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Notes to the Consolidated Annual Accounts for 2016

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1. Nature, Activities and Composition of the group

Distribuidora Internacional de Alimentación, S.A. (hereinafter “the Parent” or “DIA”) was incorporated as a public limited liability company ("sociedad anónima") for an unlimited period under Spanish law on 24 June 1966, and its registered office is located in Las Rozas (Madrid).

The Parent’s statutory activity comprises the following activities in Spain and abroad:

  • (a) The wholesale or retail purchase, sale and distribution of food products and any other consumer goods in both domestic and foreign markets; domestic healthcare, parapharmaceutical, homoeopathic, dietary and optical products, cosmetics, costume jewellery, household products, perfumes and personal hygiene products; and food, health and hygiene products and insecticides, and all other kinds of widely available consumer products for animals
  • (b) Corporate transactions; the acquisition, sale and lease of movable property and real estate; and financial transactions as permitted by applicable legislation.
  • (c) Corporate services aimed at the sale of telecommunication products and services, particularly telephony services, through collaboration agreements with suppliers of telephony products and services. These co-operative services shall include the sale of telecommunication products and services, as permitted by applicable legislation.
  • (d) All manner of corporate collaboration services aimed at the sale of products and services of credit institutions, payment institutions, electronic money institutions and currency exchange establishments, in accordance with the provisions of the statutory activity and administrative authorisation of these entities. This collaboration shall include, as permitted by applicable legislation and, where appropriate, subject to any necessary prior administrative authorisation, the delivery, sale and distribution of products and services of these entities.
  • (e) Activities related to internet-based marketing and sales, and sales through any other electronic medium of all types of legally tradable products and services, especially food and household products, small electrical appliances, multimedia and IT products, photography equipment and telephony products, sound and image products and all types of services provided via the internet or any other electronic medium.
  • (f) Wholesale and retail travel agency activities including, inter alia, the organisation and sale of package tours.
  • (g) Retail distribution of petrol, operation of service stations and retail sale of fuel to the public.
  • (h) The acquisition, ownership, use, management, administration and disposal of equity instruments of resident and non-resident companies in Spain through the concomitant management of human and material resources.
  • (i) The management, coordination, advisory and support of investees and companies with which the Parent works under franchise and similar contracts.
  • (j) The deposit and storage of goods and products of all types, both for the Company and for other companies.

Its principal activity is the retail sale of food products through owned or franchised self-service stores under the DIA brand name. The Parent opened its first establishment in Madrid in 1979.

The DIA Group currently trades under the names of DIA Market, Fresh by DIA, DIA Maxi, La Plaza de DIA, Max Descuento, Clarel, El Árbol, Cada DIA, Minipreço and Mais Perto.

The Company is the parent of a group of subsidiaries (hereinafter the DIA Group or the Group) which are all fully consolidated, except for ICDC Services, Sàrl (50% owned by DIA World Trade, S.A.) and Distribuidora Paraguaya de Alimentos, S.A. (10% owned by DIA Paraguay, S.A.), which are equity-accounted.

The following changes to the Group occurred in 2016 and 2015:

  • On 2 December 2016, DIA Argentina increased its share capital by Argentine Pesos 197,928 thousand, which was fully subscribed by Group companies.
  • In May 2016 the Group acquired 100% of the capital of Hartford, S.A. and on 30 June 2016 this company changed its name to DIA Paraguay, S.A. (hereinafter DIA Paraguay). As a result of this acquisition, the Group now holds a 10% indirect interest in Distribuidora Paraguaya de Alimentos, S.A. (hereinafter DIPASA). The registered offices of DIA Paraguay and DIPASA are both located in Asunción, the capital of Paraguay. The principal activity of DIA Paraguay is to engage in legal trade operations of all kinds and, primarily, the purchase, sale, construction and lease of real estate, and the purchase, sale and exchange of vehicles on its own behalf, on behalf of third parties, or in association with third parties, in both the domestic and foreign markets. The principal activity of DIPASA is to undertake the operations included in the master franchise contract entered into with DIA Paraguay. Both companies commenced their respective activities at the end of 2016.
  • On 3 May 2016 and 26 December 2016, DIA Brazil increased its share capital by Brazilian Reais 100,000 thousand and Brazilian Reais 39,439 thousand, respectively. Both increases were fully subscribed by the Parent of the Group.
  • On 29 March 2016 the winding up of Beijing DIA Commercial Co. Ltd. was completed. The decision to wind up this company was taken in 2014 and its net assets were liquidated at 31 December 2015.
  • ICDC Services, Sàrl, was incorporated on 30 November 2015. This company is domiciled in Geneva and its activity consists of negotiating with international suppliers. This company is 50% owned by the DIA and Casino groups.
  • On 1 July 2015 the Parent acquired 100% of the capital of Castanola Investments, S.L. and on 13 July 2015 this company changed its name to DIA ESHOPPING,S.L. Its activity consists of the creation, maintenance and operation of websites and web portals for the sale of products and services.
  • On 31 May 2015 the merger of Schlecker Portugal (the absorbee) into DIA Portugal (the absorbing company) was signed, with the transfer en bloc of all the assets and liabilities of Schlecker Portugal to DIA Portugal. With effect from that date Schlecker Portugal was wound up.
  • On 22 May 2015 a corporate group, CINDIA, was created in Portugal by the companies DIA Portugal and ITMP Alimentar. The statutory activity of this corporate group is to improve the terms and conditions applying to the economic activity of its member companies by negotiating on their behalf with the suppliers that work with both companies the conditions applicable to the purchase of the products needed for their respective businesses. The group was incorporated without any own capital, with each company holding a 50% interest in its assets and liabilities. Decisions are subject to unanimous agreement. At 31 December 2016 and 2015 the Group has included the corresponding proportion of the assets, liabilities, revenues and expenses in these consolidated annual accounts, as permitted by IFRS 11.

Details of the DIA Group’s subsidiaries, as well as their activities, registered offices and percentages of ownership at 31 December 2016 and 2015 are as follows:

Name Location Activity % interest
2016 2015
DIA Portugal Supermercados,  Lda. Lisbon Wholesale and retail distribution of food products. 100.00 100.00
DIA Argentina, S.A. Buenos Aires Wholesale and retail distribution of food products. 100.00 100.00
Distribuidora Internacional, S.A. Buenos Aires Services consultancy 100.00 100.00
DIA Paraguay, S.A. Asunción To dedicate on his own, from third parties or associated with terd parties, both in the country or abroad, to any act of lawful commerce and mainly to the sale, construction and lease of real estate: and the purchase, sale and exchange of vehicles 100.00 -
Distribuidora Paraguaya de Alimentos, S.A. Asunción To execute the contract of Master Franchise signed with DIA Paraguay, S.A. 10.00 -
DIA Brasil Sociedade Limitada Sao Paulo Wholesale and retail distribution of consumer products. 100.00 100.00
DBZ Serv. Inmobiliario LTDA Sao Paulo Administration of real estate property of DIA Brasil 100.00 100.00
Finandia, E.F.C., S.A. Madrid Loan and credit transactions, including consumer loans, mortgage loans and finance for commercial transactions, and credit and debit card issuing and management. 100.00 100.00
DIA Tian Tian Management Consulting Service & Co. Ltd. Shanghai Services consultancy. 100.00 100.00
Shanghai DIA Retail Co. Ltd. Shanghai Wholesale and retail distribution of consumer products. 100.00 100.00
Beijing DIA Commercial Co. Ltd. Beijing Wholesale and retail distribution of consumer products. - 100.00
Twins Alimentación, S.A. Madrid Distribution of food and toiletries through supermarkets. 100.00 100.00
Pe-Tra Servicios a la distribución, S.L. Madrid Leasing of business premises. 100.00 100.00
DIA World Trade, S.A. Geneva Provision of services to suppliers of DIA Group companies. 100.00 100.00
Beauty by DIA, S.A. (en 2015 Schlecker, S.A.) Madrid Distribution of cleaning and toiletry products. 100.00 100.00
Grupo El Árbol, Distribución y Supermercados, S.A. Madrid Wholesale and retail distribution of food products and others. 100,00 100,00
Compañía Gallega de Supermercados, S.A. Madrid Wholesale and retail distribution of food products and others. 94.24 94.24
ICDC Services Sàrl Geneva Dealing with international suppliers. 50.00 50.00
DIA ESHOPPING, S.L. Madrid Creation, maintenance and operation of Internet sites and portals for selling products and services. 100.00 100.00

Subsidiaries are entities over which the Parent exercises control, either directly or indirectly, through subsidiaries. The Parent controls a subsidiary when it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. The Parent has power over a subsidiary when it has existing substantive rights that give it the ability to direct the relevant activities. The Parent is exposed, or has rights, to variable returns from its involvement with the subsidiary when its returns from its involvement have the potential to vary as a result of the subsidiary’s performance.

The annual accounts or financial statements of the subsidiaries used in the consolidation process have been prepared as of the same date and for the same period as those of the Parent.

Associates are entities over which the Parent, either directly or indirectly through subsidiaries, exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an entity but is not control or joint control over those policies. The existence of potential voting rights that are exercisable or convertible at the end of each reporting period, including potential voting rights held by the Group or other entities, are considered when assessing the existence of significant influence.

Investments in associates, including joint ventures, are accounted for using the equity method from the date that significant influence commences until the date that significant influence ceases.

At 31 December 2016 and 2015, the Group has several master franchise agreements, some of which grant the Group the option, at its discretion and within a specific period, which in some cases covers the full duration of the agreement, to purchase a percentage of the capital of the franchised business. The Group assesses, based on the terms of the agreement, whether these options are derivative financial instruments to be recognised in the consolidated financial statements. If the option entails the Group's control over the franchisee, the Group assesses the impact of the application of IFRS 3 Business combinations. At 31 December 2016 and 2015, the Group considers that the impact of these agreements on these consolidated financial statements is not significant.

