind to Phoenix’ shareholders, thereby terminating the joint control of the parties of Mehadrin. On November 27, 2019, PBC approved the distribution of all its shares in Mehadrin as a dividend in kind. As a result, DIC received approximately 31.4% of the share capital of Mehadrin. Additionally, in the first quarter of 2020, DIC acquired approximately 8.8% of Mehadrin’s issued share capital, such that its holding rate in Mehadrin increased to approximately 40.2%. The aforementioned acquisitions of Mehadrin shares resulted in DIC gaining control of Mehadrin. In the second quarter of 2020, DIC purchased approximately 3.5% of the issued share capital of Mehadrin, at a total cost of NIS 14 million, such that its holding rate in Mehadrin increased to approximately 43.7%.
Telecommunications
Cellcom is a public company which was incorporated in Israel, whose shares are labor intensivelisted for trading on the TASE and depend on foreign workers,the New York Stock Exchange, and whose debentures are listed for trading on the TASE. As of June 30, 2020, we owned 46.2% of the shares and had 48.4% of voting rights of Cellcom.
Segments
Cellular Segment. Cellcom is the largest provider of cellular communications services in Israel based upon number of subscribers and estimated market share as of June 30, 2020. Cellcom offers a broad range of services including cellular telephony, roaming services for tourists in Israel and for its subscribers abroad, text and multimedia messaging, advanced cellular content and data services and other value-added services in the areas of Judeamusic, video, mobile office etc., based on Cellcom Israel's technologically advanced infrastructure . Cellcom operates an LTE 4 generation network and Samaria. The security situationan HSPA 3.5 Generation network enabling advanced high speed broadband multimedia services, in addition to GSM/GPRS/EDGE networks. Cellcom Israel offers Israel's broadest and largest customer service infrastructure including telephone, customer service centers, retail stores, and service and sale centers, distributed nationwide. Cellcom Israel further provides OTT TV services, internet infrastructure and connectivity services and international calling services, as well as landline telephone services in Israel. As of June 30, 2020, Cellcom provided cellular communications services to approximately 2,734 million subscribers in Israel, with an estimated market share as of December 31, 2019 of approximately 26%.
Cellcom offers cellular subscribers a variety of usage and sector pricing plans and bundles combining cellular services with other communications services its group offers, including quatro bundles (internet infrastructure service and connectivity, landline telephony, cable television service and cellular services). Cellcom offer two methods of payment: post-paid and pre-paid. Post-paid services are offered to subscribers who are willing to pay for its services through banking and credit arrangements, such as credit cards and direct debits. Pre-paid services are offered to cellular subscribers who pay for its services prior to obtaining them. The majority of Cellcom’s sales are post-paid.
Fixed line services. Cellcom fixed line services include its internet infrastructure (for private customers based mostly on the shutdownlandline wholesale market and increasingly on its independent fiber-optic infrastructure and for business customers based on its landline infrastructure) and connectivity services, OTT TV services, ILD services, landline telephony services and transmission services (for business customers). Cellcom also offer bundles of Judeathese services, including a triple offering (internet service including infrastructure and Samaria during certain periodsconnectivity, landline telephony, TV service) and quatro offering. Cellcom also offer landline transmission and data services to selected business customers and telecommunications operators (including transmission revenues from Golan according to the network sharing agreement as of April 2017), using its fiber-optic infrastructure and complementary microwave links, IP switchboard services and operation and management of business telecommunications systems. Additional services include cloud services and data protection products solutions based on products and services offered by Cellcom and by third party vendors and IOT solutions such as “smart city” end-to-end cellular and fixed line solutions. For more information see “Cellcom- Golan Telecom Agreement”
Networks and Infrastructure
Cellular Segment. Cellcom have built an extensive, durable and advanced cellular network system, enabling to offer high-quality services to substantially the entire Israeli populated territory, while using a cost-effective design, utilizing shared components for its networks, where applicable. Cellcom seek to satisfy quality standards that are important to its subscribers, such as high voice quality, high data throughput rate, low “blocked call” rate (average rate of call attempts that fail due to insufficient network resources), low “dropped call” rate (average rate of calls that are terminated not in the ordinary course) and deep indoor coverage. Therefore, Cellcom have made substantial capital expenditures and expect to continue to be required to make substantial capital expenditures on its network system, though, pursuant to its Sharing Agreements, radio capital expenditures for the shared networks will be divided among the sharing parties.
Fixed line services. Cellcom provides, Internet services - connectivity and infrastructure, multichannel TV services, international Call Services, Wireline communication Services and other fixed-line services. Cellcom optical transmission network is strategically deployed in order to cover the major portion of Israel’s business parks from Nahariya in the north to Beer Sheva in the south and Afula and Jerusalem in the east, consisting of approximately 1,980 kilometers. The fiber-optic network is monitored by a fault-management system that performs real-time monitoring in order to provide high quality service. In order to efficiently complete its transmission network’s coverage to the majority of its cell sites and business landline and transmission subscribers, Cellcom uses a microwave network as a complementary solution in those areas that are not served by its fiber-optic network. As of December 31, 2019, Cellcom had approximately 2,808 microwave links to both its cell sites and its landline and transmission subscribers. In February 2020, Cellcom, the shareholders of Golan Telecom and Golan Telecom executed a binding memorandum of understanding for the acquisition of Golan Telecom entire capital stock. For more information see: “Significant acquisitions, dispositions and development of business – Operation Center in Israel - Cellcom- Golan Telecom Agreement ”
Others
Modiin Energy
Modiin is a limited partnership engaged in the field of oil and natural gas exploration and is traded on the Tel Aviv Stock Exchange. IDBD operates in the field of oil and gas through Modiin. As of December 31,2019, Modiin has rights in onshore oil assets in the United States and in one oil asset in Israel (marine oil asset).
Elron
Elron is a holding company which constitutes the technology investment arm of the yearIDB Group. Elron has resultedsignificant holdings in continued shortagea select number of start-up companies in the workforce, drivenfield of cybersecurity, enterprise software, medical device, etc.
IDB Tourism
IDB Tourism is a wholly-owned subsidiary of IDBD, which was incorporated in Israel and commenced it operations in 1934. In 2014, IDB Tourism’s management decided to focus its business activity on the sale of tourism services, in the framework of tourism packages that were adapted to the preferences of the Israeli public, to the incoming tourists to Israel. Until 2015, IDB Tourism held three major companies operating in the field of tourism: Terminal 1 Holdings Ltd. (formerly - Diesenhaus Ltd.), Open Sky Ltd, and Israir Airlines & Tourism Ltd. (“Israir”), (Israir, Diesenhaus, Open Sky and related parties will be referred to hereinafter as “the IDB Tourism Group”).
In July 2020, Israir signed an agreement to have access, if needed, a loan in an amount of NIS 75 million with a 75% guarantee from the State. In addition, Israir received approval from another banking corporation and from the Ministry of Finance to receive another State-guaranteed loan at a rate of 75% and in the amount of approximately NIS 61 million, while the Bank gave its agreement in principle to increase the loan to NIS 100 million. The increase ot the said loan is subject to the approval of the Ministry of Finance, which has agreed to positively consider increasing the volume of the state-guaranteed loan to a higher percentage in about two months, depending on the situation at that time.
Supermarkets
Shufersal is the owner of the largest supermarket chain in Israel. In December 2017 the Group completed the acquisition of the entire issued share capital of Be Drugstores Ltd. (formerly New Pharm Drugstores Ltd.) (“Be”). Shufersal is a public company, which is included under the Tel Aviv 35 index, which was incorporated in Israel, whose shares and debentures are listed for trading on the TASE.
As June 30, 2020, Shufersal operates 379 branches throughout Israel, of which 298 are Shufersal stores and 81 are Be stores. Shufersal’s total commercial space encompasses approximately 543,000 square meters, of which 513,000 square meters are Shufersal stores and 30,000 square meters are Be stores, as well as 8 delivery centers encompassing 22,000 square meters, all located in Israel. Shufersal employs about 17 thousand employees (about 14.8 thousand calculated positions) and has annual revenues of about NIS 14 billion.
In June 2018, DIC sold 16.6% of the issued share capital of Shufersal, for a total net consideration of NIS 848 million, as a result of which DIC’s holdings in Shufersal decreased to approximately 33.6% and therefore ceased to be the controlling shareholder of Shufersal. Following certain other divestments from DIC, as of June 30, 2020, our equity interest in Shufersal was reduced to 26.02%. On July 26, 2020, DIC sold its entire stake in Shufersal, of approximately 26%, for a total net consideration of NIS 1,450 million.
Segments
The Company operates in four operating segments that are reported as business segments in its financial statements:
Retail segment. This segment includes the retail marketing of food and other products in the Shufersal’s stores and the manufacture of frozen and fresh baked products that are sold mainly in the Shufersal’s stores. As at June 30, 2020, the Shufersal’s retail segment activity is carried out in 298 stores having a wide geographical spread.
Real Estate. In this segment we manage various types of properties, including commercial centers and other properties related to the operation of our stores. The real estate activities of Shufersal were separated, beginning on April 1, 2013, into Shufersal Real Estate Ltd., a wholly owned subsidiary. This entity leases these properties both to Shufersal and to other third parties. This segment’s revenues include rental revenues based on actual amounts that the real estate segment charged the retail segment, and the operating profit of the segment includes also management fees that were charged to the subsidiaries of the real estate segment. Presented below are details regarding the real estate properties which are owned by lower numbersShufersal Real Estate as of foreign workers from JudeaDecember 31, 2019:
| | | | | Rent and annual management fees |
| | | | | |
| | | | | |
| Stores rented to Shufersal | 71 | 134 | 1,818 | 131,348 |
| Properties under construction which will be rented to Shufersal | 1 | 2 | 1 | — |
| Rentable real estate properties to third parties | 20 | 54 | 586 | 50,949 |
| Real estate properties under construction which will be rented to externals | 2 | 50 | 134 | — |
| Total | 94 | 240 | 2,539 | 182,297 |
Credit card customers’ club management segment. This segment includes operating the credit card business and Samaria. Inproviding credit to the holders of our credit cards. From January 18, 2018, the labor shortage continued in the construction industry, where a significant proportionoperation of the workers are foreign workers (including Judeacredit card business is made by means of Israel Credit Card Ltd. and Samaria)Diners Club Israel Ltd.
Be segment. In 2018, more than 14,500 legal foreign workers were employedFollowing completion of the transaction to acquire New Pharm Drugstores Ltd. on December 20, 2017, which was rebranded as “Be”. As of June 30, 2020this segment includes the operation of 81 drugstores in Israel an increasethat sell mainly cosmetics, convenience and toiletry products, medicine and food supplements. In December 2019, Shufersal's Board of about 45% comparedDirectors passed a resolution that Shufersal would merge, by way of a statutory merger with BE, under which Shufersal would absorb all of BE's activities, liabilities and assets without consideration, and BE would be liquidated without liquidation.
Distribution
Most merchandise is distributed to our stores through our network of distribution centers. Common carriers ship general merchandise to and from our distribution centers. Vendors or third party distributors ship certain food items and other merchandise directly to our stores. Merchandise sold through our digital channels is distributed to our online guests via common carriers (from stores, distribution centers, vendors and third party distributors) and through guest pick-up at our stores. Using our stores as fulfillment points allows improved product availability and delivery times and also reduces shipping costs. We continue to expand other delivery options, including store drive-up and delivery.
Seasonality
In Israel, the number of legal foreign workers in the construction industry in 2017. This increase is theretail segment business’s results are subject to seasonal fluctuations as a result of the October 2015 government decision,consumption behavior proximate to the Passover holidays (March and/or April) and Rosh Hashanah and Sukkoth holidays (September and/or October).
Competition
Shufersal competes in this market primarily with the other supermarket chains, specialty stores (such as grocers, butchers, delis and bakeries), convenience stores in cities and gas stations, neighborhood grocery stores, open and closed markets, and other retailers.
Insurance
Clal is a public company which was partially implemented asincorporated under the laws of the endState of 2017, with the implementationIsrael. Clal is one of the "performance companies" arrangement.leading insurance and long-term savings groups in Israel. The shares of Clal have been listed for trading on the stock exchange since 1988. As partof December 31, 2019, Clal employs over 4,500 people and markets its products through 1,897 insurance agents, all of whom provide quality service and professional support to their customers. As of December 31, 2019, Clal has NIS 220 billion in assets under management (out of which, approximately NIS 188 billion are assets managed for others). Clal divides its operations in three insurance segments: Non-Life Insurance, Long-Term Savings and Health.
As of June 30, 2020, IDBD’s stake in Clal’s outstanding share capital was 8.5% directly and 2.1% through swaps.
Segments.
Non-Life Insurance. The General Insurance domain in Clal Group is among the largest in Israel. As of December 31, 2019, Clal holds 10.3% market share of the implementation of this decision, a pool of six foreign construction companies was established to carry out residential construction projects. Of the legal foreign workerspremiums in the industry, about 86% are employed under this arrangement. Despite this increase, there is still a shortage of skilled manpower, and workers' wages in the construction industryNon-Life Insurance Division and offers coverage to private and corporate customers. Clal markets its products through 1,450 non-life insurance agents, all of whom provide quality service and professional support to their customers. The Non-Life Insurance Segment offers a wide range of insurance plans: automotive, property, liability, marine insurance, personal accidents, guarantees and additional services. It`s vision is to provide professional and high-level service to company`s agents and customers, through constant improvements and new product development.
Life Insurance and Long-Term Savings. As of December 31, 2019, the Long-Term Savings Division holds a 13.7% market share of the long-term savings market, as defined by the Commissioner of Insurance and have assets in general and foreign workersan approximate amount of NIS 149,472 billion. As at December 31, 2019, Clal holds 17.3% market share of the premiums in the construction industry in particular continuethe Life Insurance Division. There is no single customer or a limited number of customers of which Clal is dependent. Clal markets insurances policies, from time to rise.time and in the normal course of business, to companies in the IDBD Group (both policyholders in collective insurance, both as members of central provident funds and as employers depositing for pension savings for long-term savings products). This does not exceed 5% of the Clal’s total revenues in this segment. The shortageLong-Term Savings segment manages long-term assets, including life insurance, pension and unavailabilityprovident funds. The segment also provides comprehensive solutions to private and corporate customers in all sectors of skilled manpower affects both construction coststhe Israeli economy. Among the division’s customers are large corporations and many residents of the extensionState of construction project execution schedules.Israel. Its objectives are to support the company’s distribution channels and become a professional benchmark, helping to improve company business results, profitability and value, while emphasizing quality of service. The segment offers a variety of savings options, enabling its customers to maintain a strong, solid economic foundation in the event of death, accident or loss of earning capacity. It also offers a variety of pension funds designed to guarantee a monthly income for life in the event of retirement, disability, or death, enabling economic stability for the future even in difficult times.
On July 26, 2018, Clal’s Board of Directors resolved to change the organizational structure of Clal Group, and from September 1, 2018, the life insurance and pension and provident divisions merged into the long-term savings division. In addition, PBC is subject, similar to other companies which operatea new a customer and distribution division established.
Health Insurance. The Health Insurance segment offers a wide range of products for individuals, families and groups, specializing in comprehensive solutions for specific market segments such as women and children. As of December 31, 2019. Clal holds a 17.4% market share of the premiums in the health insurance market in Israel and offers health insurance products such as surgeries in Israel and overseas, transplants, medications, critical illness, long-term care, personal accidents, travel and more. Health Insurance segment vision is to statutory restrictions, which regardestablish Clal as a leading, innovative and professional company in the field of health and nursing care insurance, while providing a professional and timely service to the planningits agents and construction of projects out,customers. The segment focuses on technological innovation as well as on developing a range of innovative health insurance products, enabling flexibility in creating health insurance packages tailored for each client, based on his needs and financial status. Each package is either derived from existing packages, or custom-built for each customer. Clal markets most of its products through 852 health agents, all of whom provide quality service and professional support to contractstheir customers. The Health Insurance segment is constantly growing, and is proud to provide quality service to 400,000 members insured under private insurance plans as well as an additional 2,000,000 members insured under group insurance plans.
Legal Framework
Operations Center in Argentina
Regulation and Government Supervision
The laws and regulations governing the acquisition and transfer of real estate, as well as municipal zoning ordinances, apply to the development and operation of our properties. Currently, Argentine law does not specifically regulate shopping mall leases. Since our shopping mall leases generally diverge from ordinary commercial leases, we have developed contractual provisions which are tailored to the commercial relationship with purchasers and tenants, to planning and building laws, labor and safety standards in Israel.our shopping mall tenants.
Leases
Argentine law imposes certain restrictions on property owners, including:
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a minimum lease term of three years for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease requires a shorter term.
Lease term limits
Under the Argentine Civil and Commercial Code lease terms may not exceed 20 years (for residential purpose) or fifty years (all other purposes). Generally, terms in our leases range from three to ten years.
Rescission rights
The Argentine Civil and Commercial Code provides that tenants may terminate leases with other destiny than home destiny, early after the first six months of the effective date. Such termination is subject to penalties which range from one to one and a half months of rent. If the tenant terminates the agreement during the first year of the lease, the penalty is one and a half month’s rent and if termination occurs after the first year of lease, the penalty is one month’s rent.
Other
The Argentine Civil and Commercial Code, among other rules, repealed the Urban Lease Law No. 23,091, which set forth a rule similar to the one described above, but established the obligation to give at least 60 days’ prior notice of exercise of the tenant’s unilateral termination right. There are no court rulings to date with respect to the new regulations related to: (i) the tenant’s unilateral termination right; or (ii) the possibility of agreeing a penalty different from that described above upon such termination.
While current policy discourages government regulation of leases, there can be no assurance that additional regulations will not be imposed in the future by Congress, including regulations similar to those previously in place. Furthermore, most of our leases provide that the tenants pay all costs and taxes related to the property in proportion to their respective leasable areas. In the event of a significant increase in such costs and taxes, the government may respond to political pressure to intervene by regulating this practice, thereby adversely affecting our rental income.
The Argentine Civil and Commercial Code enables landlords to pursue what is known as an “executory proceeding” if a tenant fails to pay rent when due. In executory proceedings, debtors have fewer defenses available to prevent foreclosure, making these proceedings substantially shorter, as the origin of the debt is not in question and the trial should focus on the formalities of the contract. The Argentine Civil and Commercial Code also permits special eviction proceedings, which are carried out in the same way as ordinary proceedings. The Argentine Civil and Commercial Code also requires that a residential tenant receive at least 10 days’ prior notice when a landlord demands payment of rent due if a breach prior to eviction occurs but does not impose any such requirement for other leases. However, court cases pending resolution and numerous procedural hurdles have resulted in significant delays to eviction proceedings in the commercial context, which generally last from six months to two years from the date of filing of the suit for eviction.
Development and use of the land
In the City of Buenos Aires, where the vast majority of our properties are located, we are subject to the following regulations:
Buenos Aires Urban Planning Code
The Buenos Aires Urban Planning Code (Código de Planeamiento Urbano de la Ciudad de Buenos Aires) generally restricts the density and use of property and regulates physical features of improvements to property, such as height, design, set back and overhang, consistent with the city’s urban planning policy. The Secretary of Urban Planning of the City of Buenos Aires (Secretaría de Planeamiento Urbano) is responsible for implementing and enforcing the Buenos Aires Urban Planning Code.
Buenos Aires Building Code
The Buenos Aires Building Code (Código de Edificación de la Ciudad de Buenos Aires) complements the Buenos Aires Urban Planning Code regulating the use and development of property in the City of Buenos Aires. The Building Code requires developers to obtain building permits, including submitting architectural plans for review of the Secretary of Work and Public Services, to monitor regulatory compliance.
Buenos Aires Authorizations and Licenses Code
The Authorizations and Licenses Code (Código de Habilitaciones de la Ciudad de Buenos Aires) sets forth the conditions under which authorizations or licenses to operate may be granted. The General Bureau of Authorizations and Licenses is responsible for implementing and enforcing the Authorizations and Licenses Code. Outside the city of Buenos Aires, our real estate activities are subject to similar municipal zoning, building, occupation and environmental regulations, which must also comply with national standards. In some jurisdictions we may also be subject to regulation of large commercial areas, which require approval of the location of these areas. We believe that all of our real estate properties are in material compliance with relevant laws, ordinances and regulations.
Sales and ownership
Real Estate Installment Sales Law
The Real Estate Installment Sales Law No. 14,005, as amended by Law No. 23,266 and Decree No. 2015/85, or “Real Estate Installment Sales Act,” imposes a series of requirements on contracts for the sale of subdivided real estate property including, for example, that the purchase price for a property is payable in installments. The law requires, among other things:
Registration of intent to sell the property in subdivided plots with the Real Estate Registry in the jurisdiction where the property is located. Registration is only permitted for unencumbered property. Mortgaged property may only be registered if creditors agree to divide the debt in accordance with subdivided plots. Creditors may be judicially compelled to agree to the partition.
Preliminary registration with the Real Estate Registry of the purchase instrument within 30 days after its execution.
Once the property is registered, the installment sale must be completed in a manner consistent with the Real Estate Installment Sales Act. If a dispute arises over the title between the purchaser and third party creditors of the seller, the installment purchaser who has duly registered the purchase instrument will have title to the plot. The purchaser can demand conveyance of title after at least 25% of the purchase price has been paid, although the seller may record a mortgage over the subject property to secure payment of the balance of the purchase price.
After paying of 25% of the purchase price or advancing of at least 50% of construction, the Real Estate Installment Sales Act prohibits termination of the sales contract for failure by the purchaser to pay the balance of the purchase price but gives the seller the right to enforce under any mortgage on the property.
PBC’s engagementsBuildings Law
Buildings Law No. 19,724 (Ley de Pre horizontalidad) was repealed by the Argentine Civil and Commercial Code which provides that for purposes of execution of sales agreements for units under construction, the owner or developer must purchase insurance in favor of prospective purchasers against the risk of frustration of the development pursuant to the agreement for any reason. A breach of this obligation precludes the owner from exercising any right against the purchaser—such as demanding payment of any outstanding installments due—unless he/she fully complies with tenantstheir obligations, but does not prevent the purchaser from exercising its rights against the seller.
Protection of the Disabled
The Law for Protection of the Disabled No. 22,431, enacted on March 16, 1981, as amended, provides that properties under construction or that are being remodeled must provide access for handicapped persons. Public spaces, entrances, hallways, elevators and common use facilities must be designed to provide mobility for impaired individuals. Buildings developed before enactment of the Protection for the Disabled Law must be reformatted to provide requisite access. Buildings that, because of their architectural design, may not be adapted to the use by the physically impaired, are exempted from these requirements.
Other regulations
Consumer relations, consumer or end user protection
Article 42 of the Argentine Constitution establishes that consumers and users of goods and services have a right to protection of health, safety and economic interests in a consumer relationship. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers and end users in a consumer relationship, in the arrangement and execution of contracts. The Consumer Protection Law, and the applicable sections of the Argentine Civil and Commercial Code are intended to regulate the constitutional right conferred under the Constitution on the weakest party to the consumer relationship and prevent potential abuses deriving from the stronger bargaining position of vendors of goods and services in a market economy where standard form contracts are widespread.
These laws deem void and unenforceable contractual provisions included in consumer contracts, that:
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deprive obligations of their nature or limit liability for damages;
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imply a waiver or restriction of consumer rights and an extension of seller rights; and
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impose the shifting of the burden of proof from the consumer to the seller in order to protect the consumers.
In addition, the Consumer Protection Law imposes penalties ranging from warnings to the forfeiture of concession rights, privileges, tax regimes or special credits to which the sanctioned party may be entitled, including closing down establishments for a term of up to 30 days.
The Consumer Protection Law and the Argentine Civil and Commercial Code define consumers or end users as the individuals or legal entities that acquire or use goods or services, free of charge or for a price for their own final use or benefit or that of their family or social group. The protection under the laws afforded to consumers and end users encompasses the entire consumer relationship, from the offering of the product or service, to cover more than just those relationships established by means of a contract. Providers of goods and services include those who produce, import, distribute or commercialize goods or supply services to consumers or users (but excludes professionals whose services require a college degree or higher who are required to register in officially recognized professional organizations).
The Argentine Civil and Commercial Code defines a consumer agreement as one that is entered into between a consumer or end user and an individual or entity that manufactures goods or provides services to consumers for private, family or social use. The Consumer Protection Law imposes a range of penalties for violation of its provisions, from warnings to the forfeiture of concession rights, and establishes joint and several liability of each participant in the chain of distribution or whose trademark on the thing or service for damages caused to consumers derived from a defect or risk inherent in the thing or the provision of a service.
The Consumer Protection Law excludes the services supplied by professionals that require a college degree and registration in officially recognized professional organizations or by a governmental authority. However, this law regulates the advertisements that promote the services of such professionals.
The Consumer Protection Law determines that the information contained in the offer addressed to undetermined prospective consumers binds the offeror during the period when the offer is made until its public revocation. Further, it determines that specifications included in advertisements, announcements, prospectuses, circulars or other media bind the offeror and are considered part of the contract entered into by the consumer.
Pursuant to Resolution No. 104/2005 issued by the Secretariat of Technical Coordination reporting to the Argentine Ministry of Treasury, Consumer Protection Law adopted Resolution No. 21/2004 issued by the Mercosur’s Common Market Group, persons engaged in internet commerce must disclose precisely the characteristics of the products and/or services offered and the sale terms. Failure to comply with the terms of the offer is deemed an unjustified denial to sell and may give rise to sanctions.
On September 17, 2014, the Argentine Congress enacted Law No. 26,993 called “Conflict Resolution in Consumer Relationships System” law that provides for creation of new administrative and judicial procedures. The law created a bicameral administrative system: the Preliminary Conciliation Service for Consumer Relations (Servicio de Conciliación Previa en las Relaciones de Consumo), or “COPREC,” and the Consumer Relations Audit, and a number of courts assigned to the resolution of conflicts between consumers and providers (Fuero Judicial Nacional de Consumo). The amount of any filed claim may not exceed a fixed amount equivalent to 55 adjustable minimum wages, as determined by the Ministry of Labor, Employment and Social Security. The claim must be filed with the administrative agency. If an agreement is not reached, the claimant may file the claim in court. While COPREC is currently in full force and effect, the court system (Fuero Judicial Nacional de Consumo) is still pending. Therefore, any current claim must be filed with existing courts. A considerable number of claims pending against us are expected to be settled within the framework of this system.
Antitrust Law
Law No. 27,442, as amended, or the “Antitrust Law,” prevents collusive practices by market participants and requires administrative approval for transactions that according to the Antitrust Law constitute an economic concentration. According to this law, mergers, transfers of goodwill, acquisitions of property or rights over shares, capital or other convertible securities, or similar transactions by which the acquirer controls or substantially influences a company, are considered as an economic concentration. Whenever an economic concentration involves a company or companies and the aggregate volume of business in Argentina of the companies concerned exceeds 100 million mobile units, the respective concentration must be submitted for approval to the CNDC. The request for approval may be filed, either prior to the transaction or the implementing of the control take.
For the purpose of determining the volume of the business mentioned on the paragraph before, the CNDC will annually inform the amount in legal currency that will apply during the corresponding year. For that purpose, the CNDC will consider the mobile unit value current at the last business day of the previous year. When a request for approval is filed, the CNDC may (i) authorize the transaction, (ii) subordinate the transaction to the accomplishment of certain conditions or (iii) reject the authorization.
The Antitrust Law provides that economic concentrations in which the transaction amount and the value of the assets subject to acquisition or disposition do not exceed 20 million mobile units each do not require approval. When the amount of the transactions consummated in the preceding 12 months exceeds in aggregate 20 million mobile units or 60 million mobile units in the preceding 36 months, these transactions require CNDC approval.
As our consolidated annual sales volume and our parent’s consolidated annual sales volume exceed ARS 200.0 million, we must give notice to the CNDC of any concentration provided for under the Antitrust Law.
Money laundering
For more information about money laundering see, “Item 10. Additional Information—E. Money Laundering”.
Environmental Law
Our activities are subject to the provisionsseveral national, provincial and municipal environmental provisions.
Article 41 of the LeaseArgentine Constitution, as amended in 1994, provides that all Argentine inhabitants have the right to a healthy and Lendingbalanced environment fit for human development and have the duty to preserve it. Environmental damage shall bring about primarily the obligation to restore it as provided by applicable law. The authorities shall control the protection of this right, the rational use of natural resources, the preservation of the natural and cultural heritage and of biodiversity and shall also provide for environmental information and education. The National Government shall establish minimum standards for environmental protection whereas Provincial and Municipal Governments shall fix specific standards and regulatory provisions.
On November 6, 2009, the Argentine Congress passed Law No. 5,731-197125,675. Such law regulates the minimum standards for the achievement of a sustainable environment and in rare cases,the preservation and protection of biodiversity and fixes environmental policy goals.
Law No. 25,675 establishes the activities that will be subject to an environmental impact assessment procedure and certain requirements applicable thereto. In addition, such Law sets forth the Tenant Protectionduties and obligations that will be triggered by any damage to the environment and mainly provides for restoration of the environment to its former condition or, if that is not technically feasible, for payment of compensation in lieu thereof. Such Law (Consolidated Version) No. 5,732-1972.
PBC is subjectalso fosters environmental education and provides for certain minimum reporting obligations to legislationbe fulfilled by natural and standardization in the field of construction, which includes, inter alia, planning and construction, rental and sale, licensing, building permits, maintaining safety at the construction site, and obtaining permits to populate. In that regard, any entity that engages in the construction and sale of housing units required ensuring that any discrepancies (as defined in the Sale Law) are rectified.legal entities.
PBC is obligatedIn addition, the CNV Rules require the obligation to engage with contractors who operate with compliancereport to safety standards.the CNV any events of any nature and fortuitous acts that seriously hinder or could potentially hinder performance of our activities, including any events that generate or may generate significant impacts on the environment, providing details on the consequences thereof.
PBC is subjectThe new Argentine Civil and Commercial Code has introduced as a novel feature the acknowledgement of collective rights, including the right to all Israeli standards, which relates toa healthy and balanced environment. Accordingly, the qualityArgentine Civil and Commercial Code expressly sets forth that the law does not protect an abusive exercise of workindividual rights if such exercise could have an adverse impact on the environment and materials.
Green Building - PBC agenda is subject to actsthe rights with adequate protection relating to environmental aspects.
a collective impact in general.
Supermarkets
Labor LawEnvironmental matters
The retail sectorWe consistently strive to act responsibly regarding protection of the environment in the management of our operating activities by preventing and minimizing the potential adverse environmental impacts of Shufersalour activities. We have adopted an environmental impact policy, which is used as a reference for the realization of our investments. We are subject to laborenvironmental legislation under a series of laws, includingordinances, norms, and national, provincial and municipal regulations of Argentina. Environmental obligations vary depending on the Employment of Workers by Human Resources Subcontractors Law, No. 5,756-1996,project site, the Extension Order in the Matter of Contract Workers in the Cleaning Branch in the Private Sector, the Minimum Wage Law, No. 5,747-1987 (“Minimum Wage Law”)site’s environmental conditions, current and prior uses, and the Increased Enforcementactivity proposed to be developed. Compliance with environmental laws may result in project delays or impose additional requirements that may result in substantial additional costs that may adversely affect our commercial activities. Before purchasing land or carrying out an investment on a plot of Labor Laws Law, No. 5,772-2011. Asland, we carry out an environmental assessment of December 31, 2018, Shufersal employed approximately 15,655 workers(equivalentthe parcel to 13,404 full time jobs), majorityidentify possible environmental contingencies and analyze the possible environmental impact of which are subjectthe investment or the development to minimum wage requirements. Asbe carried out. Historically, our operations have not been negatively affected by the existence or potential existence of December 31, 2018,pollutants, nor by the majority of Shufersal’s employees, in an estimated number of 11,000 of Shufersal employees, are partiesfailure to a collective bargaining agreement. On March 29, 2018, Shufersal and its employees’ representatives signed an extension to the collective bargaining agreements until December 31, 2019. In the last 30 years, Shufersal maintained stable labor relations without shutdowns.
obtain environmental approvals or permits.
The provisions of the Minimum Wage Law (Increase of Minimum Wage - Emergency Provision), 5,772 - 2015We intend to continue implementing plans that enhance our monitoring activities, in line with our commitment to and the amendment of the Minimum Wage Law, resulted in an increase in the minimum wage effective from 2015 to December 31, 2017, of NIS 220 million in Shufersal’s wage expense. In that regard, in 2017 (compared with 2016) the increase was in the amount of NIS 58 million. In Shufersal’s evaluation the increase of the minimum wage in Israel, changes to labor laws in Israel and the increased possibility of organized workers may detrimentally affect the business results of Shufersal and result in higher wage expenses of Shufersal.
Retail and Production; Enviromental
The activities of Shufersal are also subject to consumer protection laws, including the Food Law, the Defective Products Liability Law, 5,740-1980, the Consumer Protection Law, 5,741-1981, and the Consumer Product and Service Price Supervision Law, No. 5756-1996 that allows a consumer to institute a class action suit for damages caused to consumers as a whole based on the causes of action set out in that law. The Public Health Protection (Food) Law, No. 5,776-2015, sets forth quality standards and food safety measures and provides the relevant regulator supervisory and criminal and administrative enforcement powers. The provisions of the Food Protection Law affect production activities of Shufersal, including importation and food marketing activities. Shufersal also operates pharmacies in certain of its stores, and is therefore subject to the provisions of the Pharmacists Ordinance (New Version), 5,741-1981.Shufersal is involved in manufacturing activities at three owned facilities where it produces principally private-branded baked goods which are subject to compliance with applicable production and quality assurance standards. On December 26, 2017, the Public Health Protection Regulations (Food) (Food Marking), 5,727 - 2017 (the “Marking Regulations”) were published. The Marking Regulations are intended to make information accessible to consumers regarding the nutritional value of pre-packaged food, using symbols that indicate that food contains a high amount of sodium, sugars or saturated fatty acids, to allow consumers to make informed choices about their foods, and to promote their health. The main regulations concern to manufacturers or importers of prepackaged food, which include, inter alia, provisions which are expected to affect the productive activities of Shufersal. These regulations will enter into effect on January 1, 2020. Shufersal estimates that the said regulations will not materially affect its financial results. To the best of the Shufersal’s knowledge, Shufersal complies with the legislative and regulatory requirements that apply on it.
The retail activities of each Shufersal store requires compliance with the Business License Order (Businesses Requiring a License), 5,773-2013, principally providing that they obtain a business operating license for each unit. December 31, 2018, there are two branches that are subject to legal proceedings regarding business licenses that are pending against Shufersal and its directors. Shufersal’s branches are also subject to land development approvals and licensing, substantially all of which are in compliance. The activities of Shufersal are also subject to certain environmental rgulations
The Food Law and the Competition Law
The Competition Law affects the activities of Shufersal, especially with respect of the possibility of carrying out future acquisitions for which approval is required from the Competition Commissioner (the “Commissioner”) and the influence on the trade arrangements of Shufersal with its suppliers. The Food Law regulates Shufersal’s trade arrangements with its suppliers which are regulated in detail which are designed to promote competition in the food supply industry. As of December 31, 2018, Shufersal believes that growth through acquisitions of a significant entity in the retail market would be limited. Moreover, provisions of the Food Law relating to geographical competition of retailers may influence the ability of Shufersal to expand organically through opening new stores in certain areas and under certain circumstances Shufersal may be required to close active branches under certain circumstances. The Food Law includes the following three systems:
(a)
with respect to activities of suppliers and retail trade, the Food Law prohibits:
i.
a supplier interfering with the retail price of the products of another supplier;
ii.
a retailer interfering with a supplier in the matter of the consumer price imposed by another retailer;
iii.
a large supplier imposing its market position to influence the ordering or presentation of retail products within stores of a large retailer (Shufersal is included in the list of large retailers);
iv.
a large supplier interfering with the price a retailer charges consumers for the products of that supplier, in the allocation of sales areas at any rate for the products of the supplier, for the acquisition of a product from the supplier in any scope from the total retail purchases of the productenvironment, our compliance obligations and of competing products, and for the purchase or sale of products which another supplier supplieswith existing regulations, while seeking to the retailer, including purchase quantities and goals, the sale area allocated to them in a store and any other commercial condition sought to be imposed. a large retailer and a large supplier agreeing to set the pricing of a basket of products at a price that is lower than the marginal cost of production of the related product or that would require a consumer to purchase a minimum amount of the related product to achieve the reduces price; vi. a large supplier conditioning the sale of its product to a retailer on the purchase of another product of that large supplier; and
v.
provisions regarding geographical competition.
These set of provisions apply to the ability of a large retailer to open a branch without, under certain circumstances, the approval of the anti trust authority.
In October 2018, Shufersal received a notice from the Commissioner about catchment areas of the large stores of Shufersal (“the catchment area notice”). The catchment area notice referred to 97 large stores, with calculated rate of more than 30% but less than 50%, and 39 large stores with calculated rate of over 50%. The notice was accompanied by maps of catchment areas of those stores. It is noted that after reviewing the catchment area maps that were enclosed in the catchment area notice, the stores that may be exposed to actions under the above temporary provision are as follows: 15 stores in the Haifa area and 3 stores in the Zefat area. It is noted that as of December 31, 2018, Shufersal had not been required, under the temporary provision, to close any of its stores. In July 2018, the Supervisor imposed a NIS 9 million monetary sanction for violations of the Food Law provisions relating to the extension of certain rental agreements to which Shufersal has a party, which includes an Exclusive Land Clause.
Provisions regarding the price transperacy
Under these provisions, retailers shall be obliged to publish online the prices of all products sold by such retailer (including any and all discounts and special prices). Shufersal has implemented these provisions and is publishing its products prices in an online site.
Provisions regarding the contemporaneous application of the Food Law and the Competition law. In December 2015, the Commissioner published a statement on the parallel application of the Competition Law and the Food Law listing cases in which only the provisions of the Food Law will apply and no additional regulation will be required under the Competition Law. As of the date of the notice Shufersal’s operations complied with the Food Law. Shufersal’s acquisition of Clubmarket was approved by the Commissioner in 2005, and within this framework the Commissioner imposed a number of limitations on Shufersal’s activities including: prohibiting Shufersal from pricing products that result in a loss that is not proportionate to its business activities and are aimed to affect the operations of competitors from the market; prohibiting Shufersal from entering into agreements with suppliers that impose restrictions on those suppliers from doing business with competitors of Shufersal; and prohibiting Shufersal from attempting to influence commercial conditions between its suppliers and competitors.
It should be noted that, generally, the above provisions do not apply to "BE" other than with respect to the price transperacy provisions. Shufersal is cuurently exploring with the Anti Trust Authority the application of certain provisions of the Food Law to "BE".
As at December 31, 2018, implementation of the Food Law did not have any material impact on the business of Shufersal.
Generally, to the best knowledge of Shufersal, Shufersal believes its operations comply in all material respects with the applicable provisions of this law.
Telecommunications
Communications Regulations
Cellcom’s operations are subject to general legal provisions regulating the relationships and method of contracting with its customers. These provisions include the Consumer Protection Law, 5721-1981 and regulations promulgated thereunder and other laws detailed below. A substantial part of Cellcom’s operations are subject to the Communications Law, regulations enacted by the Ministry of Communications, and the provisions of the licenses granted to Cellcom by the Minister of Communications. Cellcom’s activities which include providing cellular service, landline, international telephone services and internet access, and infrastructure services are subject to licensing.
Supervision of Rates. Interconnect rates (i.e. payments that will be made by an in-country operator, another cellular operator or international operator to complete calls in the network of a cellular operator or for the sending of an SMS between cellular operators) is regulated and was substantially reduced in the past. This reduction has led to a considerable reduction in Cellcom’s revenues. Moreover, the Communications Law to authorizes the Minister of Communications to set interconnect prices and regulateoptimize the use of networks owned by another operator based not only on the cost incurred to establish the network (according to the calculation method to be determined by the Minister of Communication) plus a reasonable profit, but also on one of the following: (1) flat payment for a service provided by the license holder; (2) reference to tariffs charged for a comparable service; or (3) reference to the cost of these services or with the interconnection costs charged in other countries. The Minister of Communications was also empowered to give instructions on structural separation for providing various services, including segregating services provided by a license holder from services provided to a subscriber.
In the last few years, contract termination charges for cellular plans have been banned in the cellular and other communications markets, other than for customers who have more than a certain number of cellular lines or whose monthly payments exceed a certain amount for bundled service. The elimination of these charges led to a considerable increase in plan cancellations, increased the costs of retaining and acquiring customers, and accelerated erosion of rates.resources.
Virtual Operators (“MVNO”)C. Organizational Structure. The Communications Law and related pronouncements regulate the activities of virtual operators. The regulations empower the Ministry of Communications together with the Finance Ministry to impose terms of an agreement including fixing the price to be charged for the services provided.
Other Third Generation Operators (UMTS). In 2012, Golan and Hot Mobile began to offer UMTS services. The Communications Law obliges the other cellular operators to provide in-country migration services to Golan and Hot Mobile for a period ranging from seven to ten years subject to certain conditions.In 2011, Cellcom entered into a contract with Golan to provide in-country migration services. Hot Mobile entered into a similar in-country migration agreement with Pelephone and later with Partner (which was subsequently replaced by a joint networks agreement with Partner) without intervention from the Ministry of Communications.
In case of a disagreement as to the terms of a hosting service (including the consideration), whether for national roaming of a new MNO (currently Golan, Hot Mobile and Xfone) or hosting of an MVNO, the regulators may intervene in the terms of the agreement, including by setting the price of the service. Unfavorable terms and consideration for the hosting service, may result in material adverse effect on our results of operations.
Regulation of Multi-Channel Television Services
As of June 30 2019, television program streaming via the Internet is not subject to regulation in Israel. In July 2018, a new bill for the regulation of broadcasting was published. Cellcom does not expect the bill, if enacted, to materially change the regulation that applies to Cellcom. The bill requires legislative proceedings in the Israeli parliament, which may include material changes to the bill. If the legislation adopted requires Cellcom to make additional investments or impose unfavorable regulation on its OTT TV service, or apply such regulation to Cellcom and not to other OTT TV providers, or usage of the DTT infrastructure, it may adversely affect Cellcom OTT TV business.
1. Cellcom’s Communications Licenses
Cellcom holds a general license for providing cellular services, valid until January 31, 2022, setting out conditions (including duties and restrictions) applicable to its activities, officers and shareholders holding certain percentages of Cellcom’s shares. The license may be extended by the Ministry of Communications for consecutive periods of six years, if Cellcom is in compliance with the provisions of the license and law, and makes requisite investments to its service and network. The Ministry of Communications has amended the license conditions in the past, and may amend them in the future, without Cellcom’s consent and in a manner that may limit its ability to conduct business. The license provides that Cellcom does not have exclusivity for providing services. The cellular license can be revoked, suspended or limited in the following cases: if total holdings of the founding shareholders or their successors (as defined in the license) is less than 26% of the control shares of Cellcom; if total holdings of Israeli parties (as defined in the license), who are among the founding shareholders or their successors, is less than 5% of the total issued share capital and control shares of Cellcom; if a majority of directors are not Israeli citizens or residents of Israel; if a fewer than 10% of the directors of Cellcom were appointed by Israeli parties; if an act or omission of Cellcom that adversely affects or restricts competition in the cellular sector; if the aggregate equity of Cellcom, together with the aggregate equity of shareholders each holding 10% or more of the share capital, is less than US$200 million. In light of the 2015 change in the control structure of IDBD, the Cellcom control structure has also changed, and requires the approval of the Ministry of Communications, including with regard to Israeli holding requirements included in the licenses of Cellcom, as Mr. Eduardo Elsztain is not a citizen of Israel. Until January 31, 2018 Cellcom was not obligated to maintain Israeli holding, subject to certain conditions. In January 2018, after approval was received from the Ministry of Communication, an agreement was signed and completed between DIC and two Transferred Companies (as defined below), in which an outline was agreed upon which would meet the Israeli holding requirements (the “Outline”). As part of the outline, Koor transferred Cellcom shares which represent 5% of its issued share capital, by way of a loan transaction, to two private companies which were incorporated in Israel, whose purpose was to hold Cellcom shares, and which are wholly owned by two Israeli entities (one of whom serves as a corporate officer in DIC and in Cellcom; while the other serves as a corporate officer in IDBD) (the “Transferred Companies” or the “Israeli Entities”).
The aforementioned transferred Cellcom shares (the “Transferred Shares”) were transferred to the Transferred Companies in equal parts (i.e., 2.5% of Cellcom’s issued share capital to each one). Presented below are the main terms of the agreement: A. The agreement will remain in effect from its closing dated until December 31, 2018. The agreement will be extended automatically each year until the end of December 31 of the subsequent year, until its termination date, according to the terms which were specified in the agreement. B. Koor will be entitled to terminate the agreement at any time, in its discretion, and to receive back all or some of the Transferred Shares. The Transferred Companies will not be entitled to transfer the Transferred Shares to any entity whatsoever without Koor’s consent, and additionally, will not be entitled to transfer all or some of the Transferred Shares unless the transferee meets the definition of an “Israeli entity” in the mobile license; The transfer has been approved by the Ministry of Communication, if required; and the transferee has undertaken to accept upon itself the undertakings of the Israeli entities. C. So long as the matter will be required in accordance with the mobile license, or in accordance with other licenses which Cellcom has received from the Ministry of Communication, the Transferred Companies will together be entitled to appoint 10% of the directors in Cellcom (in other words, as at the present date, one director). Additionally, the Transferred Companies will undertake to vote together with Koor on all resolutions that will be presented to Cellcom’s general meeting, and as part of the above, they will undertake to support the appointment of directors to Cellcom whose candidacy will be proposed by Koor. Koor and the Transferred Companies will be considered “joint holders” of Cellcom shares, in accordance with the Securities Law, 5728-1968.
According to Telecommunications Law, the Ministry of Communications may impose on telecommunication companies, including Cellcom, financial sanctions for breach of license and law. The amount of the sanction is calculated as a percentage of the revenue of the operator, and according to the degree of severity and extent of the breach, said may be significant.
Cellcom provides (through a wholly owned entity) landline telephone, ILD, internet connectivity and infrastructure services as well as a "network end point" services, under a non-exclusive unified license granted in 2015 (which replaced the previous licenses for providing these services), for the period ending April 2026. The license can be extended for an additional period of 10 years, under terms generally similar to the terms of extension of the general cellular license.
Cellcom holds other communications licenses: a special license for the provision of data transmission and communication services in Israel, and a non-exclusive unified license for the provision of internet connectivity and infrastructure, ILD, landline and 'network end point' services to the Israeli-populated areas in Judea and , until 2026. These licenses include conditions generally similar to those of the general license for the provision of cellular services, as noted above.
According to regulations that apply to the uniform license, there are certain limitations on cross ownership among license holders.
2.Further Regulation Applicable to Communications Services
In May 2018 and again in March 2019, the Ministry of Communications amended Cellcom licenses to regulate the manner of response of call centers, including measurable parameters for response times. The amendment came into force in July 2019. Also in July 2019, an amendment to the Israeli Consumer Protection Law regulating the manner of response of call centers also came into effect. The amendment includes measurable parameters for response times, which are partly incompatible with the said amendment to Cellcom licenses. These amendments had and are expected to continue to have an adverse effect on Cellcom results of operations.
3.Permits for Setting Up cell Sites
a. Cellcom’s cellular services generally are provided through cell sites across Israel, their construction and licensing are included in TAMA 36 (District Zoning Plan) – Part A - National Master Plan for Communications - Small and Micro Broadcasting Facilities (“TAMA 36”), and Radiation Law. Regulating the deployment of wireless access devices, which are cell sites with smaller dimensions, are, for the most part, regulated by Communications Law and Radiation Law. The construction of cell sites requires a permit as per Planning and Building Law, No. 1965 (“Planning and Building Law”), and is subject to other approvals from multiple regulators.
Legal proceedings (civil, criminal and administrative) are pending against Cellcom, under which a number of arguments were raised concerning the legal compliance of some of Cellcom’s sites, alleging failure to obtain permits under Planning and Building Law, or based on development of sites in contravention of a permit.
As of December 31, 2018, Cellcom operated a small portion of Cellcom’s cell sites without building permits or applicable exemptions and approximately 33% of Cellcom’s cell sites without building permits in reliance on an exemption from the requirement to obtain a building permit, mainly for radio access devices. Such reliance had been challenged and under an interim order issued by the Supreme Court in September 2010, was reduced to replacing or relocating existing radio access devices under certain conditions. In October 2018, regulations setting procedures for the construction, changes and replacement of radio access devices exempt from building permits were enacted. Although these regulations reflect previous judicial limitations placed upon our ability to make changes and replace radio access devices, they also introduce a new licensing procedure that may further reduce our ability to construct new radio access devices based on such exemption. This may adversely affect our existing networks and our networks' build out. In addition,the Ministry of Justice expressed an opinion that such regulations and the exemption do not relate to the radio access devices' ancillary equipment. The Ministry of Justice is expected to publish further instructions in the matter. The exclusion of the ancillary equipment from the exemption, if adopted, could adversely affect our existing networks and our networks' build out. In addition, Cellcom provides in-building repeaters and micro-sites (“femtocells”) for its subscribers seeking a solution to poor indoor reception. Based on an opinion Cellcom received from legal counsel, Cellcom did not request building permits for the repeaters that were installed on roof tops, which are a small fraction of all repeaters installed. It is not clear whether the installation of a different type of in-building repeaters and micro-sites requires a building permit. Some require a specific permit while others require a permit from the Ministry of Environmental Protection, depending on their radiation levels. Cellcom also builds and operates microwave facilities as part of its transmission network. The majority of microwave sites are exempted from receiving permits from the Ministry of Environmental Protection (due to their low output) or require a general permit in respect of their radiation level Based on an opinion of legal counsel, Cellcom believes that building permits are not required for the installation of microwave facilities on rooftops.
b. Indemnification Obligation. Under the Planning and Building Law, local planning and building committees may demand and receive, as a condition for granting a building permit for a site, a letter of indemnity for claims under Section 197 of Planning and Building Law. By December 31, 2018, Cellcom had executed approximately 400 letters of indemnity as a condition for receiving permits. In some cases, Cellcom has not yet built any sites.
As a result of the requirement to provide indemnification letters, Cellcom may decide to construct new cell sites in alternative, less suitable locations, to reduce capacity coverage or not to construct them at all, which could impair the quality of Cellcom’s service in the affected areas.
c. Radiation Law, Regulations and Permits Thereunder. Radiation Law, Regulations and Principles thereunder included provisions relating to all aspects related to regulating the issue of non-ionizing radiation, including, inter alia, levels of exposure that are permissible.
Positions of the Ministries of Communications, Health and Environmental Protection published in 2012 in relation to the various aspects of the provision of 4G services in Israel, include proposed limitations on usage and deployment in order to reduce exposure to non-ionizing radiation. Such limitations were not included in later documents issued by the MOC, allowing the provision of 4G services and awarding 4G frequencies to the cellular operators.
As of December 31, 2018, Cellcom is subject to criminal and administrative legal proceedings alleging that some of its cell sites were built and have been used without the relevant permits or not in accordance with the permits. As of the same date, a small portion of Cellcom cell sites operated without building permits or applicable exemptions. Although Cellcom is continually seeking to obtain building permits for these sites, Cellcom may not be able to obtain them and in several instances Cellcom may be required to relocate these sites to alternative locations or to demolish them without any suitable alternative. In addition, Cellcom may be operating a significant number of its cell sites, in a manner which is not fully compatible with the building permits issued for them, although they are covered by permits from the Ministry of Environmental Protection in respect of their radiation level. In some cases Cellcom will be required to relocate these cell sites to alternative locations, to reduce capacity coverage or to demolish them without any suitable alternative.
In October 2018, regulations setting procedures for the construction, changes and replacement of radio access devices exempt from building permits were enacted. Although these regulations reflect previous judicial limitations placed upon Cellcom ability to make changes and replace radio access devices, they also introduce a new licensing procedure thatmay further reduce Cellcom ability to construct new radio access devices based on such exemption. This may adversely affect Cellcom existing networks and its networks' build out. In addition, the Ministry of Justice expressed an opinion that such regulations and the exemption do not relate to the radio access devices' ancillary equipment. The Ministry of Justice is expected to publish further instructions in the matter. The exclusion of the ancillary equipment from the exemption, if adopted, could adversely affect Cellcom existing networks and its networks' build out.
Insurance
Areas of Activity of Clal Insurance Business Holdings
Clal Holdings offers general insurance such as car insurance, homeowners’ insurance, and credit and foreign trade risk insurance, among others, as well as health insurance. The activities of Clal Holdings and its subsidiaries are subject to the provisions of laws applicable insurance companies and to regulatory supervision. Clal Holdings’ subsidiaries are supervised by the Capital Markets, Insurance and Savings Commissioner (the “Insurance Commissioner”). Clal Insurance and its subsidiary, Clalbit Financing, are supervised by the Israel Securities Authority. Subsidiaries of the Clal Holdings Insurance Group have been subject to administrative enforcement proceedings and the imposition of fines. Clal Insurance is not in breach of any material regulatory provision applicable to its operations.
Capital Requirements of Insurance Companies
In April 2018, the sublaw: Supervision of Financial Services Regulations (Insurance) (Minimum Equity Required for an Insurer´s License) Regulations, No.5778-2018 (the “Minimum Capital Regulations”), which nullify the Supervision of Financial Services (Insurance) (Minimum Equity Required of an Insurer), Regulations, 1998. The Minimum Capital Regulations prescribes minimum capital different requirements for different segments in the insurance field. The capital required for long term insurance (e.g. life insurance, long term health insurance and Liability insurance) is NIS 15 million as compared to NIS 52 million pursuant to the previous regulations. The capital required for short term insurance (e.g. general insurance and short term health insurance) is NIS 10 million as compared to NIS 59 million pursuant to the previous regulations. The said Minimum Capital Regulations are expected to increase competition in the insurance market due to the reduction of the capital requirement for the purpose of obtaining an insurance company license. At this stage, Clal Insurance cannot expect the full implications of the regulations. The insurance and savings segments, in recent years and in particular in 2017, there Commissioner if promoting a significant amount of regulatory reforms, mainly those aimed to reduce insurance and management fees. In particular, the Commissioner has set special pension funds, which will be a default choice for employees unless they choose otherwise, which significantly reduce the management fees. With respect to the said fund, the Commissioneralso intervenes with terms which regards to loss of work capacity, a material change in compulsory insurance tariffs and changes in the conditions and tariffs in health products. The regulatory intervention creates changes in the structure of the engagement and the interaction between institutional bodies, agents, employers and customers, in a manner that can affect the ability of an institutional body to link its revenues and expenses, impose significant operating expenses on it and harm its profitability. The implementation of some of the reforms began in 2017, and some of them will be implemented in the future and / or are in various stages of implementation or discussions. As of December 31, 2018, Clal cannot estimate the full impact of the said measures and regulations taken on the insurance and pension market in Israel. The range of the proposed changes, the intervention in tariffs and management fees, the operational load, the scope and complexity of the regulatory changes, and the adjustments required in the automation systems and work processes, affect the business model of the insurance market in Israel and its profitability, among others on the value of the business which will be sold (VNB) and the solvency ratio to comply with pursuant to the Solvency Directive.
Breakdown of an insurer’s capital
The Insurance Commissioner issued a circular in August 2011 (“Circular”) that provides a framework for determining the composition of an insurer’s equity, in conjunction with the adoption in Israel of the Solvency II Directive (“Directive” or “Solvency II”), as amended and updated.
Initial (core) capital (basic tier 1), equals the components included in capital attributable to shareholders of Clal Insurance. The overall capital ratio must be at least 60% of the total equity of the insurer. Secondary (tier 2) capital includes complex secondary capital instruments (excluding periodic accrued interest payments), subordinate secondary capital instruments (as defined by the Circular) and any other component or instrument approved by the Insurance Commissioner. A complex secondary capital instruments is one that is subordinated to any other instrument, except for initial capital, including financial instruments available to absorb losses by postponing payment of principal and interest. The first repayment date of secondary capital instruments will be after the end of the period that reflects the weighted average maturity of insurance liabilities, plus two years, or after 20 years, whichever is first, but no earlier than eight years from the date an instrument is issued. If the complex secondary capital instrument includes an incentive for early redemption, the first incentive payment date may not be earlier than five years from the date of issue of the instrument.
Tertiary (tier 3) capital includes complex tertiary capital instruments (excluding periodic accrued interest payments) and any other component or instrument approved by the Insurance Commissioner. A tertiary capital instrument is subordinate to any other instrument, except for primary and secondary capital, and includes financial instruments available to absorb the insurer’s losses by postponing the payment of principal. Tertiary capital must be junior to secondary capital and equal in the order of credit repayments. The first repayment date on tertiary capital instruments may not be earlier than five years from the date of issuance. If the complex tertiary capital instrument includes an incentive for early redemption, the first indentive payment date may not be earlier than five years from the date of issue of the instrument. Tertiary capital may not exceed 15% of the total capital of the insurer.
Insurance liabilities include liabilities that are not yield dependent but excludes any liability fully backed by lifetime indexed bonds and net of any reinsurance costs. Approval of the Insurance Commissioner is required for inclusion of hybrid capital instruments (primary, secondary or tertiary) in equity. The Circular includes a temporary order regarding the breakdown of an insurer’s equity (“Temporary Order”), which will apply until full implementation of the Directive in Israel, when announced by the Insurance Commissioner. The Temporary Order defines the secondary capital issued according to Capital Regulations, before amendment, as subordinate secondary capital and imposes a limit equal to 50% of basic capital.
Distribution of dividends
In accordance with rules promulgated by the Insurance Commissioner, a dividend distribution may not be approved, unless, after giving pro forma effect to the proposed distribution, the insurer has a ratio of recognized equity to required equity of at least 100% pursuant to the provisions of any Solvency Directive, as confirmed in filings with the Insurance Commissioner. Prior approval of the Insurance Commissioner is not required for any distribution of dividends if the total equity of the insurance company, as defined in the Minimum Capital Regulations, after giving effect to the distribution of the proposed dividend, exceeds 115% of the required equity.
In November 2014, the Insurance Commissioner outlined solvency rules (“rules” or “regime,” as applicable) based on Solvency II, in Israel, in a letter addressed to managers of the insurance companies (“Letter”). In the Letter, the Insurance Commissioner outlined a plan to adopt the 2016 European model for calculating capital and capital requirements for the local market, effective as of the annual reports for 2016 (“First Adoption Date”). During a period to be determined by the Insurance Commissioner and as conditions require, insurance companies will also be required to comply with capital requirements under existing regulations. The Letter stated that until final adoption, insurance companies must prepare additional quantitative assessment exercises (IQIS) for the 2014-2015 period. These requirements are intended to assess the quantitative effects of adopting the model, as well as providing data for calibrating and adjusting the model. In addition, the Letter addressed an initiative to develop a framework for quarterly reporting of insurance companies’ solvency ratio. The Letter also referred to the Commissioner’s intention to publish provisions for managing capital and targets for internal capital, to address a gap survey that insurers will undertake with respect to their risk
management systems, controls and corporate governance and a consultation paper to promote the process of self-assessment of risks and solvency (ORSA). In April 2015, the Insurance Commissioner published a second letter titled “Plan for the Adoption of Rules for Solvency, based on Solvency II” and provisions for the IQIS4 exercises to be undertaken regarding the 2014 historical financial statements. The letter emphasized that the exercise reflects the decision of the Insurance Commissioner to impose adjustments required for the Israeli insurance market. The Letter further stated in connection with the proposed adoption of IQIS5 that the Insurance Commissioner would continue to monitor developments in the European markets and would consider adjustments relevant for Israel.
In July 2015, the Insurance Commissioner issued a letter concerning “transitional provisions regarding the application of solvency rules, based on Solvency II” (the “Letter on Transitional Provisions”). The transitional provisions were provided by reference to certain solvency rules set forth in the European Directive relating to, inter alia, a gradual adoption of capital requirements in respect of holdings of equity shares which may a component to be included in the calculation of core capital. In addition, the letter included transitional provisions regarding submission of a plan to improve the capital ratios of insurance companies whose ratios are negatively affected following adoption of the new solvency rules beginning with the financial statements for 2018. Adoption of the solvency rules are expected to change both the recognized regulatory and required regulatory capital and according to indications existing today, is expected to result in a significant decline in the ratio between recognized capital and required capital of Clal Insurance compared to capital ratios calculated according to capital ratio requirements currently in effect, and is expected to adversely affect the ability of Clal Insurance and Clal Insurance Enterprises to distribute dividends upon such adoption. However, as a rule, the capital requirements under the solvency rule are intended to serve as a capital cushion against more serious events, with a lower loss probability than the capital requirements under current rules. In May 2015, the Board of Directors of Clal Insurance Enterprises and the Board of Directors of Clal Insurance directed its management team and the Risk Management Committee, which also functions as the Solvency Committee (“Committee”), to examine measures Clal Insurance may be able to employ to improve its capital ratio, in accordance with the new solvency rules and to recommend a course of action to the Board of Directors, including in relation to business adjustments and/or financial transactions related to Clal Insurance’s capital, its breakdown, and/or its responsibilities. The Committee and Management have begun this examination, and during the first stage, recommended that the Board of Directors issue secondary capital instruments. The Committee will continue to examine other measures in an effort to prepare the company for possible adoption of these proposed capital requirements, and related measures. Clal Insurance has calculated its capital ratio using results as of December 31, 2014 (“Calculation Date”) and based on the IQIS4 rules and has determined that it would be in compliance, as of the Calculation Date, with the proposed capital requirements, in the context of the transitional provisions, even before taking pro forma account of the positive impact on the capital ratio provided by the subsequent issuance of subordinated notes. The related calculations were submitted to the Insurance Commissioner on August 31, 2015. The Insurance Commissioner has not yet published binding provisions for adoption, and there is uncertainty regarding the details of the final provisions. Clal Insurance will continue to monitor the quantitative aspects of the proposed solvency rules towards final adoption, in an effort to anticipate requisite controls and capital requirements. On March 14, 2016, “IQIS Provisions for 2015” (“Draft”) was published in preparation for the adoption of Solvency II. Insurance companies are required to submit an additional quantitative evaluation survey on the basis of December 2015 results (“IQIS5”), by June 30, 2016. The Draft was issued by reference to the European legislation adapted for requirements of the local market and that goes beyond provisions for quantitative evaluation surveys previously issued. The main changes relate to establishing risk-free interest curves, through extrapolation to the ultimate forward rate point, the components of recognized capital, capital requirements less investments in infrastructure (capital and debt), adjusting capital requirements for management companies, and updating the formula for calculating capital requirements for risk premiums and reserves for general insurance. Clal Insurance is unable to assess the overall impact of the changes based on the provisions in the Draft to carry out a further quantitative evaluation survey, and will carry out an assessment of the current capital status, when the binding provisions will be finalized. According to the Draft, the IQIS5 calculation will be a factor in assessing preparedness of insurance companies and to the implementation and scope of the final provisions to be adopted.
Capital requirements under the Capital Regulations are based on the separate individual financial statements of an insurance company. For purposes of calculating recognized capital, an investment by an insurance company in an insurance company or a controlled management company, and in other subsidiaries will be calculated on the equity basis, according to a holding rate, which includes indirect holdings.
The minimum capital required of Clal Insurance has been reduced, with approval of the Insurance Commissioner, by 35% of the original difference attributed to the managing companies and provident funds under its control. However, when calculating the amount of dividends permitted for distribution, this difference will be added at level of the capital structure. In September 2013, the Insurance Commissioner notified Clal Insurance that the deducted amount to be added back to the minimum capital required, will be after a deduction for a tax reserve accrued by Clal Insurance following the acquisition of provident fund operations. The approval of the Insurance Commissioner, as noted above, will be canceled with adoption of capital requirements under the Directive that will replace the Capital Regulations. In March 2013, Clal Insurance received a letter from the Insurance Commissioner regarding the determination of credit ratings according to an internal model used by Clal Insurance (“internal model”), to be applied as a risk rating methodology for a subject insured, according to conditions of the relevant sector. The Insurance Commissioner authorized Clal Insurance to allocate capital for adjusted loans, ranked according to its internal model and with reference to the rates specified in the Capital Regulations. If there is an external rating available, the capital allocation will be made using the lower of the available ratings. The letter also requires Clal Insurance to submit immediate and periodic reports as specified regarding these activities that make the specified transactions subject to review by the Commissioner of Insurance. As a result of its compliance with the provisions of the letter, Clal Insurance’s capital requirements were reduced by NIS 69 million, as at the end of the reporting period. Permit Issued by the Insurance Commissioner to the Former Controlling Shareholders of IDBH to Retain Control of Clal Insurance Enterprises and Consolidated Institutional Entity. On May 8, 2014, legal counsel for the former controlling shareholders of IDBD (Ganden, Manor, and Livnat Groups) was notified by the Commissioner that in the context of arrangements among the creditors of IDBH, and given that they no longer controlled the Clal Insurance Enterprises Group, the authorization previously issued by the Insurance Commissioner for control of these entities was terminated, including, with respect to Clal Insurance, Clal Credit Insurance and Clal Pension and Provident Funds. IDBH undertook to supplement (or to cause its controlled affiliates to supplement) the required equity of the insurers in compliance with the Capital Regulations, subject to the a cap of 50% of the required capital of an insurer, and that the obligation will take effect only if the insurer’s equity is determined to be negative, and such funding amount will then be equal to the amount of negative capital, up to the 50% cap. In addition, IDBH undertook to contribute to the equity of Clal Pension and Provident Funds up to the amount prescribed by the Provident Fund Regulations, for as long as IDBH is the controlling shareholder of the institutional entities. The authorization specifies conditions and imposes restrictions on the ability of a holding entity to impose liens on the equity of IDBD’s institutional entities it holds. The former controlling shareholders were also required, as long as any liens existed on their equity interest of IDBH, to ensure that Clal Insurance Enterprises complied with applicable capital requirements, such that the equity of Clal Insurance Enterprises at no time was less than the product of the holding rate of Clal Insurance Enterprises in Clal Insurance and 140% of the required minimum equity of Clal Insurance, calculated according to the Capital Regulations on September 30, 2005 (as the holding rate was linked to the CPI of September 2005).At the end of the reporting period, the required minimum capital of Clal Insurance Enterprises was NIS 2.9 billion, greater that the amount required based on the foregoing calculation. The capital requirement is calculated on the basis of the financial statements of Clal Insurance Enterprises. Following termination of the control authorization, the former controlling shareholders have questioned whether the capital requirements applicable to Clal Insurance Enterprises thereunder continue to apply.
Clal Insurance is committed to finding a strategy to supplement its required equity in compliance with the Capital Regulations if the equity of Clal Credit Insurance becomes negative, and as long as Clal Insurance is the controlling shareholder of Clal Credit Insurance. Clal Insurance is committed to supplement the equity of Clal Pension and Provident Funds as necessary to ensure it complies with the minimum amount required by Income Tax Regulations (Rules for Approval and Management of Provident Funds), 1964 (“Income Tax Regulations”). This commitment is valid as long as Clal Insurance controls, directly or indirectly, Clal Pension and Provident Funds. In February 2012, Supervision of Financial Services Regulations (Provident Funds) (Minimum Capital Required of a Management Company of a Provident Fund or Pension Fund), 2012, was published along with Income Tax Regulations (Rules for Approval and Management of Provident Funds) (Amendment 2), 2012 (“new regulations”).
Pursuant to the new regulations, the capital requirements for management companies were expanded to include capital requirements based on the volume of assets under management and applicable annual expenses, but not less than the initial capital of NIS 10 million. In addition, liquidity requirements were also prescribed. A fund management company may distribute dividends only to the extent of any excess above the minimum amount of equity required by said regulations. In addition, a fund management company must provide additional capital in respect of controlled management companies. As at the end of the reporting period, the management companies controlled by Clal Insurance have capital balances in excess of the minimum capital required by the capital regulations for management companies. In light of capital regulations for management companies and in order to finance the expansion of operating and investing activities of Clal Pension and Provident Funds, the Boards of Directors of Clal Insurance and Clal Pension and Provident Funds in 2015 and 2014 approved an subscribed shares of Clal Pension and Provident Funds in consideration for NIS 100 million and NIS 80 million, respectively.
Anti-Money Laundering
In May 2017, the Prohibition on Money Laundering Order (Obligation to Identify, Report and Maintain Records of Insurers, Insurance Agents and Managing Companies in Order to Prevent Money Laundering and the Financing of Terrorism), 2017, was published, which came into effect in March 2018 (the “Prohibition on Money Laundering Order”). The order consolidates and combines, under a single framework regarding institutional entities. The following regulations: The Prohibition on Money Laundering Order (Obligation to Identify, Report and Maintain Records of Insurers and Insurance Agents), 2001 and The Prohibition on Money Laundering Order (Obligation to Identify, Report and Maintain Records of Provident Funds and Managing Companies of Provident Funds), 2001. The main changes in the order, relative to the current orders, include the expansion of the application of the order to a new general fund, provident fund for investment and provident fund for savings, and with respect to an annuity paying provident fund in certain cases, and regarding the reduction of the limit of accruals, deposits and withdrawals which require the performance of actions in accordance with the order. Additionally, an obligation was established to perform a “know your customer” process upon engagement in a life insurance contract or upon the opening of a provident fund.
In addition, in December 2016, the bill for amending the Prohibition on Money Laundering Law (Amendment No. 19), 5766 - 2016 (the “Amendment”) was published and was yet to be approved. The Amendment includes changes which expand the list of cases included pursuant to the law, and also sets the right of the Authority for the Prohibition of Money Laundering to transfer information to the Commissioner of Insurance.
In February 2018, the Management of Money Laundering and Financing of Terror Risks in financial institutions circular was published (the “Money Laundering Risk Management Circular”), which extends and imposes additional obligations on institutional entities which are not included in the Prohibition on Money Laundering Order.
The Money Laundering Risk Management Circular
The main purpose of the Money Laundering Risk Management’s Circular is to establish directives regarding the implementation of orderly processes for the identification and assessment of the risks of money laundering and the financing of terrorism and the taking of measures for their management and amortization, including the guidelines regarding the adoption of a money laundering and terror financing risk management policy for the approval of the Board of Directors; Formulating a risk assessment document in which the money laundering and terrorist financing risks in the institutional body will be identified and evaluated; Implementation of measures to reduce the risk of money laundering and the financing of terrorism; And those responsible for fulfilling the obligations of the prohibition of money laundering and the prevention of terrorism in an institutional entity.
According to the Clal’s estimate, the Prohibition on Money Laundering Order, the Amendment and the said circular may have implications on the sale process of insurance products, both within the framework of the direct sale channels, and through agents, inter alia, in light of the requirements of the order and their impact on the sale processes, both in light of the need to implement a process of learning about the customer prior to the sale process, and in light of the interpretation which will be given for the aforementioned obligations, with respect to the insurance companies, the insurance agents and the reciprocal relationship between them.
C. Organizational Structure
The following table presents information relating to our ownership interest and the percentage of our consolidated total net revenues represented by our subsidiaries as of June 30, 2019:2020:
| | | % of ownership interest held by the Company, as of June 30, | | % of ownership interest held by the Group |
| Name of the entity | Country | Main activity | | | | Country | Main activity | 06.30.2020 | 06.30.2019 | 06.30.2018 |
| IRSA's direct interest: | | | | |
| IRSA CP (1) | Argentina | Real estate | 83.80% | 86.34% | 94.61% | Argentina | Real estate | 80.65% | 83.80% | 86.34% |
| E-Commerce Latina S.A. | Argentina | Investment | 100.00% | Argentina | Investment | 100.00% |
| Efanur S.A. | Uruguay | Investment | 100.00% | Uruguay | Investment | 100.00% |
| Hoteles Argentinos S.A. | Argentina | Hotel | 100.00% | 80.00% | |
| Inversora Bol’var S.A. | Argentina | Investment | 100.00% | |
| Hoteles Argentinos S.A.U. | | Argentina | Hotel | 100.00% | 80.00% |
| Inversora Bolívar S.A. | | Argentina | Investment | 100.00% |
| Llao Llao Resorts S.A. (2) | Argentina | Hotel | 50.00% | Argentina | Hotel | 50.00% |
| Nuevas Fronteras S.A. | Argentina | Hotel | 76.34% | Argentina | Hotel | 76.34% |
| Palermo Invest S.A. | Argentina | Investment | 100.00% | Argentina | Investment | 100.00% |
| Ritelco S.A. | Uruguay | Investment | 100.00% | Uruguay | Investment | 100.00% |
| Tyrus S.A. | Uruguay | Investment | 100.00% | Uruguay | Investment | 100.00% |
| U.T. IRSA y Galerias Pacifico (2) | Argentina | Investment | 50.00% | Argentina | Investment | 50.00% |
| IRSA CP's direct interest: | | | | |
| Arcos del Gourmet S.A. | Argentina | Real estate | 90.00% | Argentina | Real estate | 90.00% |
| Emprendimiento Recoleta S.A. | Argentina | Real estate | 53.68% | Argentina | Real estate | 53.68% |
| Fibesa S.A. (3) | Argentina | Real estate | 100.00% | Argentina | Real estate | 100.00% |
| Panamerican Mall S.A. | Argentina | Real estate | 80.00% | Argentina | Real estate | 80.00% |
| Shopping Neuquén S.A. | Argentina | Real estate | 99.95% | 99.92% | Argentina | Real estate | 99.95% | 99.92% |
| Torodur S.A. | Uruguay | Investment | 100.00% | Uruguay | Investment | 100.00% |
| EHSA | Argentina | Investment | 70.00% | Argentina | Investment | 70.00% |
| Centro de Entretenimiento La Plata | Argentina | Real estate | 100.00% | - | Argentina | Real estate | 100.00% |
| Pareto S.A. | Argentina | design and software development | 69.69% | - | Argentina | design and software development | 69.69% | - |
| La Malteria | Argentina | Real estate | 100.00% | - | |
| Tyrus S.A.'s direct interest: | | | | |
| DFL and DN BV | Bermudas / Netherlands | Investment | 96.46% | 91.57% | Bermuda’s / Netherlands | Investment | 97.04% | 96.46% | 91.57% |
| I Madison LLC | USA | Investment | - | 100.00% | USA | Investment | - |
| IRSA Development LP | USA | Investment | - | 100.00% | USA | Investment | - |
| IRSA International LLC | USA | Investment | 100.00% | USA | Investment | 100.00% |
| Jiwin S.A. | Uruguay | Investment | 100.00% | Uruguay | Investment | 100.00% |
| Liveck S.A. | Uruguay | Investment | 100.00% | Uruguay | Investment | 100.00% |
| Real Estate Investment Group IV LP (REIG IV) | Bermudas | Investment | - | 100.00% | |
| Real Estate Investment Group V LP (REIG V) | Bermudas | Investment | 100.00% | Bermuda’s | Investment | - | 100.00% |
| Real Estate Strategies LLC | USA | Investment | 100.00% | USA | Investment | 100.00% |
| Efanur S.A.'s direct interest: | | | | |
| Real Estate Investment Group VII LP (REIG VII) | Bermudas | Investment | 100.00% | - | Bermuda’s | Investment | 100.00% |
| DFL's and DN BV's direct interest: | | | | |
| IDB Development Corporation Ltd. | Israel | Investment | 100.00% | 68.28% | Israel | Investment | 100.00% |
| Dolphin IL Investment Ltd. | Israel | Investment | 100.00% | - | Israel | Investment | 100.00% |
| DIL's direct interest: | | | | |
| Discount Investment Corporation Ltd. (4) | Israel | Investment | 83.77% | 76.57% | 77.25% | Israel | Investment | 83.72% | 83.77% | 76.57% |
| IDBD's direct interest: | | | | |
| IDB Tourism (2009) Ltd. | Israel | Tourism services | 100.00% | Israel | Tourism services | 100.00% |
| IDB Group Investment Inc | Israel | Investment | 100.00% | Israel | Investment | 100.00% |
| DIC's direct interest: | | | | |
| Property & Building Corporation Ltd. | Israel | Real estate | 68.80% | 64.40% | Israel | Real estate | 72.40% | 68.80% | 64.40% |
| Shufersal Ltd.(6) | Israel | Retail | - | 54.19% | |
| Cellcom Israel Ltd. (5) | Israel | Telecommunications | 44.10% | 43.14% | 42.26% | Israel | Telecommunications | 46.20% | 44.10% | 43.14% |
| Elron Electronic Industries Ltd. | Israel | Investment | 61.06% | 50.30% | Israel | Investment | 61.06% | 50.30% |
| Bartan Holdings and Investments Ltd. | Israel | Investment | 55.68% | Israel | Investment | 55.68% |
| Epsilon Investment House Ltd. | Israel | Investment | 68.75% | Israel | Investment | 68.75% |
| Mehadrin Ltd (8) | | Israel | Agricultural | 43.75% | - |
| PBC's direct interest: | | | | |
| Gav-Yam Bayside Land Corporation Ltd. | Israel | Real estate | 51.70% | 55.01% | Israel | Real estate | - | 51.70% |
| Ispro The Israeli Properties Rental Corporation Ltd. | Israel | Real estate | 100.00% | Israel | Real estate | 100.00% |
| Matam - Scientific Industries Center Haifa Ltd. | Israel | Real estate | 50.10% | Israel | Real estate | 50.10% |
| Hadarim Properties Ltd. | Israel | Real estate | 100.00% | Israel | Real estate | 100.00% |
| Property & Building (Commercial Centers) Ltd. | Israel | Real estate | 100.00% | Israel | Real estate | 100.00% |
| PBC USA Investments Inc | USA | Real estate | 100.00% | USA | Real estate | 100.00% |
Except for the aforementioned items the percentage of votes does not differ from the stake.
D. Property, Plant and Equipment
In the ordinary course of business, the leases property or spaces for administrative or commercial use both in Argentina and Israel under operating lease arrangements. The agreements entered into include several clauses, including but not limited, to fixed, variable or adjustable payments.
The following table sets forth certain information about our properties for the Operation Center in Argentina as of June 30, 2019:2020:
(1) Total leasable area for each property. Excludes common areas and parking spaces.
(2) Cost of acquisition or development plus improvements, less accumulated depreciation, less allowances for our Hotels (considering inflation adjustment). The remaining properties are valued at fair value.
(3) Through IRSA CP.
(4) Includes the following land reserves: Pontevedra plot; Mariano Acosta Plot, San Luis Plot, Pilar plot and Merlo plot (through IRSA) and Intercontinental Plot, Annexedthe building and plot annexed to Dot, Plot, Mendoza Plot, Mendoza 2.992 East Av. Plot Puerto Retiro plot and La Plata plot (through IRSA CP).
(5) Includes the following properties: Anchorena 665, Anchorena 545 (Chanta IV), Zelaya 3102, 3103 y 3105, Madero 1020, La Adela, Paseo del Sol, Libertador 498, Beruti Parking Space Santa María del Plata and Detroit properties, PH office park and UTE EH.properties.
(6) Percentage of occupation of each property. Land reserves are assets that the company keeps in the portfolio for future developments.
(7) Through Nuevas Fronteras S.A.
(9) Through Llao Llao Resorts S.A.
(11) The cinema building located at Córdoba Shopping – Villa Cabrera is included in Investment Properties, which is encumbered by a right of antichresis as a result of loan due to Empalme by NAI INTERNACIONAL II Inc. The total amount of the loan outstanding was Ps.82.3 million as of June 30, 2019. Includes “Ocampo parking spaces”
(12) Express in number of rooms.
The following table sets forth certain information about our properties for the Operations Center in Israel as of June 30, 2019:2020:
This item is not applicable.
ITEM 5. Operating and Financial Review and Prospects
The following management’s discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data” and Our Audited Consolidated Financial Statements and related notes appearing elsewhere in this annual report.Annual Report. This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. These forward-looking statements include such words as, “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ materially and adversely from those anticipated in these forward-looking statements as a result of many factors, including without limitation those set forth elsewhere in this annual report.Annual Report. See Item 3 “Key Information – D. Risk Factors” for a more complete discussion of the economic and industry-wide factors relevant to us.
We are engaged, directly and indirectly through subsidiaries and joint ventures, in a range of diversified activities, primarily in real estate, including:
Most of our assets are located in Argentina, where we conduct our operations, and in Israel. Therefore, our financial condition and the results of our operations are significantly dependent upon economic conditions prevailing in both countries.
The table below shows Argentina’s GDP, inflation rates, dollar exchange rates, the appreciation (depreciation) of the Peso against the U.S. dollar, and the appreciation (depreciation) of the NIS against the U.S. dollar for the indicated periods (inter-annual information—which is the 12 month period preceding the dates presented—is presented to conform to our fiscal year periods).
(2) IPIM (Índice de Precios Internos al por Mayor) is the wholesale price index as measured by the Argentine Ministry of Treasury.
Sources: INDEC and Banco de la Nación Argentina.
Changes in short- and long-term interest rates, unemployment and inflation rates may reduce the availability of consumer credit and the purchasing power of individuals who frequent shopping malls. These factors, combined with low GDP growth, may reduce general consumption rates at our shopping malls. Since most of the leaseagreements inlease agreements at our shopping malls, our main source of revenue, require tenants to pay a percentage of their total sales as rent, a general reduction in consumption may reduce our revenue. A reduction in the number of shoppers at our shopping malls and, consequently, in the demand for parking, may also reduce our revenues from services rendered.
Regarding Israel’s economy, and based on information published by OECD, despite a decline in residential investment, activity remained solid at the beginning of 2018, with strong public consumption and good export performance, particularly of services. After picking up to 3.3% in 2017, growth is projected to be around 3.7% in 2018 and 3.6% in 2019. Rising wage pressures are projected to lead to a steady increase in inflation.
The following are annual inflation rates during the fiscal years indicated, based on information published by the INDEC, an entity dependent of the Argentine Ministry of Treasury.
For the leases of spaces at our shopping malls we use for most tenants a standard lease agreement, the terms and conditions of which are described below. However, our largest tenants generally negotiate better terms for their respective leases. No assurance can be given that lease terms will be as set forth in the standard lease agreement.
Continuing increases in the rate of inflation are likely to have an adverse effect on our operations. Although higher inflation rates in Argentina may increase minimum lease payments, given that tenants tend to pass on any increases in their expenses to consumers, higher inflation may lead to an increase in the prices our tenants charge consumers for their products and services, which may ultimately reduce their sales volumes and consequently the portion of rent we receive based on our tenants’ gross sales.
In addition, we measure the fair market value of our shopping malls based upon the estimated cash flows generated by such assets which, as discussed in previous paragraphs, is directly related to consumer spending since a significant component of the rent payment received from our tenants is tied to the sales realized by such tenants (i.e(i.e. is a percentage of the sales of our tenants). Therefore, macroeconomic conditions in Argentina have an impact in the fair market value of our shopping malls as measured in Argentine pesos. Specifically, since our tenant’stenants’ products have been adjusted (increased) to account for inflation of the Argentine peso, our expected cash flows from our shopping malls have similarly increased in nominal terms since rent is largely dependent on sales of our tenants in pesos.
Our business is directly affected by seasonality, influencing the level of our tenants’ sales. During Argentine summer holidays (January and February) our tenants’ sales typically reach their lowest level, whereas during winter holidays (July) and in Christmas (December) they reach their maximum level. Clothing retailers generally change their collections in spring and autumn, positively affecting our shopping malls’ sales. Discount sales at the end of each season are also one of the main seasonal factors affecting our business. See “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.”
Most of our U.S. dollar-denominated debt accrues interest at a fixed rate. An increase in interest rates will result in a significant increase in our financing costs and may materially affect our financial condition or our results of operations.
In addition, a significant increase of interest rates could deteriorate the terms and conditions in which our tenants obtain financing from banks and financial institutions in the market. As a consequence of that, if they suffer liquidity problems the collection of our lease contracts could be affected by an increase in the level of delinquency.
A significant portion of our financial debt is denominated in U.S. dollars. Therefore, a devaluation or depreciation of the peso against the U.S. dollar would increase our indebtedness measured in pesos and materially affect our results of operations. Foreign currency exchange restrictions imposed by the Argentine government could prevent or restrict our access to U.S. dollars, affecting our ability to service our U.S. dollar denominated- liabilities.
In addition, contracts for the rental of office buildings are generally stated in U.S. dollars, so a devaluation or depreciation of the peso against the U.S. dollar would increase the risk of delinquency on our lease receivables.
As discussed above, we calculate the fair market value of our office properties based on comparable sales transactions. Typically real estate transactions in Argentina are transacted in U.S. dollars. Therefore, a devaluation or depreciation of the Pesopeso against the U.S. dollar would increase the value of our real estate properties measured in Pesospesos and an appreciation of the Pesopeso would have the opposite effect. In addition, foreign currency exchange restrictions imposed by Argentine government could prevent or restrict the access to U.S. dollars for the acquisition of real estate properties, which are denominated and transacted in U.S dollars in Argentina, that could affect our ability to sell or acquire real estate properties and could have an adverse impact in real estate prices.
For more information about the evolution of the U.S dollar / Peso exchange rate, please see the section “Exchange Rate and Exchange Controls”.
Fluctuations in the market value of our investment properties as a result of revaluations
Currently, our interests in investment properties are revalued quarterly. Any increase or decrease in the fair value of our investment properties, based on appraisal reports commissioned from independentprepared by appraisers, is recorded in our consolidated statement of comprehensive income for the fiscal year during which the revaluation occurs as a net increase or decrease in the fair value of the properties.occurs. The revaluation of our properties may therefore result in significant fluctuations in the results of our operations.
The value of the Company investment properties is determined in U.S. dollar pursuant to the methodologies further described in “Critical Accounting Policies and estimates” and then determined in pesos (the Company functional and presentation currency).
IDBD and DIC, our principal subsidiaries in the Operations Center in Israel, report their quarterly and annual results following Israeli regulations, whose filing deadlines fall after the filing deadlines in Argentina. In addition, IDBD and DIC fiscal year ends differ from our fiscal year end, consequently, we consolidate the results of operations from IDBD and DIC on a three-month lag basis adjusted for the effects of any significant transactions taking place within such period. As such, our consolidated statement of income for the year ended June 30, 20192020 includes the results of IDBD and DIC for the 12-month period from April 1, 20182019 to March 31, 2019,2020, adjusted for the significant transactions that occurred between April 1, 20192020 and June 30, 2019.2020.
IFRS 8 requires an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the CODM. According to IFRS 8, the CODM represents a function whereby strategic decisions are made and resources are assigned. The CODM function is carried out by the President of the Group, Mr. Eduardo S. Elsztain. In addition, and due to the acquisition of IDBD, two responsibility levels have been established for resource allocation and assessment of results corresponding toof the two operations centers, through executive committees in Argentina and Israel.
As of fiscal year 2018, the CODM reviews certain corporate expenses associated with each operationoperations center in an aggregate manner and separately from each of the segments, and such expenses have been disclosed in the "Corporate" segment of each operationoperations center. Additionally, as of fiscal year 2018, the “Offices”CODM reviews the offices business is being monitored as a separatesingle segment whileand the entertainment business in an aggregate manner and separately from the offices segment. The entertainment business is now being monitoredpresented within the “Others”"Others" segment. Segment information for the year 2017 has been consequently recast for purposes of comparability with the present year.
Operations Center in ArgentinaArgentina:Within this operations center, the CompanyGroup operates in the following segments:
● o
The “Shopping“Shopping Malls” segment includes results principally comprised of lease and service revenues related to rental of commercial space and other spaces in the shopping malls of the Company.Group.
● o
The “Offices”“Offices” segment includes the operating results from lease revenues of offices, other rental spaces and other service revenues related to the office activities.
● o
The “Sales“Sales and Developments” segment includes the operating results of the development, maintenance and sales of undeveloped parcels of land and/or trading properties. Real estate sales results are also included.
● o
The “Hotels”"Hotels" segment includes the operating results mainly comprised of room, catering and restaurant revenues.
o
●
The “International”“International” segment includes assets and operating profit or loss from business related to associates Condor (hotels) and New Lipstick (offices).
● o
The “Others” s“Others” segment primarily includes the entertainment activities through La Arena andALG Golf Center S.A., La Rural S.A. and TGLT, and the financial activities carried out by BHSA and Tarshop.BHSA.
● o
The “Corporate” “Corporate”segment includes the expenses related to the corporate activities of the Operations Center in Argentina.
The CODM periodically reviews the results and certain asset categories and assesses performance of operating segments and allocates resources withinof this operations center based on a measure of profit or loss of the segment representedcomposed by the operating income (loss) plus the share of profit / (loss) of joint ventures and associates. The valuation criteria used in preparing this information are consistent with IFRS standards used for the preparation of the Audited Consolidated Financial Statements, except for the following:
●
Operating results from joint ventures are evaluated by the CODM applying proportional consolidation method. Under this method the profit/loss generated and assets are reported in the Statement of Income line-by-line based on the percentage held in joint ventures rather than in a single item as required by IFRS. Management believes that the proportional consolidation method provides more useful information to understand the business return. On the other hand, the investment in the joint venture La Rural S.A. is accounted for under the equity method since this method is considered to provide more accurate information in this case.
●
Operating results from Shopping Malls and Offices segments do not include the amounts pertaining to building administration expenses and collective promotion funds (“FPC”, as per its Spanish acronym) as well as total recovered costs, whether by way of expenses or other concepts included under financial results (for example default interest and other concepts). The CODM examines the net amount from these items (total surplus or deficit between building administration expenses and FPC and recoverable expenses).
The assets’ categories examined by the CODM are: investment properties, property, plant and equipment, trading properties, inventories, right to receive future units under barter agreements, investment in associates and goodwill. The sum of these assets, classified by business segment, is reported under “assets by segment”. Assets are allocated to each segment based on how they are used in the operations and/or their physical location.
Within the Operations Center in Argentina, most revenue from its operating segments is derived from, and their assets are located in, Argentina, except for the share of profit / (loss) of associates included in the “International” segment located in USA.
Revenues for each reporting segments derive from a large and diverse client base and, therefore, there is no revenue concentration in any particular segment.
Operations center in Israel
●Operations Center in Israel:Within this operations center, as of June 30, 2020, the Company operatesoperated in the following segments:
● o
The “Real“Real Estate” segment in which, through PBC, the CompanyGroup operates rental properties and residential properties in Israel, USA and other parts of the world and carries out commercial projects in Las Vegas, USA. In this fiscal year, the Company lost control over Gav-Yam. Income was reclassified to discontinued operations and no longer forms part of this segment in this fiscal year. The comparative information has been adjusted accordingly. As of September 2019, Gav-Yam started to be accounted for as an associate.
● o
The “Supermarkets”“Supermarkets” segment in which, through Shufersal, reclassified to discontinued operations due tothe Group operated a supermarket chain in Israel. Upon the loss of control in 2018 this segment was reclassified to discontinued operations and presented as an associate since 2019,2019. Due to the Company mainly operatesloss of control, it was reclassified to discontinued operations and no longer represents a supermarket chain in Israel.segment for fiscal year 2018.
● o
The “Telecommunications”“Telecommunications” segment includes Cellcom whose main activities include the provision of mobile phone services, fixed line phone services, data, Internet and television, among others.
o
●
The "Insurance""Insurance" segment includes the investment in Clal, insurance company which main activities includes pension and social security insurance, among others. As stated in Note 14, the CompanyGroup does not have control over Clal; therefore, the business is reported in a single line as a financial asset held for sale and valued at fair value.
● o
The "Others""Others" segment includes other diverse business activities, such as technological developments, tourism, oil and gas assets, electronics, agricultural antivities and others.
● o
The “Corporate”“Corporate” segment includes the expenses related with the activities of the holding companies.
The CODM periodically reviews the results and total asset and liabilities categories, assesses performance of operating segments and allocates resources within this operations center based on a measure of profit or loss of the segment by the operating income (loss) plus the share of profit / (loss) of associates and joint ventures. The valuation criteria used in preparing this information are consistent with IFRS standards used for the preparation of the Audited Consolidated Financial Statements.
The Company consolidates results derived from its operations center in Israel with a three month lag, adjusted for the effects of significant transactions. For the fiscal year ended June 30, 2019, a full twelve-month period is consolidated, also with a three-month lag and adjusted for the effects of significant transactions.
Goods and services exchanged between segments are calculated on the basis of established prices. Intercompany transactions between segments, if any, are eliminated.