2. Basis os presentation

2.1. Basis of preparation of the consolidated annual accounts

The directors of the Parent have prepared these consolidated annual accounts on the basis of the accounting records of Distribuidora Internacional de Alimentación S.A. and consolidated companies and in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU), and other applicable provisions in the financial reporting framework pursuant to Regulation (EC) No. 1606/2002 of the European Parliament and of the Council, to give a true and fair view of the consolidated equity and consolidated financial position of Distribuidora Internacional de Alimentación S.A. and subsidiaries at 31 December 2016 and of consolidated results of operations and consolidated cash flows and changes in consolidated equity for the year then ended.

On 28 February 2011 the DIA Group authorised for issue the consolidated financial statements for 2010, 2009 and 2008, which were the first consolidated financial statements drawn up by the DIA Group. These consolidated financial statements were prepared in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, taking 1 January 2008 as the date of first-time adoption. Until 5 July 2011 the DIA Group formed part of the Carrefour Group, which has issued consolidated financial statements in accordance with IFRS-EU since 2005. For the purposes of the consolidated financial statements of the Carrefour Group, DIA and its subsidiaries each prepared a consolidation reporting package under IFRS-EU.

In accordance with IFRS 1, considering the DIA Group as a subsidiary that adopted IFRS-EU for the first time, the assets and liabilities included in DIA’s opening statement of financial position were recognised at the carrying amounts of the sub-group headed by DIA in the amount reflected in the consolidated financial statements of the Carrefour Group, eliminating its consolidation adjustments.

Consequently, the DIA Group chose the same exemptions from IFRS 1 as those applied by the Carrefour Group:

  • Business combinations: the DIA Group did not re-estimate the business combinations carried out prior to 1 January 2004 (see note 3 (a)).
  • Cumulative translation differences: the DIA Group recognised the cumulative translation differences of all foreign businesses prior to 1 January 2004 at zero, and transferred the related balances to reserves at that date (see note 3 (d)).
  • Financial instruments: the DIA Group opted to apply IAS 32 and IAS 39 from 1 January 2004.

The 2011 consolidated annual accounts, which were the first consolidated annual accounts prepared by the DIA Group, were filed at the Madrid Mercantile Registry in accordance with Spanish legislation.

These consolidated annual accounts were prepared on a historical cost basis, except for derivative financial instruments, financial instruments at fair value through profit or loss and available-for-sale financial assets, which were measured at fair value.

Note 3 includes a summary of all mandatory and significant accounting principles, measurement criteria and alternative options permitted under IFRS.

The Group has opted to present a consolidated income statement separately from the consolidated statement of comprehensive income. The consolidated income statement is reported using the nature of expense method and the consolidated statement of cash flows has been prepared using the indirect method.

The DIA Group’s consolidated annual accounts for 2016 were authorised for issue by the board of directors of the Parent on 22 February 2017 and are expected to be approved by the shareholders of the Parent at their ordinary general meeting without any changes.

2.2. Comparative information

The consolidated statement of financial position, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and the notes thereto for 2016 include comparative figures for 2015, which formed part of the consolidated annual accounts approved by the shareholders of the Parent at the ordinary general meeting held on 22 April 2016

2.3. Functional and presentation currency

The figures contained in the documents comprising these consolidated annual accounts are expressed in thousands of Euros, unless stated otherwise. The Parent´s functional and presentation currency is the Euro.

2.4. Relevant accounting estimates, assumptions and judgements used when applying accounting principles

Relevant accounting estimates and judgements and other estimates and assumptions have to be made when applying the Group’s accounting principles to prepare the consolidated annual accounts in conformity with IFRS-EU. A summary of the items requiring a greater degree of judgement or which are more complex, or where the assumptions and estimates made are significant to the preparation of the consolidated annual accounts, is as follows:

a) Relevant accounting estimates and assumptions

The Group evaluates whether there are indications of possible impairment losses on non-financial assets subject to amortisation or depreciation to verify whether the carrying amount of these assets exceeds the recoverable amount (see note 3 (k(ii)). The DIA Group calculates impairment on the basis of the strategic plans of the different cash generating units (CGU), i.e. the stores. The Group tests goodwill for impairment on an annual basis. The calculation of the recoverable amount of each CGU or group of CGUs to which goodwill has been allocated requires the use of estimates by management (see note 3 (k(i)). The recoverable amount is the higher of fair value less costs to sell and value in use. The Group generally uses cash flow discounting methods to calculate these values. Discounted cash flow calculations are based on five-year projections in the budgets approved by management. The cash flows take into consideration past experience and represent management’s best estimate of future market performance. From the fifth year cash flows are extrapolated using individual growth rates. The key assumptions employed when determining fair value less costs to sell and value in use include growth rates and the weighted average cost of capital. The estimates, including the methodology used, could have a significant impact on values and impairment.

The Group evaluates the recoverability of deferred tax assets that should be recognised by its subsidiaries based on the business plan of each one or, where applicable, of the tax group to which that subsidiary belongs, and recognises, where appropriate, the tax effect of tax loss carryforwards, credits and deductible temporary differences whose offset against future tax gains appears probable. In order to determine the amount of the deferred tax assets to be recognised, Parent management estimates the amounts and dates on which future taxable profits are expected to materialise and the reversal period of temporary differences.

In 2016 a long-term incentive plan for 2016-2018 was approved by DIA’s board at their general meeting. A long-term incentive plan for 2014-2016 was approved in 2014. Both plans are to be settled in own shares of the Parent. Beneficiaries were informed of the regulations of the plan approved in 2016 in June 2016 and of the plan approved in 2014 between December 2014 and January 2015. The Parent has estimated the total obligation derived from these plans and the part of this obligation accrued at 31 December 2016 based on the extent to which the conditions for receipt have been met.

The Group is undergoing legal proceedings and tax inspections in a number of jurisdictions, some of which have been completed by the taxation authorities and additional tax assessments have been appealed by the Group companies at 31 December 2016 (see note 18). The Group recognises a provision if it is probable that an obligation will exist at year end which will give rise to an outflow of resources embodying economic benefits and the outflow can be reliably measured. As a result, management uses significant judgement when determining whether it is probable that the process will result in an outflow of resources and when estimating the amount.

2.5. First-time application of accounting standards

The Group has applied all standards effective as of 1 January 2016. The application of these standards has not required any significant changes in the preparation of this year’s consolidated annual accounts.

2.6. Standards and interpretations issued but not applied

At the publication date of this Consolidated Annual Accounts, the following issued standars, that haven’t been efectives and the Group plans to apply on 1 January 2018 or later, are:

IFRS 9 Financial Instruments

In July 2014, the International Accounting Standards Board issued the final version of IFRS 9 Financial Instruments.

IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group currently plans to apply IFRS 9 initially on 1 January 2018.

The actual impact of adopting IFRS 9 on the Group’s consolidated financial statements in 2018 is not known and cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds and economic conditions at that time as well as accounting elections and judgements that it will make in the future.

i. Classification – Financial assets

IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.

Based on its preliminary assessment, the Group does not believe that the new classification requirements, if applied at 31 December 2016, would have had a material impact.

ii. Impairment – Financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. This will require considerable judgement as to how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis.

The new impairment model will apply to financial assets measured at amortised cost or FVOCI.

Under IFRS 9, loss allowances will be measured on either of the following bases: a) 12-month ECLs. These are ECLs that result from possible default events within the 12 months after the reporting date; and b) lifetime ECLs. These are ECLs that result from all possible default events over the expected life of a financial instrument.

The Group believes that impairment losses are likely to increase and become more volatile for assets in the scope of the IFRS 9 impairment model. However, the Group has not yet finalized the impairment methodologies that it will apply under IFRS 9.

iii. Classification – Financial liabilities

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, there are differences between IAS 39 and IFRS 9 regarding fair value changes of liabilities designated as at FVTPL. Nevertheless, the Group has not currently designated any financial liabilities at FVTPL. The Group’s preliminary assessment does not indicate any material impact if IFRS 9’s requirements regarding the classification of financial liabilities were applied at 31 December 2016.

iv. Hedge accounting

When initially applying IFRS 9, the Group may choose as its accounting policy to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9.

IFRS 9 will require the Group to ensure that hedge accounting relationships are aligned with the Group’s risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. IFRS 9 also introduces new requirements regarding rebalancing of hedge relationships and prohibiting voluntary discontinuation of hedge accounting. Under the new model, it is possible that more risk management strategies, particularly those involving hedging a risk component (other than foreign currency risk) of a non-financial item, will be likely to qualify for hedge accounting. The Group currently does not undertake hedges of such risk components.

The Group basically uses forward foreign exchange contracts to hedge the variability in the fair value changes of foreign currency borrowings as a result of changes in foreign currency and interest rates.

The Group has not yet decided whether to continue applying IAS 39 or apply the new requirements of IFRS 9.

v. Disclosures

IFRS 9 will require extensive new disclosures, in particular about hedge accounting, credit risk and expected credit losses. The Group is currently assessing the need to implement the system and controls changes as necessary to capture the required data.

vi. Transition

Changes in accounting policies resulting from the adoption of IFRS 9 may either be applied prospectively or retrospectively. The Group has not made a decision in relation to this election.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.

For the sale of products, revenue is currently recognised when the goods are delivered to the customers at the stores, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognised at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable (already received in cash transactions) and there is no continuing management involvement with the goods.

Under IFRS 15, revenue will be recognised when a customer obtains control of the goods which also takes place when the goods are delivered to the customers at the stores.

Although the customer is allowed to return any item, the impact of this is irrelevant in the Group. Therefore, there is no current impact in the recognition of revenue and will not either under IFRS 15.

For the loyalty programmes operated by the Group, as discounts are granted and applied to customers when the transaction occurs, being recorded as a reduction in revenue, no liability is recognized. No impact is expected under IFRS 15.

The Group plans to adopt IFRS 15 in its consolidated financial statements for the year ending 31 December 2018, using the prospective approach.

The Group’s initial assessment of the potential impact of the adoption of IFRS 15 on its consolidated financial statements is that the impact will be very limited.

IFRS 16 Leases

IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.

IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

The standard is effective for annual periods beginning on or after 1 January 2019 although early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16.

The Group has started an initial assessment of the potential impact on its consolidated financial statements. So far, the most significant impact identified is that the Group will recognize new assets and liabilities for its operating leases of warehouse and stores. In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.