Below is a summary of the Company’s operating segments by geographyGroup’s lines of business and a reconciliation between the results from operations as per segment information and the results from operations as per the Statements of Income for the years ended June 30, 2020, 2019 2018 and 2017:2018:
| | | June 30, 2020 |
| | Operations Center in Argentina | Operations Center in Israel | | | Expensesand collectivepromotion funds | Elimination of inter-segment transactions and non-reportable assets / liabilities (2) | Total as per statement of income / statement of financial position | Operations Center in Argentina | Operations Center in Israel | | | Expenses and collective promotion funds | Elimination of inter-segment transactions and non-reportable assets / liabilities (2) | Total as per statement of income / statement of financial position |
| | | (In million of ARS) |
| Revenues | 10,534 | 56,722 | 67,256 | (65) | 2,593 | (17) | 69,767 | 11,138 | 81,637 | 92,775 | (60) | 3,100 | (22) | 95,793 |
| Costs | (2,223) | (37,127) | (39,350) | 47 | (2,697) | - | (42,000) | (2,731) | (56,296) | (59,027) | 53 | (3,230) | - | (62,204) |
| Gross profit / (loss) | 8,311 | 19,595 | 27,906 | (18) | (104) | (17) | 27,767 | 8,407 | 25,341 | 33,748 | (7) | (130) | (22) | 33,589 |
| Net (loss) / gain from fair value adjustment of investment properties | (27,713) | 3,416 | (24,297) | 587 | - | (23,710) | |
| Net gain / (loss) from fair value adjustment of investment properties | | 33,994 | (2,989) | 31,005 | (263) | - | 30,742 |
| General and administrative expenses | (1,870) | (5,886) | (7,756) | 11 | - | 31 | (7,714) | (2,152) | (8,764) | (10,916) | 14 | - | 33 | (10,869) |
| Selling expenses | (759) | (7,963) | (8,722) | 5 | - | (8,717) | (1,231) | (12,544) | (13,775) | 18 | - | (13,757) |
| Impairment of associates and joint ventures | | - | (2,470) | - | (2,470) |
| Other operating results, net | (437) | 519 | 82 | 131 | 104 | (16) | 301 | (47) | 1,127 | 1,080 | 18 | 17 | (11) | 1,104 |
| (Loss) / profit from operations | (22,468) | 9,681 | (12,787) | 716 | - | (2) | (12,073) | |
| Share of (loss) / profit of associates and joint ventures | (4,220) | 43 | (4,177) | (712) | - | (4,889) | |
| Segment (loss) / profit | (26,688) | 9,724 | (16,964) | 4 | - | (2) | (16,962) | |
| Profit / (loss) from operations | | 38,971 | (299) | 38,672 | (220) | (113) | - | 38,339 |
| Share of profit of associates and joint ventures | | 7,047 | 1,299 | 8,346 | 171 | - | 8,517 |
| Segment profit / (loss) | | 46,018 | 1 | 47,018 | (49) | (113) | - | 46,856 |
| Reportable assets | 78,058 | 374,723 | 452,781 | (426) | - | 22,279 | 474,634 | 158,263 | 451,267 | 609,53 | (692) | - | 18,361 | 627,199 |
| Reportable liabilities | - | (322,562) | - | (66,253) | (388,815) | - | (403,184) | - | (101,36) | (504,544) |
| Net reportable assets | 78,058 | 52,161 | 130,219 | (426) | - | (43,974) | 85,819 | 158,263 | 48,083 | 206,346 | (692) | - | (82,999) | 122,655 |
| | June 30, 2019 |
| | Operations Center in Argentina | Operations Center in Israel | | | Expenses and collective promotion funds | Elimination of inter-segment transactions and non-reportable assets / liabilities (2) | Total as per statement of income / statement of financial position |
| | (In million of ARS) |
| Revenues | 15,055 | 73,537 | 88,592 | (93) | 3,706 | (24) | 92,181 |
| Costs | (3,176) | (52,426) | (55,602) | 66 | (3,855) | - | (59,391) |
| Gross profit / (loss) | 11,879 | 21,111 | 32,99 | (27) | (149) | (24) | 32,790 |
| Net (loss) / gain from fair value adjustment of investment properties | (39,607) | 892 | (38,715) | 838 | - | - | (37,877) |
| General and administrative expenses | (2,674) | (8,031) | (10,705) | 18 | - | 44 | (10,643) |
| Selling expenses | (1,085) | (11,192) | (12,277) | 7 | - | - | (12,270) |
| Other operating results, net | (660) | 742 | 82 | 194 | 17 | (20) | 273 |
| (Loss) / profit from operations | (32,147) | 3,522 | (28,625) | 1,030 | (132) | - | (27,727) |
| Share of (loss) of associates and joint ventures | (6,031) | (150) | (6,181) | (1,019) | - | - | (7,200) |
| Segment (loss) / profit | (38,178) | 3,372 | (34,806) | 11 | (132) | - | (34,927) |
| Reportable assets | 111,562 | 535,565 | 647,127 | (609) | - | 31,842 | 678,36 |
| Reportable liabilities | - | (461,015) | (461,015) | - | - | (94,689) | (555,704) |
| Net reportable assets | 111,562 | 74,55 | 186,112 | (609) | - | (62,847) | 122,656 |
| | |
| | Operations Center in Argentina | Operations Center in Israel | | | Expensesand collectivepromotion funds | Elimination of inter-segment transactions and non-reportable assets / liabilities (2) | Total as per statement of income / statement of financial position |
| | |
| Revenues | 9,707 | 46,138 | 55,845 | (78) | 3,069 | (12) | 58,824 |
| Costs | (1,960) | (29,624) | (31,584) | 48 | (3,110) | - | (34,646) |
| Gross profit / (loss) | 7,747 | 16,514 | 24,261 | (30) | (41) | (12) | 24,178 |
| Net gain from fair value adjustment of investment properties | 14,145 | 3,575 | 17,720 | (739) | - | - | 16,981 |
| General and administrative expenses | (1,634) | (5,299) | (6,933) | 26 | - | 23 | (6,884) |
| Selling expenses | (788) | (7,506) | (8,294) | 11 | - | - | (8,283) |
| Other operating results, net | (29) | 1,494 | 1,465 | 25 | 41 | (2) | 1,529 |
| Profit / (loss) from operations | 19,441 | 8,778 | 28,219 | (707) | - | 9 | 27,521 |
| Share of (loss) of associates and joint ventures | (2,957) | (173) | (3,130) | 649 | - | - | (2,481) |
| Segment profit / (loss) | 16,484 | 8,605 | 25,089 | (58) | - | 9 | 25,040 |
| Reportable assets | 106,983 | 394,376 | 501,359 | 307 | - | 25,190 | 526,856 |
| Reportable liabilities | - | (335,186) | (335,186) | - | - | (72,155) | (407,341) |
| Net reportable assets | 106,983 | 59,190 | 166,173 | 307 | - | (46,965) | 119,515 |
| | | June 30, 2018 |
| | Operations Center in Argentina | Operations Center in Israel | | | Expensesand collectivepromotion funds | Elimination of inter-segment transactions and non-reportable assets / liabilities (2) | Total as per statement of income / statement of financial position | Operations Center in Argentina | Operations Center in Israel | | | Expenses and collective promotion funds | Elimination of inter-segment transactions and non-reportable assets / liabilities (2) | Total as per statement of income / statement of financial position |
| | | (In million of ARS) |
| Revenues | 9,728 | 46,762 | 56,490 | (94) | 3,287 | (14) | 59,669 | 13,872 | 60,057 | 73,929 | -109 | 4,387 | -20 | 78,187 |
| Costs | (2,105) | (29,965) | (32,070) | 43 | (3,343) | - | (35,370) | (2,802) | -41,935 | -44,737 | 70 | -4,445 | - | -49,112 |
| Gross profit / (loss) | 7,623 | 16,797 | 24,420 | (51) | (56) | (14) | 24,299 | 11,07 | 18,122 | 29,192 | -39 | -58 | -20 | 29,075 |
| Net (loss) / gain from fair value adjustment of investment properties | (4,497) | 779 | (3,718) | (671) | - | (4,389) | |
| Net gain from fair value adjustment of investment properties | | 20,216 | - | 20,216 | -1,056 | - | 19,16 |
| General and administrative expenses | (1,510) | (5,583) | (7,093) | 10 | - | 15 | (7,068) | -2,337 | -7,233 | -9,57 | 40 | - | 33 | -9,497 |
| Selling expenses | (769) | (8,051) | (8,820) | 10 | - | 4 | (8,806) | -1,125 | -10,639 | -11,764 | 15 | - | -11,749 |
| Other operating results, net | (679) | (8) | (687) | (20) | 56 | - | (651) | -54 | 2,136 | 2,082 | 42 | -2 | -13 | 2,109 |
| Profit / (loss) from operations | 168 | 3,934 | 4,102 | (722) | - | 5 | 3,385 | 27,77 | 2,386 | 30,156 | -998 | -60 | - | 29,098 |
| Share of (loss) / profit of associates and joint ventures | (965) | 38 | (927) | 170 | - | (757) | |
| Segment (loss) / profit | (797) | 3,972 | 3,175 | (552) | - | 5 | 2,628 | |
| Share of (loss) of associates and joint ventures | | -4,228 | -422 | -4,65 | 928 | - | -3,722 |
| Segment profit / (loss) | | 23,542 | 1,964 | 25,506 | -70 | -60 | - | 25,376 |
| Reportable assets | 93,973 | 361,249 | 455,222 | (180) | - | 15,215 | 470,257 | 152,903 | 563,654 | 716,557 | 307 | - | 25,189 | 742,053 |
| Reportable liabilities | - | (312,667) | - | (59,951) | (372,618) | - | -479,056 | - | -103,129 | -582,185 |
| Net reportable assets | 93,973 | 48,582 | 142,555 | (180) | - | (44,736) | 97,639 | 152,903 | 84,598 | 237,501 | 307 | - | -77,94 | 159,868 |
(1) Represents the equity value of joint ventures that were proportionately consolidated for information by segment purposes.
(2)
(1) Includes deferred income tax assets, income tax and MPIT credits, trade and other receivables, investment in financial assets, cash and cash equivalents and intangible assets except for rights to receive future units under barter agreements, net of investments in associates with negative equity which are included in provisions in the amount of Ps.6,058ARS 17 million, Ps.3,815 millionARS 8,659 and Ps.112ARS 5,453 million, as of June 30, 2020, 2019 2018 and 2017,2018, respectively.
Below is a summarized analysis of the operating segments by products and serviceslines of the Company’sbusiness of Group’s operations center in Argentina for the fiscal years ended June 30, 2020, 2019 2018 and 2017:2018:
| | |
| | Operations Center in Argentina |
| | | | | | | | | |
| | |
| Revenues | 5,976 | 1,566 | 783 | 2,066 | 10 | - | 133 | 10,534 |
| Costs | (543) | (92) | (368) | (1,110) | (4) | - | (106) | (2,223) |
| Gross profit | 5,433 | 1,474 | 415 | 956 | 6 | - | 27 | 8,311 |
| Net (loss) / gain from fair value adjustment of investment properties | (28,394) | 443 | 496 | - | 4 | - | (262) | (27,713) |
| General and administrative expenses | (661) | (148) | (182) | (344) | (93) | (363) | (79) | (1,870) |
| Selling expenses | (371) | (69) | (83) | (221) | - | - | (15) | (759) |
| Other operating results, net | (57) | (23) | (208) | 80 | (9) | - | (220) | (437) |
| (Loss) / profit from operations | (24,050) | 1,677 | 438 | 471 | (92) | (363) | (549) | (22,468) |
| Share of profit of associates and joint ventures | - | - | (26) | - | (2,574) | - | (1,620) | (4,220) |
| Segment (loss) / profit | (24,050) | 1,677 | 412 | 471 | (2,666) | (363) | (2,169) | (26,688) |
| | | | | | | | | |
| Investment properties, trading propertiesand properties plant and equipment | 35,239 | 22,165 | 19,422 | 1,330 | 189 | - | 743 | 79,088 |
| Investment in associates, joint venturesand goodwill | 7 | 40 | 310 | - | (5,053) | - | 3,488 | (1,208) |
| Other operating assets | 30 | 1 | 129 | 18 | - | - | - | 178 |
| Operating assets | 35,276 | 22,206 | 19,861 | 1,348 | (4,864) | - | 4,231 | 78,058 |
| |
| Operations Center in Argentina |
| | | | | | | | |
| |
| 5,935 | 2,358 | 735 | 2,021 | 11 | - | 78 | 11,138 |
| (567) | (138) | (671) | (1,245) | (12) | - | (98) | (2,731) |
| 5,368 | 2,220 | 64 | 776 | (1) | | (20) | 8,407 |
Net (loss) / gain from fair value adjustment of investment properties | (2,105) | 23,285 | 12,179 | - | - | - | 635 | 33,994 |
General and administrative expenses | (829) | (221) | (228) | (365) | (110) | (282) | (117) | (2,152) |
| (709) | (84) | (197) | (230) | - | - | (11) | (1,231) |
Other operating results, net | (38) | (29) | (27) | (20) | - | - | 67 | (47) |
Profit / (loss) from operations | 1,687 | 25,171 | 11,791 | 161 | (111) | (282) | 554 | 38,971 |
Share of profit of associates and joint ventures | - | - | - | - | 7,377 | - | (330) | 7,047 |
| 1,687 | 25,171 | 11,791 | 161 | 7,266 | (282) | 224 | 46,018 |
Investment properties and trading properties | 49,109 | 62,793 | 32,171 | - | 307 | - | 1,442 | 145,822 |
Investment in associates and joint ventures | - | - | 532 | - | 2,004 | - | 6,737 | 9,273 |
| 276 | 211 | 753 | 1,838 | - | - | 90 | 3,168 |
| 49,385 | 63,004 | 33,456 | 1,838 | 2,311 | - | 8,269 | 158,263 |
From all the revenues corresponding to the Operations Center in Argentina, Ps.10,189ARS 11,127 million are originated in Argentina, Ps.335 million in Uruguay and Ps.10ARS 11 million in the United States.U.S. No external client represents 10% or more of revenue of any of the reportable segments.
From all of the assets corresponding to the Operations Center in Argentina segments, Ps.82,638ARS 155,377 million are located in Argentina and Ps.(4,580)ARS 2,886 million in other countries, principally in United StatesUSA for Ps.(4,864)ARS 2, 311 million and Uruguay for Ps.284ARS 575 million.
| |
| Operations Center in Argentina
|
| | | | | | | | |
| |
| 8,541 | 2,238 | 1,119 | 2,953 | 14 | - | 190 | 15,055 |
| (776) | (131) | (526) | (1,586) | (6) | - | (151) | (3,176) |
| 7,765 | 2,107 | 593 | 1,367 | 8 | - | 39 | 11,879 |
Net (loss) / gain from fair value adjustment of investment properties | (40,581) | 616 | 726 | - | 6 | - | (374) | (39,607) |
General and administrative expenses | (945) | (212) | (283) | (492) | (110) | (519) | (113) | (2,674) |
| (530) | (99) | (119) | (316) | - | - | (21) | (1,085) |
Other operating results, net | (110) | (40) | (286) | 114 | (24) | - | (314) | (660) |
(Loss) / profit from operations | (34,401) | 2,372 | 631 | 673 | (120) | (519) | (783) | (32,147) |
Share of profit of associates and joint ventures | - | - | (37) | - | (3,679) | - | (2,315) | (6,031) |
| (34,401) | 2,372 | 594 | 673 | (3,799) | (519) | (3,098) | (38,178) |
| | | | | | | | |
Investment properties and trading properties | 50,365 | 31,679 | 27,758 | 1,901 | 270 | - | 1,062 | 113,035 |
Investment in associates and joint ventures | 10 | 57 | 443 | - | (7,222) | - | 4,985 | (1,727) |
Other operating assetsInvestment | 43 | 1 | 184 | 26 | - | - | - | 254 |
| 50,418 | 31,737 | 28,385 | 1,927 | (6,952) | - | 6,047 | 111,562 |
From all the revenues corresponding to the Operations Center in Argentina, included in the segments ARS 14,563 million are originated in Argentina, ARS 478 million are originated in Uruguay and ARS 14 million are originated in USA. No external client represents 10% or more of revenue of any of the reportable segments. From all of the assets corresponding to the Operations Center in Argentina segments, ARS 117,932 are located in Argentina and ARS (6,370) million in other countries, principally in USA for ARS (6,952) million and Uruguay for ARS 582 million.
| |
| |
| | | | | | | | |
| 9,750 | 1,332 | 300 | 2,446 | - | - | 44 | 13,872 |
| (829) | (105) | (149) | (1,670) | - | - | (49) | (2,802) |
| 8,921 | 1,227 | 151 | 776 | - | - | (5) | 11,070 |
Net gain from fair value adjustment of investment properties | 6,266 | 6,250 | 7,338 | - | - | - | 362 | 20,216 |
General and administrative expenses | (853) | (218) | (198) | (487) | (118) | (385) | (78) | (2,337) |
| (607) | (142) | (58) | (311) | - | - | (7) | (1,125) |
Other operating results, net | (105) | (22) | 138 | (40) | (58) | - | 33 | (54) |
Profit / (loss) from operations | 13,622 | 7,095 | 7,371 | (62) | (176) | (385) | 305 | 27,770 |
Share of profit of associates and joint ventures | - | - | 4 | - | (4,425) | - | 193 | (4,228) |
| 13,622 | 7,095 | 7,375 | (62) | (4,601) | (385) | 498 | 23,542 |
Investment properties and trading properties | 90,196 | 28,576 | 25,149 | 2,008 | 197 | - | 1,333 | 147,459 |
Investment in associates and joint ventures | 10 | 57 | 446 | - | (3,869) | - | 8,524 | 5,168 |
| 57 | 3 | 189 | 27 | - | - | - | 276 |
| 90,263 | 28,636 | 25,784 | 2,035 | (3,672) | - | 9,857 | 152,903 |
| | |
| | Operations Center in Argentina |
| | | | | | | | | |
| | |
| Revenues | 6,822 | 932 | 210 | 1,711 | - | - | 32 | 9,707 |
| Costs | (580) | (73) | (104) | (1,168) | - | - | (35) | (1,960) |
| Gross profit / (loss) | 6,242 | 859 | 106 | 543 | - | - | (3) | 7,747 |
| Net gain from fair value adjustment of investment properties | 4,384 | 4,373 | 5,134 | - | - | - | 254 | 14,145 |
| General and administrative expenses | (597) | (152) | (139) | (341) | (82) | (269) | (54) | (1,634) |
| Selling expenses | (425) | (100) | (40) | (218) | - | - | (5) | (788) |
| Other operating results, net | (65) | (16) | 97 | (28) | (40) | - | 23 | (29) |
| Profit / (loss) from operations | 9,539 | 4,964 | 5,158 | (44) | (122) | (269) | 215 | 19,441 |
| Share of profit of associates and joint ventures | - | - | 3 | - | (3,095) | - | 135 | (2,957) |
| Segment profit / (loss) | 9,539 | 4,964 | 5,161 | (44) | (3,217) | (269) | 350 | 16,484 |
| | | | | | | | | |
| Investment properties, trading propertiesand properties plant and equipment | 63,108 | 19,994 | 17,596 | 1,405 | 138 | - | 933 | 103,174 |
| Investment in associates, joint venturesand goodwill | 7 | 40 | 312 | - | (2,707) | - | 5,964 | 3,616 |
| Other operating assets | 40 | 2 | 132 | 19 | - | - | - | 193 |
| Operating assets | 63,155 | 20,036 | 18,040 | 1,424 | (2,569) | - | 6,897 | 106,983 |
.
From all the revenues corresponding to the Operations Center in Argentina, the 100% are originated in Argentina. No external client represents 10% or more of revenue of any of the reportable segments.
From all of the assets corresponding to the Operations Center in Argentina segments, Ps.109,244 millionareARS 155,890 million are located in Argentina and Ps. (2,261)ARS (2,987) million in other countries, principally in United StatesUSA for Ps. (2,569)ARS (3,672) million and Uruguay for Ps.308 million.
| | |
| | Operations Center in Argentina |
| | | | | | | | | |
| | |
| Revenues | 6,991 | 945 | 203 | 1,577 | - | - | 12 | 9,728 |
| Costs | (745) | (147) | (103) | (1,102) | - | - | (8) | (2,105) |
| Gross profit | 6,246 | 798 | 100 | 475 | - | - | 4 | 7,623 |
| Net (loss) / gain from fair value adjustment of investment properties | (5,883) | 1,134 | 290 | - | - | - | (38) | (4,497) |
| General and administrative expenses | (582) | (157) | (72) | (304) | (89) | (290) | (16) | (1,510) |
| Selling expenses | (401) | (102) | (42) | (216) | - | - | (8) | (769) |
| Other operating results, net | (75) | (22) | (72) | 2 | (528) | - | 16 | (679) |
| (Loss) / profit from operations | (695) | 1,651 | 204 | (43) | (617) | (290) | (42) | 168 |
| Share of profit of associates and joint ventures | - | - | (16) | - | (352) | - | (597) | (965) |
| Segment (loss) / profit | (695) | 1,651 | 188 | (43) | (969) | (290) | (639) | (797) |
| | | | | | | | | |
| Investment properties, trading propertiesand properties plant and equipment | 58,085 | 14,965 | 11,517 | 1,496 | - | - | 497 | 86,560 |
| Investment in associates, joint venturesand goodwill | 7 | 42 | 225 | - | 1,293 | - | 5,682 | 7,249 |
| Other operating assets | 47 | 2 | 95 | 20 | - | - | - | 164 |
| Operating assets | 58,139 | 15,009 | 11,837 | 1,516 | 1,293 | - | 6,179 | 93,973 |
From all the revenues corresponding to the Operations Center in Argentina, the 100% are originated in Argentina. No external client represents 10% or more of revenue of any of the reportable segments.
From all of the assets corresponding to the Operations Center in Argentina segments, Ps.92,362 million are located in Argentina and Ps.1,676 million in other countries, principally in United States for Ps.1,293 million and Uruguay for Ps.383ARS 685 million.
Below is a summarized analysis of the operating segments by products and serviceslines of the Company’sbusiness of Group’s Operations Center in Israel for the yearyears ended June 30, 2020, 2019 2018 and 2017:2018:
| | |
| | Operations Center in Israel |
| | | | | | | | |
| | |
| Revenues | 15,340 | - | 40,236 | - | - | 1,146 | 56,722 |
| Costs | (6,828) | - | (29,683) | - | - | (616) | (37,127) |
| Gross profit | 8,512 | - | 10,553 | - | - | 530 | 19,595 |
| Net gain from fair value adjustment of investment properties | 3,416 | - | - | - | - | - | 3,416 |
| General and administrative expenses | (762) | - | (3,344) | - | (740) | (1,040) | (5,886) |
| Selling expenses | (270) | - | (7,390) | - | - | (303) | (7,963) |
| Other operating results, net | - | - | 278 | - | - | 241 | 519 |
| Profit / (loss) from operations | 10,896 | - | 97 | - | (740) | (572) | 9,681 |
| Share of profit / (loss) of associates and joint ventures | 174 | 502 | - | - | - | (633) | 43 |
| Segment profit / (loss) | 11,070 | 502 | 97 | - | (740) | (1,205) | 9,724 |
| | | | | | | | |
| Operating assets | 212,300 | 16,102 | 76,531 | 15,839 | 29,062 | 24,889 | 374,723 |
| Operating liabilities | (164,811) | - | (59,333) | - | (88,569) | (9,849) | (322,562) |
| Operating assets (liabilities), net | 47,489 | 16,102 | 17,198 | 15,839 | (59,507) | 15,040 | 52,161 |
| | | |
| | Operations Center in Israel | Operations Center in Israel |
| | | | | | | | | | | | | | | |
| | | (In million of ARS) |
| Revenues | 10,763 | - | 34,330 | - | 1,045 | 46,138 | 12,954 | - | 64,838 | - | 3,845 | 81,637 |
| Costs | (4,451) | - | (24,621) | - | (552) | (29,624) | (6,787) | - | (47,231) | - | (2,278) | (56,296) |
| Gross profit | 6,312 | - | 9,709 | - | 493 | 16,514 | 6,167 | - | 17,607 | - | 1,567 | 25,341 |
| Net gain from fair value adjustment of investment properties | 3,575 | - | 3,575 | |
Net loss from fair value adjustment of investment properties | | (2,989) | - | (2,989) |
| General and administrative expenses | (644) | - | (3,214) | - | (597) | (844) | (5,299) | (812) | - | (5,519) | - | (1,071) | (1,362) | (8,764) |
| Selling expenses | (202) | - | (7,038) | - | (266) | (7,506) | (223) | - | (11,887) | - | (434) | (12,544) |
Impairment of associates and joint ventures | | (2,470) | - | (2,470) |
| Other operating results, net | 179 | - | 540 | - | 798 | (23) | 1,494 | (296) | - | 501 | - | (48) | 970 | 1,127 |
| Profit / (loss) from operations | 9,220 | - | (3) | - | 201 | (640) | 8,778 | |
(Loss) / profit from operations | | (623) | - | 702 | - | (1,119) | 741 | (299) |
| Share of profit / (loss) of associates and joint ventures | 233 | - | (406) | (173) | 1,495 | 1,063 | (265) | - | (994) | 1,299 |
| Segment profit / (loss) | 9,453 | - | (3) | - | 201 | (1,046) | 8,605 | 872 | 1,063 | 437 | - | (1,119) | (253) | 1 |
| | | |
| Operating assets | 208,525 | 20,696 | 77,471 | 19,064 | 33,187 | 35,433 | 394,376 | 152,941 | 28,090 | 140,025 | 3,377 | 17,911 | 108,923 | 451,267 |
| Operating liabilities | (162,110) | - | (60,369) | - | (108,847) | (3,860) | (335,186) | (146,331) | - | (106,076) | - | (111,649) | (39,128) | (403,184) |
| Operating assets (liabilities), net | 46,415 | 20,696 | 17,102 | 19,064 | (75,660) | 31,573 | 59,190 | 6,610 | 28,090 | 33,949 | 3,377 | (93,738) | 69,795 | 48,083 |
| |
| Operations Center in Israel |
| | | | | | | |
| (In million of ARS) |
| 14,392 | - | 57,506 | - | - | 1,639 | 73,537 |
| (9,121) | - | (42,424) | - | - | (881) | (52,426) |
| 5,271 | - | 15,082 | - | - | 758 | 21,111 |
Net gain from fair value adjustment of investment properties | 892 | - | - | - | - | - | 892 |
General and administrative expenses | (707) | - | (4,779) | - | (1,058) | (1,487) | (8,031) |
| (197) | - | (10,562) | - | - | (433) | (11,192) |
Other operating results, net | - | - | 397 | - | - | 345 | 742 |
Profit / (loss) from operations | 5,259 | - | 138 | - | (1,058) | (817) | 3,522 |
Share of profit / (loss) of associates and joint ventures | 37 | 717 | - | - | - | (904) | (150) |
| 5,296 | 717 | 138 | - | (1,058) | (1,721) | 3,372 |
| | | | | | | |
| 303,425 | 23,013 | 109,380 | 22,638 | 41,536 | 35,573 | 535,565 |
| (235,553) | - | (84,800) | - | (126,585) | (14,077) | (461,015) |
Operating assets (liabilities), net | 67,872 | 23,013 | 24,580 | 22,638 | (85,049) | 21,496 | 74,550 |
| | |
| | Operations Center in Israel |
| | | | | | | | |
| | |
| Revenues | 10,480 | - | 35,062 | - | - | 1,220 | 46,762 |
| Costs | (4,971) | - | (24,536) | - | - | (458) | (29,965) |
| Gross profit | 5,509 | - | 10,526 | - | - | 762 | 16,797 |
| Net gain from fair value adjustment of investment properties | 779 | - | - | - | - | - | 779 |
| General and administrative expenses | (636) | - | (3,499) | - | (836) | (612) | (5,583) |
| Selling expenses | (199) | - | (7,491) | - | - | (361) | (8,051) |
| Other operating results, net | 70 | - | 238 | - | (105) | (211) | (8) |
| Profit / (loss) from operations | 5,523 | - | (226) | - | (941) | (422) | 3,934 |
| Share of profit / (loss) of associates and joint ventures | 66 | - | - | - | - | (28) | 38 |
| Segment profit / (loss) | 5,589 | - | (226) | - | (941) | (450) | 3,972 |
| | | | | | | | |
| Operating assets | 142,054 | 64,914 | 54,722 | 17,243 | 28,083 | 54,233 | 361,249 |
| Operating liabilities | (115,624) | (52,904) | (45,163) | - | (67,154) | (31,822) | (312,667) |
| Operating assets (liabilities), net | 26,430 | 12,010 | 9,559 | 17,243 | (39,071) | 22,411 | 48,582 |
| |
| Operations Center in Israel |
| | | | | | | |
| (In million of ARS) |
| 9,497 | - | 49,066 | - | - | 1,494 | 60,057 |
| (5,957) | - | (35,189) | - | - | (789) | (41,935) |
| 3,540 | - | 13,877 | - | - | 705 | 18,122 |
Net gain from fair value adjustment of investment properties | - | - | - | - | - | - | - |
General and administrative expenses | (578) | - | (4,594) | - | (854) | (1,207) | (7,233) |
| (200) | - | (10,059) | - | - | (380) | (10,639) |
Other operating results, net | 256 | - | 772 | - | 1,141 | (33) | 2,136 |
Profit / (loss) from operations | 3,018 | - | (4) | - | 287 | (915) | 2,386 |
Share of profit / (loss) of associates and joint ventures | 158 | - | - | - | - | (580) | (422) |
| 3,176 | - | (4) | - | 287 | (1,495) | 1,964 |
| 298,031 | 29,579 | 110,723 | 27,247 | 47,432 | 50,642 | 563,654 |
| (231,693) | - | (86,280) | - | (155,567) | (5,516) | (479,056) |
Operating assets (liabilities), net | 66,338 | 29,579 | 24,443 | 27,247 | (108,135) | 45,126 | 84,598 |
No external client represents 10% or more of the revenue of any of the reportable segments. From all assets corresponding to the Operations Center in Israel segments, Ps.51,895ARS 82,707 million are located in United States (Ps.54,340USA (ARS 74,170 million in 20182019 and Ps.43,869ARS 77,664 million in 2017)2018), Ps.1,385 million (Ps.1,632ARS 0 (ARS 1,979 million in 20182019 and Ps.1,546ARS 2,333 million in 2017)2018) in India and the remaining are located in Israel.
Critical Accounting Policies and Estimates
Our significant accounting policies are stated in Note 2 of our Audited Consolidated Financial Statements, “Summary of significant accounting policies.” The discussion below should be read in conjunction with the referred note. Not all of these significant accounting policies require management to make subjective or complex judgments or estimates. The following is intended to provide an understanding of the policies that management considers critical due tobecause of the level of complexity, judgment or estimations involved in their application and their impact on ourthe Audited Consolidated Financial Statements. These judgments involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.estimates
| Estimation | Main assumptions | Potential implications |
| Business combination - Allocation of acquisition prices | Assumptions regarding timing, amount of future revenues and expenses, revenue growth, expected rate of return, economic conditions, discount rate, among other. | Should the assumptions made be inaccurate, the recognized combination may not be correct. |
| Recoverable amounts of cash-generating units (even those including goodwill), associates and assets. | The discount rate and the expected growth rate before taxes in connection with cash-generating units. The discount rate and the expected growth rate after taxes in connection with associates. Cash flows are determined based on past experiences with the asset or with similar assets and in accordance with the Group’s best factual assumption relative to the economic conditions expected to prevail. Business continuity of cash-generating units. Appraisals made by external appraisers and valuators with relation to the assets’ fair value, net of realization costs (including real estate assets). | Should any of the assumptions made be inaccurate, this could lead to differences in the recoverable values of cash-generating units. |
| Control, joint control or significant influence | Judgment relative to the determination that the Group holds an interest in the shares of investees (considering the existence and influence of significant potential voting rights), its right to designate members in the executive management of such companies (usually the Board of directors) based on the investees’ bylaws; the composition and the rights of other shareholders of such investees and their capacity to establish operating and financial policies for investees or to take part in the establishment thereof. | Accounting treatment of investments as subsidiaries (consolidation) or associates (equity method) |
| Estimated useful life of intangible assets and property, plant and equipment | Estimated useful life of assets based on their conditions. | Recognition of accelerated or decelerated depreciation by comparison against final actual earnings (losses). |
| Fair value valuation of investment properties | Fair value valuation made by external appraisers and valuators. See Note 10. | Incorrect valuation of investment property values |
| Income tax | The Group estimates the income tax amount payable for transactions where the Treasury’s Claim cannot be clearly determined. Additionally, the Group evaluates the recoverability of assets due to deferred taxes considering whether some or all of the assets will not be recoverable. | Upon the improper determination of the provision for income tax, the Group will be bound to pay additional taxes, including fines and compensatory and punitive interest. |
| Allowance for doubtful accounts | A periodic review is conducted of receivables risks in the Group’s clients’ portfolios. Bad debts based on the expiration of account receivables and account receivables’ specific conditions. | Improper recognition of charges / reimbursements of the allowance for bad debt. |
| Level 2 and 3 financial instruments | Main assumptions used by the Group are: ●Discounted projected income by interest rate ●Values determined in accordance with the shares in equity funds on the basis of its Financial Statements, based on fair value or investment assessments. ●Comparable market multiple (EV/GMV ratio). ● Underlying asset price (Market price); share price volatility (historical) and market interest-rate (Libor rate curve). | Incorrect recognition of a charge to income / (loss). |
| Probability estimate of contingent liabilities. | Whether more economic resources may be spent in relation to litigation against the Group; such estimate is based on legal advisors’ opinions. | Charge / reversal of provision in relation to a claim. |
| Qualitative considerations for determining whether or not the replacement of the debt instrument involves significantly different terms | The entire set of characteristics of the exchanged debt instruments, and the economic parameters represented therein: Average lifetime of the exchanged liabilities; Extent of effects of the debt terms (linkage to index; foreign currency; variable interest) on the cash flows from the instruments. | Classification of a debt instrument in a manner whereby it will not reflect the change in the debt terms, which will affect the method of accounting recording. |
Results of Operations for the fiscal years ended June 30, 2020 and 2019
Below is a summary of the operating segments by geography and a reconciliation between the total of the operating result according to the information by segments and the operating result according to the income statement for the years ended June 30, 2020 and 2019.
| | Operations Center in Argentina | Operations Center in Israel | Total Segment Information | | Expenses and Collective Promotion Fund | Inter-segment eliminations and non-reportable assets / liabilities | Total income statement / statement of financial position |
| | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | |
|
| Revenues | 11,138 | 15,055 | (3,917) | 81,637 | 73,537 | 8,100 | 92,775 | 88,592 | 4,183 | (60) | (93) | 33 | 3,100 | 3,706 | (606) | (22) | (24) | 2 | 95,793 | 92,181 | 3,612 |
| Costs | (2,731) | (3,176) | 445 | (56,296) | (52,426) | (3,870) | (59,027) | (55,602) | (3,425) | 53 | 66 | (13) | (3,230) | (3,855) | 625 | - | - | - | (62,204) | (59,391) | (2,813) |
| Gross profit/(loss) | 8,407 | 11,879 | (3,472) | 25,341 | 21,111 | 4,230 | 33,748 | 32,990 | 758 | (7) | (27) | 20 | (130) | (149) | 19 | (22) | (24) | 2 | 33,589 | 32,790 | 799 |
| Net gain/(loss) from fair value adjustment of investment properties | 33,994 | (39,607) | 73,601 | (2,989) | 892 | (3,881) | 31,005 | (38,715) | 69,720 | (263) | 838 | (1,101) | - | - | - | - | - | - | 30,742 | (37,877) | 68,619 |
| General and administrative expenses | (2,152) | (2,674) | 522 | (8,764) | (8,031) | (733) | (10,916) | (10,705) | (211) | 14 | 18 | (4) | - | - | - | 33 | 44 | (11) | (10,869) | (10,643) | (226) |
| Selling expenses | (1,231) | (1,085) | (146) | (12,544) | (11,192) | (1,352) | (13,775) | (12,277) | (1,498) | 18 | 7 | 11 | - | - | - | - | - | - | (13,757) | (12,270) | (1,487) |
| Impairment of associates and joint ventures | - | - | - | (2,470) | - | (2,470) | (2,470) | - | (2,470) | - | - | - | - | - | - | - | - | - | (2,470) | - | (2,470) |
| Other operating results, net | (47) | (660) | 613 | 1,127 | 742 | 385 | 1,080 | 82 | 998 | 18 | 194 | (176) | 17 | 17 | - | (11) | (20) | 9 | 1,104 | 273 | 831 |
| Profit/(loss) from operations | 38,971 | (32,147) | 71,118 | (299) | 3,522 | (3,821) | 38,672 | (28,625) | 67,297 | (220) | 1,030 | (1,250) | (113) | (132) | 19 | - | - | - | 38,339 | (27,727) | 66,066 |
| Share of profit/(loss) of associates and joint ventures | 7,047 | (6,031) | 13,078 | 1,299 | (150) | 1,449 | 8,346 | (6,181) | 14,527 | 171 | (1,019) | 1,190 | - | - | - | - | - | - | 8,517 | (7,200) | 15,717 |
| Segment profit/(loss) | 46,018 | (38,178) | 84,196 | 1,000 | 3,372 | (2,372) | 47,018 | (34,806) | 81,824 | (49) | 11 | (60) | (113) | (132) | 19 | - | - | - | 46,856 | (34,927) | 81,783 |
| Reportable assets | 158,263 | 111,562 | 46,701 | 451,267 | 535,565 | (84,298) | 609,530 | 647,127 | (37,597) | (692) | (609) | (83) | - | - | - | 18,361 | 31,842 | (13,481) | 627,199 | 678,360 | (51,161) |
| Reportable liabilities | - | - | - | (403,184) | (461,015) | 57,831 | (403,184) | (461,015) | 57,831 | - | - | - | - | - | - | (101,360) | (94,689) | (6,671) | (504,544) | (555,704) | 51,160 |
| Net reportable assets | 158,263 | 111,562 | 46,701 | 48,083 | 74,550 | (26,467) | 206,346 | 186,112 | 20,234 | (692) | (609) | (83) | - | - | - | (82,999) | (62,847) | (20,152) | 122,655 | 122,656 | (1) |
Operations Center in Argentina
Below is a summary analysis of the operating segments by products and services of the Operations Center in Argentina for the years ended June 30, 2020 and 2019
| | | | | | | | | |
| | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | |
|
| Revenues | 5,935 | 8,541 | (2,606) | 2,358 | 2,238 | 120 | 735 | 1,119 | (384) | 2,021 | 2,953 | (932) | 11 | 14 | (3) | - | - | - | 78 | 190 | (112) | 11,138 | 15,055 | (3,917) |
| Costs | (567) | (776) | 209 | (138) | (131) | (7) | (671) | (526) | (145) | (1,245) | (1,586) | 341 | (12) | (6) | (6) | - | - | - | (98) | (151) | 53 | (2,731) | (3,176) | 445 |
| Gross profit/(loss) | 5,368 | 7,765 | (2,397) | 2,220 | 2,107 | 113 | 64 | 593 | (529) | 776 | 1,367 | (591) | (1) | 8 | (9) | - | - | - | (20) | 39 | (59) | 8,407 | 11,879 | (3,472) |
| Net gain/(loss) from fair value adjustment of investment properties | (2,105) | (40,581) | 38,476 | 23,285 | 616 | 22,669 | 12,179 | 726 | 11,453 | - | - | - | - | 6 | (6) | - | - | - | 635 | (374) | 1,009 | 33,994 | (39,607) | 73,601 |
| General and administrative expenses | (829) | (945) | 116 | (221) | (212) | (9) | (228) | (283) | 55 | (365) | (492) | 127 | (110) | (110) | - | (282) | (519) | 237 | (117) | (113) | (4) | (2,152) | (2,674) | 522 |
| Selling expenses | (709) | (530) | (179) | (84) | (99) | 15 | (197) | (119) | (78) | (230) | (316) | 86 | - | - | - | - | - | - | (11) | (21) | 10 | (1,231) | (1,085) | (146) |
| Other operating results, net | (38) | (110) | 72 | (29) | (40) | 11 | (27) | (286) | 259 | (20) | 114 | (134) | - | (24) | 24 | - | - | - | 67 | (314) | 381 | (47) | (660) | 613 |
| Profit/(loss) from operations | 1,687 | (34,401) | 36,088 | 25,171 | 2,372 | 22,799 | 11,791 | 631 | 11,160 | 161 | 673 | (512) | (111) | (120) | 9 | (282) | (519) | 237 | 554 | (783) | 1,337 | 38,971 | (32,147) | 71,118 |
| Share of profit/(loss) of associates and joint ventures | - | - | - | - | - | - | - | (37) | 37 | - | - | - | 7,377 | (3,679) | 11,056 | - | - | - | (330) | (2,315) | 1,985 | 7,047 | (6,031) | 13,078 |
| Segment profit/(loss) | 1,687 | (34,401) | 36,088 | 25,171 | 2,372 | 22,799 | 11,791 | 594 | 11,197 | 161 | 673 | (512) | 7,266 | (3,799) | 11,065 | (282) | (519) | 237 | 224 | (3,098) | 3,322 | 46,018 | (38,178) | 84,196 |
| Reportable assets | 49,385 | 50,418 | (1,033) | 63,004 | 31,737 | 31,267 | 33,456 | 28,385 | 5,071 | 1,838 | 1,927 | (89) | 2,311 | (6,952) | 9,263 | - | - | - | 8,269 | 6,047 | 2,222 | 158,263 | 111,562 | 46,701 |
| Reportable liabilities | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - |
| Net reportable assets | 49,385 | 50,418 | (1,033) | 63,004 | 31,737 | 31,267 | 33,456 | 28,385 | 5,071 | 1,838 | 1,927 | (89) | 2,311 | (6,952) | 9,263 | - | - | - | 8,269 | 6,047 | 2,222 | 158,263 | 111,562 | 46,701 |
Operations Center in Israel
Below is a summary analysis of the operating segments by products and services of the Operations Center in Israel for the years ended June 30, 2020 and 2019
| | | | | | | | |
| | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | | 06.30.20 | 06.30.19 | |
|
| Revenues | 12,954 | 14,392 | (1,438) | - | - | - | 64,838 | 57,506 | 7,332 | - | - | - | - | - | - | 3,845 | 1,639 | 2,206 | 81,637 | 73,537 | 8,100 |
| Costs | (6,787) | (9,121) | 2,334 | - | - | - | (47,231) | (42,424) | (4,807) | - | - | - | - | - | - | (2,278) | (881) | (1,397) | (56,296) | (52,426) | (3,870) |
| Gross profit/(loss) | 6,167 | 5,271 | 896 | - | - | - | 17,607 | 15,082 | 2,525 | - | - | - | - | - | - | 1,567 | 758 | 809 | 25,341 | 21,111 | 4,230 |
| Net gain/(loss) from fair value adjustment of investment properties | (2,989) | 892 | (3,881) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (2,989) | 892 | (3,881) |
| General and administrative expenses | (812) | (707) | (105) | - | - | - | (5,519) | (4,779) | (740) | - | - | - | (1,071) | (1,058) | (13) | (1,362) | (1,487) | 125 | (8,764) | (8,031) | (733) |
| Selling expenses | (223) | (197) | (26) | - | - | - | (11,887) | (10,562) | (1,325) | - | - | - | - | - | - | (434) | (433) | (1) | (12,544) | (11,192) | (1,352) |
| Impairment of associates and joint ventures | (2,470) | - | (2,470) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (2,470) | - | (2,470) |
| Other operating results, net | (296) | - | (296) | - | - | - | 501 | 397 | 104 | - | - | - | (48) | - | (48) | 970 | 345 | 625 | 1,127 | 742 | 385 |
| Profit/(loss) from operations | (623) | 5,259 | (5,882) | - | - | - | 702 | 138 | 564 | - | - | - | (1,119) | (1,058) | (61) | 741 | (817) | 1,558 | (299) | 3,522 | (3,821) |
| Share of profit/(loss) of associates and joint ventures | 1,495 | 37 | 1,458 | 1,063 | 717 | 346 | (265) | - | (265) | - | - | - | - | - | - | (994) | (904) | (90) | 1,299 | (150) | 1,449 |
| Segment profit/(loss) | 872 | 5,296 | (4,424) | 1,063 | 717 | 346 | 437 | 138 | 299 | - | - | - | (1,119) | (1,058) | (61) | (253) | (1,721) | 1,468 | 1,000 | 3,372 | (2,372) |
| Reportable assets | 152,941 | 303,425 | (150,484) | 28,090 | 23,013 | 5,077 | 140,025 | 109,380 | 30,645 | 3,377 | 22,638 | (19,261) | 17,911 | 41,536 | (23,625) | 108,923 | 35,573 | 73,350 | 451,267 | 535,565 | (84,298) |
| Reportable liabilities | (146,331) | (235,553) | 89,222 | - | - | - | (106,076) | (84,800) | (21,276) | - | - | - | (111,649) | (126,585) | 14,936 | (39,128) | ��(14,077) | (25,051) | (403,184) | (461,015) | 57,831 |
| Net reportable assets | 6,610 | 67,872 | (61,262) | 28,090 | 23,013 | 5,077 | 33,949 | 24,580 | 9,369 | 3,377 | 22,638 | (19,261) | (93,738) | (85,049) | (8,689) | 69,795 | 21,496 | 48,299 | 48,083 | 74,550 | (26,467) |
Revenues 2020 vs 2019
ResultsRevenues from sales, leases, and services, according to the income statement, increased by ARS 3,612 million, from ARS 92,181 million in fiscal year ended June 30, 2019, to ARS 95,793 million in fiscal year ended June 30, 2020 (out of which ARS 81,637 million are derived from the Operations Center in Israel and ARS 14,156 million from the Operations Center in Argentina). Excluding revenues from the Operations Center in Israel, revenues from sales, leases, and services decreased by 24.1% mainly explained by the closure of operations of shopping malls since March 20, 2020 due to COVID-19 pandemic.
In turn, revenues from expenses and Collective Promotion Fund decreased by 16.4%, from ARS 3,706 million (out of which ARS 3,409 million are allocated to the Shopping Malls segment and ARS 297 million to the Offices segment in the Operations Center in Argentina) in fiscal year ended June 30, 2019, to ARS 3,100 million (out of which ARS 2,856 million are allocated to the Shopping Malls segment and ARS 244 million to the Offices segment) in fiscal year ended June 30, 2020.
Moreover, revenues from our joint ventures decreased by 35.5%, from ARS 93 million in fiscal year ended June 30, 2019 (out of which ARS 76 million are allocated to the Shopping Malls segment; ARS 16 million to the Offices segment and ARS 1 million to the Sales and Developments segment of the Operations Center in Argentina), to ARS 60 million in fiscal year ended June 30, 2020 (out of which ARS 52 million are allocated to the Shopping Malls segment and ARS 8 million to the Offices segment of the Operations Center in Argentina).
Finally, revenues from inter-segment transactions decreased by ARS 2 million, from ARS 24 million in fiscal year ended June 30, 2019, to ARS 22 million in fiscal year ended June 30, 2020.
Therefore, according to information by segments, revenues increased by ARS 4,183 million, from ARS 88,592 million in the fiscal year ended June 30, 2019 to ARS 92,775 million in fiscal year ended June 30, 2020 (ARS 81,637 million of which derive from the Operations Center in Israel and ARS 11,138 million from the Operations Center in Argentina). Excluding the revenues from the Operations Center in Israel, revenues, according to information by segments, decreased by 26%.
Operations Center in Argentina
Shopping Malls.Revenues from the Shopping Malls segment decreased by 30.5% from ARS 8,541 million during fiscal year ended June 30, 2019, to ARS 5,935 million during fiscal year June 30, 2020 mainly explained by the closure of operations of shopping malls since March 20, 2020 due to COVID-19 pandemic. Such fall is mainly attributable to: (i) an ARS 1,910 million decrease in revenues from permanent and variable leases (total sales from our lessees went from ARS 94,436 million in fiscal year 2019 to ARS 69,965 million in fiscal year 2020); (ii) an ARS 196 million decrease in the Others segment, mainly attributable to the termination of the Walmart agreement; (iii) an ARS 186 million decrease in parking revenues; and (iv) an ARS 151 million decrease in admission rights.
Offices.Revenues from the Offices segment increased by 5.4% from ARS 2,238 million during fiscal year ended June 30,2019 to ARS 2,358 million during fiscal year ended June 30, 2020. This variation is mainly explained by an increase of 6% in revenues from leases, from ARS 2,199 million during the fiscal year ended June 30, 2019 to ARS 2,330 million during the fiscal year ended June 30, 2020, mainly as a result of an increase in leases of buildings, PH Office Park and Zeta Buildings, and by the effect of the exchange rate variation.
Sales and Developments.Revenues from the Sales and Developments segment recorded a 34.3% decrease, from ARS 1,119 million during fiscal year ended June 30, 2019, to ARS 735 million during fiscal year ended June 30, 2020. This segment often varies significantly from fiscal year to fiscal year to the non-recurrence of different sales transactions carried out by the Group over time.
Hotels.Revenues from our Hotels segment decreased by 31.6% from ARS 2,953 million during the fiscal year ended June 30, 2019 to ARS 2,021 million during the fiscal year ended June 30, 2020, mainly due to a decrease in revenues from Hoteles Argentinos S.A.U. as a result of a deflag process and due to the impact on revenues as a result of the fall in the tourist industry during March because of COVID 19.
International.Revenues from our International segment decreased by 21.4%, recording ARS 11 million during fiscal year ended June 30, 2020, due to an ARS 3 million decrease in revenues from leases.
Corporate.Revenues associated with our Corporate segment showed no variations for the reported fiscal years.
Others.Revenues from the Others segment decreased by 58.9% from ARS 190 million during fiscal year ended June 30, 2019 to ARS 78 million during fiscal year ended June 30, 2020, mainly due to the revenues derived from La Arena and La Rural S.A., OFC S.R.L., Ogden S.A. and Entretenimiento Universal S.A. – Joint venture – (Convention Center and Exhibitions of the City of Buenos Aires Administrator).
Operations Center in Israel
Real Estate.Revenues from the real estate segment decreased from ARS 14,392 million during fiscal year ended June 30, 2019 to ARS 12,954 million during fiscal year ended June 30, 2020. Such variation was due to a decrease in sales of residential units partially offset by an actual devaluation of the Argentine Peso of approximately 13%.
Telecommunications.Revenues from the telecommunications segment increased from ARS 57,506 million during fiscal year ended June 30, 2019 to ARS 64,838 million during fiscal year ended June 30, 2020. Such variation was due to an actual devaluation of the Argentine Peso of approximately 13%, since they did not experience a significant variation at an internal level given revenues from television and internet services increased in the same amount as revenues from mobile and roaming services decreased.
Others.Revenues from the Others segment increased from ARS 1,639 million during fiscal year ended June 30, 2019 to ARS 3,845 million during fiscal year ended June 30, 2020. Such variation was due to a decrease in revenues from Epsilon offset by an actual devaluation of the Argentine Peso of approximately 13%.
Costs 2020 vs 2019
Total consolidated costs, according to the income statement, increased by ARS 2,813 million, from ARS 59,391 million in fiscal year ended June 30, 2019 to ARS 62,204 million in fiscal year ended June 30, 2020 (out of which ARS 56,296 million derive from the Operations Center in Israel and ARS 5,908 million from the Operations Center in Argentina). Excluding costs derived from the Operations Center in Israel, costs decreased by 15.2%. Furthermore, consolidated total costs measured as a percentage of consolidated total revenues increased from 64.4% during fiscal year ended June 30, 2019 to 64.9% during fiscal year ended June 30, 2020, mainly from the Operations Center in Israel. Excluding costs derived from the Operations Center in Israel, total consolidated costs measured as a percentage of total revenues increased from 37.4% during fiscal year ended June 30, 2019 to 41.7% during fiscal year ended June 30, 2020.
In turn, costs related to expenses and Collective Promotion Fund decreased by 16.2% from ARS 3,855 million during fiscal year ended June 30, 2019 (out of which ARS 3,553 million are allocated to the Shopping Malls segment and ARS 302 million to the Offices segment of the Operations Center in Argentina) to ARS 3,230 million during fiscal year ended June 30, 2020 (out of which ARS 2,972 million are allocated to the Shopping Malls segment and ARS 258 million to the Offices segment of the Operations Center in Argentina) mainly due to lower costs originated by our Shopping Malls, which decreased by 16.4% from ARS 3,553 million during fiscal ended June 30, 2019 to ARS 2,972 million during fiscal year ended June 30, 2020.
Likewise, costs from our joint ventures showed a 19.7% decrease, from ARS 66 million during fiscal year ended June 30, 2019 (out of which ARS 16 million are allocated to the Shopping Malls segment; ARS 42 million to the Offices segment and ARS 8 million to the Sales and Developments segment of the Operations Center in Argentina) to ARS 53 million during fiscal year ended June 30, 2020 (out of which ARS 7 million are allocated to the Shopping Malls segment; ARS 40 million to the Offices segment and ARS 6 million to the Sales and Developments segment of the Operations Center in Argentina).
Finally, costs from inter-segment operations showed no variations for the reported periods.
Therefore, according to information by segments (taking into account the costs from our joint ventures and without considering the costs associated with expenses and collective promotion fund or the costs from inter-segment operations), costs evidenced an increase of ARS 3,425 million, from ARS 55,602 million during fiscal year ended June 30, 2019 to ARS 59,027 million during fiscal year ended June 30, 2020 (out of which ARS 56,296 million derive from the Operations Center in Israel and ARS 2,731 million from the Operations Center in Argentina). Excluding costs from the Operations Center in Israel, costs decreased by 14%. Likewise, total costs, measured as a percentage of total revenues, according to information by segments, increased from 62.8% during fiscal year ended June 30, 2019 to 63.6% during fiscal year ended June 30, 2020, mainly from the Operations Center in Israel. Excluding the effect from the Operations Center in Israel, total costs, measured as a percentage of total revenues, increased from 21.1% during fiscal year ended June 30, 2019 to 24.5% during fiscal year ended June 30, 2020.
Operations Center in Argentina
Shopping Malls.Costs associated with the Shopping Malls segment decreased by 26.9%, from ARS 776 million during fiscal year ended June 30, 2019 to ARS 567 million during fiscal year ended June 30, 2020, mainly due to: (i) a decrease in leases and expenses of ARS 130 million (mainly due to the transfer of the expenses deficit from the previous fiscal year); and (ii) a decrease in salaries, social security and other personnel administrative expenses of ARS 78 million. Costs associated with the Shopping Malls segment, measured as a percentage of the revenues from this segment, increased from 9.1% during fiscal year ended June 30, 2019 to 9.6% during fiscal year 2020.
Offices. Costs associated with the Offices segment increased by 5.3%, from ARS 131 million during fiscal year ended June 30, 2019 to ARS 138 million during fiscal year ended June 30, 2020, mainly due to (i) an increase in leases and expenses of ARS 33 million; offset by: (ii) a decrease in maintenance expenses of ARS 12 million; and (iii) a decrease in amortization and depreciation of ARS 11 million. Costs associated with the Offices segment, measured as a percentage the revenues from this segment, remained stable at 5.9% during fiscal years ended June 30, 2019 and 2020.
Sales and Developments. Costs associated with our Sales and Developments segment recorded a 27.6% increase from ARS 526 million during fiscal year ended June 30, 2019 to ARS 671 million during fiscal year ended June 30, 2020, mainly due to: (i) the exchange transaction with respect to the Coto air space, resulting in fees and compensation costs for ARS 53 million, and an increase in goods and services sale costs of ARS 18 million; and (ii) an increase in the cost of sale of goods and services generated by Catalinas in an amount of ARS 48 million. Costs in the Sales and Developments segment, measured as a percentage of revenues from this segment, increased from 47% during fiscal year ended June 30, 2019 to 91.3% during fiscal year ended June 30, 2020.
Hotels.Costs in the Hotels segment decreased by 21.5%, from ARS 1,586 million during fiscal year ended June 30, 2019 to ARS 1,245 million during fiscal year ended June 30, 2020, mainly as a result of (i) an ARS 188 million decrease in the costs of salaries, social security and other personnel expenses; (ii) an ARS 67 million decrease in maintenance, repair, and services; (iii) an ARS 38 million decrease in food, beverages and other hotel expenses; and (iv) an ARS 34 million decrease in fees and compensation services. Costs in the Hotels segment, measured as a percentage of revenues from this segment, increased from 53.7% during fiscal year ended June 30, 2019 to 61.6% during fiscal year ended June 30, 2020.
International.Costs in the International segment increased 100%, amounting to ARS 12 million during fiscal year ended June 30, 2020 and ARS 6 million during fiscal year ended June 30, 2019, mainly as a result of: (i) an ARS 4 million increase in maintenance, repair and services; (ii) an ARS 1 million increase in fees and compensation for services; and (iii) an ARS 1 million increase in taxes, fees, and contributions. Costs in the International segment, measured as a percentage of revenues from this segment, increased from 42.9% during fiscal year ended June 30, 2019 to 109.1% during fiscal year ended June 30, 2020.
Corporate. Costs in the Corporate segment did not vary in the reported fiscal years.
Others.Costs in the Others segment decreased by 35.1%, from ARS 151 million during fiscal year ended June 30, 2019 to ARS 98 million during fiscal year ended June 30, 2020, mainly as a result of: (i) an ARS 34 million decrease in leases and expenses; (ii) an ARS 29 million decrease in taxes, fees and contributions; and (iii) an ARS 21 million decrease in fees and compensation for services, partially offset by (iv) an ARS 36 million increase in depreciation and amortization.
Operations Center in Israel
Real Estate.Real estate segment costs decreased from ARS 9,121 million during fiscal year ended June 30, 2019 to ARS 6,787 million during fiscal year ended June 30, 2020. This variation was due to an actual devaluation of the NIS against the Argentine Peso of approximately 13%.
Telecommunications.Costs in the telecommunications segment increased from ARS 42,424 million during fiscal year ended June 30, 2019 to ARS 47,231 million during fiscal year ended June 30, 2020. Such variation was due to an actual devaluation of the NIS against the Argentine Peso of approximately 13%.
Others.Costs in the Others segment increased from ARS 881 million during fiscal year ended June 30, 2019 to ARS 2,278 million during fiscal year ended June 30, 2020. This variation was due to a reduction in the costs of Bartan and Epsilon offset by an actual devaluation of the NIS against the Argentine Peso of approximately 13%.
Gross profit 2020 vs. 2019
The total consolidated gross profit, according to the income statement, increased by ARS 799 million, from ARS 32,790 million during fiscal year ended June 30, 2019 (out of which ARS 21,111 million derive from the Operations Center in Israel and ARS 11,679 million from the Operations Center in Argentina) to ARS 33,589 million during fiscal year ended June 30, 2020 (out of which ARS 25,341 million derive from the Operations Center in Israel and ARS 8,248 million from the Operations Center in Argentina). Without considering the effect from the Operations Center in Israel, the gross profit decreased by 29.4%. The total consolidated gross profit, measured as a percentage of revenues, decreased from 35.6% during fiscal year ended June 30, 2019 to 35.1% during fiscal year ended June 30, 2020. Without considering the effect from the Operations Center in Israel, the total consolidated gross profit, according to the income statement, decreased from 62.6% during fiscal year ended June 30, 2019 to 58.3% during fiscal year ended June 30, 2020.
In turn, total gross profit (loss) on account of expenses and collective promotion fund decreased by ARS 19 million, from ARS 149 million during fiscal year ended June 30, 2019 (out of which a loss of ARS 144 million derives from the Shopping Malls segment and a loss of ARS 5 million from the Offices segment), to ARS 130 million during fiscal year ended June 30, 2020 (out of which a loss of ARS 116 million derives from the Shopping Malls segment and other loss of ARS 14 million from the Offices segment).
Additionally, the gross profit (loss) from our joint ventures decreased by 74.1%, from ARS 27 million during fiscal year ended June 30, 2019 to ARS 7 million during fiscal year ended June 30, 2020.
Therefore, according to information by segments, gross profit increased by ARS 758 million, from ARS 32,990 million during fiscal year ended June 30, 2019 (out of which ARS 21,111 million derive from the Operations Center in Israel and ARS 11,879 million from the Operations Center in Argentina) to ARS 33,748 million during fiscal year ended June 30, 2020 (out of which ARS 25,341 million derive from the Operations Center in Israel and ARS 8,407 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, the gross profit decreased by 29.2%. In addition, gross profit, measured as a percentage of revenues, according to information by segments, decreased from 37.2% during fiscal year ended June 30, 2019 to 36.4% during fiscal year ended June 30, 2020. Without considering the effect of the Operations Center in Israel, gross profit, measured as a percentage of total revenues, decreased from 78.9% during fiscal year ended June 30, 2019 to 75.5% during fiscal year ended June 30, 2020.
Operations Center in Argentina
Shopping Malls. Gross profit from the Shopping Malls segment decreased by 30.9%, from ARS 7,765 million during fiscal year ended June 30, 2019 to ARS 5,368 million during fiscal year ended June 30, 2020, mainly as a result of a decrease in total sales of our lessees in real terms, thus resulting in lower percentage rentals under our lease agreements. Gross profit from the Shopping Malls segment as a percentage of the segment revenues, slightly decreased from 90.9% during fiscal year ended June 30, 2019 to 90.4% during fiscal year ended June 30, 2020.
Offices. Gross profit from the Offices segment increased by 5.4% from ARS 2,107 million during fiscal year ended June 30, 2019 to ARS 2,220 million during fiscal year ended June 30, 2020. Gross profit from the Offices segment, measured as percentage of revenues from this segment, remained stable at 94.1% during fiscal years ended June 30, 2019 and 2020.
Sales and developments. Gross profit from the Sales and Developments segment decreased by 89.2%, from ARS 593 million during fiscal year ended June 30, 2019 to ARS 64 million fiscal year ended June 30, 2020. Gross profit from the Sales and Developments segment, measured as a percentage of revenues from this segment, decreased from 53% during fiscal year ended June 30, 2019 to 8.7% during fiscal year ended June 30, 2020.
Hotels. Gross profit from the Hotels segment decreased by 43.2% from ARS 1,367 million during fiscal year ended June 30, 2019 to ARS 776 million during fiscal year ended June 30, 2020. Gross profit from the Hotels segment, measured as a percentage of revenues from this segment, decreased from 46.3% during fiscal year ended June 30, 2019 to 38.4% during fiscal year ended June 30, 2020.
International. Gross profit from the International segment decreased by 112.5%, as a gross profit of ARS 8 million was recorded during fiscal year ended June 30, 2019 and an ARS 1 million gross loss was recorded during fiscal year ended June 30, 2020. Gross profit from the International segment, measured as a percentage of revenues from this segment, decreased from 57.1% positive during fiscal year ended June 30, 2019 to 9.1% negative during fiscal year ended June 30, 2020.
Corporate. Gross profit from the Corporate segment did not show any variations during the reported fiscal years.
Others. Gross profit from the Others segment decreased by 151.3% from a profit of ARS 39 million during fiscal year ended June 30, 2019 to an ARS 20 million loss during fiscal year ended June 30, 2020. Gross profit from the Others segment, measured as a percentage of revenues from this segment, increased from 20.5% positive during fiscal year ended June 30, 2019 to 25.6% negative during fiscal year ended June 30, 2020.
Operations Center in Israel
Real Estate. Gross profit from the real estate segment increased from ARS 5,271 million during fiscal year ended June 30, 2019 to ARS 6,167 million during fiscal year ended June 30, 2020. Such variation was mainly due to an actual devaluation of approximately 13%. Gross profit from the segment, as a percentage of revenues, increased from 36.6% during fiscal year 2019 to 47.6% during fiscal year 2020.
Telecommunications. Gross profit from the telecommunications segment increased from ARS 15,082 million during fiscal year ended June 30, 2019 to ARS 17,607 million during fiscal year ended June 30, 2020. Such variation was due to an actual devaluation of approximately 13%. Gross profit from the segment, as a percentage of revenues, slightly increased from 26.2% during fiscal year ended June 30, 2019 to 27.2% during fiscal year ended June 30, 2020.
Others. Gross profit from the Others segment increased from ARS 758 million during fiscal year ended June 30, 2019 to ARS 1,567 million during fiscal year ended June 30, 2020. Such variation was mainly due to an actual devaluation of approximately 13%. Gross profit from the segment, as a percentage of revenues, slightly decreased from 46.2% during fiscal year ended June 30, 2019, to 40.8% during fiscal year ended June 30, 2020.
Net gain (loss) from fair value adjustment of investment properties 2020 vs 2019
Total consolidated net gain/(loss) from fair value adjustment of investment properties, according to the income statement, increased by ARS 68,619 million, from a net loss of ARS 37,877 million during fiscal year ended June 30, 2019 (mainly from the Operations Center in Argentina) to a net gain of ARS 30,742 million during fiscal year ended June 30, 2020 (out of which a net loss of ARS 2,989 million derives from the Operations Center in Israel and a net gain of ARS 33,731 million derives from the Operations Center in Argentina).
Operations Center in Argentina
For the fiscal year ended June 30, 2020, the net gain/(loss) from fair value adjustment of investment properties was a gain of ARS 33,994 million (an ARS 2,105 million loss from our Shopping Malls segment; an ARS 23,285 million gain from our Offices segment; an ARS 12,179 million gain of our Sales and Developments segment; and an ARS 635 million gain of our Other segment).
The net impact of prices in Pesos of our properties mainly resulted from a change in macroeconomic conditions: (i) the Argentine gross domestic product growth rate estimated for 2020 decreased from 2.2% to -11%; (ii) from June 2019 to June 2020, the Argentine Peso depreciated by 66% with respect to the US Dollar (from ARS 42.26 per USD 1.00 to ARS 70.26 per USD 1.00) which mainly resulted in a decrease in projected cash flows in US Dollars from the Shopping Malls; and (iii) an 8 base point increase in the Dollar discount rate at which the projected cash flow from Shopping Malls is discounted.
The offices market in Argentina is a liquid market, in which a great number of counterparties participates carrying out sale-purchase transactions. This situation results in significant and representative sale-purchase prices. Furthermore, lease agreements are denominated in US dollars and are usually executed for three-year terms, hence this business produces stable cash flows in US dollars. In this sense, we use the Market Approach method to determine the fair value of our Offices and Others segment, the value per square meter being the most representative measurement.
Since September 2019, the real estate market experienced certain operational changes due to the adoption of foreign exchange regulations. As a result, it is very likely that office buildings/lands reserved sales be settled in Pesos at an implied exchange rate higher than the official exchange rate, which can be observed in the transactions conducted by the Company before and after closing of these financial statements. Therefore, we have valued our offices and lands reserved in Pesos as of closing of these financial statements considering the aforementioned situation, thus resulting in a gain with respect to the previously recorded values.
Operations Center in Israel
Real Estate. Total net gain/(loss) from fair value adjustment of investment properties went from a gain of ARS 892 million during fiscal year ended June 30, 2019 to a loss of ARS 2,989 million during fiscal year ended June 30, 2020. Amounts may not be compared given that as of June 2019 only changes in the fair value of sold investment properties were recorded, while in this fiscal year the loss was mainly related to an impairment of HSBC. In addition, a new appraisal of Tivoli was performed, which resulted in a decrease in the fair value offset by the revaluation of Kiriat Ono Mall during the first quarter of the year. The Group’s policy involves performing appraisals in Israel in May, but an appraisal of Tivoli was performed as of September because the equity value of IDBG was required to be updated pursuant to the agreement for the sale of the shares held by IDBD in IDBG to PBC.
General and administrative expenses 2020 vs 2019
Total general and administrative expenses, according to the income statement, recorded an increase of ARS 226 million, from ARS 10,643 million during the fiscal year ended June 30, 2019 (out of which ARS 8,031 million derive from the Operations Center in Israel and ARS 2,612 million from the Operations Center in Argentina) to ARS 10,869 million during the fiscal year ended June 30, 2020 (out of which ARS 8,764 million derive from the Operations Center in Israel and ARS 2,105 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, administrative expenses decreased by 19.4%. Total administrative expenses, measured as a percentage of revenues, decreased slightly from 11.5% during the fiscal year ended June 30, 2019 to 11.3% during the fiscal year ended June 30, 2020. Excluding the effect from the Operations Center in Israel, total general and administrative expenses, measured as a percentage of revenues, increased from 14% during the fiscal year ended June 30, 2019 to 14.9% during the fiscal year ended June 30, 2020.
In turn, administrative expenses of our joint ventures decreased by ARS 4 million, from ARS 18 million during the fiscal year ended June 30, 2019 to ARS 14 million during the year ended June 30, 2020.
Finally, administrative expenses for inter-segment transactions decreased by ARS 11 million, from ARS 44 million during the fiscal year ended June 30, 2019 to ARS 33 million during the fiscal year ended June 30, 2020.
Therefore, according to information by segments, administrative expenses increased by ARS 211 million, from ARS 10,705 million during the fiscal year ended June 30, 2019 (out of which ARS 8,031 million derive from the Operations Center in Israel and ARS 2,674 million derive from the Operations Center in Argentina) to ARS 10,916 million during the fiscal year ended June 30, 2020 (out of which ARS 8,764 million derive from the Operations Center in Israel and ARS 2,152 million from the Operations Center in Argentina). Excluding the administrative expenses from the Operations Center in Israel, expenses decreased by 19.5%. Administrative expenses, measured as a percentage of revenues, slightly decreased from 12.1% during the fiscal year ended June 30, 2019 to 11.8% during the fiscal year ended June 30, 2020. Without considering the effects from the Operations Center in Israel, total administrative expenses, measured as a percentage of total revenues, showed an increase, from 17.8% during the fiscal year ended June 30, 2019 to 19.3% during the fiscal year ended June 30, 2020.
Operations Center in Argentina
Shopping Malls.Administrative expenses of Shopping Malls decreased by 12.3%, from ARS 945 million during the fiscal year ended June 30, 2019 to ARS 829 million during the fiscal year ended June 30, 2020, mainly due to: (i) a decrease of ARS 85 million in salaries, social security charges and other personnel administrative expenses; (ii) a decrease of ARS 54 million in fees payable to directors, partially offset by: (iii) an increase of ARS 19 million in amortization and depreciation and; (iv) an increase of ARS 10 million in fees and compensation for services. Administrative expenses of Shopping Malls, measured as a percentage of revenues from such segment, increased from 11.1% during the fiscal year ended June 30, 2019 to 14% during the fiscal year ended June 30, 2020.
Offices.The general and administrative expenses of our Offices segment increased by 4.2%, from ARS 212 million during the fiscal year ended June 30, 2019 to ARS 221 million during the fiscal year ended June 30, 2020, mainly as a result of: (i) an increase of ARS 7 million in fees and compensation for services; and (ii) an increase of ARS 2 million in taxes, rates and contributions. General and administrative expenses, measured as a percentage of revenues from the same segment, decreased from 9.5% during the fiscal year ended June 30, 2019 to 9.4% during the fiscal year ended June 30, 2020.
Sales and Developments. General and administrative expenses associated with our Sales and Developments segment decreased by 19.4%, from ARS 283 million during the fiscal year ended June 30, 2019 to ARS 228 million during the fiscal year ended June 30, 2020, mainly as a result of: (i) a decrease in salaries, social security and other personnel administrative expenses of ARS 25 million; (ii) a decrease of ARS 13 million in publicity, advertising and other commercial expenses; (iii) a decrease of ARS 6 million in leases and building administrative expenses; and (iv) a decrease of ARS 5 million in fees and compensation for services. General and administrative expenses, measured as a percentage of revenues from the same segment, slightly increased from 25.3% during the fiscal year ended June 30, 2019 to 31% during the fiscal year ended June 30, 2020.
Hotels. General and administrative expenses associated with our Hotels segment decreased by 25.8% from ARS 492 million during the fiscal year ended June 30, 2019 to ARS 365 million during the fiscal year ended June 30, 2020, mainly as a result of: (i) an ARS 55 million decrease in fees and compensation for services; (ii) an ARS 50 million decrease in salaries, social security and other personnel administrative expenses; (iii) an ARS 11 million decrease in maintenance, security, cleaning, repairs and related expenses and (iv) an ARS 7 million decrease in taxes, rates and contributions. General and administrative expenses associated with the Hotels segment, measured as a percentage of revenues from this segment, increased from 16.7% during the fiscal year ended June 30, 2019 to 18.1% during the fiscal year ended June 30, 2020.
International.General and administrative expenses associated with our International segment showed no variation and expenses in the amount of ARS 110 million were recorded during the fiscal years ended June 30, 2019 and 2020.
Corporate.General and administrative expenses associated with our Corporate segment decreased by 45.7%, from ARS 519 million during the fiscal year ended June 30, 2019 to ARS 282 million during the fiscal year ended June 30, 2020, mainly as a result of: (i) an ARS 201 million decrease in fees payable to directors; and (ii) an ARS 38 million decrease in salaries, social security and other personnel administrative expenses.
Others. General and administrative expenses associated with our Others segment increased by 3.5%, from ARS 113 million during the fiscal year ended June 30, 2019 to ARS 117 million during the fiscal year ended June 30, 2020, mainly due to (i) an increase of ARS 8 million in maintenance, repairs and services; partially offset by (ii) a decrease of ARS 4 million in taxes, rates and contributions.
Operations Center in Israel
Real estate. General and administrative expenses associated with the Real Estate segment increased from ARS 707 million during the fiscal year ended June 30, 2019 to ARS 812 million during the fiscal year ended June 30, 2020. Such variation was mainly due to an actual depreciation of the Argentine Peso of approximately 13%. General and administrative expenses associated with this segment, measured as a percentage of revenues, went from 4.9% during the fiscal year ended June 30, 2019 to 6.3% during the fiscal year ended June 30, 2020.
Telecommunications.General and administrative expenses associated with the Telecommunications segment increased from ARS 4,779 million during the fiscal year ended June 30, 2019 to ARS 5,519 million during the fiscal year ended June 30, 2020. Such variation was due to a depreciation of the Argentine Peso of approximately 13%, partially offset by voluntary employee retirement expenses which were included in the fiscal year ended June 30, 2019 but were not included in the fiscal year ended June 30, 2020. General and administrative expenses associated with this segment, measured as a percentage of revenues from this segment, increased from 8.3% in fiscal year 2019 to 8.5% in fiscal year 2020.
Corporate.General and administrative expenses associated with the Corporate segment increased from ARS 1,058 million during the fiscal year ended June 30, 2019 to ARS 1,071 million during the fiscal year ended June 30, 2020. Such variation was due to an actual depreciation of the Argentine Peso of approximately 13%, offset by a decrease in fees payable to legal advisors.
Others.General and administrative expenses associated with the Others segment decreased from ARS 1,487 million during the fiscal year ended June 30, 2019 to ARS 1,362 million during the fiscal year ended June 30, 2020. Such variation was due to a reduction in expenses of Bartan and Epsilon, offset by an actual depreciation of the Argentine Peso of approximately 13%.
Selling expenses 2020 vs 2019
Total consolidated selling expenses, according to the income statement, showed an increase of ARS 1,487 million, from ARS 12,270 million during the fiscal year ended June 30, 2019 to ARS 13,757 million during the fiscal year ended June 30, 2020 (out of which ARS 12,544 million derive from the Operations Center in Israel and ARS 1,213 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, selling expenses increased by 12.5%. Total consolidated selling expenses, measured as a percentage of revenues from sales, leases and services, increased from 13.3% during the fiscal year ended June 30, 2019 to 14.4% during the fiscal year ended June 30, 2020. Excluding the effect from the Operations Center in Israel, total selling expenses, according to the income statement, slightly increased from 5.8% during the fiscal year ended June 30, 2019 to 8.6% during the fiscal year ended June 30, 2020.
In turn, selling expenses of our joint ventures increased by ARS 11 million, from ARS 7 million during the fiscal year ended June 30, 2019 to ARS 18 million during the fiscal year ended June 30, 2020.
Therefore, according to information by segments, selling expenses increased by ARS 1,498 million from ARS 12,277 million during the fiscal year ended June 30, 2019 to ARS 13,775 million during the fiscal year ended June 30, 2020 (out of which ARS 12,544 million derive from the Operations Center in Israel and ARS 1,231 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, selling expenses increased by 13.5%. Selling expenses, measured as a percentage of revenues, according to information by segments, increased from 13.9% during the fiscal year ended June 30, 2019 to 14.8% during the fiscal year ended June 30, 2020. Without considering the effects from the Operations Center in Israel, total selling expenses, measured as a percentage of total revenues according to information by segments, showed an increase, from 7.2% during the fiscal year ended June 30, 2019 to 11.1% during the fiscal year ended June 30, 2020.
Operations Center in Argentina
Shopping Malls.Selling expenses of the Shopping Malls segment increased by 33.8%, from ARS 530 million during the fiscal year ended June 30, 2019 to ARS 709 million during the fiscal year ended June 30, 2020, mainly as a result of: (i) an increase in the charge of doubtful accounts of ARS 218 million, partially offset by (ii) a decrease in the charge of taxes, rates and contributions of ARS 22 million; (iii) a decrease in the charge of publicity, advertising and other commercial expenses of ARS 10 million; and (iv) a decrease in salaries, social security and other personnel administrative expenses of ARS 4 million. Selling expenses, measured as a percentage of revenues from the Shopping Malls segment, increased from 6.2% during the fiscal year ended June 30, 2019 to 11.9% during the fiscal year ended June 30, 2020.
Offices.Selling expenses associated with our Offices segment decreased by 15.2% from ARS 99 million during the fiscal year ended June 30, 2019 to ARS 84 million during the fiscal year ended June 30, 2020. Such variation was mainly generated as a result of: (i) an ARS 9 million decrease in publicity, advertising, and other commercial expenses; and (ii) an ARS 8 million decrease in the charge of doubtful accounts. Selling expenses associated with our Offices segment, measured as a percentage of revenues from this segment, decreased from 4.4% during the fiscal year ended June 30, 2019 to 3.6% during the fiscal year ended June 30, 2020.
Sales and Developments.Selling expenses associated with our Sales and Developments segment increased by 65.5% from ARS 119 million during the fiscal year ended June 30, 2019 to ARS 197 million during the fiscal year ended June 30, 2020. Such variation was mainly generated by: (i) an ARS 79 million increase in taxes, rates and contributions; (ii) an ARS 11 million increase in publicity, advertising and other commercial expenses, offset by: (iii) an ARS 7 million decrease in the charge of doubtful accounts; (iv) an ARS 2 million decrease in salaries, social security and other personnel administrative expenses; and (v) an ARS 2 million decrease in fees and compensation for services. Selling expenses associated with our Sales and Developments segment, measured as a percentage of revenues from this segment, increased from 10.6% during the fiscal year ended June 30, 2019 to 26.8% during the fiscal year ended June 30, 2020.
Hotels.Selling expenses associated with our Hotels segment decreased by 27.2% from ARS 316 million during the fiscal year ended June 30, 2019 to ARS 230 million during the fiscal year ended June 30, 2020, mainly as a result of: (i) an ARS 45 million decrease in the charge of taxes, rates and contributions; (ii) an ARS 19 million decrease in publicity, advertising and other commercial expenses; (iii) an ARS 11 million decrease in fees and compensation for services; and (iv) an ARS 9 million decrease in salaries, social security and other personnel administrative expenses. Selling expenses associated with our Hotels segment, measured as a percentage of revenues from this segment, slightly increased from 10.7% during the fiscal year ended June 30, 2019 to 11.4% during the fiscal year ended June 30, 2020.
International.Selling expenses associated with the International segment were not recorded in both fiscal years.
Corporate. Selling expenses associated with the Corporate segment were not recorded in both fiscal years.
Others.Selling expenses associated with our Others segment decreased by 47.6% from ARS 21 million during the fiscal year ended June 30, 2019 to ARS 11 million during the fiscal year ended June 30, 2020, mainly due to: (i) an ARS 5 million decrease in the charge of doubtful accounts; and (ii) an ARS 4 million decrease in taxes, rates and contributions. Selling expenses associated with our Others segment, measured as a percentage of revenues from this segment, increased from 11.1% during the fiscal year ended June 30, 2019 to 14.1% during the fiscal year ended June 30, 2020.
Operations Center in Israel
Real estate.Selling expenses associated with the Real Estate segment increased from ARS 197 million during the fiscal year ended June 30, 2019 to ARS 223 million during the fiscal year ended June 30, 2020. Such variation was mainly due to an actual depreciation of the Argentine Peso of approximately 13%. Selling expenses associated with this segment, measured as a percentage of revenues, increased from 1.4% in the fiscal year ended June 30, 2019 to 1.7% in the fiscal year ended June 30, 2020.
Telecommunications.Selling expenses associated with the Telecommunications segment increased from ARS 10,562 million during the fiscal year ended June 30, 2019 to ARS 11,887 million during the fiscal year ended June 30, 2020. Such variation was due to an actual depreciation of the Argentine Peso of approximately 13%, offset by a reduction in advertising expenses of the mobile telephone business line. Selling expenses associated with this segment, measured as a percentage of revenues, decreased from 18.4% for fiscal year 2019 to 18.3% for fiscal year 2020.
Others.Selling expenses associated with the Others segment increased from ARS 433 million during the fiscal year ended June 30, 2019 to ARS 434 million during the fiscal year ended June 30, 2020. Such variation was due to an actual depreciation of the Argentine Peso of approximately 13%, offset by a reduction in the costs of Bartan and Epsilon.
Impairment of associates and joint ventures 2020 vs 2019
Profit/(loss) for impairment of associates and joint ventures, according to the income statement, recorded a variation of ARS 2,470 million, since no depreciation had been recorded during the fiscal year ended June 30, 2019 and an ARS 2,470 million loss was recorded in the fiscal year ended June 30, 2020, in connection with the impairment of Mehadrin in the Operations Center in Israel within the real estate segment. Such impairment derived from PBC’s reclassification of the investment as available for sale and the assessment of shares at market price in the first quarter of the fiscal year, as the company intended to distribute shares as dividend in kind, in the second quarterly period of the fiscal year. Mehadrin is an agricultural company in Israel whose shares are listed on the TASE.
Other operating results, net 2020 vs 2019
Other operating results, net, according to the income statement, recorded a variation of ARS 831 million, from a net profit of ARS 273 million during the fiscal year ended June 30, 2019, to a net profit of ARS 1,104 million during the fiscal year ended June 30, 2020 (out of which a net loss of ARS 23 million derives from the Operations Center in Argentina and a net profit of ARS 1,127 million derives from the Operations Center in Israel).
Other operating results, net, from our joint ventures decreased by ARS 176 million, from a net profit of ARS 194 million during the fiscal year ended June 30, 2019 to a net profit of ARS 18 million during the fiscal year ended June 30, 2020 (out of which a profit of ARS 2 million derives from the Sales and Developments segment, an ARS 18 million profit is allocated to the Offices segment and a loss of ARS 2 million is allocated to the Shopping Malls segment).
In turn, other operating results on account of building administration expenses and collective promotion fund remained unchanged in the reported fiscal years.
Therefore, according to information by segments, the other operating results line, net, increased by ARS 998 million, from a net profit of ARS 82 million during the fiscal year ended June 30, 2019 to a net profit of ARS 1,080 million during the fiscal year ended June 30, 2020. Excluding the effect from the Operations Center in Israel, other operating results increased by ARS 613 million.
Operations Center in Argentina
Shopping Malls.Other operating results, net associated with our Shopping Malls segment decreased by 65.5%, from a net loss of ARS 110 million during the fiscal year ended June 30, 2019 to a net loss of ARS 38 million during the fiscal year ended June 30, 2020, mainly as a result of: (i) a lower charge of donations of ARS 54 million; and (ii) an increase in Others of ARS 25 million, mainly due to a loss for indemnification payment recognized in 2019, partially offset by: (iii) an ARS 12 million decrease in interest earned on operating assets. Other operating results, net, from this segment, as a percentage of revenues from this segment, decreased from 1.3% negative during the fiscal year ended June 30, 2019 to 0.6% negative during the fiscal year ended June 30, 2020.
Offices.Other operating results, net associated with our Offices segment decreased by 27.5%, from a net loss of ARS 40 million during the fiscal year ended June 30, 2019 to a net loss of ARS 29 million during the fiscal year ended June 30, 2020, mainly as a consequence of an ARS 14 million decrease in donations, among other items. Other operating results, net from this segment, as a percentage of the revenues from this segment, decreased from 1.8% negative during the fiscal year ended June 30, 2019 to 1.2% negative during the fiscal year ended June 30, 2020.
Sales and Developments.Other operating results, net associated with our Sales and Developments segment decreased by 90.6%, from a net loss of ARS 286 million during the fiscal year ended June 30, 2019 to a net loss of ARS 27 million during the fiscal year ended June 30, 2020, mainly as a result of a decrease in the provision set up for the write-off of the Puerto Retiro plot of land and a decrease in donations, among other items. Other operating results, net from this segment, as a percentage of the revenues of this segment, decreased from 25.6% negative during the fiscal year ended June 30, 2019 to 3.7% negative during the fiscal year ended June 30, 2020.
Hotels.Other operating results, net associated with the Hotels segment decreased by 117.5%, from a net profit of ARS 114 million during the fiscal year ended June 30, 2019 to a net loss of ARS 20 million during the fiscal year ended June 30, 2020, mainly due to an insurance recovery associated with a boiler-related loss during fiscal year 2019. Other operating results, net from this segment, as a percentage of the revenues from this segment, decreased from 3.9% positive during the fiscal year ended June 30, 2019 to 1% negative during the fiscal year ended June 30, 2020.
International.Other operating results, net associated with the International segment showed a net loss of ARS 24 million during the fiscal year ended June 30, 2019. No charge was recognized during the fiscal year ended June 30, 2020, mainly due to a decrease in donations.
Corporate.Other operating results, net associated with the Corporate segment showed no variations between the reported fiscal years.
Others.Other operating results, net associated with the Others segment increased by 121.3%, from a net loss of ARS 314 million during the fiscal year ended June 30, 2019 to a net profit of ARS 67 million during the fiscal year ended June 30, 2020, mainly due to a loss from the sale of Tarshop S.A. and the impairment of the goodwill of La Arena during the comparative fiscal year. Other operating results, net from this segment, as a percentage of the revenues from this segment, decreased from 165.3% negative during the fiscal year ended June 30, 2019 to 85.9% positive during the fiscal year ended June 30, 2020.
Operations Center in Israel
Real estate.Other operating results, net associated with the Real Estate segment showed a loss of ARS 296 million during the fiscal year ended June 30, 2020. No charge was recognized in fiscal year 2019.
Telecommunications.Other operating results, net associated with the Telecommunications segment increased from a profit of ARS 397 million during the fiscal year ended June 30, 2019 to a net profit of ARS 501 million during the fiscal year ended June 30, 2020.
Corporate.Other operating results, net associated with the Corporate segment showed a loss of ARS 48 million during the fiscal year ended June 30, 2020. No charge was recognized in fiscal year 2019.
Others.Other operating results, net associated with the Others segment went from a net profit of ARS 345 million during the fiscal year ended June 30, 2019 to a net profit of ARS 970 million during the fiscal year ended June 30, 2020, as a consequence of the negative goodwill resulting from the Mehadrin combination of businesses.
Profit / (loss) from operations 2020 vs 2019
Total consolidated profit/ (loss) from operations, according to the income statement, increased from a net loss of ARS 27,727 million during the fiscal year ended June 30, 2019 to a net profit of ARS 38,339 million during the fiscal year ended June 30, 2020 (out of which a net loss of ARS 299 million derives from the Operations Center in Israel and a net profit of ARS 38,638 from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, the profit/(loss) from operations varied by 223.6%. Total consolidated profit/(loss) from operations, measured as a percentage of revenues from sales, leases and services, increased from 30.1% negative during the fiscal year ended June 30, 2019 to 40% positive during the fiscal year ended June 30, 2020. Excluding the effect from the Operations Center in Israel, total consolidated profit/(loss) from operations, measured as a percentage of total revenues, increased from 167.6% negative during the fiscal year ended June 30, 2019 to 272.9% positive during the fiscal year ended June 30, 2020.
Profit/(loss) from operations from our joint ventures decreased from a profit of ARS 1,030 million during the fiscal year ended June 30, 2019 (out of which a net profit of ARS 117 million is allocated to the Shopping Malls segment; a net profit of ARS 704 million to the Offices segment and a profit of ARS 209 million to the Sales and Developments segment, of the Operations Center in Argentina) to a net loss of ARS 220 million during the fiscal year ended June 30, 2020 (out of which a profit of ARS 14 million is allocated to the Shopping Malls segment, a net loss of ARS 245 million to the Offices segment, and a profit of ARS 11 million to the Sales and Developments segment, of the Operations Center in Argentina).
Therefore, according to information by segments, the net profit from operations increased from a net loss of ARS 28,625 million during the fiscal year ended June 30, 2019 to a net profit of ARS 38,672 million during the fiscal year ended June 30, 2020 (out of which a net loss of ARS 299 million derives from the Operations Center in Israel and a net profit of ARS 38,971 million derives from the Operations Center in Argentina). The profit/(loss) from operations, measured as a percentage of revenues, according to information by segments, increased from a 32.3% loss during the fiscal year ended June 30, 2019 to a 41.7% profit during the fiscal year ended June 30, 2020. Excluding the effect from the Operations Center in Israel, total profit/(loss) from operations, according to information by segments, measured as a percentage of total revenues, increased from a 213.5% loss during the fiscal year ended June 30, 2019 to a 349.9% profit during the fiscal year ended June 30, 2020.
Operations Center in Argentina
Shopping Malls.Profit/(loss) from operations associated with the Shopping Malls segment increased from a loss of ARS 34,401 million during the fiscal year ended June 30, 2019 to a profit of ARS 1,687 million during the fiscal year ended June 30, 2020.
Offices.Profit / (loss) from operations associated with our Offices segment increased by 961.2%, from a net profit of ARS 2,372 million during the fiscal year ended June 30, 2019 to a net profit of ARS 25,171 million during the fiscal year ended June 30, 2020. Such variation was mainly due to an ARS 23,242 million increase in the gain / (loss) from fair value adjustments of investment properties. Profit / (loss) from operations associated with the Offices segment, as a percentage of revenues from such segment, increased from 106% during the fiscal year ended June 30, 2019 to 1,067.5% during the fiscal year ended June 30, 2020.
Sales and Developments.Profit / (loss) from operations associated with our Sales and Developments segment increased by 1,768.6%, from a net profit of ARS 631 million during the fiscal year ended June 30, 2019 to a net profit of ARS 11,791 million during the fiscal year ended June 30, 2020. Such increase is mainly due to the gain / (loss) from fair value adjustments of investment properties. Profit / (loss) from operations associated with the Sales and Developments segment, as a percentage of revenues from this segment, increased from 56.4% during the fiscal year ended June 30, 2019 to 1,604.2% during the fiscal year ended June 30, 2020.
Hotels.Profit / (loss) from operations associated with the Hotels segment decreased by 76.1%, from a net profit of ARS 673 million during the fiscal year ended June 30, 2019 to a net profit of ARS 161 million during the fiscal year ended June 30, 2020. Such decrease is mainly due to the deflagging process of Hoteles Argentinos S.A.U. and to the fact that revenues were significantly affected by a decline in the activity since March, attributable to the COVID-19 pandemic. The profit / (loss) from operations associated with the Hotels segment, as a percentage of revenues from such segment, decreased from 22.8% during the fiscal year ended June 30, 2019 to 8% during the fiscal year ended June 30, 2020.
International.Profit/(loss) from operations associated with our International segment varied by 7.5% from a net loss of ARS 120 million during the fiscal year ended June 30, 2019 to a net loss of ARS 111 million during the fiscal year ended June 30, 2020. Such variation is due to a decrease in donations.
Corporate.Profit/(loss) from operations associated with our Corporate segment decreased by 45.7% from a loss of ARS 519 million during the fiscal year ended June 30, 2019 to a loss of ARS 282 million during the fiscal year ended June 30, 2020, mainly affected by general and administrative expenses.
Others.Profit/(loss) from operations associated with the Others segment increased from a net loss of ARS 783 million during the fiscal year ended June 30, 2019 to a net profit of ARS 554 million during the fiscal year ended June 30, 2020. The variation is mainly due to the loss generated by the sale of Tarshop, the impairment of the goodwill of La Arena during the fiscal year ended June 30, 2019, and a decrease in share of profit / (loss) of associates and joint ventures. Profit/(loss) from operations of the Others segment, as a percentage of the revenues from such segment, increased from a 412.1% loss during the fiscal year ended June 30, 2019 to a 710.3% profit during the fiscal year ended June 30, 2020.
Operations Center in Israel
Real Estate.Profit / (loss) from operations associated with the Real Estate segment decreased from ARS 5,259 million during the fiscal year ended June 30, 2019 to ARS 623 million during the fiscal year ended June 30, 2020. Such variation was mainly due to the loss for impairment of associates and joint ventures in this fiscal year.
Telecommunications.Profit/ (loss) from operations associated with the Telecommunications segment went from a net profit of ARS 138 million during the fiscal year ended June 30, 2019 to a net profit of ARS 702 million during the fiscal year ended June 30, 2020. Such variation was mainly due to revenues increasing more than costs in this fiscal year, thus resulting in a broader gap between both operating results.
Corporate.Profit/ (loss) from operations associated with the Corporate segment went from a net loss of ARS 1,058 million during the fiscal year ended June 30, 2019 to a net loss of ARS 1,119 million during the fiscal year ended June 30, 2020, mainly due to a profit from the sale of an associate in the previous period.
Others.Profit/ (loss) from operations associated with the Others segment went from a net loss of ARS 817 million during the fiscal year ended June 30, 2019 to a net profit of ARS 741 million during the fiscal year ended June 30, 2020. Such variation was mainly due to the sale of Cyber Secdo by Elron and the profit generated by it in the fiscal year ended June 30, 2019.
Share of profit / (loss) of associates and joint ventures 2020 vs 2019
The share of profit / (loss) of associates and joint ventures, according to the income statement, increased by 218.3%, from a net loss of ARS 7,200 million during the fiscal year ended June 30, 2019 to a net profit of ARS 8,517 million during the fiscal year ended June 30, 2020 (out of which a net profit of ARS 7,218 million derives from the Operations Center in Argentina and a net profit of ARS 1,299 million from the Operations Center in Israel). Excluding the results from the Operations Center in Israel, the share of profit / (loss) of associates and joint ventures increased by 202.4%, mainly due to the positive results from the International segment.
Also, the net share of profit / (loss) of joint ventures, mainly from Nuevo Puerto Santa Fe S.A. (Shopping Malls segment), Quality Invest S.A. (Offices segment) and Cyrsa S.A. and Puerto Retiro S.A. (Sales and Developments segment), showed a 116.8% increase, from a loss of ARS 1,019 million during the fiscal year ended June 30, 2019 to a profit of ARS 171 million during the fiscal year ended June 30, 2020, mainly due to results from the joint venture Puerto Retiro S.A., as a consequence of the impairment of the plot of land based on the progress of litigations concerning it during the fiscal year ended June 30, 2019 and the share in Quality Invest S.A., mainly attributable to the gain / (loss) from fair value adjustments of investment properties.
Operations Center in Argentina
Shopping Malls.In the information by segments, the share of profit / (loss) of the joint venture Nuevo Puerto Santa Fe S.A. is recorded on a consolidated basis, line by line in this segment.
Offices.In the information by segments, the share of profit / (loss) of the joint venture Quality S.A. is recorded on a consolidated basis, line by line in this segment.
Sales and Developments.The share of profit / (loss) of the joint ventures Cyrsa S.A. and Puerto Retiro S.A is recorded on a consolidated basis, line by line. The share of profit / (loss) of our associate Manibil S.A., which is recorded in this line, increased by ARS 37 million during the fiscal year ended June 30, 2020.
Hotels.This segment does not show results from the share of profit / (loss) of associates and joint ventures.
International.The share of profit / (loss) of associates of this segment increased by 300.5%, from a net loss of ARS 3,679 million during the fiscal year ended June 30, 2019 to a net profit of ARS 7,377 million during the fiscal year ended June 30, 2020, mainly generated by a positive result from our investment in New Lipstick LLC of ARS 7,472 million offset by a negative result from our investment in Condor Hospitality of ARS 102 million.
Other.The share of profit / (loss) of associates from the Others segment decreased by 85.7%, from a net loss of ARS 2,315 million during the fiscal year ended June 30, 2019 to a net loss of ARS 330 million during the fiscal year ended June 30, 2020, mainly as a result of a loss from our investments in Banco Hipotecario S.A. in the amount of ARS 380 million.
Operations Center in Israel
Real Estate.The share of profit / (loss) of associates from this segment went from a profit of ARS 37 million during the fiscal year ended June 30, 2019 to a profit of ARS 1,495 million during the fiscal year ended June 30, 2020, due to the recognition of Gav Yam as an associate in this fiscal year.
Supermarkets.The share of profit / (loss) of associates from this segment amounts to a profit of ARS 1,063 million for the fiscal year ended June 30, 2020. It is not comparable with the fiscal year ended June 30, 2019 because Shufersal was deconsolidated on June 30, 2018.
Others.The share of profit / (loss) of associates from this segment went from a loss of ARS 904 million during the fiscal year ended June 30, 2019 to a loss of ARS 994 million in the fiscal year ended June 30, 2020, mainly due to the Elron investments.
Financial results, net
The financial results went from a loss of ARS 14,835 million during the fiscal year ended June 30, 2019 to a loss of ARS 34,341 million during the fiscal year ended June 30, 2020. Such variation is mainly due to the devaluation of the Argentine peso against the dollar.
Income Tax
The Company applies the deferred tax method to calculate the income tax for the reported fiscal years, thus recognizing temporary differences as tax assets and liabilities. The income tax charge went from a profit of ARS 4,251 million for the fiscal year ended June 30, 2019, to a loss of ARS 6,869 million during the fiscal year ended June 30, 2020, out of which a loss of ARS 6,702 million derives from the Operations Center in Argentina and a loss of ARS 167 million derives from the Operations Center in Israel.
Profit for the year
As a result of the factors described above, the profit for the year, including the effect of discontinued operations, went from a loss of ARS 38,371 million during the fiscal year ended June 30, 2019 to a profit of ARS 23,731 million during the fiscal year ended June 30, 2020, out of which a profit of ARS 27,096 million derives from the Operations Center in Argentina, and a loss of ARS 3,365 million from the Operations Center in Israel.