As a lessee, the Group can either apply the standard using a retrospective approach; or a modified retrospective approach with optional practical expedients.

The lessee applies the election consistently to all of its leases. The Group currently plans to apply IFRS 16 initially on 1 January 2019. The Group has not yet determined which transition approach to apply.

As a lessor, the Group is not required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor in a sub-lease

The Group has not yet quantified the impact on its reported assets and liabilities of adoption of IFRS 16. The quantitative effect will depend on, inter alia, the transition method chosen, the extent to which the Group uses the practical expedients and recognition exemptions, and any additional leases that the Group enters into. The Group considers especially relevant in the application of this standard and its quantification the analysis to be performed on the term of the lease, as well as the discount rate to apply. The Group expects to disclose its transition approach and quantitative information before adoption and, in any case, expects that the impact of the application of this standard will be significant in the group financial statements.

2.7. Basis of consolidation

IFRS 10 requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements and establishes control as the basis for consolidation. An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Thus, an investor controls an investee if and only if the investor has all the following:

  • a) power over the investee;
  • b) exposure, or rights, to variable returns from its involvement with the investee; and
  • c) the ability to use its power over the investee to affect the amount of the investor’s returns.

The income, expenses and cash flows of subsidiaries are included in the consolidated annual accounts from their acquisition date, which is the date control commences. Subsidiaries are excluded from the consolidated Group from the date on which this control is lost. For consolidation purposes the annual accounts of subsidiaries are prepared for the same reporting period as those of the Parent, and applying the same accounting policies. All balances, income and expenses, gains, losses and dividends arising from transactions between Group companies are eliminated in full.

3. Significant accounting policies

a) Business combinations and goodwill

As permitted by IFRS 1, the Group has recognised only business combinations that occurred on or after 1 January 2004, the date of transition of the Carrefour Group to IFRS-EU, using the acquisition method (see note 2.1). Entities acquired prior to that date were recognised in accordance with the accounting principles applied by the Carrefour Group at that time, taking into account the necessary corrections and adjustments at the transition date.

The Group applies IFRS 3 Business Combinations, revised in 2014, to all such transactions detailed in these consolidated annual accounts.

The Group applies the acquisition method for business combinations. The acquisition date is the date on which the Group obtains control of the acquiree.

The consideration transferred in a business combination is calculated as the sum of the acquisition-date fair values of the assets transferred, the liabilities incurred or assumed, the equity instruments issued and any consideration contingent on future events or compliance with certain conditions in exchange for control of the acquiree.

The consideration transferred excludes any payment that does not form part of the exchange for the acquired business. Acquisition costs are recognised as an expense when incurred.

At the acquisition date the Group recognises the assets acquired, the liabilities assumed and any non-controlling interest at fair value. Non-controlling interests in the acquiree are recognised at the proportional part of the fair value of the net assets acquired. These criteria are only applicable for non-controlling interests which grant entry into economic benefits and entitlement to the proportional part of net assets of the acquiree in the event of liquidation. Otherwise, non-controlling interests are measured at fair value or value based on market conditions.

The excess between the consideration given and the value of net assets acquired and liabilities assumed, is recognised as goodwill. Any shortfall, after evaluating the consideration given and the identification and measurement of net assets acquired, is recognised in profit and loss.

Moreover, for business combinations without consideration, the excess of the value assigned to non-controlling interests, plus the fair value of the previously held interest in the acquiree, over the net value of the assets acquired and liabilities assumed is recognised as goodwill. Any shortfall is recognised in profit or loss, after assessing the amount of non-controlling interests, the previous interest and the identification and measurement of net assets acquired. If the Group has no previously held interest in the acquiree, the amount allocated to net assets acquired is attributed in full to non-controlling interests and no goodwill or negative goodwill is recognised.

b) Joint arrangements

IFRS 11 establishes that a joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Joint arrangements can be classified as joint ventures or joint operations.

c) Non-controlling interests

Because they were acquired prior to 1 January 2004, non-controlling interests in subsidiaries were recognised at the amount of the Group’s share of the subsidiary’s equity.

Profit and loss and each component of other comprehensive income are allocated to equity attributable to shareholders of the Parent and to non-controlling interests in proportion to their investment, even if this results in the non-controlling interests having a deficit balance. Agreements entered into between the Group and non-controlling interests are recognised as a separate transaction.

Changes in the Group’s percentage ownership of a subsidiary that imply no loss of control are accounted for as equity transactions. When control over a subsidiary is lost, the Group adjusts any residual investment in the entity to fair value at the date on which control is lost.

Group investments and, where applicable, non-controlling interests in subsidiaries or associates are calculated taking into account the possible exercise of potential voting rights and other derivative financial instruments which, in substance, currently allow access to the economic benefits associated with the interests held, such as entitlement to a share in future dividends and changes in the value of subsidiaries and associates.

d) Translation of foreign operations

The Group has applied the exemption permitted by IFRS 1, First-time Adoption of International Financial Reporting Standards, relating to accumulated translation differences. Consequently, translation differences recognised in the consolidated annual accounts generated prior to 1 January 2004 are recognised in retained earnings (see note 2.1). As of that date, foreign operations whose functional currency is not the currency of a hyperinflationary economy have been translated into Euros as follows:

  • Assets and liabilities, including goodwill and net asset adjustments derived from the acquisition of the operations, including comparative amounts, are translated at the closing rate at the reporting date.
  • Capital and reserves are translated using historical exchange rates.
  • Income and expenses, including comparative amounts, are translated at the exchange rates prevailing at each transaction date.
  • All resulting exchange differences are recognised as translation differences in other comprehensive income.

For presentation of the consolidated statement of cash flows, cash flows of foreign subsidiaries and joint ventures, including comparative balances, are translated into Euros applying the exchange rates prevailing at the transaction date.

Translation differences recognised in other comprehensive income are accounted for in profit or loss as an adjustment to the gain or loss on the sale using the same criteria as for subsidiaries, associates and joint ventures.

e) Foreign currency transactions, balances and cash flows

Transactions in foreign currency are translated into the functional currency at the spot exchange rate prevailing at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies have been translated into Euros at the closing rate, while non-monetary assets and liabilities measured at historical cost have been translated at the exchange rate prevailing at the transaction date. Non-monetary assets measured at fair value have been translated into Euros at the exchange rate at the date that the fair value was determined.

In the consolidated statement of cash flows, cash flows from foreign currency transactions have been translated into Euros at the exchange rates prevailing at the dates the cash flows occurred. The effect of exchange rate fluctuations on cash and cash equivalents denominated in foreign currencies is recognised separately in the statement of cash flows as net exchange differences.

Exchange gains and losses arising on the settlement of foreign currency transactions and the translation into Euros of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. However, exchange gains or losses arising on monetary items forming part of the net investment in foreign operations are recognised as translation differences in other comprehensive income.

Exchange gains or losses on monetary financial assets or financial liabilities denominated in foreign currencies are also recognised in profit or loss.

f) Recognition of income and expenses

Income and expenses are recognised in the consolidated income statement on an accruals basis when the actual flow of goods and services they represent takes place, regardless of when the monetary or financial flows derived therefrom arise.

Revenue from the sale of goods or services is measured at the fair value of the consideration received or receivable. Volume rebates, prompt payment and any other discounts, as well as the interest added to the nominal amount of the consideration, are recognised as a reduction in the consideration.

Discounts granted to customers are recognised as a reduction in sales revenue when it is probable that the discount conditions will be met.

The Group has customer loyalty programmes which do not entail credits, as they comprise discounts which are applied when a sale is made and are recognised as a reduction in the corresponding transaction.

The Group recognises revenue from the sale of goods when:

  • It has transferred to the buyer the significant risks and rewards of ownership of the goods;
  • It retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
  • The amount of revenue and the costs incurred or to be incurred can be measured reliably;
  • It is probable that the economic benefits associated with the transaction will flow to the Group; and
  • The costs incurred or to be incurred in respect of the transaction can be measured reliably.

g) Intangible assets

Intangible assets, except for goodwill (see note 3 (a)), are measured at cost or cost of production, less any accumulated amortisation and accumulated impairment.

The Group assesses whether the useful life of each intangible asset is finite or indefinite. Intangible assets with finite useful lives are amortised systematically over their estimated useful lives and their recoverability is analysed when events or changes occur that indicate that the carrying amount might not be recoverable. Intangible assets with indefinite useful lives, including goodwill are not amortised, but are subject to analysis to determine their recoverability on an annual basis, or more frequently if indications exist that their carrying amount may not be fully recoverable. Management reassesses the indefinite useful life of these assets on a yearly basis.

The amortisation methods and periods applied are reviewed at year end and, where applicable, adjusted prospectively.

Internally generated intangible assets

Development expenses, which mainly relate to computer software and industrial property, are capitalised to the extent that:

  • The Group has technical studies that demonstrate the feasibility of the production process.
  • The Group has undertaken a commitment to complete production of the asset, to make it available for sale or internal use.
  • The asset will generate sufficient future economic benefits.
  • El importe de los ingresos y los costes incurridos o por incurrir pueden ser valorados con fiabilidad;
  • The Group has sufficient technical and financial resources to complete development of the asset and has devised budget control and cost accounting systems that enable monitoring of budgetary costs, modifications and the expenditure actually attributable to the different projects.

Expenditure on activities for which costs attributable to the research phase are not clearly distinguishable from costs associated with the development stage of intangible assets are recognised in profit and loss.

Expenditure on activities that contribute to increasing the value of the different businesses in which the Group as a whole operates is recognised as expenses when incurred. Replacements or subsequent costs incurred on intangible assets are generally recognised as an expense, except where they increase the future economic benefits expected to be generated by the assets.

Computer software

Computer software comprises all the programs relating to terminals at points of sale, warehouses and offices, as well as micro-software. Computer software is recognised at cost of acquisition and/or production and is amortised on a straight-line basis over its estimated useful life, which is usually three years. Computer software maintenance costs are charged as expenses when incurred.

Leaseholds

Leaseholds are rights to lease business premises which have been acquired through an onerous contract assumed by the Group. Leaseholds are measured at cost of acquisition and amortised on a straight-line basis over the shorter of ten years and the estimated term of the lease contract.