Results of Operations for the fiscal years ended June 30, 2019 and 2018
Below is a summary of the operating segments by geography and a reconciliation between the total of the operating result according to the information by segments and the operating result according to the income statement for the years ended June 30, 2019 and 2018.
| Operations Center in Argentina | Operations Center in Israel | | | Expenses and Collective Promotion Fund | Elimination of inter-segment transactions and non-reportable assets / liabilities) | Total as per statement of income / statement of financial position | Operations Center in Argentina | Operations Center in Israel | | | Expenses and Collective Promotion Fund | Elimination of inter-segment transactions and non-reportable assets / liabilities | Total as per statement of income / statement of financial position |
| | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | |
| |
| | |
| Revenues | 10,534 | 9,707 | 827 | 56,722 | 46,138 | 10,584 | 67,256 | 55,845 | 11,411 | (65) | (78) | 13 | 2,593 | 3,069 | (476) | (17) | (12) | (5) | 69,767 | 58,824 | 10,943 | 15,055 | 13,872 | 1,183 | 73,537 | 60,057 | 13,480 | 88,592 | 73,929 | 14,663 | (93) | (109) | 16 | 3,706 | 4,387 | (681) | (24) | (20) | (4) | 92,181 | 78,187 | 13,994 |
| Costs | (2,223) | (1,960) | (263) | (37,127) | (29,624) | (7,503) | (39,350) | (31,584) | (7,766) | 47 | 48 | (1) | (2,697) | (3,110) | 413 | - | (42,000) | (34,646) | (7,354) | (3,176) | (2,802) | (374) | (52,426) | (41,935) | (10,491) | (55,602) | (44,737) | (10,865) | 66 | 70 | (4) | (3,855) | (4,445) | 590 | - | (59,391) | (49,112) | (10,279) |
| Gross profit / (loss) | 8,311 | 7,747 | 564 | 19,595 | 16,514 | 3,081 | 27,906 | 24,261 | 3,645 | (18) | (30) | 12 | (104) | (41) | (63) | (17) | (12) | (5) | 27,767 | 24,178 | 3,589 | 11,879 | 11,070 | 809 | 21,111 | 18,122 | 2,989 | 32,990 | 29,192 | 3,798 | (27) | (39) | 12 | (149) | (58) | (91) | (24) | (20) | (4) | 32,790 | 29,075 | 3,715 |
| Net (loss) / gain from fair value adjustment of investment property | (27,713) | 14,145 | (41,858) | 3,416 | 3,575 | (159) | (24,297) | 17,720 | (42,017) | 587 | (739) | 1,326 | - | (23,710) | 16,981 | (40,691) | (39,607) | 20,216 | (59,823) | 892 | - | 892 | (38,715) | 20,216 | (58,931) | 838 | (1,056) | 1,894 | - | (37,877) | 19,160 | (57,037) |
| General and administrative expenses | (1,870) | (1,634) | (236) | (5,886) | (5,299) | (587) | (7,756) | (6,933) | (823) | 11 | 26 | (15) | - | 31 | 23 | 8 | (7,714) | (6,884) | (830) | (2,674) | (2,337) | (337) | (8,031) | (7,233) | (798) | (10,705) | (9,570) | (1,135) | 18 | 40 | (22) | - | 44 | 33 | 11 | (10,643) | (9,497) | (1,146) |
| Selling expenses | (759) | (788) | 29 | (7,963) | (7,506) | (457) | (8,722) | (8,294) | (428) | 5 | 11 | (6) | - | (8,717) | (8,283) | (434) | (1,085) | (1,125) | 40 | (11,192) | (10,639) | (553) | (12,277) | (11,764) | (513) | 7 | 15 | (8) | - | (12,270) | (11,749) | (521) |
| Other operating results, net | (437) | (29) | (408) | 519 | 1,494 | (975) | 82 | 1,465 | (1,383) | 131 | 25 | 106 | 104 | 41 | 63 | (16) | (2) | (14) | 301 | 1,529 | (1,228) | (660) | (54) | (606) | 742 | 2,136 | (1,394) | 82 | 2,082 | (2,000) | 194 | 42 | 152 | 17 | (2) | 19 | (20) | (13) | (7) | 273 | 2,109 | (1,836) |
| (Loss) / profit from operations | (22,468) | 19,441 | (41,909) | 9,681 | 8,778 | 903 | (12,787) | 28,219 | (41,006) | 716 | (707) | 1,423 | - | (2) | 9 | (11) | (12,073) | 27,521 | (39,594) | (32,147) | 27,770 | (59,917) | 3,522 | 2,386 | 1,136 | (28,625) | 30,156 | (58,781) | 1,030 | (998) | 2,028 | (132) | (60) | (72) | - | (27,727) | 29,098 | (56,825) |
| Share of (loss) of associates and jont ventures | (4,220) | (2,957) | (1,263) | 43 | (173) | 216 | (4,177) | (3,130) | (1,047) | (712) | 649 | (1,361) | - | (4,889) | (2,481) | (2,408) | |
| Share of (loss) of associates and joint ventures | | (6,031) | (4,228) | (1,803) | (150) | (422) | 272 | (6,181) | (4,650) | (1,531) | (1,019) | 928 | (1,947) | - | (7,200) | (3,722) | (3,478) |
| Segment (loss) / profit | (26,688) | 16,484 | (43,172) | 9,724 | 8,605 | 1,119 | (16,964) | 25,089 | (42,053) | 4 | (58) | 62 | - | (2) | 9 | (11) | (16,962) | 25,040 | (42,002) | (38,178) | 23,542 | (61,720) | 3,372 | 1,964 | 1,408 | (34,806) | 25,506 | (60,312) | 11 | (70) | 81 | (132) | (60) | (72) | - | (34,927) | 25,376 | (60,303) |
| Reportable assets | 78,058 | 106,983 | (28,925) | 374,723 | 394,376 | (19,653) | 452,781 | 501,359 | (48,578) | (426) | 307 | (733) | - | 22,279 | 25,190 | (2,911) | 474,634 | 526,856 | (52,222) | 111,562 | 152,903 | (41,341) | 535,565 | 563,654 | (28,089) | 647,127 | 716,557 | (69,430) | (609) | 307 | (916) | - | 31,842 | 25,189 | 6,653 | 678,360 | 742,053 | (63,693) |
| Reportable liabilities | - | (322,562) | (335,186) | 12,624 | (322,562) | (335,186) | 12,624 | - | (66,253) | (72,155) | 5,902 | (388,815) | (407,341) | 18,526 | - | (461,015) | (479,056) | 18,041 | (461,015) | (479,056) | 18,041 | - | (94,689) | (103,129) | 8,440 | (555,704) | (582,185) | 26,481 |
| Net reportable assets | 78,058 | 106,983 | (28,925) | 52,161 | 59,190 | (7,029) | 130,219 | 166,173 | (35,954) | (426) | 307 | (733) | - | (43,974) | (46,965) | 2,991 | 85,819 | 119,515 | (33,696) | 111,562 | 152,903 | (41,341) | 74,550 | 84,598 | (10,048) | 186,112 | 237,501 | (51,389) | (609) | 307 | (916) | - | (62,847) | (77,940) | 15,093 | 122,656 | 159,868 | (37,212) |
Operations Center in Argentina
Below is a summary analysis of the operating segments by products and servicesofservices of the Operations Center in Argentina for the years ended June 30, 2019 and 2018
| | | | | | | | | | | | | | | | | |
| | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | |
| | | |
| | |
| Revenues | 5,976 | 6,822 | (846) | 1,566 | 932 | 634 | 783 | 210 | 573 | 2,066 | 1,711 | 355 | 10 | - | 10 | - | 133 | 32 | 101 | 10,534 | 9,707 | 827 | 8,541 | 9,750 | (1,209) | 2,238 | 1,332 | 906 | 1,119 | 300 | 819 | 2,953 | 2,446 | 507 | 14 | - | 14 | - | 190 | 44 | 146 | 15,055 | 13,872 | 1,183 |
| Costs | (543) | (580) | 37 | (92) | (73) | (19) | (368) | (104) | (264) | (1,110) | (1,168) | 58 | (4) | - | (4) | - | (106) | (35) | (71) | (2,223) | (1,960) | (263) | (776) | (829) | 53 | (131) | (105) | (26) | (526) | (149) | (377) | (1,586) | (1,670) | 84 | (6) | - | (6) | - | (151) | (49) | (102) | (3,176) | (2,802) | (374) |
| Gross profit / (loss) | 5,433 | 6,242 | (809) | 1,474 | 859 | 615 | 415 | 106 | 309 | 956 | 543 | 413 | 6 | - | 6 | - | 27 | (3) | 30 | 8,311 | 7,747 | 564 | |
| Net (loss) / gain from fair value adjustment of investment properties | (28,394) | 4,384 | (32,778) | 443 | 4,373 | (3,930) | 496 | 5,134 | (4,638) | - | 4 | - | 4 | - | (262) | 254 | (516) | (27,713) | 14,145 | (41,858) | |
| Gross profit/(loss) | | 7,765 | 8,921 | (1,156) | 2,107 | 1,227 | 880 | 593 | 151 | 442 | 1,367 | 776 | 591 | 8 | - | 8 | - | 39 | (5) | 44 | 11,879 | 11,070 | 809 |
| Net gain/(loss) from fair value adjustment of investment properties | | (40,581) | 6,266 | (46,847) | 616 | 6,250 | (5,634) | 726 | 7,338 | (6,612) | - | 6 | - | 6 | - | (374) | 362 | (736) | (39,607) | 20,216 | (59,823) |
| General and administrative expenses | (661) | (597) | (64) | (148) | (152) | 4 | (182) | (139) | (43) | (344) | (341) | (3) | (93) | (82) | (11) | (363) | (269) | (94) | (79) | (54) | (25) | (1,870) | (1,634) | (236) | (945) | (853) | (92) | (212) | (218) | 6 | (283) | (198) | (85) | (492) | (487) | (5) | (110) | (118) | 8 | (519) | (385) | (134) | (113) | (78) | (35) | (2,674) | (2,337) | (337) |
| Selling expenses | (371) | (425) | 54 | (69) | (100) | 31 | (83) | (40) | (43) | (221) | (218) | (3) | - | (15) | (5) | (10) | (759) | (788) | 29 | (530) | (607) | 77 | (99) | (142) | 43 | (119) | (58) | (61) | (316) | (311) | (5) | - | (21) | (7) | (14) | (1,085) | (1,125) | 40 |
| Other operating results, net | (57) | (65) | 8 | (23) | (16) | (7) | (208) | 97 | (305) | 80 | (28) | 108 | (9) | (40) | 31 | - | (220) | 23 | (243) | (437) | (29) | (408) | (110) | (105) | (5) | (40) | (22) | (18) | (286) | 138 | (424) | 114 | (40) | 154 | (24) | (58) | 34 | - | (314) | 33 | (347) | (660) | (54) | (606) |
| (Loss) / profit from operations | (24,050) | 9,539 | (33,589) | 1,677 | 4,964 | (3,287) | 438 | 5,158 | (4,720) | 471 | (44) | 515 | (92) | (122) | 30 | (363) | (269) | (94) | (549) | 215 | (764) | (22,468) | 19,441 | (41,909) | |
| Share of profit of associates and joint ventures | - | (26) | 3 | (29) | - | (2,574) | (3,095) | 521 | - | (1,620) | 135 | (1,755) | (4,220) | (2,957) | (1,263) | |
| Segment (loss) / profit | (24,050) | 9,539 | (33,589) | 1,677 | 4,964 | (3,287) | 412 | 5,161 | (4,749) | 471 | (44) | 515 | (2,666) | (3,217) | 551 | (363) | (269) | (94) | (2,169) | 350 | (2,519) | (26,688) | 16,484 | (43,172) | |
| Profit/(loss) from operations | | (34,401) | 13,622 | (48,023) | 2,372 | 7,095 | (4,723) | 631 | 7,371 | (6,740) | 673 | (62) | 735 | (120) | (176) | 56 | (519) | (385) | (134) | (783) | 305 | (1,088) | (32,147) | 27,770 | (59,917) |
| Share of profit/(loss) of associates and joint ventures | | - | (37) | 4 | (41) | - | (3,679) | (4,425) | 746 | - | (2,315) | 193 | (2,508) | (6,031) | (4,228) | (1,803) |
| Segment profit/(loss) | | (34,401) | 13,622 | (48,023) | 2,372 | 7,095 | (4,723) | 594 | 7,375 | (6,781) | 673 | (62) | 735 | (3,799) | (4,601) | 802 | (519) | (385) | (134) | (3,098) | 498 | (3,596) | (38,178) | 23,542 | (61,720) |
| Reportable assets | 35,276 | 63,155 | (27,879) | 22,206 | 20,036 | 2,170 | 19,861 | 18,040 | 1,821 | 1,348 | 1,424 | (76) | (4,864) | (2,569) | (2,295) | - | 4,231 | 6,897 | (2,666) | 78,058 | 106,983 | (28,925) | 50,418 | 90,263 | (39,845) | 31,737 | 28,636 | 3,101 | 28,385 | 25,784 | 2,601 | 1,927 | 2,035 | (108) | (6,952) | (3,672) | (3,280) | - | 6,047 | 9,857 | (3,810) | 111,562 | 152,903 | (41,341) |
| Reportable liabilities | - | - |
| Net reportable assets | 35,276 | 63,155 | (27,879) | 22,206 | 20,036 | 2,170 | 19,861 | 18,040 | 1,821 | 1,348 | 1,424 | (76) | (4,864) | (2,569) | (2,295) | - | 4,231 | 6,897 | (2,666) | 78,058 | 106,983 | (28,925) | 50,418 | 90,263 | (39,845) | 31,737 | 28,636 | 3,101 | 28,385 | 25,784 | 2,601 | 1,927 | 2,035 | (108) | (6,952) | (3,672) | (3,280) | - | 6,047 | 9,857 | (3,810) | 111,562 | 152,903 | (41,341) |
Operations Center in Israel
Below is a summary analysis of the operating segments by products and services of the Operations Center in Israel for the years ended June 30, 2019 and 2018
| | | | | | | | |
| | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | |
| | |
| Revenues | 15,340 | 10,763 | 4,577 | - | - | - | 40,236 | 34,330 | 5,906 | - | - | - | - | - | - | 1,146 | 1,045 | 101 | 56,722 | 46,138 | 10,584 |
| Costs | (6,828) | (4,451) | (2,377) | - | - | - | (29,683) | (24,621) | (5,062) | - | - | - | - | - | - | (616) | (552) | (64) | (37,127) | (29,624) | (7,503) |
| Gross profit / (loss) | 8,512 | 6,312 | 2,200 | - | - | - | 10,553 | 9,709 | 844 | - | - | - | - | - | - | 530 | 493 | 37 | 19,595 | 16,514 | 3,081 |
| Net (loss) / gain from fair value adjustment of investment properties | 3,416 | 3,575 | (159) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 3,416 | 3,575 | (159) |
| General and administrative expenses | (762) | (644) | (118) | - | - | - | (3,344) | (3,214) | (130) | - | - | - | (740) | (597) | (143) | (1,040) | (844) | (196) | (5,886) | (5,299) | (587) |
| Selling expenses | (270) | (202) | (68) | - | - | - | (7,390) | (7,038) | (352) | - | - | - | - | - | - | (303) | (266) | (37) | (7,963) | (7,506) | (457) |
| Other operating results, net | - | 179 | (179) | - | - | - | 278 | 540 | (262) | - | - | - | - | 798 | (798) | 241 | (23) | 264 | 519 | 1,494 | (975) |
| (Loss) / profit from operations | 10,896 | 9,220 | 1,676 | - | - | - | 97 | (3) | 100 | - | - | - | (740) | 201 | (941) | (572) | (640) | 68 | 9,681 | 8,778 | 903 |
| Share of profit of associates and joint ventures | 174 | 233 | (59) | 502 | - | 502 | - | - | - | - | - | - | - | - | - | (633) | (406) | (227) | 43 | (173) | 216 |
| Segment (loss) / profit | 11,070 | 9,453 | 1,617 | 502 | - | 502 | 97 | (3) | 100 | - | - | - | (740) | 201 | (941) | (1,205) | (1,046) | (159) | 9,724 | 8,605 | 1,119 |
| Reportable assets | 212,300 | 208,525 | 3,775 | 16,102 | 20,696 | (4,594) | 76,531 | 77,471 | (940) | 15,839 | 19,064 | - | 29,062 | 33,187 | (4,125) | 24,889 | 35,433 | (10,544) | 374,723 | 394,376 | 19,653 |
| Reportable liabilities | (164,811) | (162,110) | (2,701) | - | - | - | (59,333) | (60,369) | 1,036 | - | - | (3,225) | (88,569) | (108,847) | 20,278 | (9,849) | (3,860) | (5,989) | (322,562) | (335,186) | 12,624 |
| Net reportable assets | 47,489 | 46,415 | 1,074 | 16,102 | 20,696 | (4,594) | 17,198 | 17,102 | 96 | 15,839 | 19,064 | (3,225) | (59,507) | (75,660) | 16,153 | 15,040 | 31,573 | (16,533) | 52,161 | 59,190 | (7,029) |
| | | | | | | | |
| | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | | 06.30.19 | 06.30.18 | |
|
| Revenues | 14,392 | 9,497 | 4,895 | - | - | - | 57,506 | 49,066 | 8,440 | - | - | - | - | - | - | 1,639 | 1,494 | 145 | 73,537 | 60,057 | 13,480 |
| Costs | (9,121) | (5,957) | (3,164) | - | - | - | (42,424) | (35,189) | (7,235) | - | - | - | - | - | - | (881) | (789) | (92) | (52,426) | (41,935) | (10,491) |
| Gross profit / (loss) | 5,271 | 3,540 | 1,731 | - | - | - | 15,082 | 13,877 | 1,205 | - | - | - | - | - | - | 758 | 705 | 53 | 21,111 | 18,122 | 2,989 |
| Net (loss) / gain from fair value adjustment of investment properties | 892 | - | 892 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 892 | - | 892 |
| General and administrative expenses | (707) | (578) | (129) | - | - | - | (4,779) | (4,594) | (185) | - | - | - | (1,058) | (854) | (204) | (1,487) | (1,207) | (280) | (8,031) | (7,233) | (798) |
| Selling expenses | (197) | (200) | 3 | - | - | - | (10,562) | (10,059) | (503) | - | - | - | - | - | - | (433) | (380) | (53) | (11,192) | (10,639) | (553) |
| Other operating results, net | - | 256 | (256) | - | - | - | 397 | 772 | (375) | - | - | - | - | 1,141 | (1,141) | 345 | (33) | 378 | 742 | 2,136 | (1,394) |
| (Loss) / profit from operations | 5,259 | 3,018 | 2,241 | - | - | - | 138 | (4) | 142 | - | - | - | (1,058) | 287 | (1,345) | (817) | (915) | 98 | 3,522 | 2,386 | 1,136 |
| Share of profit of associates and joint ventures | 37 | 158 | (121) | 717 | - | 717 | - | - | - | - | - | - | - | - | - | (904) | (580) | (324) | (150) | (422) | 272 |
| Segment (loss) / profit | 5,296 | 3,176 | 2,120 | 717 | - | 717 | 138 | (4) | 142 | - | - | - | (1,058) | 287 | (1,345) | (1,721) | (1,495) | (226) | 3,372 | 1,964 | 1,408 |
| Reportable assets | 303,425 | 298,031 | 5,394 | 23,013 | 29,579 | (6,566) | 109,380 | 110,723 | (1,343) | 22,638 | 27,247 | (4,609) | 41,536 | 47,432 | (5,896) | 35,573 | 50,642 | (15,069) | 535,565 | 563,654 | (28,089) |
| Reportable liabilities | (235,553) | (231,693) | (3,860) | - | - | - | (84,800) | (86,280) | 1,480 | - | - | - | (126,585) | (155,567) | 28,982 | (14,077) | (5,516) | (8,561) | (461,015) | (479,056) | 18,041 |
| Net reportable assets | 67,872 | 66,338 | 1,534 | 23,013 | 29,579 | (6,566) | 24,580 | 24,443 | 137 | 22,638 | 27,247 | (4,609) | (85,049) | (108,135) | 23,086 | 21,496 | 45,126 | (23,630) | 74,550 | 84,598 | (10,048) |
Revenue 2019 vs 2018
Revenues from sales, leases and services, according to the income statement, increased by Ps.10,943ARS 13,994 million, from Ps.58,824ARS 78,187 million during the year ended June 30, 2018 to Ps.69,767ARS 92,181 million during the year ended June 30, 2019 (out of which Ps.56,722ARS 73,537 million were generated by the Operations Center in Israel and Ps.13,045ARS 18,644 million derive from the Operations Center in Argentina). Excluding revenues from the Operations Center in Israel, revenues from sales, leases and services increased by 2.8%.
In turn, revenues from expenses and collective promotion fund decreased by 15.5%, from Ps.3,069ARS 4,387 million (out of which Ps.2,875ARS 4,110 million are allocated to the Shopping Malls segment and Ps.194ARS 277 million to the Offices segment of the Operations Center in Argentina) during the year ended June 30, 2018, to Ps.2,593ARS 3,706 million (out of which Ps.2,385ARS 3,409 million are allocated to the Shopping Malls segment and Ps.208ARS 297 million to the Offices segment) during the year ended June 30, 2019.
Likewise, revenues from our joint ventures decreased by 16.7%14.7%, from Ps.78ARS 109 million during the fiscal year ended June 30, 2018 (out of which Ps.59ARS 84 million are allocated to the Shopping Malls segment, Ps.8ARS 10 million to the Offices segment and Ps.11ARS 15 million to the Sales and Developments Segment of the Operations Center in Argentina) to Ps.65ARS 93 million during the year ended June 30, 2019 (out of which Ps.54ARS 76 million are allocated to the Shopping Malls segment, and Ps.11ARS 16 million to the Offices segment and ARS 1 million to the Sales and Developments segment of the Operations Center in Argentina).
Finally, revenues from inter-segment operations increased Ps. 5ARS 4 million, from Ps.12ARS 20 million during the year ended June 30, 2018 to Ps.17ARS 24 million during the year ended June 30, 2019.
Therefore, according to the information by segments, (taking into account revenues from our joint ventures and without considering revenues corresponding to expenses and collective promotion fund or inter-segment revenues), revenues increased Ps.11,411ARS 14,633 million, from Ps.55,845ARS 73,929 million during the year ended June 30, 2018 to Ps.67,256ARS 88,592 million during the year ended June 30, 2019 (out of which Ps.56,722ARS 73,537 million derive from the Operations Center in Israel and Ps.10,534ARS 15,055 million derive from the Operations Center in Argentina). Without considering revenues from the Operations Center in Israel, revenues, according to the information by segments, increased by 8.5%.
Operations Center in Argentina
Shopping Malls. Revenues from the Shopping Malls segment decreased 12,4%12.4%, from Ps.6,822ARS 9,750 million during fiscal year 2018 to Ps.5,976ARS 8,541 million during fiscal year 2019, mainly attributable to: (i) a Ps.683an ARS 976 million decrease in revenues from fixed and variable leases as a result of a 13,9%13.9% decrease in the total sales of our tenants, from Ps.76.747ARS 109,687 million during fiscal year 2018 to Ps.66,075ARS 94,436 million during fiscal year 2019, (ii) a Ps.98an ARS 140 million decrease in the revenues from commissions, (iii) a Ps.85an ARS 122 million decrease in the revenues from admission rights, (iv) a Ps.84an ARS 120 million decrease in the revenues from parking fees, (v) a Ps.12an ARS 17 million decrease in the revenue from averaging of scheduled rent escalation; partially mitigated by (vi) an increase of Ps. 134ARS 192 million in other income, mainly attributable to the rescind of the contract with Walmart.
Offices. Revenues from the Offices segment increased 68.0%68%, from Ps.932ARS 1,332 million during the year ended June 30, 2018 to Ps.1,566ARS 2,238 million during the year ended June 30, 2019. The variation is explained by a significant increase in revenues from leases of different buildings, mainly PH Office Park and Zeta Buildings, and the effect of the exchange rate variation.
Sales and developments. Revenues from the Sales and Developments segment registered an increase of 272.9%273%, from Ps.210ARS 300 million during the year ended June 30, 2018 to Ps.783ARS 1,119 million during the year ended June 30, 2019. This segment often varies significantly from year to year due to the non-recurrence of different sales transactions carried out by the Group over time.
Hotels. Revenues from our Hotels segment increased by 20.7% from Ps.1,711ARS 2,446 million during the year ended June 30, 2018 to Ps.2,066ARS 2,953 million during the year ended June 30, 2019, mainly due to an increase in the average room rate of our hotel portfolio (measured in pesos).
International. Revenues associated with our International segment increased 100.0%, for Ps.10ARS 14 million during the year ended June 30, 2019, due to the sale of properties by our subsidiary Real Estate Strategies LLC.
Corporate. Revenues associated with our Corporate segment did not present variations for the years presented.
Others.Revenues from the Others segment increased 315.6%331.8%, from Ps.32ARS 44 million during the year ended June 30, 2018 to Ps.133ARS 190 million during the year ended June 30, 2019, mainly due to the increase in revenues from leases as a result of events recorded in Entertainment HoldingLa Arena S.A. y La Rural S.A., OFC S.R.L., Ogden S.A and Eentretenumiento Universal S.A. – Unión transitoria – (administradora del Centro de Convenciones y Exposiciones de la Ciudad de Buenos Aires).
Operations Center in Israel
Real estate. Revenues from the real estate segment increased from Ps.10,763ARS 9,497 million during the period ended June 30, 2018 to Ps.15,340ARS 14,392 million during the period ended June 30, 2019. This variation was due to (i) an actual devaluation of the Argentine peso of approximately 22%, (ii) an increase in the rentable square meters, (iii) an increase in the price of leases, and (iv) the application of IFRS 15.
Telecommunications. Revenues from the telecommunications segment increased from Ps.34,330ARS 49,066 million during the period ended June 30, 2018 to Ps.40,236ARS 57,506 million during the period ended June 30, 2019. This variation was due to an actual devaluation of the Argentine peso of approximately 22%, partially offset by the constant erosion in the revenues of mobile services, which was partially offset by an increase in revenues related to fixed lines, television and internet.
Others. Revenues from the Others segment increased from Ps.1,045ARS 1,494 million during the period ended June 30, 2018 to Ps.1,146ARS 1,639 million during the period ended June 30, 2019. This variation was due to (i) an actual devaluation of the Argentine peso of approximately 22%, (ii) offset by a drop in revenues from Bartan.
Costs 2019 vs 2018
Total consolidated costs, according to the income statement, registered an increase of Ps.7,354ARS 10,279 million, from Ps.34,646ARS 49,112 million during the year ended June 30, 2018 to Ps.42,000ARS 59,391 million during the year ended June 30, 2019 (out of which Ps.37,127ARS 52,426 million derive from the Operations Center in Israel and Ps.4,873ARS 6,965 million from the Operations Center in Argentina). Excluding costs from the Operations Center in Israel, costs decreased by 3.0%3%. Furthermore, total consolidated costs measured as a percentage of total consolidated revenues increased from 58.9%62.8% during the year ended June 30, 2018 to 60.2%64.4% during the year ended June 30,2019,30, 2019, mainly from the Operations Center in Israel. Excluding costs from the Operations Center in Israel, total consolidated costs measured as a percentage of total revenues decreased, from 39.6% during the year ended June 30, 2018 to 37.4% during the year ended June 30, 2019.
In turn, costs related to expenses and collective promotion fund decreased by 13.3%, from Ps.3,110ARS 4,445 million during the year ended June 30, 2018 (out of which Ps.2,937ARS 4,198 million are allocated to the Shopping Malls segment and Ps.173ARS 247 million to the Offices segment of the Operations Center in Argentina) to Ps.2,697ARS 3,855 million during the year ended June 30, 2019 (out of which Ps.2,486ARS 3,553 million are allocated to the Shopping Malls segment and Ps.211ARS 302 million to the Offices segment of the Operations Center in Argentina) due mainly to lower costs originated by our Shopping Malls, which decreased by 15.4%, from Ps.2,937ARS 4,198 million during the year ended June 30, 2018 to Ps.2,486ARS 3,553 million during the year ended June 30, 2019.
Likewise, costs from our joint ventures showed a decrease of 2.1%decreased by 5.7%, from Ps.48ARS 70 million during the year ended June 30, 2018 (out of which Ps.7ARS 9 million are allocated to the Shopping Malls segment, Ps.33ARS 50 million to the Offices segment and Ps.8ARS 11 million to the Sales and Developments segment of the Operations Center in Argentina) to Ps.47ARS 66 million during the year ended June 30, 2019 (out of which Ps.11ARS 16 million are allocated to the Shopping Malls segment, Ps.31ARS 42 million to the Offices segment and Ps.5ARS 8 million to the Sales and Developments segment of the Operations Center in Argentina).
Finally, costs from inter-segment operations did not presentshowed no variations for the years presented.reported periods.
Therefore, according to the information by segments (taking into account the costs from our joint ventures and without considering the costs from expenses and collective promotion fund or the costs from inter-segment operations), costs evidenced an increase of Ps.7,766ARS 10,865 million, from Ps.31,584ARS 44,737 million during the year ended June 30, 2018 to Ps.39,350ARS 55,602 million during the year ended June 30, 2019 (out of which Ps.37,127ARS 52,426 million derive from the Operations Center in Israel and Ps.2,223ARS 3,176 million from the Operations Center in Argentina). Excluding costs from the Operations Center in Israel, costs increased by 13.4%13.3%. Likewise, total costs measured as a percentage of total revenues, according to information by segments, increased from
56.6% 60.5% during the year ended June 30, 2018 to 58.5%62.8% during the year ended June 30, 2019, mainly from the Operations Center in Israel. Excluding the effect from the Operations Center in Israel, total costs measured as a percentage of total revenues increased from 20.2% during the year ended June 30, 2018 to 21.1% during the year ended June 30, 2019.
Operations Center in Argentina
Shopping Malls. The costs of our Shopping Malls segment decreased 6.4%, from Ps.580ARS 829 million during fiscal year 2018 to Ps.543ARS 776 million during fiscal year 2019, mainly generated by: (i) a decrease in salaries, social security charges and other personnel expenses of Ps.31ARS 44 million; (ii) a decrease in depreciation and amortization of Ps.14ARS 20 million; and (iii) a decrease in maintenance, security, cleaning, repairs and related expenses of Ps.6ARS 9 million; partially offset by: (iv) an increase in costs of leases and expenses for Ps.17ARS 24 million (generated by the leases in dollar, due to the increase in the exchange rate). The Shopping Malls segment costs, as a percentage of revenues from this segment, increased from 8.5% during fiscal year 2018 to 9.1% during fiscal year 2019.
Offices. Costs in the Offices segment increased by 26.0%24.8%, from Ps.73ARS 105 million during the year ended June 30, 2018 to Ps.92ARS 131 million during the year ended June 30, 2019, mainly due to: (i) an increase in depreciation and amortization of Ps.38ARS 53 million; offset by: (i) a decrease in leases and expenses of Ps.8ARS 12 million; (ii) a decrease in maintenance, repairs and services expenses of Ps.7ARS 9 million; (iii) a decrease in fees and compensation for services of Ps.3ARS 5 million; and (iv) a decrease in taxes, fees and contributions of Ps.2ARS 3 million. Costs in the Offices segment, measured as a percentage of revenues of this segment, decreased from 7.8%7.9% during the year ended June 30, 2018 to 5.9% during the year ended June 30, 2019.
Sales and developments. Costs associated with our Sales and Developments segment registered an increase of 253.8%253%, from Ps.104ARS 149 million during the year ended June 30, 2018 to Ps.368ARS 526 million during the year ended June 30, 2019, mainly due to the costs of sales of Catalinas Norte. The costs of the Sales and Developments segment, measured as a percentage of revenues from this segment decreased from 49.5%49.7% during the year ended June 30, 2018 to 47.0%47% during the year ended June 30, 2019.
Hotels. Costs in the Hotels segment decreased by 5.0%5%, from Ps.1,168ARS 1,670 million during the year ended June 30, 2018 to Ps.1,110ARS 1,586 million during the year ended June 30, 2019, mainly as a result of: (i) a decrease of Ps.75ARS 107 million in costs of salaries, social security and other personnel expenses; and (ii) a decrease of Ps.6ARS 9 million in food, beverages and other hotel expenses, offset by (i) an increase in fees and compensation for services of Ps.21ARS 30 million. Costs in the Hotels segment, measured as a percentage of revenues of this segment, decreased from 68.3% during the year ended June 30, 2018 to 53.7% during the year ended June 30, 2019.
International. Costs in the International segment increased 100.0%, with Ps.4ARS 6 million during the year ended June 30, 2019, associated with the cost of sale of properties by our subsidiary Real Estate Strategies L.P.LLC.
Corporate. Costs in the Corporate segment did not vary for the years presented.
Others. Costs in the Others segment increased by 202.9%208.2%, from Ps.35ARS 49 million during the year ended June 30, 2018 to Ps.106ARS 151 million during the year ended June 30, 2019, mainly as a result of: (i) higher charges of Ps.21ARS 30 million in taxes, fees and contributions, (ii) an increase of Ps.13ARS 19 million in leases and expenses; (iii) an increase of Ps.12ARS 17 million in fees and compensation for services, (iv) an increase of Ps.10ARS 14 million in depreciation and amortization, (v) an increase of Ps.9ARS 12 million in maintenance, repairs and services; and (vi) an increase of Ps.6ARS 9 million in salaries, social security and other personnel expenses.
Operations Center in Israel
Real estate. Real estate segment costs increased from Ps.4,451ARS 5,957 million during the period ended June 30, 2018 to Ps.6,828ARS 9,121 million during the period ended June 30, 2019. This variation was due to (i) a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%,. (ii) an increase in the cost due to the increased sale of residential apartments and the implementation of IFRS 15.
Telecommunications. Costs in the Telecommunications segment increased from Ps.24,621ARS 35,189 million during the period ended June 30, 2018 to Ps.29,683ARS 42,424 million during the period ended June 30, 2019. This variation was due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, offset by a decrease in costs that accompanied the reduction in sales of mobile services and a slight increase in costs related to television content.
Others. Costs in the Others segment increased from Ps.552ARS 789 million during the period ended June 30, 2018 to Ps.616ARS 881 million during the period ended June 30, 2019. This variation was due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, offset by a drop in the costs of Bartan.
Gross profit 2019 vs 2018
The total consolidated gross profit, according to the income statement, increased by Ps.3,589ARS 3,715 million, from Ps.24,178ARS 29,075 million during the year ended June 30, 2018 (out of which Ps.16,514ARS 18,122 million come from the Operations Center in Israel and Ps.7,664ARS 10,953 million from the Operations Center in Argentina) to Ps.27,767ARS 32,790 million during the year ended June 30, 2019 (out of which Ps.19,595ARS 21,111 million derive from the Operations Center in Israel and Ps.8,172ARS 11,679 million from the Operations Center in Argentina). Without considering the effect from the Operations Center inCenterin Israel, the gross profit increased by 6.6%. The total consolidated gross profit, measured as a percentage of revenues from sales, leases and services, decreased from 41.1%37.2% during the year ended June 30, 2018 to 39.8%35.6% during the year ended June 30, 2019. Without considering the effect from the Operations Center in Israel, the total consolidated gross profit, according to the income statement, increased from 60.4% during the year ended June 30, 2018 to 62.6% during the year ended June 30, 2019.
In turn, total gross profitloss for expenses and collective promotion fund increased Ps.63ARS 91 million, from Ps.41ARS 58 million during the year ended June 30, 2018 (out of which a profitloss of Ps.63ARS 88 million derives from the Shopping Malls segment and a loss of Ps.22ARS 30 million from the Offices segment), to Ps.104ARS 149 million during the year ended June 30, 2019 (out of which a profitloss of Ps.101ARS 144 million derives from the Shopping Malls segment and a profitloss of Ps.3ARS 5 million from the Offices segment).
Additionally, the gross profit of our joint ventures decreased by 40.0%30.8%, from Ps.30ARS 39 million during the year ended June 30, 2018 to Ps.18ARS 27 million during the year ended June 30, 2019.
Therefore, according to the information by segments, (taking into account the gross profit from our joint ventures and without considering the gross profit corresponding to expenses and collective promotion fund or to inter-segment gross profit), gross profit increased by Ps.3,645ARS 3,798 million, from Ps.24,261ARS 29,192 million during the year ended June 30, 2018 (out of which Ps.16,514ARS 18,122 million derive from the Operations Center in Israel and Ps.7,747ARS 11,070 million from the Operations Center in Argentina) toPs.27,906to ARS 32,990 million during the year ended June 30, 2019 (out of which Ps.19,595ARS21,111 million derive from the Operations Center in Israel and Ps.8,311ARS 11,879 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, thegrossthe gross profit increased by 7.3%. Likewise, gross profit, measured as a percentage of revenues, according to information by segments, decreased from 43.4%39.5% during the year ended June 30, 2018 to 41.5%37.2% during the year ended June 30, 2019. Without considering the effect of the Operations Center in Israel, the gross profit measured as a percentage of total revenues decreased, from 79.8% during the year ended June 30, 2018 to 78.9% during the year ended June 30, 2019.
Operations Center in Argentina
Shopping Malls. Gross profit from the Shopping Malls segment decreased 13.0%13%, from Ps.6,242ARS 8,921 million during fiscal year 2018 to Ps.5,433ARS 7,765 million for fiscal year 2019, mainly as a result of a decrease in total sales of our tenants, giving rise to lower rental percentages under our lease agreements. Gross profit from our Shopping Malls segment as a percentage of revenues for the segment decreased from 91.5% during fiscal year 2018 to 90.9% during fiscal year 2019.
Offices. Gross profit of the Offices segment increased by 71.6%71.7%, from Ps.859ARS 1,227 million for the year ended June 30, 2018 to Ps.1,474ARS 2,107 million during the year ended June 30, 2019. The gross profit of the Offices segment, measured as a percentage of revenues of this segment, increased from 92.2%92.1% during the year ended June 30, 2018 to 94.1% during the year ended June 30, 2019.
Sales and developments. Gross profit of the Sales and Developments segment increased by 291.5%292.7%, from Ps.106ARS 151 million during the year ended June 30, 2018 to Ps.415ARS 593 million during the year ended June 30, 2019, mainly as a result of higher sales recorded during the year ended June 30, 2019. The gross profit of the Sales and Developments segment, measured as a percentage of this segment's revenues, increased from 50.5%50.3 % during the year ended June 30, 2018 to 53.0%53% during the year ended June 30, 2019.
Hotels. Gross profit for the Hotels segment increased by 76.1%76.2% from Ps.543ARS 776 million during the fiscal year ended June 30, 2018 to Ps.956ARS 1,367 million during the year ended June 30, 2019. The gross profit of the Hotels segment, measured as a percentage of revenues of this segment, increased from 31.7% during the year ended June 30, 2018 to 46.3% during the year ended June 30, 2019.
International. Gross profit of the International segment increased 100%, with a gross profit of Ps.6ARS 8 million during the year ended June 30, 2019.
Corporate. Gross profit of the Corporate segment did not present variations during the reported years.
Others. Gross profit from the Others segment increased Ps.30 million,880%, from a loss of Ps.3ARS 5 million during the year ended June 30, 2018 to a profit of Ps.27ARS 39 million during the year ended June 30, 2019. The gross profit of the Others segment, measured as a percentage of revenues of this segment, increased from 9.4%11.4% negative during the year ended June 30, 2018 to 20.3%20.5% during the year ended June 30, 2019.
Operations Center in Israel
Real estate. Gross profit of the real estate segment increased from Ps.6,312ARS 3,540 million during the period ended June 30, 2018 to Ps.8,512ARS 5,271 million during the period ended June 30, 2019. This variation was mainly due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, the implementation of IFRS 15 and an increase in square meters. The gross profit of the segment as a percentage of revenues decreased from 58.6%37.3% during period 2018 to 55.5%36.6% during the period 2019.
Telecommunications. Gross profit of the telecommunications segment increased from Ps.9,709ARS 13,877 million during the year ended June 30, 2018 to Ps.10,553ARS 15,082 million during the period ended June 30, 2019. This variation was mainly due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, partially offset by the constant erosion in the revenues of mobile services, which was partially offset by an increase in revenues related to fixed lines, television and internet. The gross profit of the segment as a percentage of revenues decreased slightly from 28.3% during the year ended June 30, 2018 to 26.2% during the year ended June 30, 2019.
Others. Gross profit from the Others segment increased from Ps.493ARS 705 million during the period ended June 30, 2018 to Ps.530ARS 758 million during the period ended June 30, 2019. This variation was mainly due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, offset by the drop of Bartan. The gross profit of the segment as a percentage of revenues decreased slightly from 47.2% during the period ended June 30, 2018 to 46.2% during the period ended June 30, 2019.
Net gain from fair value adjustment of investment properties 2019 vs 2018
Net gain from fair value adjustment of investment properties, according to the income statement, decreased by Ps.40,691ARS 57,037 million, from a net gain of Ps.16,981ARS 19,160 million during the year ended June 30, 2018 (out of which a gain of Ps.3,575 million derives from the Operations Center in Israel and a gain of Ps.13,406 million from(from the Operations Center in Argentina) to a net loss of Ps.23,710ARS 37,877 million during the year ended June 30, 2019 (out of which a gain of Ps.3,416ARS 892 million derives from the Operations Center in Israel and a net loss of Ps.27,126ARS 38,769 million from the Operations Center in Argentina).
It should be noted that according to the adjustment for inflation methodology, the gain/(loss) from fair value adjustment of investments properties should be broken down into its two effects: i) adjustment for inflation and ii) loss or gain from actual fair value adjustment.adjustment, During the year ended June 30, 2019, the inflationary effect exceeds the appreciation of investment properties, therefore, a loss from fair value adjustment of investment properties of Ps.23,710ARS 37,877 million is recognized.
Operations Center in Argentina
1. Shopping MallMalls segment
The shopping -Malls portfolio decreased between the fiscal year ended June 30, 2019 and 2018, as the end of the concession we had for Buenos Aires Design took place.
The net impact in the peso values of our shopping mallsproperties was primarily a consequence of macroeconomic changes and:changes: (i) an increase in the projected inflation rate and GDP growth, with a consequent increase in the projected cash flows of Ps. 8,372 million (assuming all other factors remain unchanged), as revenues from our Shopping Malls segment are a percentage of the tenants sales; (ii) between June 30,june 2018 to June 30,june 2019, the Argentinian peso depreciated 47.0%47% against U.S. dollarUS Dolar (from Ps.28.75ARS 28.75 per U.S. dollardolar to Ps.42.263ARS 42.26 per U.S. dollar)dolar), which generatedhad a reduction of Ps. 13,754 milliondirect impact in thea less projected cash flows as measured in U.S. dollar termsUS Dolar from our Shopping Malls segment, assuming all other factors remain unchanged; (iii)segment; and (ii) an increase of 231234 basis points inon the discount rate thatin US dolar, which it is used to discount the projected cash flowsflow from the Shopping Malls segment, mainly due to a significant increase in the country risk premium, as a result there was a decrease of Ps. 8,945 million in the fair value of our Shopping Malls, assuming all other factors remain unchanged; (iv) an increase of Ps.12,532 million as a consequence of the conversion of the value of the Shopping Malls in dollar terms into pesos considering the end of fiscal year exchange rate of Ps.42.263 per dollar; and (v) the update of the projected income with real data, as a result there was a decline of Ps.3.349 million in the discounted cash flow, assuming all other factors remain unchanged.segment.
In addition, the value of our shopping malls as of June 30, 2018, has been restated for inflation for comparative purposes as required by IAS 29. The impact of such restatement is Ps.22,489 million.
The Shopping Malls portfolio was reduced during the fiscal year ended June 30, 2019 due to the end of the Buenos Aires Design concession.
2. “Offices”, “Sales and developments”, “International” and “Others” segments.segments,
Net gain/(loss) from actual fair value adjustment of investment properties included in these segments decreased by 93.0%93% during the year ended June 30, 2019.
The Argentine office market is a liquid market, in which a significant volume of counterparties participates and frequently carries out purchase and sale transactions. This allows to observe sale prices that are relevant and representative in the market. Furthermore, lease agreements are denominated in dollars for an average term of 3 years, with the current business thus generating a stable cash flow in dollars.dollars, In this sense, the “Market approach” technique is used (market comparable values) for the determination of the fair value of these segments, with the value per square meter being the most representative input.
The value of our office and others, increased 10.9% in real terms during the fiscal year ended June 30, 2019 mainly due to the fact that a new building has been added to the office portfolio, the Zetta Building. In addition, we recognize from the Sales and Developments segment a profit of Ps. 412 million for the fiscal year ended June 30, 2019 compared with a profit of Ps.5,161 million for the fiscal year ended June 30, 2018.metric.
Changes in fair value from our Shopping Malls segment differ from our offices segment because the nature of each business is different and prices depend on factors that may not have similarly over time. As we mentioned before, the office property market is dominated by investors and owners that seek medium- to long-term leases and perceive real estate as a safe dollar-denominated investment option. In contrast, the shopping mall segment is a relatively new industry in Argentina where the first shopping mall opened in 1990, compared to markets such as the United States and Brazil where the industry began in the 1950’s and 1960’s, respectively. Additionally, unlike the office properties segment, the financial performance of shopping mall properties is highly correlated with the volatile economic activity in Argentina since the cash flow generated by shopping malls are closely related to the purchasing power of customers.
Operations Center in Israel
Real estate. Net gain fromfairfair value adjustment of investment properties of this segment decreasedincreased from Ps.3,575 millionnil during the period ended June 30, 2018 to Ps.3,416ARS 892 million during the period ended June 30, 2019. Though it was affected by a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, the variation was due to the stability of the real estate market in Israel, which remained stable, with the changes in the fair value mainly deriving from new projects.
General and administrative expenses 2019 vs 2018
Total general and administrative expenses, according to the income statement, recorded an increase of Ps.830ARS 1,146 million, from Ps.6,884ARS 9,497 million during the year ended June 30, 2018 (out of which Ps.5,299ARS 7,233 million derive from the Operations Center in Israel and Ps.1,585ARS 2,264 million from the Operations Center in Argentina) to Ps.7,714ARS 10,463 million during the year ended June 30, 2019 (out of which Ps.5,886ARS 8,031 million derive from the Operations Center in Israel and Ps.1,828ARS 2,612 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, general and administrative expenses increased by 15.3%15.4%. Total general and administrative expenses measured as a percentage of revenues from sales, leases and services decreased slightly from 11.7%12.1 % during the year ended June 30, 2018 to 11.1%11.5% during the year ended June 30, 2019. Excluding the effect from the Operations Center in Israel, total general and administrative expenses, according to the income statement, increased from 12.5% during the year ended June 30, 2018 to 14.0%14% during the year ended June 30, 2019.
In turn, general and administrative expenses of our joint ventures decreased Ps.15ARS 22 million, from Ps.26ARS 40 million during the year ended June 30, 2018 to Ps.11ARS 18 million during the year ended June 30, 2019.
Finally, general and administrative expenses for inter-segment operations increased Ps.8ARS 11 million, from Ps.23ARS 33 million during the year ended June 30, 2018 to Ps.31ARS 44 million during the year ended June 30, 2019.
Therefore, according to the information by segments, (taking into account general and administrative expenses from our joint ventures and without considering those corresponding to expenses and collective promotion fund or expenses related to inter-segment operations), general and administrative expenses increased Ps.823ARS 1,135 million, from Ps.6,933ARS 9,570 million during the year ended June 30, 2018 (out of which Ps.5,299ARS 7,233 million derive from the Operations Center in Israel and Ps.1,634ARS 2,337 million from the Operations Center in Argentina) to Ps.7,756ARS 10,705 million during the year ended June 30, 2019 (out of which Ps.5,886ARS 8,031 million derive from the Operations Center in Israel and Ps.1,870ARS 2,674 million from the Operations Center in Argentina). Excluding the general and administrative expenses from the Operations Center in Israel, expenses increased by 14.4%. General and administrative expenses measured as a percentage of revenues, according to the information by segments, decreased from 11.7%12.9% during the year ended June 30, 2018 to 11.1%12.1% during the year ended June 30, 2019. Without considering the effect from the Operations Center in Israel, total general and administrative expenses, measured as a percentage of total revenues, increased from 16.8% during the year ended June 30, 2018 to 17.8% during the year ended June 30, 2019.
Operations Center in Argentina
Shopping Malls. Administrative expenses of Shopping Malls increased 10.7%10.8%, from Ps.597ARS 853 million during fiscal year 2018 to Ps.661ARS 945 million during fiscal year 2019, mainly due to: (i) an increase of Ps.92ARS 131 million in salaries, social security charges and other personnel expenses; (ii) an increase of Ps. 21ARS 27 million in maintenance, repair and service expenses and employees’ travel expenses; partially mitigated by (iii) a decrease of Ps.25ARS 34 million in directors’ fees; (iv) an increasea decrease of Ps.14ARS 19 million in banking expenses; and (v) a decrease of Ps.9ARS 12 million in fees and compensations for services. Administrative expenses of Shopping Malls as a percentage of revenues from such segment increased from 8.8%8.7% during fiscal year 2018 to 11.1% during fiscal year 2019.
Offices. The general and administrative expenses of our Offices segment decreased by 2.6%2.8%, from Ps.152ARS 218 million during the year ended June 30, 2018 to Ps.148ARS 212 million during the year ended June 30, 2019, mainly as a result of: (i) a decrease of Ps.8ARS 12 million in salaries, social security and other personnel expenses; (ii) adecreasea decrease of Ps.5ARS 7 million in fees and compensation for services and (iii) a decrease of Ps.5ARS 8 million in advertising and other commercial expenses, partially offset by: (i) an increase of Ps.15ARS 21 million in fees to directors. General and administrative expenses, measured as a percentage of revenues in the same segment, decreased from 16.3%16.4% during the year ended June 30, 2018 to 9.5% during the year ended June 30, 2019.
Sales and developments. General and administrative expenses associated with our Sales and developments segment increased by 30.9%42.9%, from Ps.139ARS 198 million during the year ended June 30, 2018 to Ps.182ARS 283 million during the year ended June 30, 2019, mainly as a result of an increase in salaries, social security and other personnel expenses of Ps.49ARS 70 million, among other items. General and administrative expenses, measured as a percentage of revenues in the same segment, decreased from 66.2%66% during the year ended June 30, 2018 to 23.2%25.3% during the year ended June 30, 2019.
Hotels. General and administrative expenses associated with our Hotels segment increased by 0.9%1% from Ps.341ARS 487 million during the year ended June 30, 2018 to Ps.344ARS 492 million during the year ended June 30, 2019, mainly as a result of: (i) an increase of Ps.22ARS 32 million in fees and compensation for services, offset by (i) a decrease in salaries, social security and other personnel expenses of Ps.12ARS 17 million and (ii) a decrease of Ps.5ARS 7 million in taxes, fees and contributions. General and administrative expenses associated with the Hotels segment measured as a percentage of this segment's revenues decreased from 19.9% during the year ended June 30, 2018 to 16.7% during the year ended June 30, 2019.
International. General and administrative expenses associated with our International segment increaseddecreased by 13.4%6.8%, from Ps.82ARS 118 million during the year ended June 30, 2018 to Ps.93ARS 110 million during the year ended June 30, 2019, mainly due to: (i) an increase in fees and compensation for services of Ps.18ARS 25 million, (ii) an increase in salaries, social security and other personnel expenses of Ps.8ARS 10 million, (iii) an increase in maintenance, repairs and services of Ps.4ARS 3 million, and (iv) an increase in depreciation and amortization of Ps.2ARS 3 million, partially offset by: (i)(v) decreased taxes, as Imadison’s taxes were paid in the previous year.