Industrial property

Industrial property essentially comprises the investment in the development of commercial models and product ranges, amortised over four years.

h) Property, plant and equipment

Property, plant and equipment are measured at cost or cost of production, less any accumulated depreciation and accumulated impairment. Land is not depreciated.

The cost of acquisition includes external costs plus internal costs for materials consumed, which are recognised as income in the income statement. The cost of acquisition includes, where applicable, the initial estimate of the costs required to dismantle or remove the asset and to restore the site on which it is located, when the Group has the obligation to carry out these measures as a result of the use of the asset.

Given that the average period to carry out work on warehouses and stores does not exceed 12 months, there are no significant interest and other finance charges that are considered as an increase in property, plant and equipment.

Non-current investments made in buildings leased by the Group under operating lease contracts are recognised following the same criteria as those used for other property, plant and equipment. These investments are depreciated over the shorter of their useful life and the lease term, taking renewals into account.

Enlargement, modernisation or improvement expenses that lead to an increase in productivity, capacity or efficiency or lengthen the useful life of the assets are capitalised as an increase in the cost of the assets when recognition criteria are met.

Repair and maintenance costs are recognised in the consolidated income statement in the year in which they are incurred.

The DIA Group assesses whether valuation adjustments are necessary to recognise each item of property, plant and equipment at its lowest recoverable amount at each year end, when circumstances or changes indicate that the carrying amount of property, plant and equipment may not be fully recoverable, i.e. that the revenues generated will not be sufficient to cover all costs and expenses. In this case, the lowest measurement is not maintained if the reasons for recognising the valuation adjustment have ceased to exist.

Recoverable amount is determined for each individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs.

The Group companies depreciate their property, plant and equipment from the date on which these assets enter into service. Property, plant and equipment are depreciated by allocating the cost of the assets over the following estimated useful lives, which are calculated in accordance with technical studies, which are reviewed on a regular basis:

  • Buildings: 40
  • Installations in leased stores: 10-20
  • Technical installations and machinery: 3-7
  • Other installations, equipment and furniture: 4-10
  • Other property, plant and equipment: 3-5

Estimated residual values and depreciation methods and periods are reviewed at each year end and, where applicable, adjusted prospectively.

i) Leases

Lessee accounting

Determining whether a contract is, or contains, a lease is based on an analysis of the substance of the arrangement and requires an assessment of whether fulfilment of the arrangement is dependent on the use of a specific asset and whether the arrangement conveys a right to use the asset to the DIA Group.

Leases under which the lessor maintains a significant part of the risks and rewards of ownership are classified as operating leases. Operating lease payments are expensed on a straight-line basis over the lease term.

Leases are classified as finance leases when substantially all the risks and rewards incidental to ownership of the assets are transferred to the Group. At the commencement of the lease term, the Group recognises the assets, classified in accordance with their nature, and the associated debt, at the lower of fair value of the leased asset and the present value of the minimum lease payments agreed. Lease payments are allocated proportionally between the reduction of the principal of the lease debt and the finance charge, so that a constant rate of interest is obtained on the outstanding balance of the liability. Finance charges are recognised in the consolidated income statement over the life of the contract.

Contingent rents are recognised as an expense when it is probable that they will be incurred.

Lessor accounting

The Group has granted the right to use certain spaces within the DIA stores to concessionaires and the right to use leased establishments to franchisees under contracts. The risks and rewards incidental to ownership are not substantially transferred to third parties under these contracts. Operating lease income is taken to the consolidated income statement on a straight-line basis over the lease term. Assets leased to concessionaires are recognised under property, plant and equipment following the same criteria as for other assets of the same nature.

Sale and leaseback transactions

In each sale and leaseback transaction, the Group assesses the classification of finance and operating lease contracts for land and buildings separately for each item, and assumes that land has an indefinite economic life. To determine whether the risks and rewards incidental to ownership of the land and buildings are substantially transferred, the Group considers the present value of minimum future lease payments and the minimum lease period compared with the economic life of the building.

If the Group cannot reliably allocate the lease rights between the two items, the contract is recognised as a finance lease, unless there is evidence that it is an operating lease.

Transactions that meet the conditions for classification as a finance lease are considered as financing operations and, therefore, the type of asset is not changed and no profit or loss is recognised.

When the leaseback is classed as an operating lease:

  • If the transaction is established at fair value, any profit or loss on the sale is recognised immediately in consolidated profit or loss for the year.
  • If the sale price is below fair value, any profit or loss is recognised immediately. However, if the loss is compensated for by future lease payments at below market price, it is deferred in proportion to the lease payments over the period for which the asset is to be used.
  • If the sale price is above fair value, the excess over fair value is deferred and amortised over the period for which the asset is to be used.

j) Discontinued operations

A discontinued operation is a component of the Group that either has been disposed of, or is classified as held-for-sale, and:

  • Represents a separate major line of business or geographical area of operations;
  • Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
  • Is a subsidiary acquired exclusively with a view to resale.

A component of the Group comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Group.

The Group discloses the post-tax profit and loss of discontinued operations and the post-tax gain or loss recognised on the measurement at fair value less costs to sell or distribute or on the disposal of the assets or disposal group(s) constituting the discontinued operation in profit or loss net of taxes of discontinued operations in the consolidated income statement.

If the Group ceases to classify a component as a discontinued operation, the results previously disclosed as discontinued operations are reclassified to continuing operations for all years presented.

k) Impairment of non-financial assets

(i) Impairment of goodwill

Pursuant to IAS 36, impairment testing should be performed annually on each CGU or group of CGUs with associated goodwill, to determine whether the carrying amount of these assets exceeds their recoverable amount.

The recoverable amount of the assets is the higher of their fair value less costs to sell and their value in use.

This CGU or group of CGUs should represent the lowest level at which goodwill is monitored for internal management purposes and should not be larger than an operating segment before aggregation determined in accordance with IFRS 8. The DIA Group reviews the allocation of goodwill at company and/or country level depending on both organisational and strategic criteria and the level at which implementation decisions are taken.

An asset’s value in use is measured based on the future cash flows the Group expects to derive from use of the asset, expectations about possible variations in the amount or timing of those future cash flows, the time value of money, the price for bearing the uncertainty inherent in the asset and other factors that market participants would reflect in pricing the future cash flows associated with the asset.

(ii) Impairment of other non-current assets

At the end of each reporting period, the Group assesses whether there are any indications of possible impairment of non-current assets, including intangible assets. Based on past experience, the Group considers that there are indications of impairment when the adjusted EBITDA (taken to mean earnings before depreciation/amortisation and impairment, gains/losses on disposal of fixed assets and other non-recurring income and expense) of a mature store (one that has been in operation for more than two years) has been negative for more than two years. All stores with recognised impairment losses are tested for impairment. When indications of impairment exist, or when the nature of the assets requires yearly impairment testing, the Group estimates the recoverable amount of the asset, calculated as the higher of fair value less costs to sell and value in use. Value in use is determined by discounting estimated future cash flows, applying a pre-tax discount rate which reflects the value of money over time, and considering the specific risks associated with the asset. When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is considered to be impaired. In this case the carrying amount is adjusted to the recoverable amount and the impairment loss is recognised in the consolidated income statement. Amortisation and depreciation charges for future periods are adjusted to the new carrying amount during the remaining useful life of the asset. Assets are tested for impairment on an individual basis, except in the case of assets that generate cash flows that are not independent of those from other assets (cash-generating units).

The Group calculates impairment on the basis of the strategic plans of the different cash generating units to which the assets are allocated, which are generally for a period of five years. For longer periods, projections based on strategic plans are used as of the fifth year, applying a constant expected growth rate. The assumptions on which the projections are based are fundamentally the result of internal estimates taking into account past performance and extrapolating expected performance. For this purpose, factors are considered which are beyond the control of Group management, such as macroeconomic data and GDP growth, consumer spending, population growth, unemployment and inflation. External market research reports and market shares are also consulted.

The discount rates used are calculated before tax and are adjusted for the corresponding country and business risks.

When new events or changes in existing circumstances arise which indicate that an impairment loss recognised in a previous period could have disappeared or been reduced, a new estimate of the recoverable amount of the asset is made. Previously recognised impairment losses are only reversed if the assumptions used in calculating the recoverable amount have changed since the most recent impairment loss was recognised. In this case, the carrying amount of the asset is increased to its new recoverable amount, to the limit of the carrying amount this asset would have had had the impairment loss not been recognised in previous periods. The reversal is recognised in the consolidated income statement and amortisation and depreciation charges for future periods are adjusted to the new carrying amount.

l) Advertising and catalogue expenses

The cost of acquiring advertising material or promotional articles and advertising production costs are recognised as expenses when incurred. However, advertising placement costs that can be identified separately from advertising production costs are accrued and expensed as the advertising is published.

m) Financial instruments – assets

Regular way purchases and sales of financial assets are recognised in the consolidated statement of financial position at the trade date, when the Group undertakes the commitment to purchase or sell the asset. At the date of first recognition, the DIA Group classifies its financial instruments into the following four categories: financial assets at fair value through profit and loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The only significant financial assets are classified under loans and receivables.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market and are not classified in any other financial asset categories. Assets of this nature are recognised initially at fair value, including transaction costs incurred, and subsequently measured at amortised cost using the effective interest method. Results are recognised in the consolidated income statement at the date of settlement or impairment loss, and through amortisation. Trade receivables are initially recognised at fair value and subsequently adjusted where objective evidence exists that the debtor may default on payment. The provision for bad debts is calculated based on the difference between the carrying amount and the recoverable amount of receivables. Current trade balances are not discounted.

Guarantees paid in relation to rental contracts are measured using the same criteria as for financial assets. The difference between the amount paid and the fair value is classified as a prepayment and recognised in consolidated profit and loss over the lease term.

All or part of a financial asset is derecognised when one of the following circumstances arises:

  • The rights to receive the cash flows associated with the asset have expired.
  • The Group has assumed a contractual obligation to pay the cash flows received from the asset to a third party.
  • The contractual rights to the cash flows from the asset have been transferred to a third party and all of the risks and rewards of ownership have been transferred.

In particular, the DIA Group derecognises trade balances held with its suppliers in respect of trade discounts granted by the latter when they are transferred in factoring operations in which the Group retains no credit or interest rate risk. Conversely, the Group does not derecognise these trade balances when it retains substantially all the risks and rewards incidental to ownership thereof, but instead recognises a financial liability for the same amount as the consideration received.

n) Inventories

Inventories are initially measured at cost of purchase based on the weighted average cost method.

The purchase price comprises the amount invoiced by the seller, after deduction of any discounts, rebates, non-trading income or other similar items, plus any additional costs incurred to bring the goods to a saleable condition, other costs directly attributable to the acquisition and indirect taxes not recoverable from the Spanish taxation authorities.

Trade discounts are recognised as a reduction in the cost of inventories when it is probable that the conditions for discounts to be received will be met. Any unallocated discounts are used to reduce the balance of merchandise and other consumables used in the consolidated income statement.

Purchase returns are recognised as a reduction in the carrying amount of inventories returned, except where it is not feasible to identify these items, in which case they are accounted for as a reduction in inventories on a weighted average cost basis.

The previously recognised write-down is reversed against profit and loss when the circumstances that previously caused inventories to be written down no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances. The reversal of the valuation adjustment is limited to the lower of the cost and the revised net realisable value of the inventories.

Write-downs to net realisable value recognised or reversed on inventories are classified under merchandise and other consumables used.

o) Cash and cash equivalents

Cash and cash equivalents recognised in the consolidated statement of financial position include cash in hand and in bank accounts, demand deposits and other highly liquid investments maturing in less than three months. These items are recognised at historical cost, which does not differ significantly from their realisable value.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents reflect the items defined in the paragraph above. Any bank overdrafts are recognised in the consolidated statement of financial position as financial liabilities from loans and borrowings.

p) Financial liabilities

Financial liabilities are initially recognised at the fair value of the consideration given, less any directly attributable transaction costs. In subsequent periods, these financial liabilities are carried at amortised cost using the effective interest method. Financial liabilities are classified as non-current when their maturity exceeds 12 months or the DIA Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Financial liabilities are derecognised when the corresponding obligation is settled, cancelled or has expired. When a financial liability is substituted by another with substantially different terms, the Group derecognises the original liability and recognises a new liability, taking the difference in the respective carrying amounts to the consolidated income statement.

The Group considers the terms to be substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability.

The Group has contracted reverse factoring facilities with various financial institutions to manage payments to suppliers. Trade payables settled under the management of financial institutions are recognised under trade and other payables in the consolidated statement of financial position until they have been settled, repaid or have expired.

The amounts paid by the financial institutions as consideration for the acquisition of invoices or payment documents for the trade payables recorded by the Group is recognised under other income in the consolidated income statement when the invoices or documents are conveyed.

Guarantees received in sublease contracts are measured at nominal amount, since the effect of discounting is immaterial.

Derivative financial products and hedge accounting

Derivative financial instruments are initially recognised using the same criteria as those described for financial assets and financial liabilities. Derivative financial instruments are classified as current or non-current depending on whether their maturity is less or more than 12 months. Derivative instruments that qualify to be treated as hedging instruments for non-current assets are classified as non-current assets or liabilities, depending on whether their values are positive or negative.

The criteria for recognising gains or losses arising from changes in the fair value of derivatives depend on whether the derivative instrument complies with hedge accounting criteria and, where applicable, on the nature of the hedging relationship.

Changes in the fair value of derivatives that qualify for hedge accounting, have been allocated as cash flow hedges and are highly effective, are recognised in equity. The ineffective portion of the hedging instrument is taken directly to consolidated profit and loss. When the forecast transaction or the firm commitment results in the recognition of a non-financial asset or liability, the gains or losses accumulated in equity are taken to the consolidated income statement during the same period in which the hedging transaction has an impact on the net profit or loss.

At the inception of the hedge the Group formally allocates and documents the hedging relationship between the derivative and the hedged item, as well as the objectives and risk management strategies applied on establishing the hedge. This documentation includes the identification of the hedging instrument, the hedged item or transaction and the nature of the hedged risk. The documentation also considers the measures taken to assess the effectiveness of the hedge in terms of covering the exposure to changes in the hedged item, whether with respect to its fair value or attributable cash flows. The effectiveness of the hedge is assessed prospectively and retrospectively, both at the inception of the hedging relationship and systematically over the period of allocation.

Hedge accounting criteria cease to be applied when the hedging instrument expires or is sold, cancelled or settled, or when the hedging relationship no longer complies with the criteria to be accounted for as such, or the instrument is no longer designated as a hedging instrument. In these cases, the accumulated gain or loss on the hedging instrument that has been recognised in equity is not taken to profit or loss until the forecast or committed transaction impacts on the Group’s results. However, if the transaction is no longer considered probable, the accumulated gains or losses recognised in equity are immediately transferred to the consolidated income statement.

The fair value of the Group’s derivatives portfolio reflects estimates based on calculations performed using observable market data and the specific tools used widely among financial institutions to value and manage derivative risk.

q) Parent own shares

The Group’s acquisition of equity instruments of the Parent is recognised separately at cost of acquisition in the consolidated statement of financial position as a reduction in equity, irrespective of the reason for the purchase. Any gains or losses on transactions with own equity instruments are not recognised in consolidated profit and loss.

The subsequent redemption of the Parent instruments entails a capital reduction equivalent to the par value of the shares. Any positive or negative difference between the purchase price and the par value of the shares is debited or credited to reserves.

Transaction costs related to own equity instruments, including issue costs related to a business combination, are accounted for as a reduction in equity, net of any tax effect.

Parent own shares are recognised as a component of consolidated equity at their total cost.

Contracts that oblige the Group to acquire own equity instruments, including non-controlling interests, in cash or through the delivery of a financial asset, are recognised as a financial liability at the fair value of the amount redeemable against reserves. Transaction costs are likewise recognised as a reduction in reserves. Subsequently, the financial liability is measured at amortised cost or at fair value through consolidated profit or loss in line with the redemption conditions. If the Group does not ultimately exercise the contract, the carrying amount of the financial liability is reclassified to reserves.

r) Distributions to shareholders

Dividends, whether in cash or in kind, are recognised as a reduction in equity when approved by the shareholders at their annual general meeting.

s) Employee benefits

Defined benefit plans

The Group includes plans financed through the payment of insurance premiums under defined benefit plans where a legal or constructive obligation exists to directly pay employees the committed benefits when they become payable or to pay further amounts in the event that the insurance company does not pay the employee benefits relating to employee service in the current and prior periods.

Defined benefit liabilities recognised in the consolidated statement of financial position reflect the present value of defined benefit obligations at the reporting date, minus the fair value at that date of plan assets.

In the event that the result of the operations described in the paragraph above is negative, i.e. it results in an asset, the Group recognises the resulting asset up to the limit of the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. Economic benefits are available to the Group when they are realisable at some point during the life of the plan or on settlement of plan liabilities, even when not immediately realisable at the reporting date.

Income or expense related to defined benefit plans is recognised as employee benefits expense and is the sum of the net current service cost and the net interest cost of the net defined benefit asset or liability. Remeasurements of the net defined benefit asset or liability are recognised in other comprehensive income, comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability or asset. The costs of managing the plan assets and any tax payable by the plan itself, other than tax included in the actuarial assumptions, are deducted when determining the return on plan assets. Any amounts deferred in other comprehensive income are reclassified to retained earnings during that year.

The Group recognises the past service cost as an expense for the year at the earlier of when the plan amendment or curtailment occurs and when the Group recognises related restructuring costs or termination benefits.

The present value of defined benefit obligations is calculated annually by independent actuaries using the Projected Unit Credit Method. The discount rate of the net defined benefit asset or liability is calculated based on the yield on high quality corporate bonds of a currency and term consistent with the currency and term of the post-employment benefit obligations.

The fair value of plan assets is calculated applying the principles of IFRS 13 Fair Value Measurement. In the event that plan assets include insurance policies that exactly match the amount and timing of some or all of the benefits payable under the plan, the fair value of the insurance policies is equal to the present value of the related obligations.

The Group only offsets an asset relating to one plan against the liability of another plan provided that it has a legally enforceable right to use a surplus in one plan to settle its obligation under the other plan, and when it intends to settle the obligation on a net basis, or to realise the surplus on one plan and settle its obligation under the other plan simultaneously.

Assets and liabilities arising from defined benefit plans are recognised as current or non-current based on the period of realisation of related assets or settlement of related liabilities.

Termination benefits

Termination benefits paid or payable that do not relate to restructuring processes in progress are recognised when the Group is demonstrably committed to terminating the employment of current employees prior to retirement date. The Group is demonstrably committed to terminating the employment of current employees when it has a detailed formal plan and is without realistic possibility of withdrawing or changing the decisions made.

Restructuring-related termination benefits

Restructuring-related termination benefits are recognised when the Group has a constructive obligation, that is, when it has a detailed formal plan for the restructuring and there is valid expectation on the part of those affected that the restructuring will be carried out because the Group has already started to implement the plan or has announced its main features to those affected by it.

Employee benefits

The Group recognises the expected cost of short-term employee benefits in the form of accumulating compensated absences when the employees render service that increases their entitlement to future compensated absences. In the case of non-accumulating compensated absences, the expense is recognised when the absences occur.

t) Provisions

Provisions are recognised when the Group has a present obligation (legal or implicit) as a result of a past event, the settlement of which requires an outflow of resources which is probable and can be estimated reliably. If it is virtually certain that some or all of a provisioned amount will be reimbursed by a third party, for example through an insurance contract, an asset is recognised in the consolidated statement of financial position and the related expense is recognised in the consolidated income statement, net of the foreseen reimbursement. If the time effect of money is material, the provision is discounted, recognising the increase in the provision due to the time effect of money as a finance cost.

Provisions for onerous contracts are based on the present value of unavoidable costs, determined as the lower of the contract costs, net of any income that could be generated, and any compensation or penalties payable for non-completion.

u) Share-based payments for goods and services

The Group recognises the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. It recognises an increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability with a balancing entry in the income statement or assets if the goods or services were acquired in a cash-settled share-based payment transaction.