Corporate. General and administrative expenses associated with our Corporate segment increased by 34.9%34.8%, from Ps.269ARS 385 million during the year ended June 30, 2018 to Ps.363ARS 519 million during the year ended June 30, 2019, mainly due to an increase of Ps.122ARS 174 million in fees to directors, offset by a decrease of Ps.26ARS 37 million in fees and compensation for services, among other items.
Others. General and administrative expenses associated with our Others segment increased 46.3%44.9%, from Ps.54ARS 78 million during the year ended June 30, 2018 to Ps.79ARS 113 million during the year ended June 30, 2019, mainly due to (i) an increase of Ps.10ARS 15 million in other administrative expenses; (ii) an increase of Ps.5ARS 7 million in maintenance, repairs and services; (iii) an increase of Ps.4ARS 3 million in fees and compensation for services, and (iv) an increase of Ps.4ARS 6 million in salaries, social security and other personnel expenses, among other items.
Operations Center in Israel
Real estate. General and administrative expenses associated with the Real Estate segment increased from Ps.644ARS 578 million during the period ended June 30, 2018 to Ps.762ARS 707 million during the period ended June 30, 2019. This variation was mainly due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%. The general and administrative expenses associated with this segment measured as a percentage of revenues went from 6.0%6.1% during the period ended June 30, 2018 to 5.0%4.9% during the period ended June 30, 2019.
Telecommunications. General and administrative expenses associated with the Telecommunications segment increased from Ps.3,214ARS 4,594 million during the period ended June 30, 2018 to Ps.3,344ARS 4,779 million during the period ended June 30, 2019. This variation was due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22% offset by a reduction in personnel expenses due to a downsizing of the company, which accompanied the fall in revenues in a search for efficiency improvements. General and administrative expenses associated with this segment measured as a percentage of this segment's revenues decreased from 9.4% in fiscal year 2018 to 8.3% in fiscal year 2019.
CorporateCorporate.. General and administrative expenses associated with the Corporate segment increased from Ps.597ARS 854 million during the period ended June 30, 2018 to Ps.740ARS 1,058 million during the period ended June 30, 2019. This variation was due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, offset by a decrease in the personnel and the structure expenses of DIC and IDBD, also accompanied by a reduction in Dolphin's legal fees.
Others. General and administrative expenses associated with the Others segment increased from Ps.844ARS 1,207 million during the period ended June 30, 2018 to Ps.1,040ARS 1,487 million during the period ended June 30, 2019. This variation was due to: (i) a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, and (ii) an increase in the structure of Bartan and Epsilon.
Selling expenses 2019 vs 2018
Total consolidated selling expenses, according to the income statement, showed an increase of Ps.434ARS 521 million, from Ps.8,283ARS 11,749 million during the year ended June 30, 2018 to Ps.8,717ARS 12,270 million during the year ended June 30, 2019 (out of which Ps.7,963ARS 11,292 million derive from the Operations Center in Israel and Ps.754ARS 1,078 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, selling expenses decreased by 3.0%2.9%. Total consolidated selling expenses measured as a percentage of revenues from sales, leases and services, decreased from 14.1%15% during the year ended June 30, 2018 to 12.5%13.3% during the year ended June 30, 2019. Excluding the effect from the Operations Center in Israel, total consolidated selling expenses measured as a percentage of revenues from sales, leases and services, slightly decreased from 6.1% during the year ended June 30, 2018 to 5.8% during the year ended June 30, 2019.
In turn, selling expenses of our joint ventures decreased Ps.6ARS 8 million, from Ps.11ARS 15 million during the year ended June 30, 2018 to Ps.5ARS 7 million during the year ended June 30, 2019.
Therefore, according to the information by segments, (taking into account the selling expenses from our joint ventures and without considering those corresponding to expenses and collective promotion fund or the expenses for inter-segment operations), selling expenses increased Ps.428ARS 513 million, from Ps.8,294ARS 11,764 million during the year ended June 30, 2018 to Ps.8,722ARS 12,277 million during the year ended June 30, 2019 (out of which
Ps.7,963 ARS 11,192 million derive from the Operations Center in Israel and Ps.759ARS 1,085 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, selling expenses decreased by 3.7%.3.6%, Selling expenses measured as a percentage of revenues, according to information by segments, decreased from 14.9%15.9% during the year ended June 30, 2018 to 13.0%13.9% during the year ended June 30, 2019. Without considering the effects from the Operations Center in Israel, total selling expenses, measured as a percentage of total revenues according to the information by segments, decreased from 8.1% during the year ended June 30, 2018 to 7.2% during the year ended June 30, 2019.
Operations Center in Argentina
Shopping Malls. Selling expenses from the Shopping Malls segment decreased 12,7%12.7%, from Ps.425ARS 607 million during fiscal year 2018 to Ps.371ARS 530 million during fiscal year 2019, mainly as a result of: (i) a decrease in publicity, advertising propaganda and other commercial expenses of Ps.24ARS 33 millions; (ii) a decrease in taxes, rates and contributions of Ps.22ARS 31 millions and (iii) a decrease of Ps.10ARS 17 millions in bad debt charge; partially offset by (iv) an increase in salaries, social security charges and other personnel expenses of Ps.2ARS 3 million. Selling expenses as a percentage of revenues from the Shopping Malls segment remainremained flat in 6.2% during fiscal year 2018 and 2019.
Offices. Selling expenses associated with our Offices segment decreased by 31.0%30.3%, from Ps.100ARS 142 million during the year ended June 30, 2018 to Ps.69ARS 99 million during the year ended June 30, 2019. This variation was generated mainly as a result of a decrease in the charge of doubtful accounts of Ps.49ARS 69 million, offset by: (i) an increase of Ps.10ARS 13 million in taxes, fees and contributions and (ii) an increase of Ps.7ARS 11 million in advertising and other commercial expenses. Selling expenses associated with our Offices segment, measured as a percentage of this segment's revenues, decreased from 10.7% during the year ended June 30, 2018 to 4.4% during the year ended June 30, 2019.
Sales and developments. Selling expenses associated with the Sales and Developments segment increased 107.5%105.2%, from Ps.40ARS 58 million during the year ended June 30, 2018 to Ps.83ARS 119 million during the year ended June 30, 2019. This variation was mainly due to a Ps.46an ARS 65 million increase in taxes, fees and contributions. Selling expenses associated with our Sales and developments segment, measured as a percentage of this segment’s revenues, decreased from 19.0%19.3% during the year ended June 30, 2018 to 10.6% during the year ended June 30, 2019.
Hotels. Selling expenses associated with our Hotels segment increased 1.4%1.6%, from Ps.218ARS 311 million during the year ended June 30, 2018 to Ps.221ARS 316 million during the year ended June 30, 2019, mainly as a result of an increase of Ps.18ARS 26 million in taxes, fees and contributions, offset by: (i) a decrease of Ps.9ARS 13 million in fees and compensation for services, and (ii) a decrease of Ps.7ARS 11 million in salaries, social security and other personnel expenses. Selling expenses associated with our Hotels segment measured as a percentage of this segment's revenues decreased from 12.7% during the year ended June 30, 2018 to 10.7% during the year ended June 30, 2019.
International. Selling expenses associated with the International segment did not show variations during the reported years.
Corporate. Selling expenses associated with the Corporate segment did not show variations during the reported years.
Others. Selling expenses associated with our Others segment increased Ps.10 million,200%, from Ps.5ARS 7 million during the year ended June 30, 2018 to Ps.15ARS 21 million during the year ended June 30, 2019, mainly due to: (i) an increase of Ps.5ARS 6 million in taxes, rates and contributions, (ii) an increase of Ps.2ARS 3 million in advertising and other commercial expenses, and (iii) an increase of Ps.2ARS 4 million in doubtful accounts. Selling expenses associated with our Others segment measured as a percentage of this segment's revenues decreased, significantly, from 15.6%15.9% during the year ended June 30, 2018 to 11.3%11.1% during the year ended June 30, 2019.
Operations Center in Israel
Real estate. Selling expenses associated with the real estate segment increased from Ps.202ARS 200 million during the period ended June 30, 2018 to Ps.270ARS 197 million during the period ended June 30, 2019. This variation was due to (i) a real revaluationofrevaluation of the NIS against the Argentine Peso of approximately 22%. Selling expenses associated with this segment measured as a percentage of revenues decreased 1.9%2.1% during the period ended June 30, 2018 to 1.8%1.4% during the period ended June 30, 2019.
Telecommunications. Selling expenses associated with the Telecommunications segment increased from Ps.7,038ARS 10,059 million during the period ended June 30, 2018 to Ps.7,390ARS 10,562 million during the period ended June 30, 2019. This variation was due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, offset by a decrease in advertising expenses on the mobile phone line. Selling expenses associated with this segment measured as a percentage of revenues decreased from 20.5% during the period 2018 to 18.4% during the period 2019.
Others. Selling expenses associated with the Others segment increased from Ps.266ARS 380 million during the period ended June 30, 2018 to Ps.303ARS 433 million during the year ended June 30, 2019. This variation was due to a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, offset by a decrease in the marketing expenses of Bartan's new services.
Other operating results, net 2019 vs 2018
Other operating results, net, according to the income statement, registered a decrease of Ps.1,228ARS 1,836 million, from a net profit of Ps.1,529ARS 2,109 million during the year ended June 30, 2018 to a net profit of Ps.301ARS 273 million during the year ended June 30, 2019 (of which a net loss of Ps.218ARS 469 million derives from the Operations Center in Argentina and a net profit of Ps.519ARS 742 million from the Operations Center in Israel).
Other operating results, net from our joint ventures decreased Ps.106increased ARS 152 million, from a net lossprofit of Ps.25ARS 42 million during the year ended June 30, 2018 (out of which a loss of Ps.24 million derives from the Sales and developments segment and Ps.1 million are allocated to the Shopping Malls segment) to a net lossprofit of Ps.131ARS 194 million during the year ended June 30, 2019 (out of which a lossprofit of Ps.130ARS 187 million is allocated to the Sales and Developments segment, a lossprofit of Ps.3ARS 9 million is allocated to the Shopping Malls segment within the Operations Center in Argentina and a net profitloss of Ps.2ARS 2 million is allocated to the Offices segment).
In turn, other operating results for expenses and collective promotion fund increased ARS 19 million, from ARS 2 million during the year ended June 30, 2018 (out of which a loss of ARS 2 million derives from the Shopping Malls segment), to ARS 17 million during the year ended June 30, 2019 (out of which a profit of ARS 17 million derives from the Shopping Malls segment).
Therefore, according to the information by segments, (taking into account other operating results, net from our joint ventures and without considering those corresponding to inter-segment operations), other operating results, net recorded a decrease of Ps.1,383ARS 2,000 million, from a net profit of Ps.1,465ARS 2,082 million during the year ended June 30, 2018 to a net profit of Ps.82ARS 82 million during the year ended June 30, 2019. Excluding the effect from the Operations Center in Israel, other operating results decreased in Ps.408ARS 606 million.
Operations Center in Argentina
Shopping Malls. Other operating results, net from the Shopping Malls segment went increased by 4.8%, from a net loss of Ps.65ARS 105 million during fiscal year 2018 to a net loss of Ps.57ARS 110 million during fiscal year 2019, mainly as a result of: (i) an increase in charity charges of ARS 43 millions; partially offset by: (ii) a recovery of litigation costs of Ps.15ARS 23 million and (ii)(iii) an increase in the interest for late payment that is charged to our customers of Ps. 34 million; partially offset by: (iii) an increase in charity charges and others of Ps.30 millions.ARS 32 million. Other operating results, net from this segment as a percentage of the revenues from this segment remain flat in (1.0%)slightly increased from 1.1% negative during fiscalthe year ended June 30, 2018 and 2019.to 1.3% negative during the year ended June 30, 2019.
Offices. Other operating results, net, associated with our Offices segment decreasedincreased by 43.8%81.8%, from a net loss of Ps.16ARS 22 million during the year ended June 30, 2018 to a net loss of Ps.23ARS 40 million during the year ended June 30, 2019, mainly as a consequence of an increase in donations, among other items. Other operating results, net, of this segment, as a percentage of this segment’s revenues, decreasedincreased from 1.7% negative during the year ended June 30, 2018 to 1.5%1.8% negative during the year ended June 30, 2019.
Sales and developments. Other operating results, net, associated with our Sales and Developments segment decreased by 314.4%307.2%, from a net profit of Ps.97ARS 138 million during the year ended June 30, 2018 to a net loss of Ps.208ARS 286 million during the year ended June 30, 2019, mainly as a result of a provision set up for the plot of land owned by Puerto Retiro S.A., thus generating a negative result of Ps.197ARS 282 million, compared to the previous year in which a positive result was obtained due to the sale of floors of Intercontinental HotelBuilding by IRSA Propiedades Comerciales. Other operating results, net, of this segment, as a percentage of this segment's revenues, decreased from 46.2%46% positive during the year ended June 30, 2018 to 26.6%25.6% negative during the year ended June 30, 2019.
Hotels. Other operating results, net, associated with the Hotels segment increased 385.7%385%, from a net loss of Ps.28ARS 40 million during the year ended June 30, 2018 to a net profit of Ps.80ARS 114 million during the year ended June 30, 2019, mainly due to an insurance recovery associated with a boiler-related loss. Other operating results, net, of this segment, as a percentage of this segment's revenues increased from 1.6% negative during the year ended June 30, 2018 to 3.9% positive during the year ended June 30, 2019.
International. Other operating results, net, of this segment increaseddecreased by 77.5%58.6%, from a net loss of Ps.40ARS 58 million during the year ended June 30, 2018 to a net loss of Ps.9ARS 24 million during the year ended June 30, 2019, mainly due to lower donations and tax charges.
Corporate. Other operating results, net, associated with the Corporate segment did not show variations during the reported years.
Others. Other operating results, net, associated with the Others segment decreased Ps.243 million,by 1,051.5%, from a net profit of Ps.23ARS 33 million during the year ended June 30, 2018 to a net loss of Ps.220ARS 314 million during the year ended June 30, 2019, mainly due to a negative result generated by the sale of Tarshop S.A. and lower results from Entertainment Holdings .S.A.S.A. Other net operating results, net, of this segment, as a percentage of this segment's revenues increased from 71.9%75% positive during the year ended June 30, 2018 to 165.4%165.3% negative during the year ended June 30, 2019.
Operations Center in Israel
Real Estate.estate. Other operating results, net associated with the Real Estate segment went from a profit of Ps.179ARS 256 million during the period ended June 30, 2018 to Ps.0ARS 0 million during the period ended June 30, 2019. This variation was due to the sale of fixed assets during this period.
Telecommunications. Other operating results, net associated with the Telecommunications segment went from a profit of Ps.540ARS 772 million during the period ended June 30, 2018 to a net profit of Ps.278ARS 397 million during the period ended June 30, 2019, due to the sale of the subsidiary Rimon during the period ended June 30, 2018.
Corporate. Other operating results, net associated with the Corporate segment went from a profit of Ps.798ARS 1,141 million during the period ended June 30, 2018 to Ps.0ARS 0 million during the period ended June 30, 2019. This variation was due to the favorable outcome of the trial won by Ma'ariv during the period ended June 30, 2018.
Others. Other operating results, net associated with the Others segment went from a loss of Ps.23ARS 33 million during the period ended June 30, 2018 to a net profit of Ps.241ARS 345 million during the period ended June 30, 2019. This variation was due to the result from the sale of Elron’s subsidiaries.subsidiaries, During the period ended June 30, 2018, Cloudyn was sold, and during this fiscal year, Cybersecdo was sold, accompanied by a decrease in Bartan’s research and development expenses.
Profit / (loss) from operations 2019 vs 2018
The total consolidated profit from operations, pursuant to the income statement, decreased by 143.9%, from a net profit of Ps.27,521ARS 29,098 million during the year ended June 30, 2018 to a net loss of Ps.12,073ARS 27,727 million during the year ended June 30, 2019 (out of which a net profit of Ps.9,681ARS 3,522 million derives from the Operations Center in Israel and a loss of Ps.21,754ARS 31,249 from the Operations CenterOperationsCenter in Argentina)., Excluding the effect from the Operations Center in Israel, profit from operations decreased by 216.1%217%. The total consolidated profit from operations, measured as a percentage of revenues from sales, leases and services, decreased from 46.8%37.2% positive during the year ended June 30, 2018 to 17.3%30.1% negative during the year ended June 30, 2019.2019, Without considering the effect from the Operations Center in Israel, the total consolidated profit from operations, measured as a percentage of total revenues, increased from 147.7%147.3% positive during the year ended June 30, 2018 to 166.8%167.6% negative during the year ended June 30, 2019.
Profit from operations of our joint ventures decreased by 201.3%,increased from a profitloss of Ps.707ARS 998 million during the year ended June 30, 2018 (out of which a Ps.670 million profit derives from the Offices segment, a Ps.82an ARS 113 million profit is allocated to the Shopping Malls segment, a net loss of ARS 952 million derives from the Offices segment and a Ps.45an ARS 67 million lossprofit to the Sales and Developments segment of the Operations Center in Argentina), to a lossnet profit of Ps.716ARS 1,030 million during the year ended June 30, 2019 (out of which a lossprofit of Ps.494 million derives from the Offices segment; a loss of Ps.77ARS 117 million is allocated to the Shopping Malls segment, a lossnet profit of Ps.145ARS 704 million derives from the Offices segment and a profit of ARS 209 million to the Sales and Developments of the Operations Center in Argentina), mainly due to lower revenues from the net gain from fair value adjustment of investment properties..
In turn,Therefore, according to the information by segments, profit from operations associated with expenses and collective promotion fund remained stable during the reported years.
Finally, profit from operations generated by inter-segment operations increased 122.2%,net loss, decreased from a lossnet profit of Ps.9ARS 30,156 million during the year ended June 30, 2018 to a profit of Ps.2 million during the year ended June 30, 2019.
Therefore, according to the information by segments (taking into account profit from operations from our joint ventures and without considering those corresponding to expenses and collective promotion fund or to inter-segment operations), profit from operations decreased by 145.3% from a profit of Ps.28,219 million during the year ended June 30, 2018 to anet loss of Ps.12,787ARS 28,625 million during the year ended June 30, 2019 (out of which Ps.9,681ARS 3,522 million derive from the Operations Center in Israel and a loss of Ps.22,468ARS 32,147 from the Operations Center in Argentina). Without considering profit from operations from the Operations Center in Israel, profit from operations decreased by 215.6%. Profit from operations, measured as a percentage of revenues according to segment information, decreased from 50.5%40.8% profit during the year ended June 30, 2018 to 19.0% negative32.3% loss during the year ended June 30, 2019. Excluding the effect from the Operations Center in Israel, total profit from operations according to segment information, measured as a percentage of total revenues, increased from 200.3% positive200.2% profit during the year ended June 30, 2018 to 213.3% negative213.5% loss during the year ended June 30, 2019.
Operations Center in Argentina
Shopping Malls. Operating income from the Shopping Malls segment wentdecreased, from a profit of Ps.9.539ARS 13,622 million during fiscal year 2018, to a loss of Ps.24,050ARS 34,401 million during fiscal year 2019. Operating income from the Shopping Malls segment as a percentage of the revenues from such segment went from 139.8% during fiscal year 2018 to a loss 402.4% during fiscal year 2019.
Offices. Profit from operations associated with our Offices segment, decreased by 66.2%66.6%, from a profit of Ps.4,964ARS 7,095 million during the year ended June 30, 2018 to a profit of Ps.1,677ARS 2,372 million during the year ended June 30, 2019. The variation is mainly due to a decrease of Ps.3,930ARS 5,617 million from the net gain from fair value adjustment of investment properties. Profit from operations of the Offices segment as a percentage of this segment's revenues decreased from 532.6%532.7% during the year ended June 30, 2018 to 107.1%106% during the year ended June 30, 2019.
Sales and developments. Profit from operations associated with our Sales and Developments segment decreased by 91.5%91.4%, from a Ps.5,158an ARS 7,371 million profit during the year ended June 30, 2018 to a Ps.438an ARS 631 million profit during the year ended June 30, 2019. This decrease is mainly due to a decrease of Ps.4,638ARS 6,629 million in the net gain from fair value adjustment of investment properties. Profit from operations of the Sales and Developments segment as a percentage of this segment's revenues decreased from 2,456.2%2,457% during the year ended June 30, 2018 to 55.9%56.4% during the year ended June 30, 2019.
Hotels.Profit from operations associated with the Hotels segment showed an increase of 1,170.5%1,185.5%, from a loss of Ps.44ARS 62 million during the year ended June 30, 2018 to a profit of Ps.471ARS 673 million during the year ended June 30, 2019. This increase is mainly due to the increase in the average rate per room of our hotel portfolio (measured in pesos), thus generating an increase in revenues, and to the insurance recovery associated with the boiler-related loss in Intercontinental Hotel. Profit from operations of the Hotels segment as a percentage of this segment's revenues increased from 2.6% negative2.5% during the year ended June 30, 2018 to 22.8% positive during the year ended June 30, 2019.
International. Profit from operations associated with our International segment decreasedchanged by 24.6%31.8%, from a loss of Ps.122ARS 176 million during the year ended June 30, 2018 to a loss of Ps.92ARS 120 million during the year ended June 30, 2019. This variation is due to lower donations and tax charges.
Corporate. Profit from operations associated with our Corporate segment increased by 34.9%34.8%, from a loss of Ps.269ARS 385 million during the year ended June 30, 2018 to a loss of Ps.363ARS 519 million during the year ended June 30, 2019, mainly affected by general and administrative expenses.
Others. Profit from operations associated with our Others segment decreased, by 355.3%, from a net profit of Ps.215ARS 305 million during the year ended June 30, 2018 to a net loss of Ps.549ARS 783 million during the year ended June 30, 2019. This variation is mainly due to a Ps.516an ARS 736 million decrease in the net gain from fair value adjustment of investment properties. Profit from operations of the Others segment as a percentage of this segment's revenues decreased from 671.9% positive693.2% profit during the year ended June 30, 2018 to 412.8% negative412.1% loss during the year ended June 30, 2019.
Operations Center in Israel
Real estate.Profit from operations of the Real Estate segment increased from Ps.9,220ARS 3,018 million during the year ended June 30, 2018 to Ps.10,896ARS 5,259 million during the year ended June 30, 2019. This variation was due to (i) a real revaluation of the NIS against the Argentine peso of approximately 22% and (ii) an increase in costs and a decrease in the net gain from fair value adjustment of investment properties.
Telecommunications. Profit from operations of the Telecommunications segment went from a net loss of Ps.3ARS 4 million during the period ended June 30, 2018 to a net profit of Ps.97ARS 138 million during the period ended June 30, 2019. This variation was due to (i) a real revaluationofrevaluation of the NIS against to the Argentine peso of approximately 22%, (ii) a decrease in operating expenses, due to increased efficiency measures implemented by Cellcom, and (iii) the growth in the fixed line and television segment.
Corporate. Profit from operations of the Corporate segment went from a net profit of Ps.201ARS 287 million during the period ended June 30, 2018 to a net loss of Ps.740ARS 1,058 million during the year ended June 30, 2019. This variation was due to (i) a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, and (ii) the positive outcome of Ma'ariv's trial during the previous period.
Others. Profit from operations of the Others segment went from a net loss of Ps.640ARS 915 million during the period ended June 30, 2018 to a net loss of Ps.572ARS 817 million during the period ended June 30, 2019. This variation was due to (i) a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22%, offset by (ii) an increase in the other operating income of Elron and Bartan.
Share of profit / (loss) of associates and joint ventures 2019 vs 2018
The share of profit / (loss) of associates and joint ventures, pursuant to the income statement, decreasedincreased by 97.1%93.4% from a net loss of Ps.2,481ARS 3,722 million during the year ended June 30, 2018 to a net loss of Ps.4,889ARS 7,200 million during the year ended June 30, 2019 (out of which a lossof Ps.4,932loss of ARS 7,050 million derives from the Operations Center in Argentina and a profitnet loss of Ps.43ARS 150 million from the Operations Center in Israel)., Excluding the results from the Operations Center in Israel, the share of profit / (loss) of associates and joint ventures decreased by 113.7%113.6%, mainly due to the negative results from the Sales and developments,developments. International and Others segments.
Also, the net share of profit / (loss) of associates and joint ventures, mainly from Nuevo Puerto Santa Fe S.A. (Shopping Malls segment), Quality Invest S.A. (Offices segment) and Cyrsa S.A. and Puerto Retiro S.A. (Sales and Developments segment), evidenced a decrease of 209.7%209.8%, going from a profit of Ps.649ARS 928 million during the year ended June 30, 2018 to a loss of Ps.712ARS 1,019 million during the year ended June 30, 2019, mainly due to results from the joint venture Quality Invest S.A. due to lower results in the valuation of investment properties and Puerto Retiro S.A. due to a provision equivalent to 100% of the book value of the plot of land based on the evolution of the judicial actions that affect it.
Operations Center in Argentina
Shopping Malls. In the segment information the share of profit / (loss) of joint venture Nuevo Puerto Santa Fe S.A. is exposed line by line on a consolidated basis.
Offices. In the information by segments, the share of profit / (loss) of joint venture Quality S.A. is exposed line by line on a consolidated basis.
Sales and developments. The share of profit / (loss) of joint ventures Cyrsa S.A. and Puerto Retiro S.A. are exposed line by line on a consolidated basis. The share of profit / (loss) of our associate Manibil S.A., which is disclosed in this line, decreased by Ps.29ARS 41 million, from a profit of Ps.3ARS 4 million during the year ended June 30, 2018 to a loss of Ps.26ARS 37 million during the year ended June 30, 2019.
Hotels. This segment does not present results from the share of profit / (loss) of associates and joint ventures.
International. The share of profit / (loss) of associates and joint ventures of this segment increased by 16.8%16.9%, from a net loss of Ps.3,095ARS 4,425 million during the year ended June 30, 2018 to a net loss of Ps.2,574ARS 3,679 million during the year ended June 30, 2019, mainly generated by a negative result of our investment in New Lipstick LLC of Ps.2,604ARS 3,722 million.
Others. The share of profit / (loos) of associates and joint ventures of the Others segment decreased Ps.1,755 million,by 1,299.5%, from a net profit of Ps.135ARS 193 million during the year ended June 30, 2018 to a net loss of Ps.1,620ARS 2,315 million during the year ended June 30, 2019, mainly as a result of a loss from of our investments in Banco Hipotecario S.A. for Ps.1,688ARS 2,416 million.
Operations Center in Israel
Real estate. The share of profit / (loss) of associates of this segment decreased from a profit of Ps.233ARS 158 million during the period ended June 30, 2018 to Ps.174ARS 37 million during the period ended June 30, 2019 due to (i) a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22% and (ii) lower results of Mehadrin and PBEL.
Supermarkets. TheThe share of profit / (loss) of associates of this segment is Ps.502ARS 717 million for the period ended June 30, 2019. It cannot be compared with the nine-month period ended June 30, 2018, as Shufersal deconsolidated on June 30, 2018.
Others. The share of profit / (loss) of associates of this segment went from a loss of Ps.406ARS 580 million during the period ended June 30, 2018 to a loss of Ps.633ARS 904 million during the period ended June 30, 2019, due to (i) a real revaluationofrevaluation of the NIS against the Argentine peso of approximately 22% and (ii) a lower result from investments of Epsilon.
Financial results, net
The financial results went from a loss of Ps.28,460ARS 39,741 million during the year ended June 30, 2018 to a loss of Ps.12,055ARS 14,835 million during the year ended June 30, 2019, this variation is mainly due to:
− -
Positive variation of the net exchange difference that went from a loss of Ps.9,460ARS 13,520 million during the year ended June 30, 2018 to a profit of Ps.873ARS 1,248 million during the year ended June 30, 2019. This variation lies in the fact that in fiscal year 2019 inflation was higher than devaluation (47% vs.vs, 56%, respectively).
− -
Loss from debt swap of DIC for Ps.4,297ARS 6,141 million during the year 2018,2018.
− -
Partially offset by an increaseIncrease in net interest expense that went from a loss of Ps.14,695ARS 17,232 million during the year 2018 to a loss of Ps.12,715ARS 18,847 million during the year 2019.
Income tax
The Company applies the deferred tax method to calculate the income tax corresponding to the years presented, thus recognizing temporary differences as tax assets and liabilities. The income tax charge for the year went from a profit of Ps.6,280ARS 11,135 million during the year ended June 30, 2018, to a profit of Ps.1,690ARS 4,251 million during the year ended June 30, 2019, out of which a profit of Ps.3,149ARS 4,501 million derives from the Operations Center in Argentina and a loss of Ps.1,459ARS 250 derives from the Operations Center in Israel.
Loss for the year
As a result of the factors described above, the profit of the year, including the effect of discontinued operations, wentdecreased by ARS 71,582, from a profit of Ps.23,237ARS 33,211 million during the year ended June 30, 2018 to a loss of Ps.26,847ARS 38,371 million during the year ended June 30, 2019, out of which a loss of Ps.25,664ARS 36,736 million derives from the Operations Center in Argentina and a loss of Ps.1,183ARS 1,635 million from the Operations Center in Israel.
Results of Operations for the fiscal years ended June 30, 2018 and 2017
Below is a summary of the operating segments by geography and a reconciliation between the total of the operating result according to the information by segments and the operating result according to the income statement for the years ended June 30, 2018 and 2017.
| | Operations Center in Argentina | Operations Center in Israel | | | Expenses and Collective Promotion Fund | Elimination of inter-segment transactions and non-reportable assets / liabilities) | Total as per statement of income / statement of financial position |
| | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | |
| | | | | | | |
| Revenues | 9,707 | 9,728 | (21) | 46,138 | 46,762 | (624) | 55,845 | 56,490 | (645) | (78) | (94) | 16 | 3,069 | 3,287 | (218) | (12) | (14) | 2 | 58,824 | 59,669 | (845) |
| Costs | (1,960) | (2,105) | 145 | (29,624) | (29,965) | 341 | (31,584) | (32,070) | 486 | 48 | 43 | 5 | (3,110) | (3,343) | 233 | - | - | - | (34,646) | (35,370) | 724 |
| Gross profit / (loss) | 7,747 | 7,623 | 124 | 16,514 | 16,797 | (283) | 24,261 | 24,420 | (159) | (30) | (51) | 21 | (41) | (56) | 15 | (12) | (14) | 2 | 24,178 | 24,299 | (121) |
| Net (loss) / gain from fair value adjustment of investment property | 14,145 | (4,497) | 18,642 | 3,575 | 779 | 2,796 | 17,720 | (3,718) | 21,438 | (739) | (671) | (68) | - | - | - | - | - | - | 16,981 | (4,389) | 21,370 |
| General and administrative expenses | (1,634) | (1,510) | (124) | (5,299) | (5,583) | 284 | (6,933) | (7,093) | 160 | 26 | 10 | 16 | - | - | - | 23 | 15 | 8 | (6,884) | (7,068) | 184 |
| Selling expenses | (788) | (769) | (19) | (7,506) | (8,051) | 545 | (8,294) | (8,820) | 526 | 11 | 10 | 1 | - | - | - | - | 4 | (4) | (8,283) | (8,806) | 523 |
| Other operating results, net | (29) | (679) | 650 | 1,494 | (8) | 1,502 | 1,465 | (687) | 2,152 | 25 | (20) | 45 | 41 | 56 | (15) | (2) | - | (2) | 1,529 | (651) | 2,180 |
| (Loss) / profit from operations | 19,441 | 168 | 19,273 | 8,778 | 3,934 | 4,844 | 28,219 | 4,102 | 24,117 | (707) | (722) | 15 | - | - | - | 9 | 5 | 4 | 27,521 | 3,385 | 24,136 |
| Share of (loss) of associates and jont ventures | (2,957) | (965) | (1,992) | (173) | 38 | (211) | (3,130) | (927) | (2,203) | 649 | 170 | 479 | - | - | - | - | - | - | (2,481) | (757) | (1,724) |
| Segment (loss) / profit | 16,484 | (797) | 17,281 | 8,605 | 3,972 | 4,633 | 25,089 | 3,175 | 21,914 | (58) | (552) | 494 | - | - | - | 9 | 5 | 4 | 25,040 | 2,628 | 22,412 |
| Reportable assets | 106,983 | 93,973 | 13,010 | 394,376 | 361,249 | 33,127 | 501,359 | 455,222 | 46,137 | 307 | (180) | 487 | - | - | - | 25,190 | 15,215 | 9,975 | 526,856 | 470,257 | 56,599 |
| Reportable liabilities | - | - | - | (335,186) | (312,667) | (22,519) | (335,186) | (312,667) | (22,519) | - | - | - | - | - | - | (72,155) | (59,951) | (12,204) | (407,341) | (372,618) | (34,723) |
| Net reportable assets | 106,983 | 93,973 | 13,010 | 59,190 | 48,582 | 10,608 | 166,173 | 142,555 | 23,618 | 307 | (180) | 487 | - | - | - | (46,965) | (44,736) | (2,229) | 119,515 | 97,639 | 21,876 |
Below is a summary analysis of the operating segments by products and services of the Operations Center in Argentina for the years ended June 30, 2018 and 2017
| | | |
| | | | | | | | | | |
| | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | |
| | | | | | | |
| Revenues | 6,822 | 6,991 | (169) | 932 | 945 | (13) | 210 | 203 | 7 | 1,711 | 1,577 | 134 | - | - | - | - | - | - | 32 | 12 | 20 | 9,707 | 9,728 | (21) |
| Costs | (580) | (745) | 165 | (73) | (147) | 74 | (104) | ��(103) | (1) | (1,168) | (1,102) | (66) | - | - | - | - | - | - | (35) | (8) | (27) | (1,960) | (2,105) | 145 |
| Gross profit / (loss) | 6,242 | 6,246 | (4) | 859 | 798 | 61 | 106 | 100 | 6 | 543 | 475 | 68 | - | - | - | - | - | - | (3) | 4 | (7) | 7,747 | 7,623 | 124 |
| Net (loss) / gain from fair value adjustment of investment properties | 4,384 | (5,883) | 10,267 | 4,373 | 1,134 | 3,239 | 5,134 | 290 | 4,844 | - | - | - | - | - | - | - | - | - | 254 | (38) | 292 | 14,145 | (4,497) | 18,642 |
| General and administrative expenses | (597) | (582) | (15) | (152) | (157) | 5 | (139) | (72) | (67) | (341) | (304) | (37) | (82) | (89) | 7 | (269) | (290) | 21 | (54) | (16) | (38) | (1,634) | (1,510) | (124) |
| Selling expenses | (425) | (401) | (24) | (100) | (102) | 2 | (40) | (42) | 2 | (218) | (216) | (2) | - | - | - | - | - | - | (5) | (8) | 3 | (788) | (769) | (19) |
| Other operating results, net | (65) | (75) | 10 | (16) | (22) | 6 | 97 | (72) | 169 | (28) | 2 | (30) | (40) | (528) | 488 | - | - | - | 23 | 16 | 7 | (29) | (679) | 650 |
| (Loss) / profit from operations | 9,539 | (695) | 10,234 | 4,964 | 1,651 | 3,313 | 5,158 | 204 | 4,954 | (44) | (43) | (1) | (122) | (617) | 495 | (269) | (290) | 21 | 215 | (42) | 257 | 19,441 | 168 | 19,273 |
| Share of profit of associates and joint ventures | - | - | - | - | - | - | 3 | (16) | 19 | - | - | - | (3,095) | (352) | (2,743) | - | - | - | 135 | (597) | 732 | (2,957) | (965) | (1,992) |
| Segment (loss) / profit | 9,539 | (695) | 10,234 | 4,964 | 1,651 | 3,313 | 5,161 | 188 | 4,973 | (44) | (43) | (1) | (3,217) | (969) | (2,248) | (269) | (290) | 21 | 350 | (639) | 989 | 16,484 | (797) | 17,281 |
| Reportable assets | 63,155 | 58,139 | 5,016 | 20,036 | 15,009 | 5,027 | 18,040 | 11,837 | 6,203 | 1,424 | 1,516 | (92) | (2,569) | 1,293 | (3,862) | - | - | - | 6,897 | 6,179 | 718 | 106,983 | 93,973 | 13,010 |
| Reportable liabilities | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - |
| Net reportable assets | 63,155 | 58,139 | 5,016 | 20,036 | 15,009 | 5,027 | 18,040 | 11,837 | 6,203 | 1,424 | 1,516 | (92) | (2,569) | 1,293 | (3,862) | - | - | - | 6,897 | 6,179 | 718 | 106,983 | 93,973 | 13,010 |
Below is a summary analysis of the operating segments by products and services of the Operations Center in Israel for the years ended June 30, 2018 and 2017
| | | | | | | | |
| | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | | 06.30.18 | 06.30.17 | |
| |
| Revenues | 10,763 | 10,480 | 283 | - | - | - | 34,330 | 35,062 | (732) | - | - | - | - | - | - | 1,045 | 1,220 | (175) | 46,138 | 46,762 | (624) |
| Costs | (4,451) | (4,971) | 520 | - | - | - | (24,621) | (24,536) | (85) | - | - | - | - | - | - | (552) | (458) | (94) | (29,624) | (29,965) | 341 |
| Gross profit / (loss) | 6,312 | 5,509 | 803 | - | - | - | 9,709 | 10,526 | (817) | - | - | - | - | - | - | 493 | 762 | (269) | 16,514 | 16,797 | (283) |
| Net (loss) / gain from fair value adjustment of investment properties | 3,575 | 779 | 2,796 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 3,575 | 779 | 2,796 |
| General and administrative expenses | (644) | (636) | (8) | - | - | - | (3,214) | (3,499) | 285 | - | - | - | (597) | (836) | 239 | (844) | (612) | (232) | (5,299) | (5,583) | 284 |
| Selling expenses | (202) | (199) | (3) | - | - | - | (7,038) | (7,491) | 453 | - | - | - | - | - | - | (266) | (361) | 95 | (7,506) | (8,051) | 545 |
| Other operating results, net | 179 | 70 | 109 | - | - | - | 540 | 238 | 302 | - | - | - | 798 | (105) | 903 | (23) | (211) | 188 | 1,494 | (8) | 1,502 |
| (Loss) / profit from operations | 9,220 | 5,523 | 3,697 | - | - | - | (3) | (226) | 223 | - | - | - | 201 | (941) | 1,142 | (640) | (422) | (218) | 8,778 | 3,934 | 4,844 |
| Share of profit of associates and joint ventures | 233 | 66 | 167 | - | - | - | - | - | - | - | - | - | - | - | - | (406) | (28) | (378) | (173) | 38 | (211) |
| Segment (loss) / profit | 9,453 | 5,589 | 3,864 | - | - | - | (3) | (226) | 223 | - | - | - | 201 | (941) | 1,142 | (1,046) | (450) | (596) | 8,605 | 3,972 | 4,633 |
| Reportable assets | 208,525 | 142,054 | 66,471 | 20,696 | 64,914 | (44,218) | 77,471 | 54,722 | 22,749 | 19,064 | 17,243 | 1,821 | 33,187 | 28,083 | 5,104 | 35,433 | 54,233 | (18,800) | 394,376 | 361,249 | 33,127 |
| Reportable liabilities | (162,110) | (115,624) | (46,486) | - | (52,904) | 52,904 | (60,369) | (45,163) | (15,206) | - | - | - | (108,847) | (67,154) | (41,693) | (3,860) | (31,822) | 27,962 | (335,186) | (312,667) | (22,519) |
| Net reportable assets | 46,415 | 26,430 | 19,985 | 20,696 | 12,010 | 8,686 | 17,102 | 9,559 | 7,543 | 19,064 | 17,243 | 1,821 | (75,660) | (39,071) | (36,589) | 31,573 | 22,411 | 9,162 | 59,190 | 48,582 | 10,608 |
Results of the operations corresponding to the fiscal years ended on June 30, 2018 and 2017.
Revenues 2018 vs 2017
Revenues from sales, leases and services, according to the income statement, decreased by Ps.845 million, from Ps.59,669 million during the year ended June 30, 2017 to Ps.58,824 million during the year ended June 30, 2018 (out of which Ps.46,138 million were generated by the Operations Center in Israel and Ps.12,686 million derive from the Operations Center in Argentina). Excluding revenues from the Operations Center in Israel, revenues from sales, leases and services decreased by 1.7%.
In turn, revenues from expenses and collective promotion fund decreased by 6.6%, from Ps.3,287 million (out of which Ps.3,025 million are allocated to the Shopping Malls segment and Ps. 262 million to the Offices segment of the Operations Center in Argentina) during the year ended June 30, 2017, to Ps.3,069 million (out of which Ps.2,875 million are allocated to the Shopping Malls segment and Ps.194 million to the Offices segment) during the year ended June 30, 2018.
Likewise, revenues from our joint ventures decreased by 17.0%, from Ps.94 million during the year ended June 30, 2017 (out of which Ps.58 million are allocated to the Shopping Malls segment, Ps.31 million to the Offices segment and Ps.5 million to the Sales and Developments segment of the Operations Center in Argentina) to Ps.78 million during the year ended June 30, 2018 (out of which Ps.59 million are allocated to the Shopping Malls segment, Ps.8 million to the Offices segment and Ps.11 million to the Sales and Developments Segment of the Operations Center in Argentina).
Finally, revenues from inter-segment operations decreased 14.3%, from Ps.14 million during the year ended June 30, 2017 to Ps.12 million during the year ended June 30, 2018.
Therefore, according to the information by segments (taking into account revenues from our joint ventures and without considering revenues from expenses and collective promotion fund or revenues from inter-segment operations), revenues experienced a decrease of Ps.645 million, from Ps.56,490 million during the year ended June 30, 2017 toPs.55,845 million during the year ended June 30, 2018 (out of which Ps.46,138 million derive from the Operations Center in Israel and Ps.9,707 million derive from the Operations Center in Argentina). Without considering revenues from the Operations Center in Israel, revenues, according to the information by segments, decreased by 0.2%.
Operations Center in Argentina
Shopping Malls.Revenues from the Shopping Malls segment decreased 2,4%, from Ps.6,991 million during fiscal year 2017 to Ps.6,822 million during fiscal year 2018, mainly attributable to: (i) a Ps.139 million decreased in revenue from averaging of scheduled rent escalation; (ii) a Ps.94 million decrease in contingent rental; (iii) a Ps.58 million decreased in the revenues from admission rights, partially mitigated by (iv) an increase of Ps. 132 in basic lease, among other things.
Offices. Revenues from the Offices segment decreased 1.4%, from Ps.945 million during the year ended June 30, 2017 to Ps.932 million during the year ended June 30, 2018. This variation is explained by a slight variation in rental revenue.
Sales and developments. Revenues from the Sales and Developments segment registered an increase of 3.4%, from Ps.203 million during the year ended June 30, 2017 to Ps.210 million during the year ended June 30, 2018. This segment often varies significantly from year to year due to the non-recurrence of the different sales operations carried out by the Group over time.
Hotels. Revenues from our Hotels segment increased by 8.5%, from Ps.1,577 million during the year ended June 30, 2017 to Ps.1,711 million during the year ended June 30, 2018, mainly due to an increase in the average rate per room of our hotel portfolio (measured in pesos).
International. Revenues associated with our International segment did not present variations during the reported years.
Corporate. Revenues associated with our Corporate segment did not present variations during the reported years.
Others. Revenues associated with out Others segment increased 166.7% from Ps.12 million during the year ended June 30, 2017 to Ps.32 million during the year ended June 30, 2018. These are mainly due to the increase in rental income due to events recorded in Entertainment Holding S.A.
Operations Center in Israel
Real estate. Revenues from the Real estate segment increased from Ps.10,480 million during the year ended June 30, 2017 to Ps.10,763 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, (ii) an increase in the rentable square meters and (iii) an increase in the price of leases.
Telecommunications. Revenues from the Telecommunications segment decreased from Ps.35,062 million during the year ended June 30, 2017 to Ps.34,330 million during the year ended June 30, 2018. This variation was due to a real devaluation of 1% of the NIS against the Argentine peso together with the constant erosion in the revenues of mobile services, which was partially offset by an increase in revenues related to fixed lines, television and internet.
Others. Revenues from the Others segment decreased from Ps.1,220 million during the year ended June 30, 2017 to Ps.1,045 million during the year ended June 30, 2018. This variation was due to a real devaluation of 1% of the NIS against the Argentine peso.
Costs 2018 vs 2017
Total consolidated costs, according to the income statement, decreased Ps.724 million, from Ps.35,370 million during the year ended June 30, 2017 to Ps.34,646 million during the year ended June 30, 2018 (out of which Ps.29,624 million derive from the Operations Center in Israel and Ps.5,022 million from the Operations Center in Argentina). Excluding costs from the Operations Center in Israel, costs decreased by 7.1%. Furthermore, total consolidated costs measured as a percentage of total consolidated revenues decreased from 59.3% during the year ended June 30, 2017 to 58.9% during the year ended June 30, 2018, mainly from the Operations Center in Israel. Excluding costs from the Operations Center in Israel, total consolidated costs measured as a percentage of total revenues decreased from 41.9% during the year ended June 30, 2017 to 39.6% during the year ended June 30, 2018.
In turn, costs related to expenses and collective promotions fund decreased by 7.0%, from Ps.3,343 million during the year ended June 30, 2017 (out of which Ps.3,113 million are allocated to the Shopping Malls segment and Ps.230 million to the Offices segment of the Operations Center in Argentina) to Ps.3,110 million during the year endedJune 30, 2018 (out of which Ps.2,937 million are allocated to the Shopping Malls segment and Ps.173 million to the Offices segment of the Operations Center in Argentina) due mainly to lower costs originated by our Shopping Malls, which decreased by 5.7%, from Ps.3,113 million during the year ended June 30, 2017 to Ps.2,937 million during the year ended June 30, 2018.
Likewise, costs from our joint ventures showed an increase of 11.6%, from Ps.43 million during the year ended June 30, 2017 (out of which Ps.15 million are allocated to the Shopping Malls segment, Ps.19 million to the Offices segment and Ps.9 million to the Sales and Developments segment of the Operations Center in Argentina) to Ps.48 million during the year ended June 30, 2018 (out of which Ps.7 million are allocated to the Shopping Malls segment, Ps.33 million to the Offices segment and Ps.8 million to the Sales and Developments segment of the Operations Center in Argentina).
Finally, costs from inter-segment operations did not present significant variations during the reported years.
Therefore, according to the information by segments (taking into account the costs coming from our joint ventures and without considering the costs from expenses and collective promotion fund or the costs from inter-segment operations), costs evidenced a decrease of Ps.486 million, from Ps.32,070 million during the year ended June 30, 2017 to Ps.31,584 million during the year ended June 30, 2018 (out of which Ps.29,624 million derive from the Operations Center in Israel and Ps.1,960 million from the Operations Center in Argentina). Excluding costs from the Operations Center in Israel, costs decreased by 6.9%. Likewise, total costs measured as a percentage of total revenues, according to information by segments, slightly decreased from 56.8% during the year ended June 30, 2017 to 56.6% during the year ended June 30, 2018, mainly from the Operations Center in Israel. Excluding the effect from the Operations Center in Israel, total costs measured as a percentage of total revenues decreased from 21.6% during the year ended June 30, 2017 to 20.2% during the year ended June 30, 2018.
Operations Center in Argentina
Shopping Malls.The costs of our Shopping Malls segment decreased 22.1%, from Ps.745 million during fiscal year 2017 to Ps.580 million during fiscal year 2018, mainly generated by: (i) a decrease in costs of leases and expenses for Ps.149 million due to the absorbing of the expenses and collective promotion fund deficit; (ii) a decrease in the fees and compensations for services of Ps.11 millions and (iii) a decrease in the maintenance, security, cleaning, repairs and related expenses of Ps.11 million. The Shopping Malls segment costs, as a percentage of revenues from this segment, decreased from 10.7% during fiscal year 2017 to 8.5% during fiscal year 2018.
Offices. Costs in the Offices segment decreased by 50.3%, from Ps.147 million during the year ended June 30, 2017 to Ps.73 million during the year ended June 30, 2018, mainly due to: (i) a decrease in depreciation and amortization of Ps.113 million, offset by: (i) an increase in maintenance, repairs and services of Ps.14 million; (i) an increase in leases and expenses of Ps.11 million; (iii) higher fees and compensation for services of Ps.8 million and (iv) an increase in taxes, fees and contributions of Ps.6 million. Costs in the Offices segment, measured as a percentage of revenues of this segment, decreased from 15.6% during the year ended June 30, 2017 to 7.8% during the year ended June 30, 2018.
Sales and developments. Costs associated with our Sales and Developments segment registered an increase of 1.0%, from Ps.103 million during the year ended June 30, 2017 to Ps.104 million during the year ended June 30, 2018. The costs of the Sales and Developments segment, measured as a percentage of revenues from this segment decreased from 50.7% during the year ended June 30, 2017 to 49.5% during the year ended June 30, 2018.