The Group recognises equity-settled share-based payment transactions, including capital increases through non-monetary contributions, and the corresponding increase in equity at the fair value of the goods or services received, unless that fair value cannot be reliably estimated, in which case the value is determined by reference to the fair value of the equity instruments granted.

Equity instruments granted as consideration for services rendered by Group employees or third parties that supply similar services are measured by reference to the fair value of the equity instruments offered.

(i) Equity-settled share-based payment transactions

Equity-settled payment transactions are recognised as follows:

  • If the equity instruments granted vest immediately on the grant date, the services received are recognised in full, with a corresponding increase in equity;
  • If the equity instruments granted do not vest until the employees complete a specified period of service, those services are accounted for during the vesting period, with a corresponding increase in equity.

The Group determines the fair value of the instruments granted to employees at the grant date.

If the service period is prior to the plan award date, the Group estimates the fair value of the consideration payable, to be reviewed on the plan award date itself.

Market vesting conditions and non-vesting conditions are taken into account when estimating the fair value of the instrument. Vesting conditions, other than market conditions, are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for services received is based on the number of equity instruments expected to vest. Consequently, the Group recognises the amount for the services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest and revises that estimate if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates.

Once the services received and the corresponding increase in equity have been recognised, no additional adjustments are made to equity after the vesting date, although any necessary reclassifications in equity may be made.

(ii) Tax effect

In accordance with prevailing tax legislation in Spain and other countries in which the Group operates, costs settled through the delivery of share-based instruments are deductible in the tax period in which delivery takes place, in which case a temporary difference arises as a result of the time difference between the accounting recognition of the expense and its tax-deductibility.

v) Grants, donations and bequests

Grants, donations and bequests are recorded as a liability when, where applicable, they have been officially awarded and the conditions attached to them have been met or there is reasonable assurance that they will be received.

Monetary grants, donations and bequests are measured at the fair value of the sum received, whilst non-monetary grants, donations and bequests received are accounted for at fair value.

In subsequent years, grants, donations and bequests are recognised as income as they are applied.

Capital grants are recognised as income over the same period and in the proportions in which depreciation on those assets is charged or when the assets are disposed of, derecognised or impaired.

w) Income taxes

Income tax in the consolidated income statement comprises total debits or credits deriving from income tax paid by Spanish Group companies and those of a similar nature of foreign entities.

The income tax expense for each year comprises current tax and, where applicable, deferred tax.

Current tax assets or liabilities are measured at the amount expected to be paid to or recovered from the taxation authorities. The tax rates and tax laws used to calculate these amounts are those that have been enacted or substantially enacted at the reporting date.

Deferred tax liabilities reflect income tax payable in future periods in respect of taxable temporary differences. Deferred tax assets reflect income tax recoverable in future periods in respect of deductible temporary differences, tax loss carryforwards pending offset and unused tax credits. Temporary differences are differences between the carrying amount of an asset or liability and its tax base.

The Group calculates deferred tax assets and liabilities using the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted at the end of the reporting period.

Deferred tax assets and liabilities are not discounted at present value and are classified as non-current irrespective of the reversal date.

At each close the Group analyses the carrying amount of the deferred tax assets recognised and makes the necessary adjustments where doubts exist regarding their future recovery. Deferred tax assets not recognised in the consolidated statement of financial position are also re-evaluated at each accounting close and are recognised when their recovery through future tax profits appears likely, as specified in note 2.4 (a).

Current and deferred tax are recognised as income or expense and included in profit or loss for the year, except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different year, directly in equity, or from a business combination.

Deferred tax assets and liabilities are presented at their net amount only when they relate to income taxes levied by the same taxation authority on the same taxable entity, and when the Group has a legally established right to offset these current tax assets and liabilities or intends to realise the assets and settle the liabilities simultaneously.

x) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

y) Classification of assets and liabilities as current and non-current

The Group classifies assets and liabilities in the consolidated statement of financial position as current and non-current. Current assets and liabilities are determined as follows:

  • Assets are classified as current when they are expected to be realised or are intended for sale or consumption in the Group’s normal operating cycle, they are held primarily for the purpose of trading, they are expected to be realised within 12 months after the reporting date or are cash or a cash equivalent, unless the assets may not be exchanged or used to settle a liability for at least 12 months after the reporting date.
  • Liabilities are classified as current when they are expected to be settled in the Group’s normal operating cycle, they are held primarily for the purpose of trading, they are due to be settled within 12 months after the reporting date or the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

z) Environmental issues

The Group takes measures to prevent, reduce or repair the damage caused to the environment by its activities.

Expenses derived from environmental activities are recognised as other operating expenses in the period in which they are incurred. The Group recognises environmental provisions if necessary.

aa) Related party transactions

Sales to and purchases from related parties are carried out under the same conditions as those existing in transactions between independent parties.

ab) Interest

Interest is recognised using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of a financial instrument to the net carrying amount of that financial instrument based on the contractual terms of the instrument and not considering future credit losses.

4. Business combinations

a) Acquisition of Eroski Group stores

On 4 November 2014 the Company entered into a framework agreement with Cecosa Supermercados, S.L.; Supermercados Picabo, S.L. and Caprabo, S.A., entities belonging to the Eroski Group, for the sale and purchase of the assets of a maximum of 160 supermarkets that operated under the commercial names Eroski Center, Eroski City and Caprabo, (hereinafter "the Transaction"). At 2014 year end, completion of the Transaction was subject to authorisation being obtained from the competition authorities, as well as compliance with other terms and conditions usually applicable to this type of acquisition. The agreed maximum price was Euros 146 million and was subject to potential adjustments, depending on the number of establishments finally acquired.

On 9 April 2015 the National Markets and Competition Commission approved the Transaction subject solely to DIA's assumption of several commitments, previously proposed by DIA, related to the obligation to divest three stores, two of which are owned by the Eroski Group and one by the DIA Group. The Parent agreed to assume these commitments. On 17 April 2015 the Group signed the document establishing an initial transaction scope of 144 establishments at a price of Euros 135,348 thousand, the effective acquisition of which took place gradually over the following four months. On 28 July 2015 the conveyance of these 144 establishments was completed and on 7 August 2015 an addendum was signed to the framework agreement whereby the scope of the transaction, pending agreement regarding the possible conveyance of a further two establishments, was finally confirmed at 147 establishments for a total price of Euros 140,548 thousand.

At 31 December 2015 the DIA Group had paid a total of Euros 140,548 thousand for the transfer of 147 establishments. The difference between the price paid and the fair value of the identifiable net assets acquired (land of Euros 11,578 thousand, buildings of Euros 12,921 thousand and technical installations and machinery of Euros 21,805 thousand) was recognised as goodwill totalling Euros 94,244 thousand. In 2016, with the conveyance of a final establishment marking the definitive conclusion of the transaction, the DIA Group paid Euros 1,300 thousand, recognising additional goodwill of Euros 1,208 thousand, which was allocated between the establishments acquired, and technical installations and machinery of Euros 92 thousand (see note 7.1).

Had the business combination taken place on 1 January 2015, the Group’s revenue and net profit for the year attributable to equity holders of the Parent would have increased by Euros 177,800 thousand and decreased by Euros 2,400 thousand, respectively.

b) Acquisition of a business from Mobile Dreams Factory Marketing, S.L.

In July 2015 the Group acquired the assets of Mobile Dreams Factory Marketing, S.L., in relation to the internet sale of products, for a fixed price of Euros 750 thousand and a variable price, up to a maximum of Euros 2,313 thousand, linked to sales made during the period from 1 July 2015 to 30 June 2017. This contingent consideration, which at the time of the acquisition was valued by an independent expert at Euros 1,755 thousand and at the reporting date of these annual accounts at Euros 1,890 thousand, was recognised under non-current provisions in other provisions at 31 December 2015. At the reporting date of these annual accounts the amount of the contingent consideration has been reversed (see note 18.2 Other Provisions).

Details of the consideration given, the fair value of the net assets acquired and the goodwill on this business combination are as follows:

Thousands of Euros 2015
Price agreed (contingent part included) 2,505
Value of the net assets adquired 331
Goodwill (Excess of net assets acquired over the acquisition cost) (note 7.1) 2,174

Had the business combination taken place on 1 January 2015, the Group’s revenue and net profit for the year attributable to equity holders of the Parent would have increased by Euros 1,031 thousand and decreased by Euros 203 thousand, respectively.

5. Information on operating segments

For management purposes the Group is organised into business units, based on the countries in which it operates, and has two reporting segments:

  • Iberia (Spain, Portugal and Switzerland).
  • Emerging Countries (Brazil, Argentina, Paraguay and China).

Management monitors the operating results of its business units separately in order to make decisions on resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed at Group level and are not allocated to operating segments.

Transfer prices between operating segments are on an arm’s length basis similar to transactions with third parties

Details of the key indicators expressed by segment are as follows:

Thousands of Euros at 31st December 2016 Segment - Iberia - Segment - Emerging - Consolidated
Sales (1)) 5,745,948 3,121,673 8,867,621
EBITDA 433,641 103,297 536,938
% of sales 7.5% 3.3% 6.1%
Non-current assets 1,969,600 537,662 2,507,262
Liabilities 2,636,161 888,070 3,524,231
Acquisition of non-current assets 225,774 119,589 345,363
Number of outlets (2) 5,498 2,156 7,799
Thousands of Euros at 31st December 2015 Segment - Iberia - Segment - Emerging - Consolidated
Sales (1) 5,754,673 3,170,781 8,925,454
EBITDA 414,462 97,059 511,521
% of sales 7.2% 3.1% 5.7%
Non-current assets 1,933,945 421,157 2,355,102
Liabilities 2,457,796 671,608 3,129,404
Acquisition of non-current assets 381,996 119,589 345,363
Number of outlets (2) 5,498 2,156 7,718

(1) Sales eliminations arising from consolidation are included in segment Iberia

(3) Number of stores at the closing date.

Details of EBITDA by consolidated income statement item are as follows:

Thousands of Euros 2016 2015
Results from operating activities 295,059 274,142
Amortisation -232,953 -214,026
Impairment -13,262 -11,013
Losses on disposal of fixed assets 4,336 -12,340
Total EBITDA 536,938 511,521

Details of revenues and non-current assets (except for financial assets and deferred tax assets), by country, are as follows:

  Sales Tangible and intangible assets
Thousands of Euros 2016 2015 2016 2015
Spain 5,064,016 5,076,646 1,336,634 1,327,307
Portugal 681,932 678,027 264,168 267,628
Argentina 1,310,881 1,532,301 154,407 144,990
Paraguay 56 - - -
Brazil 1,611,872 1,435,627 291,056 203,960
China 198,864 202,853 18,133 20,918
Switzerland - - 3 33
Total 8,867,621 8,925,453.85 2,064,401 1,964,836

6. Property, plant and equipment

Details of property, plant and equipment and movements are as follows:

Thousands of Euros Land Buildings Equipment, fixtures and fittings and machinery Other installations, utensils and furniture Tangible assets in progress and advances given Other fixed assets Total
Cost
At 1st January 2015 139,180 1,101,611 1,277,044 109,566 44,523 129,513 2,801,437
Additions 845 67,372 159,987 22,422 149,722 8,461 408,809
Disposals -158 -24,273 -39,412 -9,807 -74 -6,415 -80,139
Transfers -13 93,843 1,502 7,100 -101,006 9,785 11,211
Additions to the consolidated group 11,578 12,921 21,805 3 - - 46,307
Other movements - 14,197 -16,475 -20 -188 -8 -2,494
Translation differences -4,593 -65,352 -51,923 -19,904 -15,755 -9,208 -166,735
At 31st December 2015 146,839 1,200,319 1,352,528 109,360 77,222 132,128 3,018,396
Additions 802 72,484 159,344 21,860 47,037 31,280 332,807
Disposals -10,055 -17,394 -24,567 -2,837 -334 -7,606 -62,793
Transfers 107 49,384 81,529 4,786 -100,470 12,280 47,616
Other movements - - - -15 - - -15
Translation differences 2,350 18,200 20,390 4,494 5,110 5,379 55,923
At 31st December 2016 140,043 1,322,993 1,589,224 137,648 28,565 173,461 3,391,934
Thousands of Euros Land Buildings Equipment, fixtures and fittings and machinery Other installations, utensils and furniture Tangible assets in progress and advances given Other fixed assets Total
Depreciation
At 1st January 2015 - -540,096 -821,273 -51,699 - -106,947 -1,520,015
Amortisation and depreciation (note 21.5) - -58,398 -122,243 -12,998 - -11,525 -205,164
Disposals - 19,030 30,178 8,402 - 6,160 63,770
Transfers - -1,184 -4,733 -788 - -4,747 -11,452
Other movements - -8,324 10,833 -34 - 7 2,482
Translation differences - 9,478 21,546 6,504 - 6,528 44,056
At 31st December 2015 - -579,494 -885,692 -50,613 - -110,524 -1,626,323
Amortisation and depreciation (note 21.5)) - -58,130 -133,929 -13,994 - -17,218 -223,271
Disposals - 2,281 16,041 1,169 - -7,182 26,673
Transfers - -18,844 -27,245 -2,784 - -555 -49,428
Other movements - -672 4 -4 - - -672
Translation differences - -4,360 -12,138 -1,464 - -2,920 -20,882
At 31st December 2016 - -659,219 -1,042,959 -67,690 - -124,035 -1,893,903
Thousands of Euros Land Buildings Equipment, fixtures and fittings and machinery Other installations, utensils and furniture Tangible assets in progress and advances given Other fixed assets Total
Impairment
At 1st January 2015 -612 -8,333 -2,121 - - - -11,066
Allowance (note 21.5) - -8,248 -3,844 -11 - -3 -12,106
Distribution - 1,245 279 - - - 1,524
Reversals (note 21.5) - 569 756 2 - - 1,327
Other movements - -165 163 - - - -2
Transfers - -3 47 -23 - - 21
Translation differences - 224 15 - - - 239
At 31st December 2015 -612 -14,711 -4,705 -32 - -3 -20,063
Allowance (note 21.5) - -9,515 -5,731 -1 - -2 -15,249
Distribution - 2,002 1,122 - - -2 3,126
Reversals (note 21.5) - 1,778 855 - - - 2,633
Transfers - 748 24 23 - - 795
Translation differences - -186 -9 - - - -195
At 31st December 2016 -612 -19,884 -8,444 -10 - -3 -28,953
Net carrying amount
At 31st December 2015 146,227 606,114 462,131 58,715 77,222 21,601 1,372,010
At 31st December 2016 139,431 643,890 537,821 69,948 28,565 49,423 1,469,078

Additions for 2016 include Euros 188,880 thousand invested in Spain in respect of new store openings, refurbishments and the remodelling of existing stores to new formats (Euros 243,436 thousand at 31 December 2015, of which total investments of Euros 115,263 thousand related to store openings and, primarily, the remodelling of 99 stores purchased from the Eroski Group to the “La Plaza de DIA” format). In Portugal, investments in 2016 totalled Euros 27,007 thousand, and related to the remodelling of stores to new formats (Euros 32,061 thousand at 31 December 2015). As in the preceding year, additions in the emerging countries in 2016 were primarily due to opening new establishments, carrying out refurbishments and remodelling existing stores to new formats. In Argentina these investments amounted to Euros 49,915 thousand (Euros 92,532 thousand at 31 December 2015) and in Brazil to Euros 62,390 thousand (Euros 76,906 thousand at 31 December 2015).

Disposals for 2016 and 2015 primarily comprise the sale of properties owned by the DIA Group to third parties in 2016 and items replaced as a result of the aforementioned improvements and disposals due to store closures in both years. Assets with a total carrying amount of Euros 25,621 thousand were derecognised in Spain in 2016, primarily due to the sale of the aforementioned properties (Euros 7,526 thousand at 31 December 2015). Other disposals for 2016 and 2015 relate to the adaptation of stores in other countries in which the DIA Group operates.

The Group has written down the assets of certain CGUs to their value in use, with a net impact on property, plant and equipment of Euros 12,616 thousand in 2016 and Euros 10,779 thousand in 2015.

Details of the cost of fully depreciated property, plant and equipment in use at 31 December are as follows:

Thousands of Euros at 31 December 2016 2015
Buildings 341,068 264,217
Equipment, fixtures and fittings and machinery 718,841 572,999
Other installations, utensils and furniture 29,501 18,483
Other fixed assets 95,398 85,959
Total 1,184,808 941,658

Buildings include the Seville warehouse of Twins Alimentación S.A., which is subject to a financing arrangement. Furthermore, land and buildings include three mortgage loans secured on three warehouses in Tarragona, Zaragoza and Cuenca (see note 17.1).

The Group has taken out insurance policies to cover the risk of damage to its property, plant and equipment. The coverage of these policies is considered sufficient.

Finance leases

Finance leases have been arranged for the stores at which the Group’s principal activities are carried out. There are also finance leases for technical installations, machinery and other fixed assets.

During 2016 the most significant additions reflect contracts for motor vehicles in the Parent which have been considered as finance leases. The Group has included the following items of property, plant and equipment under finance leases and hire purchase contracts:

Thousands of Euros 2016 2015
Land 176 115
Cost 176 115
Buildings 481 316
Cost 527 344
Accumulated depreciation -46 -28
Equipment, fixtures and fittings and machinery 29,350 26,652
Cost 46,407 40,403
Accumulated depreciation -17,057 -13,751
Other installations, utensils and furniture 3 4
Cost 3 4
Accumulated depreciation -1 -1
Other fixed assets (transports) 12,422 -
Cost 15,902 -
Accumulated depreciation -3,480 -
Net carrying amount 42,432 27,086

The amount of the cost indicated in the previous detail corresponds, in every case, with the fair value of the assets in the date in which the financial lease contracts were signed.

Interest incurred on finance leases totalled Euros 3,628 thousand in 2016 and Euros 1,589 thousand in 2015 (see note 21.7).

Future minimum lease payments under finance leases, together with the present value of the net minimum lease payments, are as follows:

  2016 2015
Thousands of Euros Minimum payments Present value Minimum payments Present value
Less than one year 13,420 11,634 9,312 7,736
Two to five years 30,088 27,480 21,947 18,191
More than 5 years 3,963 3,825 1,196 994
Total minimum payments and present value 47,471 42,939 32,455 26,921
Less current portion (note 17.1) -13,420 -11,634 -9,312 -7,736
Total non-current (note 17.1) 34,051 31,305 23,143 19,185

Future minimum lease payments are reconciled with their present value as follows:

Thousands of Euros 2016 2015
Minimum future payments 47,448 32,432
Purchase option 23 23
Unaccrued finance expenses -4,532 -5,534
Present value 42,939 29,921

7. Intangible assets

7.1 Goodwill

Details of goodwill by operating segment before aggregation and movement during the period are as follows

Thousands of Euros Spain Portugal Total
Net goodwill at 01/01/2015 424,888 39,754 464,642
Additions to the consolidated group (note 4) 93,695 - 93,695
Disposals -274 - -274
Net goodwill at 31/12/2015 518,309 39,754 558,063
Additions to the consolidated group (note 4) 1,208 - 1,208
Disposals -1,158 - -1,158
Provision for impairment (note 21.5) -295 - -295
Net goodwill at 31/12/2016 518,064 39,754 557,818

The goodwill reported by the Group primarily relates to the following business combinations:

  • In 2016 goodwill in Spain increased by Euros 1,208 thousand due to the acquisition of the Eroski Group stores in 2015. There was also a disposal of Euros 1,104 thousand due to the closure of a store. Goodwill rose from Euros 94,244 thousand in 2015 to Euros 94,348 thousand at 31 December 2016 (see note 4). Also in 2015 after the acquisition of the assets of Mobile Dreams Factory Marketing, S.L (see note 4) goodwill rose by Euros 2,174 thousand. In 2014, goodwill increased by Euros 157,839 thousand due to the acquisition of Grupo El Árbol on 31 October 2014. In 2015, after an adjustment of Euros 2,727 thousand in the acquisition price the related goodwill was also adjusted to Euros 155,112 thousand. Goodwill generated in prior years mainly relates to the acquisition of Plus Supermercados S.A. for Euros 160,553 thousand in 2007, the acquisition of Distribuciones Reus, S.A. for Euros 26,480 thousand in 1991 and the acquisition of Schlecker for Euros 48,591 thousand in 2013. Also, in Spain additional goodwill has been generated in the past as a result of the various acquisitions of stores and groups of stores. The Euros 295 thousand provision for impairment recognised in 2016 relates to a store that the Group plans to close in 2017.
  • In Portugal, goodwill was generated on the business combination arising from the acquisition of Companhia Portuguesa de Lojas de Desconto, S.A. in 1998

For impairment testing purposes, goodwill has been allocated to DIA’s cash-generating units up to country level

The recoverable amount of a group of CGUs is determined based on its value in use. These calculations are based on cash flow projections from the five-year financial budgets approved by management. Cash flows beyond this five-year period are extrapolated using the estimated growth rates indicated below. The growth rate should not exceed the average long-term growth rate for the distribution business in which the Group operates.