Hotels. Costs in the Hotels segment increased by 6.0%, from Ps.1,102 million during the year ended June 30, 2017 to Ps.1,168 million during the year ended June 30, 2018, mainly as a result of: (i) an increase of Ps.22 million in costs of salaries, social security and other personnel expenses; (ii) an increase of Ps.19 million in fees and compensation for services, and (iii) an increase of Ps.17 million in depreciation and amortization. Costs in the Hotels segment, measured as a percentage of revenues of this segment, decreased from 69.9% during the year ended June 30, 2017 to 68.3% during the year ended June 30, 2018.
International. Costs in the International segment did not change during the reported years.
Corporate. Costs in the Corporate segment did not change during the reported years.
Others. Costs in the Others segment increased by 337.5%, from Ps.8 million during the year ended June 30, 2017 to Ps.35 million during the year ended June 30, 2018, mainly as a result of: (i) an increase of Ps.12 million in leases and expenses; (ii) an increase of Ps.8 million in salaries, social security and other personnel expenses; and (iii) an increase of Ps.3 million in fees and compensation for services.
Operations Center in Israel
Real estate. Real estate segment costs decreased from Ps.4,971 million during the year ended June 30, 2017 to Ps.4,451 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, partially offset by (ii) a decrease in the cost due to the lower sale of residential apartments.
Telecommunications. Costs in the Telecommunications segment increased from Ps.24,536 million during the year ended June 30, 2017 to Ps.24,621 million during the year ended June 30, 2018. This variation was due to a real devaluation of 1% of the NIS compared to the Argentine peso, partially offset by a slight increase in costs related to television content.
Others. Costs in the Others segment increased from Ps.458 million during the year ended June 30, 2017 to Ps.552 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, and (ii) an increase in the costs of Bartan.
Gross profit 2018 vs 2017
The total consolidated gross profit, according to the income statement, decreased by Ps.121 million, from Ps.24,299 million during the year ended June 30, 2017 (out of which Ps.16,797 million derive from the Operations Center in Israel and Ps.7,502 million from the Operations Center in Argentina) to Ps.24,178 million during the year ended June 30, 2018 (out of which Ps.16,514 million derive from the Operations Center in Israel and Ps.7,664 million from the Operations Center in Argentina). Without considering the effect from the Operations Center in Israel, gross profit increased by 2.2%. The total consolidated gross profit, measured as a percentage of revenues from sales, leases and services, increased from 40.7% during the year ended June 30, 2017 to 41.1% during the year ended June 30, 2018. Without considering the effect from the Operations Center in Israel, total consolidated gross profit, according to the income statement, increased from 58.1% during the year ended June 30, 2017 to 60.4% during the year ended June 30, 2018.
In turn, total gross profit for expenses and collective promotion fund decreased Ps.15 million, from Ps.56 million during the year ended June 30, 2017 (out of which a profit of Ps.88 million derives from the Shopping Malls segment and a loss of Ps.32 million from the Offices segment), to Ps.41 million during the year ended June 30, 2018 (out of which a profit of Ps.63 million derives from the Shopping Malls segment and a loss of Ps.22 million from the Offices segment).
Additionally, the gross profit of our joint ventures decreased by 41.2%, from Ps.51 million during the year ended June 30, 2017 to Ps.30 million during the year ended June 30, 2018.
Therefore, according to the information by segments (taking into account the gross profit from our joint ventures and without considering the gross profit corresponding to expenses and collective promotion fund or to inter-segment operations), gross profit decreased by Ps.159 million, from Ps.24,420 million during the year ended June 30, 2017 (out of which Ps.16,797 million derive from the Operations Center in Israel and Ps.7,623 million from the Operations Center in Argentina) to Ps.24,261 million during the year ended June 30, 2018 (out of which Ps.16,514 million derive from the Operations Center in Israel and Ps.7,747 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, gross profit increased by 1.6%. Likewise, gross profit, measured as a percentage of revenues, according to information by segments, increased slightly from 43.2% during the year ended June 30, 2017 to 43.4% during the year ended June 30, 2018. Without considering the effect of the Operations Center in Israel, the gross profit measured as a percentage of total revenues increased from 78.4% during the year ended June 30, 2017 to 79.8% during the year ended June 30, 2018.
Operations Center in Argentina
Shopping Malls.Gross profit from the Shopping Malls segment decreased 0.1%, from Ps.6,246 million during fiscal year 2017 to Ps.6,242 million for fiscal year 2018. Gross profit from our Shopping Malls segment as a percentage of revenues for the segment increased from 89.3% during fiscal year 2017 to 91.5% during fiscal year 2018.
Offices. Gross profit of the Offices segment increased by 7.6%, from Ps.798 million during the year ended June 30, 2017 to Ps.859 million during the year ended June 30, 2018. Gross profit of the Offices segment, measured as a percentage of revenues of this segment, increased from 84.4% during the year ended June 30, 2017 to 92.2% during the year ended June 30, 2018.
Sales and developments. Gross profit of the Sales and Developments segment increased by 6.0%, from Ps.100 million during the year ended June 30, 2017 to Ps.106 million during the year ended June 30, 2018, mainly as a result of a slight increase in sales recorded during the year ended June 30, 2018. The gross profit of the Sales and Developments segment, measured as a percentage of this segment's revenues, increased from 49.3% during the year ended June 30, 2017 to 50.5% during the year ended June 30, 2018.
Hotels. Gross profit for the Hotels segment increased by 14.3% from Ps.475 million during the year ended June 30, 2017 to Ps.543 million during the year ended June 30, 2018. The gross profit of the Hotels segment, measured as a percentage of revenues of this segment, increased from 30.1% during the year ended June 30, 2017 to 31.7% during the year ended June 30, 2018.
International. Gross profit of the International segment did not present variations during the reported years.
Corporate. Gross profit of the Corporate segment did not present variations during the reported years.
Others. Gross profit from the Others segment decreased by 175.0%, from a profit of Ps.4 million during the year ended June 30, 2017 to a loss of Ps.3 million during the year ended June 30, 2018. The gross profit of the Others segment, measured as a percentage of revenues of this segment decreased from 33.3% during the year ended June 30, 2017 to 9.4% negative during the year ended June 30, 2018.
Operations Center in Israel
Real estate. Gross profit of the Real estate segment increased from Ps.5,509 million during the year ended June 30, 2017 to Ps.6,312 million during the year ended June 30, 2018. This variation was mainly due to a real devaluation of 1% of the NIS against the Argentine peso, accompanied by the reduction in costs. The gross profit of the segment as a percentage of revenues increased slightly from 52.6% during 2017, to 58.6% during the year ended June 30, 2018.
Telecommunications. Gross profit of the Telecommunications segment decreased from Ps.10,526 million during the year ended June 30, 2017 to Ps.9,709 million during the year ended June 30, 2018. This variation was mainly due to a real devaluation of 1% of the NIS against the Argentine peso, increased by the constant erosion in the revenues of mobile services, which was partially offset by an increase in revenues related to fixed lines, television and internet. The gross profit of the segment as a percentage of revenues decreased slightly from 30.0% during 2017 to 28.3% during the year ended June 30, 2018.
Others. Gross profit from the Others segment decreased from Ps.762 million during the year ended June 30, 2017 to Ps.493 million during the year ended June 30, 2018. This variation was mainly due to a real devaluation of 1% of the NIS against the Argentine peso followed by a drop in the gross profit of Bartan and Epsilon. The gross profit of the segment as a percentage of revenues decreased from 62.5% during 2017 to 47.2% during the year ended June 30, 2018.
Net gain from fair value adjustment of investment properties 2018 vs 2017
The net gain from fair value adjustment of investment properties, according to the income statement, increased by Ps.21,370 million, from a net loss of Ps.4,389 million during the year ended June 30, 2017 (out of which a gain of Ps.779 million derives from the Operations Center in Israel and a loss of Ps.5,168 million from the Operations Center in Argentina),to a net gain of Ps.16,981 million during the year ended June 30, 2018 (out of which Ps.3,575 million derive from the Operations Center in Israel and Ps.13,406 million from the Operations Center in Argentina).
It should be noted that according to the adjustment for inflation methodology, the gain/(loss) from fair value adjustment of investments properties should be broken down into its two effects: i) adjustment for inflation and ii) loss or gain from actual fair value adjustment. During the year ended June 30, 2018, the inflationary effect does not exceed the appreciation of investment properties, therefore, a gain from fair value adjustment of investment properties of Ps.16,981 million is recognized.
Operations Center in Argentina
1. Shopping Mall segment
The net impact in the peso values of our shopping malls was primarily a consequence of macroeconomic changes: (i) an increase in the projected inflation rate and GDP growth, with a consequent increase in the projected cash flow of Ps.10,909 million (assuming all other factors remain unchanged), as revenues from our Shopping Malls segment are a percentage of the tenants sales; (ii) between June 30, 2017 to June 30, 2018, the Argentinian peso depreciated 73.9% against U.S. dollar (from Ps.16.53 per dollar to Ps.28.75 per dollar), which resulted in a reduction of Ps.22.459 million in the projected cash flows when they are measured in dollar terms, assuming all other factors remain unchanged; (iii) an increase of 44 basis points in the discount rate in U.S. dollar, which it is used to discount the projected cash flows from the Shopping Malls segment, which generated a reduction of Ps.2.178 million in the fair value of our Shopping Malls, assuming all other factors remain unchanged;(iv) an increase of Ps.23,622 million as a consequence of the conversion of the value of the Shopping Malls in dollar terms into pesos considering the end of fiscal year exchange rate of Ps.28.75 per dollar; (v) additional effect because of the reduction in the corporate income tax rate to 30% was considered for fiscal years that are dated from January 1, 2018 to December 31, 2019 and to 25% for the fiscal years that are dated January 1, 2020 onwards, increasing the value of our Shopping Malls in Ps.7,732 million.
In addition, the value of our shopping malls as of June 30, 2017, has been restated for inflation for comparative purposes as required by IAS 29. The impact of such restatement is Ps 13.258 million.
We maintained the same portfolio of Shopping Malls during fiscal year ended June 30, 2018.
2. “Offices”, “Sales and developments”, “International” and “Others” segments.
Net gain/(loss) from actual fair value adjustment of investment properties included in these segments increased by 604.3% during the year ended June 30, 2018, as a result of the impact of the depreciation of the Argentine peso.
The Argentine office market is a liquid market, in which a significant volume of counterparties participates and frequently carries out purchase and sale transactions. This allows to observe sale prices that are relevant and representative in the market. Furthermore, lease agreements are denominated in dollars for an average term of 3 years, with the current business thus generating a stable cash flow in dollars. In this sense, the “Market approach” technique is used (market comparable values) for the determination of the fair value of these segments, with the value per square meter being the most representative metric.
The value of our office and other, increased 34.5% in real terms during the fiscal year ended June 30, 2018 due to the fact that the depreciation rate of the peso during the year was higher than the inflation rate. In addition, we recognize from the Sales and Developments segment a profit of Ps.5,161 million for the fiscal year ended June 30, 2018 compared with a loss of Ps.188 million for the fiscal year ended June 30, 2017.
Operations Center in Israel
Real estate. Net gain from fair value adjustment of investment properties increased from Ps.779 million during the year ended June 30, 2017 to Ps.3,575 million during the year ended June 30, 2018. The variation was due to the increase in the value of properties in Israel, accompanied by stability in properties in the United States.
General and administrative expenses 2018 vs 2017
Total general and administrative expenses, according to the income statement, recorded a decrease of Ps.184 million, from Ps.7,068 million during the year ended June 30, 2017 (out of which Ps.5,583 million derive from the Operations Center in Israel and Ps.1,485 million from the Operations Center in Argentina) to Ps.6,884 million during the year endedJune 30, 2018 (out of which Ps.5,299 million derive from the Operations Center in Israel and Ps.1,585 million from the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, general and administrative expenses increased by 6.7%. Total general and administrative expenses measured as a percentage of total revenues decreased from 11.8% during the year ended June 30, 2017 to 11.7% during the year ended June 30, 2018. Excluding the effect from the Operations Center in Israel, total general and administrative expenses measured as a percentage of total revenues, according to income statement, increased from 11.5% during the year ended June 30, 2017 to 12.5% during the year ended June 30, 2018.
In turn, the general and administrative expenses of our joint ventures increased Ps.16 million, from Ps.10 million during the year ended June 30, 2017 to Ps.26 million during the year ended June 30, 2018.
Finally, general and administrative expenses for inter-segment operations increased Ps.8 million, from Ps.15 million during the year ended June 30, 2017 to Ps.23 million during the year ended June 30, 2018.
Therefore, according to the information by segments (taking into account the general and administrative expenses from our joint ventures and without considering those corresponding to expenses and collective promotion funds or to inter-segment operations), general and administrative expenses decreased Ps.160 million, from Ps.7,093 million during the year ended June 30, 2017 (out of whichPs.5,583 million derive from the Operations Center in Israel and Ps.1,510 million from the Operations Center in Argentina) to Ps.6,933 million during the year ended June 30, 2018 (out of which Ps.5,299 million derive from the Operations Center in Israel and Ps.1,634 million from the Operations Center in Argentina). Excluding the general and administrative expenses from the Operations Center in Israel, expenses increased by 8.2%. General and administrative expenses measured as a percentage of revenues, according to the information by segments, decreased from 12.6% during the year ended June 30, 2017 to 12.4% during the year ended June 30, 2018. Without considering the effect from the Operations Center in Israel, total general and administrative expenses, measured as a percentage of total revenues, increased from 15.5% during the year ended June 30, 2017 to 16.8% during the year ended June 30, 2018.
Operations Center in Argentina
Shopping Malls.Administrative expenses of the Shopping Malls segment increased 2.6%, from Ps.582 million, during fiscal year 2017 to Ps.597 million during fiscal year 2018, mainly as a result of: (i) an increase of Ps.14 million in banking expenses; (ii) an increase of Ps.13 million in amortization; (iii) an increase of Ps. 10 millionin maintenance, repair, travel and mobility; partially mitigated by; (iv) a decrease of Ps.20 million in, fees and compensations for services. Administrative expenses of the Shopping Malls segment as a percentage of revenues from this segment increased from 8.3% during fiscal year 2017 to 8.8% during fiscal year 2018.
Offices. General and administrative expenses of our Offices segment decreased by 3.2%, from Ps.157 million during the year ended June 30, 2017 to Ps.152 million during the year ended June 30, 2018, mainly as a result of: (i) a decrease of Ps.15 million in salaries, social security and other personnel expenses, partially offset by: (ii) an increase of Ps.6 million in advertising and other commercial expenses. General and administrative expenses, measured as a percentage of revenues in the same segment, decreased from 16.6% during the year ended June 30, 2017 to 16.3% during the year ended June 30, 2018.
Sales and developments. General and administrative expenses associated with our Sales and developments segment increased by 93.1%, from Ps.72 million during the year ended June 30, 2017 to Ps.139 million during the year ended June 30, 2018, mainly as a result of: (i) an increase of directors’ fees of Ps.16 million, (ii) an increase in salaries, social security and other personnel expenses of Ps.15 million; (iii) an increase of Ps.6 million in taxes, fees and contributions; (iv) an increase of Ps.5 million in fees and compensation for services, and (v) an increase of Ps.4 million in maintenance, repairs and services, among other items. General and administrative expenses, measured as a percentage of revenues of this segment, increased from 35.5% during the year ended June 30, 2017 to 66.2% during the year ended June 30, 2018.
Hotels. General and administrative expenses associated with our Hotels segment increased by 12.2% from Ps.304 million during the year ended June 30, 2017 to Ps.341 million during the year ended June 30, 2018, mainly as a result of: (i) an increase of Ps.17 million in salaries, social security and other personnel expenses; and (ii) an increase of Ps.15 million in maintenance costs, repairs and services. General and administrative expenses associated with the Hotels segment measured as a percentage of this segment's revenues increased by 19.3% during the year ended June 30, 2017 to 19.9% during the year ended June 30, 2018.
International. General and administrative expenses associated with our International segment decreased by 7.9%, from Ps.89 million during the year ended June 30, 2017 to Ps.82 million during the year ended June 30, 2018, mainly due to: (i) a decrease in fees and compensation for services of Ps.32 million, partially offset by: (i) an increase of Ps.11 million in taxes, fees and contributions; and (ii) an increase of Ps.8 million in other administrative expenses.
Corporate. General and administrative expenses associated with our Corporate segment decreased by 7.2%, from Ps.290 million during the year ended June 30, 2017 to Ps.269 million during the year ended June 30, 2018, mainly due to a decrease of Ps.20 million in fees and compensation for services, among other items.
Others. General and administrative expenses associated with our Others segment increased by 237.5%, from Ps.16 million during the year ended June 30, 2017 to Ps.54 million during the year ended June 30, 2018, mainly due to (i) an increase of Ps.16 in maintenance, repairs and services; (ii) an increase of Ps.8 million in taxes, fees and contributions; and (iii) an increase of Ps.7 million in fees and compensation for services, among other items.
Operations Center in Israel
Real estate. General and administrative expenses associated with the Real Estate segment increased from Ps.636 million during the year ended June 30, 2017 to Ps.644 million during the year ended June 30, 2018. This variation was mainly due to a real devaluation of 1% of the NIS against the Argentine peso, offset by a slight increase in structure costs. The general and administrative expenses associated with this segment measured as a percentage of this segment’s revenues decreased from 6.1% during the year ended June 30, 2017 to 6.0% during the year ended June 30, 2018.
Telecommunications. General and administrative expenses associated with the Telecommunications segment decreased from Ps.3,499 million during the year ended June 30, 2017 to Ps.3,214 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso and (ii) a reduction in personnel expenses due to a downsizing of the company, which accompanied the fall in revenues in a search for efficiency improvements. The administrative and general expenses associated with the segment measured as a percentage of this segment's revenues decreased from 10% during the year ended June 30, 2017 to 9.4% during the year ended June 30, 2018.
Corporate. General and administrative expenses associated with the Corporate segment decreased from Ps.836 million during the year ended June 30, 2017 to Ps.597 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, followed by a decrease in the personnel and the structure of costs of DIC and IDBD, also accompanied by a reduction in Dolphin's legal fees.
Others. General and administrative expenses associated with the Others segment increased from Ps.612 million during the year ended June 30, 2017 to Ps.844 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso and an increase in the structure of Bartan and Epsilon.
Selling expenses 2018 vs 2017
Total consolidated selling expenses, according to the income statement, decreased by Ps.523 million, from Ps.8,806 million during the year ended June 30, 2017 to Ps.8,283 million during the year ended June 30, 2018 (out of which Ps.7,506 million derive from the Operations Center in Israel and Ps.777 million from the Operations Center in Argentina). Excluding the effect from the OperationsCenter in Israel, selling expenses increased by 2.9%. Total consolidated selling expenses measured as a percentage of revenues from sales, leases and services, decreased from 14.8% during the year ended June 30, 2017 to 14.1% during the year ended June 30, 2018. Excluding the effect of the Operations Center in Israel, total selling expenses measured as a percentage of revenues from sales, leases and services slightly increased from 5.8% during the year ended June 30, 2017 to 6.1% during the year ended June 30, 2018.
In turn, selling expenses of our joint ventures increased Ps.1 million, from Ps10 million during the year ended June 30, 2017 to Ps.11 million during the year ended June 30, 2018.
Therefore, according to the information by segments (taking into account the selling expenses from our joint ventures and without considering those corresponding to expenses and collective promotion fund or to inter-segment operations), selling expenses decreased Ps.526 million, from Ps.8,820 million during the year ended June 30, 2017 to Ps.8,294 million during the year ended June 30, 2018 (out of which Ps.7,506 million derive from the Operations Center in Israel and Ps.788 million from the Operations Center in Argentina). Excluding the effect from the Operations Centerin Israel, selling expenses increased by 2.5%. Selling expenses measured as a percentage of revenues, according to information by segments, decreased from 15.6% during the year ended June 30, 2017 to 14.9% during the year ended June 30, 2018. Without considering the effects from the Operations Center in Israel, total selling expenses, measured as a percentage of total revenues according to the information by segments, experienced a small increase, going from 7.9% during the year ended June 30, 2017 to 8.1% during the year ended June 30, 2018.
Operations Center in Argentina
Shopping Malls.Selling expenses from the Shopping Malls segment increased 6.0%, from Ps.401 million during fiscal year 2017 to Ps.425 million during fiscal year 2018, mainly as a result of: (i) an increase of Ps.28 million bad debt expense; (ii) an increase in taxes, rates and contributions of Ps.17 million and (iii) an increase of Ps.4 million in fees and compensations for services; partially mitigated by (iv) a decreased in salaries, social security charges and other personnel expenses of Ps.14 million and (v) a decrease in publicity and propaganda of Ps.11 million. Selling expenses as a percentage of revenues from the Shopping Malls segment increased in 5.7% during fiscal year 2017 to 6.2% during fiscal year 2018.
Offices. Selling expenses associated with our Offices segment decreased by 2.0% from Ps.102 million during the year ended June 30, 2017 to Ps.100 million during the year ended June 30, 2018. This variation was generated mainly as a result of a decrease of Ps.20 million in advertising and other commercial expenses, offset by an increase of Ps.17 million in doubtful accounts. Selling expenses associated with our Offices segment, measured as a percentage of this segment's revenues, decreased from 10.8% during the year ended June 30, 2017 to 10.7% during the year ended June 30, 2018.
Sales and developments. Selling expenses associated with our Sales and developments segment decreased by 4.8%, from Ps.42 million during the year ended June 30, 2017 to Ps.40 million during the year ended June 30, 2018. This variation is mainly due to: (i) a decrease of Ps.8 million in taxes, fees and contributions; (ii) a decrease of Ps.2 million in maintenance, repairs and services, and (iii) a decreaseof Ps.2 million in advertising and other commercial expenses, offset by: (i) an increase of Ps.4 million in fees and compensation for services; (ii) an increase of Ps.3 million in leases and expenses and (iii) an increase of Ps.2 million in salaries, social security and other personnel expenses. The selling expenses associated with our Sales and developments segment, measured as a percentage of this segment decreased, from 20.7% during the year ended June 30, 2017 to 19.0% during the year ended June 30, 2018.
Hotels. Selling expenses associated with our Hotels segment increased 0.9%, from Ps.216 million during the year ended June 30, 2017 to Ps.218 million during the year ended June 30, 2018, mainly as a result of: (i) an increase of Ps.24 million in salaries, social security and other personnel expenses; (ii) an increase of Ps.22 million in taxes, fees and contributions, (iii) an increase of Ps.19 million in fees and compensation for services, (iv) an increase of Ps.14 million in advertising and other commercial expenses, and (v) an increase of Ps. 6 million in leases and expenses, offset by: (i) a decrease of Ps.23 million in maintenance, repairs and services, and (ii) a decrease of Ps.62 million in food, beverages and other hotel expenses. The selling expenses associated with our Hotels segment measured as a percentage of this segment's revenues decreased, from 13.7% during the year ended June 30, 2017 to 12.7% during the year ended June 30, 2018.
International. Selling expenses associated with the International segment did not show variations during the reported years.
Corporate. Selling expenses associated with the Corporate segment did not show variations during the reported years.
Others. Selling expenses associated with our Others segment decreased by 37.5% from Ps.8 million during the year ended June 30, 2017 to Ps.5 million during the year ended June 30, 2018, mainly due to (i) a decrease of Ps.8 million in advertising and other commercial expenses, offset by an increase of Ps.3 million in taxes, fees and contributions and (ii) an increase of Ps.2 million in doubtful accounts. The selling expenses associated with our Others segment measured as a percentage of this segment's revenues decreased significantly, from 66.7% during the year ended June 30, 2017 to 15.6% during the year ended June 30, 2018.
Operations Center in Israel
Real estate. Selling expenses associated with the real estate segment increased from Ps.199 million during the year ended June 30, 2017 to Ps.202 million during the year ended June 30, 2018. This variation was due to a real devaluation of 1% of the NIS against the Argentine peso, offset by an increase in the sale of square meters. The selling expenses associated with this segment measured as a percentage of revenues remained stable at 1.9% during the year ended June 30, 2017 and the year ended June 30, 2018.
Telecommunications. Selling expenses associated with the Telecommunications segment decreased from Ps.7,491 million during the year ended June 30, 2017 to Ps.7,038 million during the year ended June 30, 2018. This variation was due to a real devaluation of 1% of the NIS against the Argentine peso, together with (ii) a decrease in advertising expenses on the mobile phone line. Selling expenses associated with this segment measured as a percentage of revenues decreased, from 21.4% during the year ended June 30. 2017 to 20.5% during the year ended June 30, 2018.
Others. Selling expenses associated with the Others segment decreased from Ps.361 million during the year ended June 30, 2017 to Ps.266 million during the year ended June 30, 2018. This variation was due to a real devaluation of 1% of the NIS against the Argentine peso and a decrease in Elron’s expenses.
Other operating results, net 2018 vs 2017
Other operating results, net, according to the income statement, registered an increase of Ps.2,180 million, going from a net loss of Ps.651 million during the year ended June 30, 2017 to a net profit of Ps.1,529 million during the year ended June 30, 2018 (out of which a net profit of Ps.35 million derives from the Operations Center in Argentina and a net profit of Ps.1,494 million from the Operations Center in Israel).
Other operating results, net from our joint ventures, decreased Ps.45 million, going from a net profit of Ps.20 million during the year ended June 30, 2017 (out of which a loss of Ps.15 million derives from the Sales and Developments segment, Ps.2 million from the Offices segment and Ps.3 million are allocated to the Shopping Malls segment) to a net loss of Ps.25 million during the year ended June 30, 2018 (out of which a loss of Ps.24 million is allocated to the Sales and Developments segment and Ps.1 million is allocated to the Shopping Malls segment within the Operations Center in Argentina).
Therefore, according to the information by segments (taking into account the other operating results, net from our joint ventures and without considering those corresponding to inter-segment operations), other operating results, net recorded an increase of Ps.2,152 million, from a net loss of Ps.687 million during the year ended June 30, 2017 to a net profit of Ps.1,465 million during the year ended June 30, 2018. Excluding the effect from the Operations Center in Israel, other operating results increased in Ps.650 million.
Operations Center in Argentina
Shopping Malls.Other operating results, net from the Shopping Malls segment decreased 13.3%, from a loss of Ps.75 million during fiscal year 2017 to a loss of Ps.65 million during fiscal year 2018, mainly as a result of: (i) a decrease in donations charges of Ps. 53 millions, partially offset by: (ii) an increase credit interest of Ps.38 million and (iii) an increase in legal contingencies of Ps.20 million. Other operating results, net from this segment as a percentage of the revenues from this segment increase from 1.1% during fiscal year 2017 to 1.0% during fiscal year 2018
Offices. Other operating results, net, associated with our Offices segment increased by 27.3%, going from a loss of Ps.22 million during the year ended June 30, 2017 to a loss of Ps.16 million during the year ended June 30, 2018, mainly as a consequence of lower donations and the expenses of lawsuits and other contingencies, among other items. The other operating results, net, of this segment, as a percentage of revenues, increased from 2.3% negative during the year ended June 30, 2017 to 1.7% negative during the year ended June 30, 2018.
Sales and developments. Other operating results, net, associated with our Sales and developments segment increased by 234.7%, going from a loss of Ps.72 million during the year ended June 30, 2017 to a profit of Ps.97 million during the year ended June 30, 2018, mainly as a result of the sale of floors in Intercontinental Hotel by IRSA Propiedades Comerciales. The other operating results, net, of this segment, as a percentage of this segment's revenues increased from 35.5% negative during the year ended June 30, 2017 to 46.2% positive during the year ended June 30, 2018.
Hotels. Other operating results, net, associated with the Hotels segment decreased by Ps.30 million, going from a profit of Ps.2 million during the year ended June 30, 2017 to a loss of Ps.28 million during the year ended June 30, 2018, mainly due to a higher expense related to a boiler-related loss. The other operating results, net, of this segment, as a percentage of this segment's revenues decreased from 0.1% positive during the year ended June 30, 2017 to 1.6% negative during the year ended June 30, 2018.
International. Other operating results, net, of this segment increased by 92.4%, from a net loss of Ps.528 million during the year ended June 30, 2017 to a loss of Ps.40 million during the year ended June 30, 2018, mainly due to the reset of the translation difference occurred during the fiscal year ended June 30, 2017.
Corporate. Other operating results, net, associated with the Corporate segment did not show variations during the reported years.
Others. Other operating results, net, associated with the Others segment increased by 4.38%, from a net profit of Ps.16 million during the year ended June 30, 2017 to a net profit of Ps.23 million during the year ended June 30, 2018, mainly due to revenues from the assignment of royalty receivables of Entertainment Holdings SA. The other operating results, net, of this segment, as a percentage of revenues from this segment decreased by 133.3% during the year ended June 30, 2017 to 71.9% during the year ended June 30, 2018.
Operations Center in Israel
Real Estate. Other operating results, net associated with the Real Estate segment increased from Ps.70 million during the year ended June 30, 2017 to Ps.179 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso and (ii) the result from the sale of fixed assets.
Telecommunications. Other operating results, net associated with the Telecommunications segment increased from Ps.238 million during the year ended June 30, 2017 to Ps.540 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, offset by (ii) the sale of the subsidiary Rimon.
Corporate. Other operating results, net associated with the Corporate segment went from a loss of Ps.105 million during the year ended June 30, 2017 to a profit of Ps.798 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, offset by (ii) the favorable outcome of the trial won by Ma'ariv.
Others. Other operating results, net associated with the Others segment went from a loss of Ps.211 million during the year ended June 30, 2017 to a loss of Ps.23 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, and (ii) a decrease in research and development expenses.
Profit / (loss) from operations 2018 vs 2017
The total consolidated profit from operations, pursuant to the income statement, increased by 713.0% from a profit of Ps.3,385 million during the year ended June 30, 2017 to a profit of Ps.27,521 million during the year ended June 30, 2018 (out of which Ps.8,778 million derive from the Operations Center in Israel and Ps.18,743 million of the Operations Center in Argentina). Excluding the effect from the Operations Center in Israel, profit from operations increased Ps.19,292 million. The total consolidated profit from operations, measured as a percentage of revenues from sales, leases and services, increased from 5.7% during the year ended June 30, 2017 to 46.8% during the year ended June 30, 2018. Without considering the effect from the Operations Center in Israel, the total consolidated profit from operations, measured as a percentage of total revenues, increased from 4.3% negative during the year ended June 30, 2017 to 147.7% during the year ended June 30, 2018.
Profit from operations of our joint ventures decreased by 2.1%, from Ps.722 million during the year ended June 30, 2017 (out of which Ps.715 million derive from the Offices segment, Ps.6 million are allocated to the Shopping Malls segment, and Ps.1 million to the Sales and developments segment of the Operations Center in Argentina), to Ps.707 million during the year ended June 30, 2018 (out of which a Ps.670 million profit is allocated to the Offices segment, a Ps.82 million profit is allocated to the Shopping Malls segment and a loss Ps.45 million is allocated to the Sales and developments segment of the Operations Center in Argentina), mainly due to a lower net gain from fair value adjustment of investment properties.
In turn, profit from operations for expenses and collective promotion fund remained stable during the reported years.
Finally, profit from operations generated by the inter-segment operations decreased 80.0%, from Ps.5 million during the year ended June 30, 2017 to a loss of Ps.9 million during the year ended June 30, 2018.
Therefore, according to the information by segments (taking into account profit from operations from our joint ventures and without considering those corresponding to expenses and collective promotion fund or to inter-segment operations), profit from operations increased by 587.9%, from Ps.4,102 million during the year ended June 30, 2017 to Ps.28,219 million during the year ended June 30, 2018 (out of which Ps.8,778 million derive from the Operations Center in Israel and Ps.19,441 million from the Operations Center in Argentina). Without considering profit from operations from the Operations Center in Israel, profit from operations increased Ps.19,273 million. Profit from operations, measured as a percentage of revenues according to segment information, increased from 7.3% during the year ended June 30, 2017 to 50.5% during the year ended June 30, 2018. Excluding the effect from the Operations Center in Israel, total profit from operations, according to segment information, measured as a percentage of total revenues, increased from 1.7% during the year ended June 30, 2017 to 200.3% during the year ended June 30, 2018.
Operations Center in Argentina
Shopping Malls.Operating income from the Shopping Malls segment increased 1,472,5% from a loss of Ps.695 million during fiscal year 2017, to a profit of Ps.9,539 million during fiscal year 2018. Operating income from the Shopping Malls segment as a percentage of the revenues from such segment went from (10.0%) during fiscal year 2017 to 139.8% during fiscal year 2018.
Offices. Profit from operations from our Offices segment increased by 200.7%, going from a profit of Ps.1,651 million during the year ended June 30, 2017 to a profit of Ps.4,964 million during the year ended June 30, 2018. The variation is mainly due to an increase of Ps.3,239 million in the net gain from fair value adjustment of investment properties. Profit from operations of the Offices segment as a percentage of the segment's revenues increased from 174.7% during the year ended June 30, 2017 to 532.6% during the year ended June 30, 2018.
Sales and developments. Profit from operations from our Sales and Developments segment increased Ps.4,954 million, from a profit of Ps.204 million during the year ended June 30, 2017 to a profit of Ps.5,158 million during the year ended June 30, 2018. This increase is mainly due to an increase of Ps.4,844 million in the net gain from fair value adjustment of investment properties. Profit from operations from the Sales and Developments segment as a percentage of the segment's revenues increased from 100.5% during the year ended June 30, 2017 to 2,456.2% during the year ended June 30, 2018.
Hotels. Profit from operations from the Hotels segment showed an increase of 2.3%, going from a loss of Ps.43 million during the year ended June 30, 2017 to a loss of Ps.44 million during the year ended June 30, 2018. This increase is mainly due to the increase in the average rate per room of our hotel portfolio (measured in pesos), thus generating an increase in revenues. Profit from operations from the Hotels segment as a percentage of this segment's revenues decreased from 2.7% negative during the year ended June 30, 2017 to 2.6% negative during the year ended June 30, 2018.
International. Profit from operations from our International segment increased by 80.2%, going from a loss of Ps.617 million during the year ended June 30, 2017 to a loss of Ps.122 million during the year ended June 30, 2018. This variation is due to the reversal of the translation difference occurred during the year ended June 30, 2017.
Corporate. Profit from operations from our Corporate segment decreased by 7.2%, going from a loss of Ps.290 million during the year ended June 30, 2017 to a loss of Ps.269 million during the year ended June 30, 2018, mainly affected by general and administrative expenses.
Others. The operating result corresponding to our Others segment increased by 611.9%, from a loss of Ps.42 million during the year ended June 30, 2017 to a profit of Ps.215 million during the year ended June 30, 2018. The variation is mainly due to a Ps.292 million increase in the net gain from fair value adjustment of investment properties. Profit from operations of the Others segment as a percentage of this segment's revenues increased from 350.0% negative during the year ended June 30, 2017 to 671.9% during the year ended June 30, 2018.
Operations Center in Israel
Real estate. Profit from operations of the Real Estate segment increased from Ps.5,523 million during the fiscal year 2017 to Ps.9,220 million during the year ended June 30, 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, (ii) the occupation of projects in Israel, (iii) an increase in the number of square meters occupied and (iv) a gain from fair value adjustment of investment properties.
Telecommunications. Profit from operations of the Telecommunications segment increased from a loss of Ps.226 million during fiscal year 2017 to a loss of Ps.3 million during fiscal year 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, (ii) an increase in television subscribers and (iii) the continuous erosion in service revenues, which was partially offset by the decrease in operating expenses, due to increased efficiency measures implemented by Cellcom and the sale of Rimon.
Corporate. Profit from operations of the Corporate segment increased from a loss of Ps.941 million during fiscal year 2017 to a profit of Ps.201 million during fiscal year 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, and (ii) the positive outcome of Ma'ariv's trial.
Others. Profit from operations of the Others segment went from a loss of Ps.422 million during fiscal year 2017 to a loss of Ps.640 million during fiscal year 2018. This variation was due to (i) a real devaluation of 1% of the NIS against the Argentine peso, and (ii) an increase in the costs of Bartan and Epsilon.
Share of profit / (loss) of associates and joint ventures 2018 vs 2017
The share of profit / (loss) of associates and joint ventures, pursuant to the income statement, decreased by 227.7%, from a loss of Ps.757 million during the year ended June 30, 2017 to a loss of Ps.2,481 million during the year ended June 30, 2018 (out of which a loss of Ps.2,308 million derives from the Operations Center in Argentina and a loss of Ps.173 million from the Operations Center in Israel). Excluding the results from the Operations Center in Israel, the share of profit / (loss) of associates and joint ventures decreased by 190.3%, mainly due to the negative results from the Sales and developments and International segments.
Also, the net share of profit / (loss) of associates and joint ventures, mainly from Nuevo Puerto Santa Fe S.A. (Shopping Malls segment), Quality Invest S.A. (Offices segment) and Cyrsa S.A. and Puerto Retiro S.A. (Sales and developments segment), evidenced an increase of 281.8%, going from a profit of Ps.170 million during the year ended June 30, 2017 to a profit of Ps.649 million during the year ended June 30, 2018, mainly due to the share of profit of our joint venture Quality Invest S.A., due to the result originated in the valuation of investment properties.
Operations Center in Argentina
Shopping Malls.In the segment information the share of profit / (loss) of joint venture Nuevo Puerto Santa Fe S.A. is exposed line by line on a consolidated basis.
Offices. In the segment information the share of profit / (loss) of our joint venture Quality S.A. is exposed on a consolidated basis, line by line in this segment.
Sales and developments. The share of profit / (loss) of joint ventures Cyrsa S.A. and Puerto Retiro S.A. is exposed on a consolidated basis, line by line. The share of profit / (loss) of our associate Manibil S.A., which is disclosed in this line, increased by Ps.19 million, from a loss of Ps.16 million during the year ended June 30, 2017 to a profit of Ps.3 million during the year ended June 30, 2018.
Hotels. This segment does not present results from the share of profit / (loss) of associates and joint ventures.
International. The share of profit / (loss) of associates of this segment decreased by 779.3%, going from a loss of Ps.352 million during the year ended June 30, 2017 to a loss of Ps.3,095 million during the year ended June 30, 2018, mainly generated by a negative result of our investment in New Lipstick LLC of Ps.3,083 million.
Others. The share of profit / (loss) of associates of the Others segment, increased by 122.6%, from a loss of Ps.597 million during the year ended June 30, 2017 to a profit of Ps.135 million during the year ended June 30, 2017, mainly as a result of a gain from our investments in BHSA for Ps.290 million.
Operations Center in Israel
Real estate. The share of profit / (loss) of associates and joint ventures of this segment increased from Ps.66 million during the year ended June 30, 2017 to Ps.233 million in the year ended June 30, 2018 due to an improvement presented by Mehadrin and Pbel in their results.
Others. The share of profit / (loss) of associates and joint ventures of this segment went from a loss of Ps.28 million during the year ended June 30, 2017 to a loss of Ps.406 million in the year ended June 30, 2018 due to the low performance of Elron's investments.
Financial results, net
The financial results went from a loss of Ps.6,924 million during the year ended June 30, 2017 to a loss of Ps.28,460 million during the year ended June 30, 2018, this variation is mainly due to the devaluation of the Argentine peso against the dollar and the result of the exchange of DIC’s debt swap.
Income tax
The Company applies the deferred tax method to calculate the income tax corresponding to the years presented, thus recognizing in this way temporary differences as tax assets and liabilities. The income tax charge for the year went from a loss of Ps.1,491 million during the year ended June 30, 2017, to a profit of Ps.6,280 million during the year ended June 30, 2018, out of which a profit of Ps.7,445 million derives from the Operations Center in Argentina and this was offset by a loss of Ps.1,165 million from the Operations Center in Israel.
Profit for the year
As a result of the factors described above, the profit of the year, including the effect of discontinued operations, went from a profit of Ps.3,048 million during the year ended June 30, 2017 to a profit of Ps.23,237 million during the year ended June 30, 2018, out of which Ps.13,036 million derives from the Operations Center in Argentina and Ps.10,201 million from the Operations Center in Israel
B. Liquidity and Capital Resources
Our principal sources of liquidity have historically been:
●
Cash generated by operations;
●
Cash generated by issuance of debt securities;
●
Cash from borrowing and financing arrangements; and
●
Cash proceeds from the sale of real estate assets.
Our principal cash requirements or uses (other than in connection with our operating activities) have historically been:
●
capital expenditures for acquisition or construction of investment properties and property, plant and equipment;
●
interest payments and repayments of debt;
●
acquisition of equity interestinterests in companies;
●
payments of dividends; and
●
acquisition of real estate.
Our liquidity and capital resources include our cash and cash equivalents, proceeds from bank borrowings and long-term debt, capital financing and sales of real estate investments.
As of June 30, 2019,2020, our OperationsOperation Center in Argentina had positivenegative working capital of Ps.512ARS 24,359 million while our Operations Center in Israel had positive working capital of Ps.66,805ARS 86,692 million, resulting in a consolidated positive working capital of Ps.67,317ARS 62,333 million (calculated as current assets less current liabilities as of such date).
At the same date, our Operations Center in Argentina had cash and cash equivalents of Ps. 4,622ARS 7,227 million while our Operations Center in Israel had cash and cash equivalents of Ps. 55,860ARS 83,132 million, totaling consolidated cash and cash equivalents for Ps.60,482ARS 90,359 million.
IDBD and DIC have certain restrictions and financial agreements in relation to their financial debt, including their debenturesbonds and loans with banks and financial institutions. Regarding IDBD's financial position, its cash flow and its ability to meet its financial debt commitments, the following should be considered:
Beyond IDBD’s financial situation asAs of June 30, 2019, which has2020, IDBD had a negative equity, at that date, negative operating cash flowflows and a low credit rating, of its debentures that caused that certain bondholders hirewhich circumstance may cast significant doubt about IDBD’s ability to continue operating as a representative and legal advisors to evaluate a potential procedure for declaring the insolvency of IDBD. The Board of Directors of IDBD has agoing concern. IDBD’s cash flow forecast for a periodrequired to meet its liabilities, including short-term liabilities is based on the realization of 24 months that assumesassets wich the realization date is not under IDBD’s control. These assets include the current price of Clal’s shares and the impact thereof on swap transaction deposits and the fact that IDBD willshall receive, among other things, cashothers, the proceeds from the realizationsale of private investments which are directly owned by IDBD.
As of June 30, 2020, the aggregate principal amount of the (i) IDBD Series 9 Bonds was NIS 901 million (“Series 9”), (ii) IDBD Series 14 Bonds was NIS 889 million collateralized by DIC shares owned directly or indirectly by us representing 70% of the share capital of DIC (“Series 14”), (iii) IDBD Series 15 Bonds was NIS 238 million collateralized by shares of Clal representing 5% of the share capital of Clal (“Series 15”).
As no agreement have been reached with holders of IDBD bonds, on September 17, 2020, the Series 9 trustee submitted to the District Court in Tel-Aviv-Jaffa (the "Court") a petition to grant an order for the opening of proceedings for IDBD pursuant to the Insolvency and Economic Rehabilitation Law, 5778 – 2018 and to instruct the appointment of a trustee for IDBD pursuant to Section 43 and to grant the trustee any and all authority over the decision making of IDBD.
On September 21, 2020, the Series 14 bond holders approved the immediate fully payment of the remaining balances of such wayserie.
On September 22, 2020, IDBD and Dolphin Netherlands B.V. submitted an initial response to the Petition, arguing that it is in the best interest of IDBD and its creditors to exhaust the negotiations among the controlling shareholder and its creditors during a short period with the aim to maximize the value of its assets, avoid costs and additional negative effects.
In addition, responses by the Series 14 trustee and the Series 15 trustee were filed requesting the enforcement of liens and the appointment of a receiver as well as an urgent hearing, which was scheduled for September 24, 2020.
On September 25, 2020, the Court resolved that IDBD expectsis insolvent and therefore it resolved to fulfillgrant all its obligationsthree orders requested and accordingly, issued an order for the next 24 months. Whileinitiation of proceedings and liquidation of IDBD, and has appointed a liquidator to IDBD and interim receivers over the realizationPledged DIC and Clal Shares.
As of these plans does not depend entirely on factors under its control, IDBD estimates that it will succeedto date, we are analyzing together with our local and international advisors thecourt decision, alternatives and course of action.
The assets and liabilities from the Israel Operations Center have been consolidated line by line in our Audited Consolidated Financial Statements, totaling net assets of ARS 2,006 million (amount attributable to the controlling shareholder) as of June 30, 2020. In addition, our investment in the realization of these or other plans.
Additionally, IRSA’s Board of Directors has approvedIsrael Operations Center includes a commitment with Dolphin to make capital contributions in Dolphin for up to NIS 210, in accordance with a schedule of commitments acquired by Dolphin with IDBD as described below between September 2019 and September 2021. IRSA is the guarantor of these commitments.
Dolphin undertook the commitment to make contributions to IDBD subject to the occurrence of certain circumstances in accordance with the following scheme: (i) NIS 70currency translation adjustment reserve totaling ARS 1,537 million at that were contributed on September 2, 2019; (ii) NIS 70 to be provided until September 2, 2020 and (iii) NIS 70 to be provided until September 2, 2021. In accordance with Dolphin and IDBD's commitment, these contributions may be considered capital contributions which will result in the issuance of new IDBD shares in favor of the controlling company, or may be granted in the form of a subordinated loan.
IDBD will have the right to ask for an advance of a sum of up to NIS 40 as an advance of the second installment payment if it does not have the resources to finance the third buyer of Clal (Note 4), subject to the approval of the Audit Committee and Board of Directors.date.
The commitments and other restrictions resulting from the indebtedness of IDBD and DIC have no effect on IRSA since suchsaid indebtedness is withouthas no recourse toagainst IRSA, nor has IRSA guaranteed it with its assets, notwithstanding IRSA’s commitmentassets. Therefore, IRSA's financial risk with respect to provide capitalthe Israeli business center is limited to the values indicated in the preceding paragraph.
On September 13, 2020, IDBD filed a claim against Dolphin as described above.
Netherlands B.V.and against IRSA in which it sought to require them, together and separately, to pay it a total of NIS 70 million plus linkage differences and interest in accordance with the law. In addition, in tandem with the submission of the lawsuit, IDBD submitted an urgent petition for placing temporary attachments (in the presence of one party) on Dolphin Netherlands B.V and IRSA, which was not accepted by the Court in the presence of one party and which has been passed on for the respondents to responed to the petition.
The table below shows our cash flow for the fiscal years ended June 30, 2020, 2019 2018 and 2017:2018:
| | | |
| | | | | | | |
| | | |
| Net cash flow generated from operating activities | 18,920 | 14,287 | 13,244 | 31,113 | 27,041 | 20,419 |
| Net cash flow generated from / (used in) investing activities | 7,829 | (21,363) | (3,948) | 40,644 | 11,189 | (30,533) |
| Net cash flow (used in) / generated from financing activities | (19,419) | (4,312) | 3,453 | |
| Net increase/ (decrease) in cash and cash equivalents | 7,330 | (11,388) | 12,749 | |
| Net cash flow generated from financing activities | | (76,125) | (27,754) | (6,163) |
| Net (decrease) / increase in cash and cash equivalents | | (4,368) | 10,476 | (16,277) |
Cash Flow Information
Operating activities
Fiscal year ended June 30, 2020
Our operating activities for the fiscal year ended June 30, 2020 generated net cash inflows of ARS 31,113 million, of which ARS 2,848 are originated in discontinued operations and ARS 28,265 from continuing operations, mainly due to operating income of ARS 27,023 million, a decrease in trading properties of ARS 930 million and a decrease in trade and other receivables of ARS 7,186 million, partially offset by a decrease in provisions of ARS 1,549 million, a decrease in trade and other payables of ARS 3,528 million and ARS 650 million related to Income Tax paid.
Fiscal year ended June 30, 2019
Our operating activities for the fiscal year ended June 30, 2019 generated net cash inflows of Ps. 18,920ARS 27,041 million, of which Ps. 611ARS 6,354 million were originated from discontinued operations and Ps. 18,309ARS 20,687 million from continuing operations, mainly due to a net operating income of Ps. 18,334ARS 20,472 million, and a decrease in trading properties of Ps. 942ARS 707 million accompanied byand a decrease in trade and other receivables of Ps. 1,287ARS 1,975 million, and partially offset by a decrease in provisions of ARS 396 million, a decrease in trade and other payables of Ps. 1,028ARS 1,358 million and Ps. 983ARS 730 million related to Income Tax paid.