The following main assumptions are used to calculate value in use:

  Spain Portugal
  2016 2015 2016 2015
Sales growth rate (1) 1.6% 3% 4% 4.9%
Growth rate (2) 2% 2% 2% 2%
Discount rate (3) 6.42% 6.88% 7.85% 7.49%

(1) Weighted average annual growth rate of sales for the five-year projected period
(2) Weighted average growth rate used to extrapolate cash flows beyond the budgeted period
(3) Pre-tax discount rate applied to cash flow projections.

These assumptions have been used to analyse each group of CGUs within the business segment.

The Group determines budgeted weighted average sales growth based on estimated future performance and market forecasts.

Group management considers that the average weighted growth rates for sales over the next five years are consistent with past performance, taking into account expansion plans, store refits to new formats and trends in macroeconomic indicators (population, inflation in food prices, etc.).

According to the assumptions used to forecast cash flows, the gross margin will remain stable throughout the budgeted period.

The weighted average growth rates of cash flows in perpetuity are consistent with the forecasts included in industry reports. The discount rates used are pre-tax values calculated by weighting the cost of equity against the cost of debt using the average industry weighting. The cost of equity in each country is calculated considering the following factors: the risk-free rate of the country, the industry adjusted Beta, the market risk differential and the size of the company.

In all cases sensitivity analyses are performed in relation to the discount rate used and the growth rate of cash flows in perpetuity to ensure that reasonable changes in these assumptions would not have an impact on the possible recovery of the goodwill recognised. Specifically, a variation of 200 basis points in the discount rate used, a 0% growth rate of income in perpetuity, a 20 b.p. fall in the EBITDA margin or a 1% reduction in the average growth rate of sales, would not result in the impairment of any of the goodwill recognised, except that of the Grupo El Árbol .

For all the other countries, the following assumptions are used to calculate value in use of property, plant and equipment and intangible assets:

  Argentina Brazil China
2016 2015 2016 2015 2016 2015
Growth rate (2) 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Discount rate (3) 10.26% 12.20% 9.43% 8.56% 6.81% 7.25%

7.2. Other intangible assets

Details of other intangible assets and movements are as follows:

Thousands of Euros Development cost Industrial property Leaseholds Computer software Other intangible assets Total
Cost
At 1st January 2015 5,133 5,252 27,491 26,385 15,863 80,124
Additions/Internal development 5,410 40 - 5,810 128 11,388
Disposals - - (389) (25) (106) (520)
Transfers (5,725) 3,311 - 2,522 82 190
Additions to the consolidated group - - - 328 - 328
Other movements - (407) - - (8) (415)
Translation differences - - - (836) (409) (1,245)
At 31st December 2015 4,818 8,196 27,102 34,184 15,550 89,850
Additions/Internal development 7,065 477 - 3,409 397 11,348
Disposals - - (345) (423) (197) (965)
Transfers (2,507) 1,272 (2,310) 2,049 2,513 1,017
Translation differences - - - 553 349 902
At 31st December 2016 9,376 9,945 24,447 39,772 18,612 102,152
Depreciation
At 1st January 2015 - (1,908) (21,021) (19,315) (5,027) (47,271)
Amortisation and depreciation (note 21.5) - (1,396) (1,143) (5,814) (509) (8,862)
Disposals - - 318 25 - 343
Transfers - - (34) - 64 30
Other movements - 407 1 (1) 8 415
Translation differences - - - 496 156 652
At 31st December 2015 - (2,897) (21,879) (24,609) (5,308) (54,693)
Amortisation and depreciation (note 21.5) - (1,839) (1,065) (6,275) (503) (9,682)
Disposals - - 345 386 - 731
Translation differences - - - (323) (133) (456)
At 31st December 2016 - (4,736) (22,599) (30,821) (5,944) (64,100)
Impairment
At 1st January 2015 - - (48) - (238) (286)
Allowance (note 21.5) - - (76) - (324) (400)
Distribution - - 73 - 30 103
Reversals (note 21.5) - - - - 166 166
Translation differences - - - - 23 23
At 31st December 2015 - - (51) - (343) (394)
Allowance (note 21.5) - - (13) - (338) (351)
Distribution - - - - 198 198
At 31st December 2016 - - (64) - (483) (547)
Net carrying amount
At 31st December 2015 4,818 5,299 5,172 9,575 9,899 34,763
At 31st December 2016 9,376 5,209 1,784 8,951 12,185 37,505

Additions to development costs in 2016 reflect IT projects developed internally in Spain (Euros 3,426 thousand for IT projects and a Euros 1,984 thousand investment in the development of commercial models and product ranges at 31 December 2015). The Group also acquired computer software in Spain for Euros 1,056 thousand in 2016 (Euros 4,498 thousand at 31 December 2015). In addition, transfers of development costs in 2016 and 2015 relate to industrial property from the investment in the development of commercial models, product ranges and computer software.

As indicated in note 7.1, in 2016 and 2015 the DIA Group recognised impairment losses on its intangible assets. These impairment losses have been included in the income statement under amortisation, depreciation and impairment (see note 21.5).

Details of fully amortised intangible assets at each year end are as follows:

Thousands of Euros 2016 2015
Computer software 32,382 24,233
Leaseholds and other 15,053 7,253
Total 47,435 31,486

8. Operating leases

The Group has leased certain assets under operating leases from third parties.

The main operating leases are linked to some of its warehouses and the business premises where the Group carries out its principal activity.

Details of the main operating lease contracts in force at 31 December 2016 are as follows:

Warehouse Country Minimum lease period
Getafe Spain 2.026
Mallén Spain 2.023
Manises Spain 2.018
Mejorada del Campo Spain 2.018
Miranda Spain 2.017
Orihuela Spain 2.023
Sabadell Spain 2.022
San Antonio Spain 2.023
Tarragona Spain 2.018
Villanubla Spain 2.019
Villanueva de Gállego Spain 2.023
Santander Spain 2.017
Granda-Siero Spain 2.020
Almería Spain 2.017
Salamanca Spain 2.017
Azuqueca Spain 2.018
Albufeira Portugal 2.017
Loures Portugal 2.017
Grijó Portugal 2.021
Fengshujinda China 2.017
Anhanghera Brazil 2.017
Guarulhos Brazil 2.017
Americana Brazil 2.017
Porto Alegre Brasil 2.017
Ribeirao Preto Brazil 2.018
Belo Horizonte Brazil 2.017
Mauá Brazil 2.020
Avellaneda Argentina 2.017

Operating lease payments are recognised in the consolidated income statement as follows

Thousands of Euros 2016 2015
Minimum lease payments, property (note 21.4) 310,880 299,769
Minimum lease payments, furniture and equipment (note 21.4) 5,585 7,045
Sublease payments (note 21.1) (26,415) (23,025)
Total 290,050 283,789

Sublease revenues comprise the amounts received from the concessionaires to carry out their activities, and in turn improve the Group’s commercial offering to its customers, as well as those received from subleases to franchisees.

Future minimum payments under non-cancellable operating leases for property are as follows:

Thousands of Euros 2016 2015
Less than one year 103,823 100,907
One to five years 93,931 80,458
Over five years 39,792 31,556
Total 237,546 212,921

Future minimum payments under non-cancellable operating leases for furniture and equipment are as follows

Thousands of Euros 2016 2015
Less than one year 5,094 4,804
One to five years 5,321 4,722
Over five years 26 -
Total 10,441 9,526

9. Financial Assets

Details of financial assets in the consolidated statements of financial position at 31 December are as follows:

Thousands of Euros 2016 2015
Non-current assets
Trade and other receivables 69,345 51,291
Non-current financial assets 58,657 66,945
Consumer loans from financing activities 401 458
Current assets
Trade and other receivables 260,862 221,193
Consumer loans from financing activities 6,220 6,548
Other current financial assets 19,734 15,718
TOTALES 415,219 362,153

9.1 Trade and other receivables

Details of trade and other receivables are as follows:

Thousands of Euros 2016 2015
Trade and other receivables 69,345 51,291
Total non-current 69,345 51,291
Trade and other receivables 121,657 103,696
Receivables from suppliers 131,644 114,777
Advances to suppliers 2,709 2,720
Receivables from associates companies (note 23) 4,852 -
Total current 260,862 221,193

a) Trade and other receivables

This balance primarily comprises current and non-current trade receivables for merchandise sales. The Group provides financing to its franchisees, the present value of which at 31 December 2016 amounts to Euros 86,381 thousand (Euros 71,154 thousand at 31 December 2015), as a result of the rise in sales to franchisees. These trade balances have generated interest of Euros 2,743 thousand in 2016 (Euros 2,099 thousand in 2015), which has been recognised in the consolidated income statement.

b) Receivables from suppliers

Balances receivable from suppliers mainly reflect non-trading income negotiated with suppliers.

In 2016 the Group entered into agreements to transfer supplier trade receivables with and without recourse (see notes 3 (m) and 24 d)). The accrued cost of the transfer of these receivables amounted to Euros 139 thousand in 2016 (see note 21.7). The transferred receivables that had not yet fallen due at 31 December 2016 totalled Euros 88,449 thousand and all were considered to be without recourse.

c) Trade receivables from associates