Fiscal year ended June 30, 2018
Our operating activities for the fiscal year ended June 30, 2018 generated net cash inflows of Ps. 14,287ARS 20,419 million, of which Ps. 6,719ARS 14,161 million were originated from discontinued operations and Ps. 7,568ARS 6,258 million from continuing operations, mainly due to a net operating income of Ps. 7,479ARS 5,611 million, a decreaseindecrease in trading properties of Ps. 891ARS 1,264 million, an increase in trade and other payables of Ps. 902ARS 1,109 million, along with a decrease in trade and other receivables of Ps. 104 million and partially offset by a decrease in provisions of Ps. 359ARS 513 million and Ps. 1,728 million related to Income Tax paid.
Fiscal year ended June 30, 2017
Our operating activities for the fiscal year ended June 30, 2017 generated net cash inflows of Ps. 13,244 million, of which Ps. 6,705 million were originated from discontinued operations and Ps.6,539 million from continuing operations, mainly due to a net operating income of Ps. 9,347 million, a decrease in trading properties of Ps. 1,136 million and an increase in trade and other payables of Ps. 350 million, partially offset by an increase in trade and other receivables of Ps. 2,314 million and Ps. 2,113ARS 1,683 million related to Income Tax paid.
Investment activities
Fiscal year ended June 30, 2020
Our investing activities resulted in net cash outflows of ARS 40,644 million, comprised of ARS 2,455 million discontinued activities inflows and ARS 38,189 million continuing operations inflows for the fiscal year ended June 30, 2020, mainly due to (i) ARS 38,080 million arising from disposal of investments in financial assets, (ii) ARS 13,192 million from sales of investment properties, (iii) ARS 6,494 million from decrease in restricted assets, net and (iv) ARS 5,049 million from sales of interest held in associates and joint ventures; partially offset by (v) ARS 14,319 million used in the acquisition of investments in financial assets, (vi) ARS 4,933 million used in the acquisition and improvements of property, plant and equipment and (vii) ARS 4,389 million used in the acquisitions and improvements of investment properties.
Fiscal year ended June 30, 2019
Our investing activities resulted in net cash inflows of Ps. 7,829ARS 11,189 million, comprised of Ps. 462ARS 6,083 million discontinued activities outflows and Ps. 8,291ARS 17,272 million continuing operations inflows for the fiscal year ended June 30, 2019. Such net inflows are primarily related to (i) Ps. 11,471ARS 67,918 million arising from the decreasedisposal of investments in financial assets and (ii) Ps. 1,332 million collected from the decrease of restricted assets, net, (iii) Ps. 1825 million from the sale of investment properties, (iv) Ps. 5,861ARS 8,377 million from sales of interest held in associates and joint ventures; partially offset by (v) Ps. 7,229(iii) ARS 49,054 million and Ps. 4,398used in the acquisition of investments in financial assets, (iv) ARS 6,430 million used in the acquisition and improvements of investment properties and property, plant and equipment, respectively, and (vi) Ps. 2,803(v) ARS 5,064 million used in the acquisitionacquisitions and improvements of intangible assets.property, plant and equipment.
Fiscal year ended June 30, 2018
Our investing activities resulted in net cash outflows of Ps. 21,363ARS 30,533 million, comprised of Ps. 5,028ARS 9,065 million discontinued activities outflows and Ps. 16,335ARS 21,468 million continuing operations outflows for the fiscal year ended June 30, 2018. Such net outflows are mainly related to (i) Ps. 5,669ARS 4,769 million and Ps. 3,648ARS 5,165 million used in the acquisition and improvements of investment properties and property, plant and equipment, respectively, (ii) Ps. 1,157ARS 1,654 million used in the acquisition of intangible assets, (iii) Ps. 3,741ARS 65,908 million related to the increase of investments in financial assets, (iv) Ps. 5,109ARS 7,302 million from the net increase of restricted assets; partially offset by (v) Ps. 987ARS 60,417 million arising from the collectiondisposal of dividends,investments in financial assets, and (vi) Ps. 1,187 million collected from the sale of investment properties, and (vii) Ps. 1,128ARS 1,612 million collected from loans granted.
Financing activities
Fiscal year ended June 30, 20172020
Our investingfinancing activities resulted in net cash outflows of Ps. 3,948 million, comprised of Ps. 10,492 million continuing operations outflows, which were partially offset by Ps. 6,544 million discontinued activities inflows for the fiscal year ended June 30, 2017. Such2020 resulted in net cash outflows areof ARS 76,125 million, of which ARS 5,548 derive from discontinued operations and ARS 70,577 derive from continuing activities, mainly relateddue to (i) Ps. 6,030the payment of loans and principal on notes of ARS 68,328 million; (ii) the payment of interest on short-term and long-term debt of ARS 19,154 million, and Ps.3,047 million used in the acquisition and improvements of investment properties and property, plant and equipment, respectively, (ii) Ps. 824 million used in the acquisition of intangible assets, (iii) Ps.1,192 million related to an increase of interest in associates and joint ventures, (iv) Ps. 808ARS 13,071 million from the increaserepurchase of restricted assets,non-convertible notes, partially offset by (v) Ps. 543 million from collection(iv) an increase in borrowings and issuance of dividends, (vi) Ps. 645 million obtained from the sale of investment properties, and (vii) Ps. 455 from interests collected from financial assets.
non-convertible notes for ARS 30,670 million.
Financing activities
Fiscal year ended June 30, 2019
Our financing activities for the fiscal year ended June 30, 2019 resulted in net cash outflows of Ps. 19,419ARS 27,754 million, comprised of ARS 7,455 million discontinued activities inflows and ARS 35,209 million continuing operations outflows for Ps. 19,575 million from continuing activities partially offset by Ps. 156 million discontinued operations inflows.the fiscal year ended June 30, 2019. Such net outflows are mainly related to (i) the payment of loans and principal from notes of Ps. 40,141ARS 48,724 million; (ii) the payment of interest on short-term and long-term debt of Ps. 15,189ARS 19,017 million; (iii) ARS 7,378 million from the net payment forrepurchase of non-convertible notes, and (iv) ARS 7,200 million from the acquisition of non-controlling interest in subsidiaries, of Ps. 5,029 million, (iv) Ps. 2,092 million of dividend distributions, (v) Ps. 458 million from net payments of derivative financial instruments, (vi) Ps. 5,162 million from the repurchase of non-convertible notes, in part offset by (vii)(v) an increase in borrowings and issuance of non-convertible notes for Ps. 47,233 million, and (viii) Ps.1,932 million related to capital contributions from non-controlling interest in subsidiaries.ARS 47,412 million.
Fiscal year ended June 30, 2018
Our financing activities for the fiscal year ended June 30, 2018 resulted in net cash outflows of Ps. 4,312ARS 6,163 million, corresponding to Ps. 7,907ARS 14,636 million continuing activities outflows partially offset by Ps. 3,595ARS 8,473 million discontinued operations inflows. Such net outflows are mainly related to: (i) the payment of loans and principal on notes of Ps. 32,092ARS 39,054 million; (ii) the payment of interest on short-term and long-term debt of Ps. 12,423ARS 15,892 million, (iii) Ps. 4,655ARS 2,813 million related to dividends paid, and (iv) Ps. 2,077ARS 1,625 million from the acquisition of dividend distributionsnon-controlling interest in subsidiaries, in part offset by (v) the increase in borrowings and issuance of non-convertible notes for Ps. 34,649ARS 38,926 million, and (vi) the net proceeds from disposal of non-controlling interest in subsidiaries of Ps. 3,708 million, and (vii) Ps. 2,232 million related to capital contributions from non-controlling interest in subsidiaries.ARS 6,925 million.
Capital expenditures
Fiscal year ended June 30, 20172020
Our financing activities forDuring the fiscal year ended June 30, 2017 resulted2020, we invested ARS 11,050 million, as follows: (a) acquisitions and improvements of property, plant and equipment of ARS 5,672 million, primarily i) ARS 332 million in net cash inflowsbuildings and facilities, ii) ARS 3,417 million in communication networks, iii) ARS 1,768 million in machinery and equipment and others, iv) improvements in our hotels Sheraton Libertador, Llao Llao and Intercontinental (ARS 14 million, ARS 61 million and ARS 44 million, respectively) and v) ARS 36 million in agricultural establishments; (b) improvements in our rental properties for ARS 2,700 million, out of Ps. 3,453which ARS 1,906 million corresponding to Ps. 8,933derive from our Operations Center in Argentina and ARS 794 million from continuing activities inflows offset in part by Ps. 5,480 million from discontinued operations outflows. Such net inflows are mainly related to (i) an increase in borrowings and issuance of non-convertible notes for Ps. 58,324 million, (ii) the net proceeds from disposal of non-controlling interest in subsidiaries of Ps. 5,291 million, (iii) Ps. 1748 millionderive from the issuanceOperations Center in Israel; (c) the development of capital, partially offset by (iv) the payment of loans and principal on notes of Ps. 39,155 million; (v) the payment of interest on short-term and long-term debt of Ps. 11,660 million, (vi) Ps. 4,318 million of dividend distributions , and (vii) Ps. 1,873 million related to the net payment of short-term loans.
Capital Expendituresproperties for ARS 2,678 million.
Fiscal year ended June 30, 2019
During the fiscal year ended June 30, 2019, we invested Ps.13,123ARS 18,755 million, as follows: (a) acquisitions and improvements of property, plant and equipment of Ps.4,999ARS 7,144 million, primarily i) Ps.77ARS 110 million in buildings and facilities, ii) Ps.3,218ARS 4,599 million in communication networks, iii) Ps.1,659ARS 2,371 million in machinery and equipment and others iv) improvements in our hotels Sheraton Libertador, Llao Llao and Intercontinental (Ps.20(ARS 29 million, Ps.10ARS 14 million and Ps.15ARS 21 million, respectively); (b) improvements in our rental properties of Ps.1,367ARS 1,954 million, primarily in our Operations Center in Argentina;Israel; (c) the development of properties for Ps.6,343ARS 9,065 million, mainly in our Operations Center in Israel; and (d) Ps.414ARS 592 million related to the acquisition of land reserves.
Fiscal year ended June 30, 2018
During the fiscal year ended June 30, 2018, we invested Ps.13,339ARS 19,064 million (including Ps.3,309ARS 4,729 million from Shufersal, whose assets were deconsolidated due to the loss of control and Ps.523ARS 747 million from business combination), as follows: (a) acquisitions and improvements of property, plant and equipment of Ps.7,390ARS 10,561 million, primarily i) Ps.1,907ARS 2,725 million in buildings and facilities, mainly in supermarkets in Israel through Shufersal, ii) Ps.1,749ARS 2,500 million in communication networks, iii) Ps.3,368ARS 4,813 million in machinery and equipment and others, iv) improvements in our hotels Sheraton Libertador, Llao Llao and Intercontinental (Ps.7(ARS 10 million, Ps.13ARS 19 million and Ps.8ARS 11 million, respectively), and v) Ps.338millionARS 483 million related with business combinations (mainly from the acquisition of New Pharm); (b) improvements in our rental properties of Ps.1,341ARS 1,917 million, primarily in our Operations Center in Israel; (c) the development of properties for Ps.2,441ARS 3,489 million, mainly in our Operations Center in Israel; (d) Ps.1,982ARS 2,833 million related to the acquisition of land reserves, and (e) Ps.185ARS 264 million related to business combination.
Indebtedness
The following table sets forth the scheduled maturities of our outstanding debt as of June 30, 2019:2020:
| | Operations Center in Argentina | Operations Center in Israel | | Operations Center in Argentina | Operations Center in Israel | |
| | | |
| Less than 1 year | 8,263 | 37,241 | 45,504 | 36,478 | 41,863 | 78,341 |
| More than 1 and up to 2 years | 11,948 | 27,930 | 39,878 | 1,855 | 41,062 | 42,917 |
| More than 2 and up to 3 years | 1,312 | 31,415 | 32,727 | 25,936 | 83,824 | 109,760 |
| More than 3 and up to 4 years | 15,466 | 56,624 | 72,090 | 64 | 35,576 | 35,640 |
| More than 4 and up to 5 years | - | 28,801 | 129 | 32,138 | 32,267 |
| More than 5 years | 102 | 93,410 | 93,512 | 22 | 77,211 | 77,233 |
| | 37,091 | 275,421 | 312,512 | 64,484 | 311,674 | 376,158 |
| Financial leases | 16 | - | 16 | 1 | - | 1 |
| Total | 37,107 | 275,421 | 312,528 | 64,485 | 311,674 | 376,159 |
| Operation Center in Argentina | Currency | Annual Average Interest Rate | | Book value (in million of Ps.) | Currency | Annual Average Interest Rate | | Book value (in million of ARS) |
| IRSA Commercial Properties’ 2023 Notes | US$ | 8.75% | 360 | 15,495 | USD | 8.75% | 360 | 25,529 |
IRSA Commercial Properties’ 2020 Notes | US$ | 5.00% | 140 | 5,890 | USD | 5.00% | 140 | 9,489 |
| IRSA’s 2020 Notes | US$ | 11.50% | 71 | 3,180 | |
| IRSA’s 2019 Notes | Ps. | | 384 | 395 | |
| IRSA’s 2019 Notes | US$ | 7.00% | 133
| 5,462 | |
| IRSA’s 2020 Notes | US$ | 10.00% | 96 | 2,665 | |
IRSA’s 2020 Notes – Series II(2) | | USD | 11.50% | 71 | 5,289 |
IRSA’s 2020 Notes – Series I(3) | | USD | 10.00% | 181 | 9,078 |
IRSA’s 2020 Notes – Series II(4) | | CLP | 10.50% | 31,502 | 3,292 |
| IRSA’s 2021 Notes – Series III | | ARS | | 353 | 366 |
| IRSA’s 2021 Notes – Series IV | | USD | 7.00% | 51 | 3,561 |
| IRSA’s 2022 Notes – Series V | | USD | 9.00% | 9 | 495 |
| Related Party | | ARS | | 6 | 27 |
| Related Party | Ps. | | 7 | 8 | USD | | 65 | 223 |
| Bank loans | US$ | 5.95% | 32
| 1,405 | USD | 5.95% | 21 | 1,440 |
| Bank loans | US$ | | 35 | 1,494 | USD | | 30 | 2,324 |
| Financial Leases | US$ | | 0 | 16 | |
| AABE Debt | Ps. | | 44 | 129 | ARS | | 120 | 182 |
| Seller financing | US$ | N/A | 2 | 107 | USD | N/A | 2 | 165 |
| Others | Ps. / US$ | 55.9%/3.50% | - | 580 | USD | | 7 | 499 |
| Bank loans | | ARS | | 97 | 98 |
| Bank overdrafts | Ps. | | - | 281 | ARS | | - | 2,428 |
| Total | | | 37,107 | |
Total(5) | | | | 64,485 |
| | | | | |
(1)
On September 14, 2020, it was fully canceled.
(2)
On October 22, 2020, we announced Notes to be issued by exchange for the Existing Notes, Series I Notes, or through the Cash Subscription, for more information see “Recent Developments – Exchange Offer- Issuance of Series VIII and IX Notes.”
(3)
On July 20, 2020, it was fully canceled.
(4)
On August 6, 2020, it was fully canceled.
(5)
The credit line between IRSA CP and IRSA for an amount of USD 53.4 million is not shown due because it is eliminated in consolidation.
| Operation Center in Israel | Currency | Annual Average Interest Rate | | Book value (in million of Ps.) |
| Non-convertible Notes IDBD Serie I | NIS | 12.24% | 944 | 10,778 |
| Non-convertible Notes IDBD Serie K | NIS | 4.84% | 86 | 1,026 |
| Non-convertible Notes IDBD Serie M | NIS | 8.08% | 392 | 4,571 |
| Non-convertible Notes IDBD Serie N | NIS | 5.15% | 965 | 11,494 |
| Non-convertible Notes DIC Serie F | NIS | 8.62% | 1,616 | 20,102 |
| Non-convertible Notes DIC Serie H | NIS | 9.67% | 31 | 454 |
| Non-convertible Notes DIC Serie J | NIS | 4.52% | 2,395 | 29,399 |
| Non-convertible Notes Cellcom Serie F | NIS | 4.55% | 214 | 2,722 |
| Non-convertible Notes Cellcom Serie H | NIS | 5.28% | 836 | 9,860 |
| Non-convertible Notes Cellcom Serie I | NIS | 6.35% | 724 | 8,761 |
| Non-convertible Notes Cellcom Serie J | NIS | 2.62% | 103 | 1,241 |
| Non-convertible Notes Cellcom Serie K | NIS | 3.70% | 711 | 8,486 |
| Non-convertible Notes Cellcom Serie L | NIS | 4.34% | 614 | 7,042 |
| Non-convertible Notes PBC Serie D | NIS | 3.90% | 1,317 | 20,089 |
| Non-convertible Notes PBC Serie F | NIS | 3.78% | 618 | 8,051 |
| Non-convertible Notes PBC Serie G | NIS | 5.67% | 462 | 6,233 |
| Non-convertible Notes PBC Serie H | NIS | 2.99% | 86 | 1,034 |
| Non-convertible Notes PBC Serie I | NIS | 4.10% | 2,190 | 26,500 |
| Non-convertible Notes PBC Gav-Yam Serie A | NIS | 3.19% | 710 | 8,450 |
| Non-convertible Notes PBC Gav-Yam Serie F | NIS | 3.08% | 1,887 | 30,084 |
| Non-convertible Notes PBC Gav-Yam Serie G | NIS | 3.55% | 320 | 3,832 |
| Non-convertible Notes PBC Gav-Yam Serie H | NIS | 3.70% | 1,044 | 12,189 |
| Non-convertible Notes PBC Ispro Serie B | NIS | 3.52% | 102 | 1,544 |
| Bank loans and others | NIS | | 2,126 | 37,936 |
| Others | NIS | | 276.51 | 3,543 |
| Total | | | | 275,421 |
Operation Center in Israel(1) | Currency | Annual Average Interest Rate | | Book value (in million of ARS) |
| Non-convertible Notes IDBD Series I | NIS | 12.24% | 676 | 13,921 |
| Non-convertible Notes IDBD Series N | NIS | 5.93% | 851 | 17,290 |
| Non-convertible Notes IDBD Series O | NIS | 4.70% | 237 | 4,780 |
| Non-convertible Notes DIC Series F | NIS | 8.62% | 1,385 | 29,941 |
| Non-convertible Notes DIC Series J | NIS | 4.52% | 1,960 | 40,844 |
| Non-convertible Notes Cellcom Series H-I-J-K-L | NIS | 2.62% -4.46% | 3,004 | 60,259 |
| Non-convertible Notes PBC Series D-F-G-H-I | NIS | 2.99% -5.67% | 4,052 | 91,714 |
| Bank loans and others | NIS | | 1,868 | 52,925 |
| Total | | | | 311,674 |
(1)
On September 25, 2020, the Court resolved that IDBD is insolvent and therefore it resolved to grant all three orders requested and accordingly, issued an order for the initiation of proceedings and liquidation of IDBD, and has appointed a liquidator to IDBD and interim receivers over the Pledged DIC and Clal Shares. As of the date of this Annual Report, we are analyzing together with our local and international advisors the judicial decision, alternatives and course of action. For more information see “Recent Developments - Corporate Information: IDBD”.
Series II Notes (Issued by IRSA)
IRSA’s Notes Class II at 11.50% maturing in 2020 US$71.4 million.
In relation to financial covenants under 11.50% Notes due in 2020 issued by IRSA, the Meeting of Noteholders heldUSD71.4 million, which was fully canceled on March 23, 2016 approved:
i. to modify the covenant on Limitation on Restricted Payments, so that the original covenant was replaced so as to take into consideration IRSA’s capability to make any restricted payment provided that (a) no Event of Default has occurred and persisted, and (b) IRSA may incur at least US$1.00 of additional debt pursuant to the Limitation on Additional Indebtedness; and
ii. the exclusion of IDBD or any of its subsidiaries for purposes of the definition of “Subsidiary” or any of the definitions or commitments under the Trust Indenture of Notes due in 2020 and issued by IRSA (regardless of whether the financial statements of any of these companies has any time been consolidated into IRSA’s financial statements).
iii. a Supplementary Trust Indenture reflecting all the amendments approved, entered into with the Bank of New York Mellon on March 28, 2016.
July 20, 2020.
Series II Notes (Issued by IRSA CP)
On March 23, 2016, IRSA CP issued Notes in an aggregate principal amount of US$360USD360 million under its Global Notes Program. Series II Notes accrue interest semi-annually, at an annual fixed rate of 8.75% and mature on March 23, 2023. The issue price was 98.722% of nominal value.
IRSA CP’s Notes due 2023 are subject to certain covenants, events of default and limitations, such as the limitation on incurrence of additional indebtedness, limitation on restricted payments, limitation on transactions with affiliates, and limitation on merger, consolidation and sale of all or substantially all assets.
To incur additional indebtedness, IRSA CP is required to meet a minimum 2.00 to 1.00 Consolidated Interest Coverage Ratio. The Consolidated Interest Coverage Ratio is defined as Consolidated EBITDA divided by consolidated net interest expense. Consolidated EBITDA is defined as operating income plus depreciation and amortization and other consolidated non-cash charges.
The Series II Notes contain financial covenants limiting IRSA CP’s ability to declare or pay dividends in cash or in kind, unless the following conditions are met at the time of payment:
a) no Event of Default shall have occurred and be continuing;
b) IRSA CP may incur at least US$1.00USD1.00 worth of additional debt pursuant to the “Restriction on Additional Indebtedness”;
c) and the aggregate amount of such dividend exceeds the sum of:
i. 100% of cumulative EBITDA for the period (treated as one accounting period) from July 1, 2015 through the last day of the last fiscal quarter ended prior to the date of such Restricted Payment minus an amount equal to 150% of consolidated interest expense for such period; and
ii. any reductions of Indebtedness of IRSA on a consolidated basis after the Issue Date any reductions of Indebtedness of after the Issue Date exchanged for to Capital Stock of the IRSA or its Subsidiaries.
Series VII and VIII NotesFor more informarion see. “Item 10. Additional Information—D. Exchange Controls”, if Communication “A” 7,106 is extended after March 31, 2021, the maturity of this Note would be affected by such measure.
On September 8, 2016, IRSA issued Series VII and VIII Notes for an aggregate amount of US$210 million:
a) Series VII Notes for a principal amount of Ps.384.2 million at BADLAR plus 299 bps due on September 9, 2019.
b) Series VIII Notes for a principal amount of US$184.5 million at a fixed rate of 7% due on September 9, 2019. On June 14, 2019, the company informed the cancellation of US$ 51.9 million that was mainly received in the susbscription in kind of the Series I issued on May 15, 2019, and the new amount on circulation was US$ 132.6 million.
The proceeds were mainly used to repay preexisting debt.
On September 9, 2019, the Series VII and Series VIII was fully canceled.
Series I and II Notes
On May 15, 2019, IRSA issued the Note Series I under Argentine law for an amount of US$USD 96.3 million due on novemberNovember 15, 2020, at a fixed rate of 10%. The proceeds were mainly used to repay preexisting debt.
On August 6, 2019, IRSA reopened the Note Series I under Argentine law for an amount of US$USD 85.2 million, at a price of 103.77%, which resulted in an internal annual rate of return of 8.75% nominal. Also, on the same date, the Notes Series II denominated in Chilean pesos, underwritableunder writable and payable in dollars, for an amount of CLP 31,502.6 million (equivalent to USD 45 million) at a fixed rate of 10.5% per within 12 months.
On August 6, 2020, Class II denominated in Chilean pesos was fully canceled.
On September 15, 2020, Communication “A” 7,106 established that companies must refinance maturities of financial debt capital in the period from October 15, 2020 to March 31, 2021. In this sense, the Central Bank will give access to companies for up to 40% of maturities and companies must refinance the rest within at least two years. For more information see. “Item 10. Additional Information—D. Exchange Controls”, if Communication “A” 7,106 is extended after March 31, 2021, the capital outstanding maturity of this Note would be affected by such measure.
As a consequence of the new restrictions on access to the Foreign Exchange Market, on October 22, 2020, IRSA launched an exchange offer on its Series I Notes due on November 15, 2020.
The proceeds were mainly usedexchange offer consisted on two options for the bondholders: i) a cash consideration of USD 0.69622593 for each USD 1 of existing notes presented to repay preexisting debt.the Exchange and the remaining amount until completing USD 1 for each USD 1 of existing notes presented to the Exchange, in notes Series VIII, and ii) a par for par exchange of notes Series IX for each Existing Notes presented to the Exchange.
The Exchange Offer expired on November 10, 2020 and the Nominal Value of Existing Notes presented and accepted for the Exchange (for both Series) was USD 178,458,188, which represents 98.31% acceptance. Considering that consent has been obtained for an amount greater than 90% of the capital of the existing notes, the Company made the Non-Essential Proposed Modifications and / or the Essential Proposed Modifications, by means of which the terms and conditions of the existing notes will be modified and replaced.
In relation to the Exchange Offer ended on November 10, 2020, on November 12, 2020, the IRSA will proceed to a partial cancelation for a Nominal Value of USD 178,458,188 of Series I Notes, after the cancellation the Nominal Value under circulation will be USD 3,060,519.
For more information see: “Recent Developments - Exchange Offer- Issuance of Series VIII and IX Notes.”Series III, IV and V (issued by IRSA)
On May 21, 2020, the company issued in the local market a total amount of USD 65.8 million through the following Notes:
●
Series III: denominated and payable in pesos for ARS 354 million (equivalent at the time of issuance to USD 5.2 million) at a variable rate (private BADLAR + 6.0%) with quarterly payments. The principal will be paid in two installments: the first for an amount equivalent to 30% of the nominal value payable 6 (six) months from the Issue and Settlement Date, and the second for an amount equivalent to 70% of the nominal value payable on the due date, February 21, 2021. Price of issuance was 100.0% of the nominal value.
●
Series IV: denominated in USD and payable in ARS at the applicable exchange rate for USD 51.4 million at a fixed rate of 7.0%, with quarterly payments and principal expiring on May 21, 2021. Price of issuance was 102.0% of the nominal value (IRR 5.03%).
●
Series V: denominated in USD and payable in ARS at the applicable exchange rate for USD 9.2 million at a fixed rate of 9.0%, with quarterly payments and principal expiring on May 21, 2022. Price of issuance was 103.0% of the nominal value (IRR 7.56%).
Series VI and VII (issued by IRSA)
As a subsequent event, 2020, on Jul 21, 2020, the company issued in the local market a total amount of USD 38.4 million through the following Notes:
●
Series VI: denominated and payable in pesos for ARS 335.2 million (equivalent at the time of issuance to USD 4.7 million) at a variable rate (private BADLAR + 4.0%) with quarterly payments. The principal will be paid in two installments: the first for an amount equivalent to 30% of the nominal value payable 9 (nine) months from the Issue and Settlement Date, and the second for an amount equivalent to 70% of the nominal value payable on the due date, July 21, 2021. Price of issuance was 100.0% of the nominal value.
●
Series VII: denominated in dollars and payable in pesos at the applicable exchange rate for USD 33.7 million at a fixed rate of 4.0%, with quarterly payments and principal expiring on January 21, 2022. Price of issuance was 100.0% of the nominal value.
The funds have been used to refinance short-term liabilities.
Series IV Notes (Issued by IRSA CP)
On September 12, 2017, IRSA CP issued, under Argentine law, the Series IV Notes, for US$140USD140 million, bearing a fixed interest rate of 5.0%, which matures on September 14, 2020.
On September 14, 2020, Class IV was fully canceled.
Communication “A” 7,106
On September 15, 2020, Communication “A” 7,106 established that companies must refinance maturities of financial debt capital in the period from October 15, 2020 to March 31, 2021. In this sense, the Central Bank will give access to companies for up to 40% of maturities and companies must refinance the rest within at least two years. Fore more informarion see. “Item 10. Additional Information—D. Exchange Controls.”
Operations Center in Israel
IDBD is subject to certain restrictions and financial covenants in relation to its financial debt, including its notes and loans from banks and financial institutions. From September 2016, following the sale of Adama and the increased value recorded by its subsidiaries in the market, IDBD and DIC returned to the capital markets to refinance its debts. In this regard, IDBD and DIC have completed successful placements of debt, please find below a description of IDBD´s and DIC last issuances of bonds in the capital markets to refinance their outstanding debts:
2017, IDBD issued a bond for a total amount of NIS 642.1 million at 5.30% fixed rate with maturity in 2022. In addition, in February 2017, IDBD issued a new Bond for NIS 1.060 million at 5.40% fixed rate and maturity in 2019.
In March 2017, DIC issued a NIS 555 million Bond at 4,06% plus CPI with maturity in 2019.
On April 18, 2019, S&P Maalot (“Maalot”) announced that it was reducing the Company’s rating to BB- negative outlook. On June 27, 2019, Maalot announced, due to the increased risk of insolvency, that it was reducing the Company’s rating to CCC, negative rating outlook. Maalot reduced the rating of the debentures (Series I), which are unsecured, to a rating of CC.
In May 2019, the Israel Securities Authority approved the extension of the Company’s shelf prospectus dated May 10, 2017, for one additional year. Accordingly, the Company will be able to offer securities in accordance with the shelf prospectus until May 10, 2020.
It should be noted that the financial position of IDBDIDB and itsDIC and their subsidiaries in the operations center in Israel does not adversely affect IRSA´sIRSA’s cash flows to satisfy the debts of IRSA.
Moreover, the commitments and other restrictions resulting from IDBD’s indebtedness have no effects on IRSA, as it qualifies as non-recourse debt against IRSA, and IRSA has not given its assets as collateral for such debt either.
C. Research and Development, Patents and Licenses, Etc.
We have several trademarks registered with the Instituto Nacional de la Propiedad Industrial, the Argentine institute for industrial property. We do not own any patents nor benefit from licenses from third parties.
D. Trend Information
International Macroeconomic Outlook
As reported in the IMF’s “World Economic Outlook,” world growthGDP is expected to reach 2.7%be reduced (4.9)% in 20192020 and 2.9%recover 5.4% in 2020.2021. As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast. The baseline projection rests on key assumptions about the fallout from the pandemic. In 2019 growth in advanced economies is expected to remain above trend at about 2.7%, before reaching 3.1% in 2020. The growth projectedwith declining infection rates, the slower recovery path in the United States is at 2.3% for 2019 and 1.9% for 2020, and in the Euro area economy is projected 1.3% in 2019 and 1.5% in 2020. Growth in Latin America is projected to increase modestly from 1.0% in 2018 to 1.4% in 2019, and further to 2.4% in 2020.
Emerging market and developing economies: In China, necessary domestic regulatory tightening to rein in debt, constrain shadow financial intermediation, and place growth on a sustainable footing contributed to slower domestic investment, particularly in infrastructure. Spending on durable consumption goods also softened, with automobile sales declining in 2018 following the expiration of incentive programs for car purchases. These developments contributed to slower momentum over the year, with further pressure from diminishing export orders as US tariff actions began to take hold inupdated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the year. As a result, China’s growth declined from 6.8 percentlarger-than-anticipated hit to activity during the lockdown in the first halfand second quarters of 20182020; and a hit to 6.0 percentproductivity as surviving businesses ramp up necessary workplace safety and hygiene practices. For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity. Moreover, the forecast assumes that financial conditions—which have eased following the release of the April 2020 WEO — will remain broadly at current levels. Alternative outcomes to those in the second halfbaseline are clearly possible, and not just because of how the year. The resulting weakening in import demand appeared to have impacts on trading partner exports in Asia and Europe. Elsewhere across emerging market economies, activity moderated as worsening global financial market sentiment in the second half of 2018 compounded country-specific factors. Necessary policy tightening to reduce financial and macroeconomic imbalances took effect in Argentina and Turkey; sentiment weakened and sovereign spreads rose in Mexico, following the incoming administration’s cancellation of a planned airport for the capital and backtracking on energy and education reforms; and geopolitical tensions contributed to weaker activity in the Middle East.pandemic is evolving.
Global energy prices declined by 17 percent betweenAll countries including those that have seemingly passed peaks in infections—should ensure that their health care systems are adequately resourced. The international community must vastly step up its support of national initiatives, including through financial assistance to countries with limited health care capacity and channeling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries. Where lockdowns are required, economic policy should continue to cushion household income losses with sizable, well-targeted measures as well as provide support to firms suffering the reference periodsconsequences of mandated restrictions on activity. Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivize the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic.
Strong multilateral cooperation remains essential on multiple fronts. Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the October 2018global financial safety net. Beyond the pandemic, policymakers must cooperate to resolve trade and current World Economic Outlook as oil prices droppedtechnology tensions that endanger an eventual recovery from the COVID-19 crisis. Furthermore, building on the record drop in greenhouse gas emissions during the pandemic, policymakers should both implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxation or equivalent schemes. The global community must act now to avoid a four-year peak of US$81 a barrel in October to US$61 in February. While supply influences dominated initially—notably a temporary waiver in US sanctions on Iranian oil exports to certain countries and record-high US crude oil production—weakening global growth added downward pressure on prices toward the end of 2018. Since the beginningrepeat of this year, oil prices have recovered somewhat thankscatastrophe by building global stockpiles of essential supplies and protective equipment, funding research and supporting public health systems, and putting in place effective modalities for delivering relief to production cuts by oil-exporting countries. Prices of base metals have increased by 7.6 percent since August as a result of supply disruption in some metal markets more than offsetting subdued global demand.
The IMF’s Primary Commodity Price Index declined by 6.9 percent between August 2018 and February 2019, the reference periods for the October 2018 and current WEO, respectively. Amid high volatility, energy prices drove that decline, falling sharply by 17.0 percent, while base metal prices increased as trade tensions and weaker economic activity in China were more than offset by supply disruptionsneediest.
Argentine macroeconomic context
On September,At the end of 2019, the economy faced a severe balance of payments crisis and public debt. Faced with this scenario, the National Government adopted a set of measures designed to face the most immediate manifestations of the crisis and to stabilize the macroeconomy. Regarding monetary policy, the Central Bank of Argentina published thatdefined a series of guidelines, highlighting the average monthly balance of depositsreferring to interest rates and exchange rate management. Foreign exchange regulations and the moderation in Pesosprices linked to the limited volatility of the private sector remained almost unchangedexchange rate allowed a marked reduction of the LELIQ rate from 68% to 38% nominal annually. The progress made the previous month in nominal terms.financial system better prepared to face the emergency caused by COVID-19.
Shopping malls sales reached a total Ps.9,907.2ARS 4,297.1 million in June 2019,July 2020, which represents a 44.7% increase73.0% decrease as compared to the same period last year.fiscal 2019. Accumulated sales for the first sixseven months of the year totaled Ps.33,381.7 million, representingARS 47,212.0, represent a 28.0% increase45.3% decrease in current terms as compared to the same period last year.
The INDEC reported that, for the sixeight months ended June 30, 2019,August 31, 2020, industrial activity in Argentina contracted by 6.9%12.5% compared to the same period in 2018.2019. The textile industry accumulated a 14.2%35.2% contraction during the first sixeight months of 20192020 as compared to the same period last year. Moreover, the monthly estimation of economic activity (“EMAE”) as of June 30, 2019, showed no variationJuly 31, 2020, contracted by 13.2% compared 2018.to the same month in 2019.
Regarding the balance of payments, in the second quarter of 20192020 the current account deficitsuperavit reached US$2,561USD 2,824 million, with US$5,305USD 4,971 million allocated to the goods and services trade balance, and US$2,666USD 2,484 million to the net primary income,deficit, and a surplus of US$79USD 337 million to net secondary income.
During the second quarter of 2019,2020, the financial account showed net incomeoutflow of US$3,339USD 2,514 million, explained by the net acquisition of financial assets for US$ 4,909USD 893 million, and net issuancecancellation of liabilitiesof US$ 8,248liabilities of USD 1,621 million. The sectors that have covered most ofexplained these outflows have been Other sectors for USD 2,433 million and the Government for USD 1,324 million, partially offsetting by the net financing needs have been theGovernment for US$ 5,401 million andincome of the Central Bank for US$ 1,773USD 1,293 million. The international reserves decreased by US$1,773USD 793 million during the second quarter of 2019.
Total gross external debt stock at the end of March 2019 is estimated at US$275,828 million, with a decrease of US$ 2,104 million, (0.8)% compared to the prior quarter, 62% of the debt corresponds to the Government; 9% to the Argentine Central Bank; 26% to non-financial private sector, 2% to deposit-taking companies and 2% to other financial companies.2020.
In local financial markets, the Private Badlar rate in Pesos ranged from 33.00%46.69% to 47.50%29.69% in the period from July 20182019 to June 2019,2020, averaging 40.31% in June 2020 compared to 50.90% in June 2019 compared to 30.57% in June 2018.2019. As of June 30, 2019,2020, the seller exchange rate quoted by Banco de la Nación Argentina was Ps.42.4630ARS 70.4600 pesos per US$1.00.USD1.00. As of June 30, 2019,2020, Argentina’s country risk increased by 4191,660 basis points in year-on-year terms. The debt premium paid by Argentina was 8352,495 basis points in June 2019,2020, compared to 239380 basis points paid by Brazil and 202312 basis points paid by Mexico.
As of September 17, 2019,October 8, 2020, the Private Badlar rate in Pesos peaked at 60.19%29.69%. As of September 17, 2019,October 8, 2020, the seller exchange rate quoted by Banco de la Nación Argentina was of Ps.56.50ARS 77.10 pesos per US$1.00.USD1.00. As of September 17, 2019,8, 2020, Argentina’s country risk increasedreduced by 1,503683 basis points in year-on-year terms. The debt premium paid by Argentina was at 2,1521,366 basis points as of September 17, 2019,October 8, 2020, compared to 227315 basis points paid by Brazil and 207259 basis points paid by Mexico as of that same date.
Likewise, in the national and international framework described above, the Company periodically analyzes alternatives to appreciate its shares value. In that sense, the Board of Directors of the Company will continue in the evaluation of financial, economic and / or corporate tools that allow the Company to improve its position in the market in which it operates and have the necessary liquidity to meet its obligations. Within the framework of this analysis, the indicated tools may be linked to corporate reorganization processes (merger, spin-off or a combination of both), disposal of assets in public and / or private form that may include real estate as well as negotiable securities owned by the Company, incorporation of shareholders through capital increases through the public offering of shares to attract new capital, repurchase of shares and instruments similar to those described that are useful to the proposed objectives.
Evolution of Shopping Malls in Argentina
At August 2019,In September 2020, the Consumer Confidence Index (CCI) showed a 5.2%2.4% decline as compared to July 2019, and a 15.5% increase as compared to August 2018. Sales in2020, and a 4.2% decrease compared to September 2019. Shopping mall sales decrease 82.2% in June 2019 reached a total amount of Ps.9, 907.2 million, which represented a 44.7% increasethe fiscal 2020 compared to June 2018. Accumulated sales for the first six months of 2019 totaled Ps.43.269,4 million and reached a 29.6% percent increase compared to the same period in 2018.fiscal 2019.
Evolution of OfficesOffice Properties in Argentina
According to Colliers International, as of June 30, 2019,2020, the A+ and A office inventory increaseddecreased compared to 20182019 to 2,029,2471,827,742 sqm. The vacancy rate was steady at approximately 8.99%11.2% during the second quarter of 2019.2020. These values indicate that the market is healthy in terms of its operations, allowing an optimum level of supply with robust values.
Compared to the previous quarter, the Premium Offices prices remaineddecreased in the order of US$USD 24.3 per square meter compared to the previous quarter, and showed the same period last year, which was US$ 24.7USD 25.3 per square meter. There was an increase in rental pricesTheprices for A+ properties of US$ 0.33per square meter, from US$ 26.0 per square meter in the first quarter of 2019 to US$ 26.33were USD 27.39 per square meter for the second quarter of 2019.2020. In this context, Catalinas presents as the zone with higher prices per square meter, reaching an average of US$ 40.0.USD 33.0. Likewise, the industry reported a 3.73% increase3.0% decreased in rental prices for A properties compared to the first quarter of 2019,2020, reaching an average of US$ 22.34USD 22.06 per square meter, in which the North zone of Ciudad de Buenos Aires reach the higher prices, reaching US$ 34.0USD 30.7 per square meter.
Evolution of the Hotel industry in Argentina
According to the Hotel Vacancy Survey (EOH) prepared by INDEC, at June 2018,2020, overnight stays at hotel and parahotel establishments were estimated at 3.00.54 million, 13.1% higher98.2% shorter than the same month the previous year. Overnight stays by resident and nonresident travelers increaseddecreased by 11.0%97.9% and 21.3%99.2%, respectively. Total travelers who stayed at hotels during June were 1.40.54 million, a 10.7% increase98.2% decrease compared to the same month the previous year. The number of resident and nonresident travelers increasedecreased by 7.9%97.9% and 22.6%99.2%, respectively. The resident travelers represented 78.7% of the total number of travelers who stayed at hotels. The Room Occupancy Rate in mayJune was 37.8%89.0%, showing a slight increasesharp decrease compared to the same month the previous year. Moreover, the Bed Occupancy Rate for the same period was 28.1%98.2%, which represents a slight increasesharp decrease compared to June 2018.2019.
Israeli macroeconomic context
According to IMF Israel report published on May, 2019, Israel’s solid macroeconomic performance continues, with output rising by 3.2 percent in the year to the first quarter of 2019, and similar growth is expected for 2019 as a whole. Export growth, led by hi-tech services, declined little despite a weakening global economy, but fixed investment slowed as falls in housing construction outweighed strong machinery spending.
Job creation exceeded 2 percent in 2018, driven by 3.5 percent gains for women, keeping unemployment at historic lows of about 4 percent. The tight labor market pushed business sector wage rises up to 4.3 percent in 2018, from 2.9 percent in 2017. Inflation has risen from low levels, to remain just above the floor of the 1-3 percent target range since mid-2018. A further increase in inflation is expected in the next few years, although this outlook is subject to risks from global growth and inflation, together with uncertainties around the net impact of rising wages and increased competitive pressures in Israeli markets.
The Bank of Israel has held the policy rate at 0.25 percent following a hike in the last quarter of 2018 and has stated that monetary policy in Israel will remain accommodative as long as necessary to entrench inflation within the target range.
In the longer term, however, Israel faces challenges to growth and stability from modest productivity growth despite its dynamic hightech sector, sizable infrastructure needs that are especially evident in high traffic congestion, and high poverty partly reflecting the lower skills and labor participation of population groups that will rise as a share of the working age population in coming decades.
E. Off-Balance Sheet Arrangements
As of June 30, 2019,2020, we did not have any off-balance sheet transactions, arrangements or obligations with unconsolidated entities or others that are reasonably likely to have a material effect on our financial condition, results of operations or liquidity.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of June 30, 2019:2020:
Payments due by period
| |
| | |
| | | | | | | | | | | | | |
| | | |
| Trade and other payables | 16,661 | 532 | 245 | 1 | 270 | 17,709 | 27,059 | 502 | 130 | 239 | 21 | 27,951 |
| Borrowings | 56,157 | 52,064 | 43,309 | 65,566 | 152,526 | 369,622 | 91,691 | 57,684 | 121,324 | 43,116 | 123,232 | 437,047 |
| Finance leases obligations | 35 | 28 | 1 | - | 64 | |
| Purchase obligations | 4,274 | 955 | 525 | 346 | - | 6,100 | 10,933 | 4,880 | 3,444 | 1,806 | 6,588 | 27,651 |
| Lease obligations | | 5,748 | 903 | 641 | 54 | 1,291 | 8,637 |
| Derivative financial instruments | 37 | 8 | 4 | 1 | - | 50 | 103 | 28 | 6 | - | 137 |
| Total | 77,164 | 53,587 | 44,084 | 65,914 | 152,796 | 393,545
| 135,534 | 63,997 | 125,545 | 45,215 | 131,132 | 501,423 |
(1) Includes accrued and prospective interest, if applicable.
Where the interest payable is not fixed, the amount disclosed has been determined by reference to the existing conditions at the reporting date.
G. Safe Harbor
See the discussion at the beginning of this Item 5 and “Forward Looking Statements” in the introduction of this annual reportAnnual Report for the forward looking safe harbor provisions.
ITEM 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Directors and Senior Management
Board of Directors
We are managed by a Boardboard of Directors.directors. Our by lawsbylaws provide that our Board of Directors will consist of a minimum of eight and a maximum of fourteensixteen regular directors and the same or less number of alternate directors. Our directors are elected for three-fiscal year terms by a majority vote of our shareholders at a general ordinary shareholders’ meeting and may be reelected indefinitely.
Currently our Board of Directors is composed of fourteentwelve regular directors and threesix alternate directors. Alternate directors will be summoned to exercise their functions in case of absence, vacancy or death of a regular director or until a new director is appointed.
The table below shows information about our regular directors and alternate directors:directors as of October 26, 2020:
| Name | Date of Birth | Position in IRSA | Date of current appointment | Term expiration | Current position held since | Date of Birth | Position in IRSA | Date appointed | Term expiration | Current position held since |
| Eduardo S. Elsztain | 01/26/1960 | Chairman | 2018 | 2021 | 1991 | 01/26/1960 | Chairman | 2018 | 2021 | 1991 |
| Saúl Zang | 12/30/1945 | First Vice-Chairman | 2018 | 2021 | 1994 | 12/30/1945 | First Vice-Chairman | 2018 | 2021 | 1994 |
| Alejandro G. Elsztain | 03/31/1966 | Second Vice-Chairman | 2019 | 2022 | 2001 | 03/31/1966 | Second Vice-Chairman | 2019 | 2022 | 2001 |
| Fernando A. Elsztain | 01/04/1961 | Regular Director | 2017 | 2020 | 1999 | 01/04/1961 | Regular Director | 2020 | 2023 | 1999 |
| Carlos Ricardo Esteves | 05/25/1949 | Regular Director | 2017 | 2020 | 2005 | |
| Cedric D. Bridger | 11/09/1935 | Regular Director | 2018 | 2021 | 2003 | 11/09/1935 | Regular Director | 2018 | 2021 | 2003 |
| Marcos Fischman | 04/09/1960 | Regular Director | 2018 | 2021 | 2003 | 04/09/1960 | Regular Director | 2018 | 2021 | 2003 |
| Mario Blejer | 06/11/1948 | Regular Director | 2017 | 2020 | 2005 | |
| Mauricio E. Wior | 10/23/1956 | Regular Director | 2018 | 2021 | 2006 | 10/23/1956 | Regular Director | 2018 | 2021 | 2006 |
| Ricardo H. Liberman | 12/18/1959 | Regular Director | 2017 | 2020 | 2008 | |
| Daniel Ricardo Elsztain | 12/22/1972 | Regular Director | 2017 | 2020 | 2007 | 12/22/1972 | Regular Director | 2020 | 2023 | 2007 |
| Oscar Pedro Bergotto | 19/07/1946 | Regular Director | 2019 | 2022 | 2019 | 19/07/1946 | Regular Director | 2019 | 2022 | 2019 |
| Demian Brener | 20/06/1990 | Regular Director | 2019 | 2022 | 2019 | 20/06/1990 | Regular Director | 2019 | 2022 | 2019 |
| Maria Julia Bearzi | 15/11/1975 | Regular Director | 2019 | 2022 | 2019 | 11/15/1975 | Regular Director | 2019 | 2022 | 2019 |
| Liliana L. De Nadai | | 01/11/1975 | Regular Director | 2019 | 2022 | 2019 |
| Gastón Armando Lernoud | 06/04/1968 | Alternate Director | 2017 | 2020 | 2014 | 06/04/1968 | Alternate Director | 2020 | 2023 | 2014 |
| Enrique Antonini | 03/16/1950 | Alternate Director | 2019 | 2022 | 2007 | 03/16/1950 | Alternate Director | 2019 | 2022 | 2007 |
| Gabriel A. G. Reznik | 11/18/1958 | Alternate Director | 2019 | 2022 | 2008 | 11/18/1958 | Alternate Director | 2019 | 2022 | 2008 |
| David Williams | | 12/07/1955 | Alternate Director | 2019 | 2022 | 2008 |
| Ben Iosef Elsztain | | 01/16/1997 | Alternate Director | 2020 | 2023 | 2020 |
| Iair Elsztain | | 03/05/1995 | Alternate Director | 2020 | 2023 | 2020 |
Ricardo Esteves, Cedric Bridger, Mario Blejer, Ricardo H. Liberman, Oscar Pedro Bergotto, Demian Brener, MariaDavid Williams, María Julia Bearzi and Enrique AntoniniLiliana De Nadai are independent directors, pursuant to CNV Rules.
The following is a brief biographical description of each member of our Board of Directors:
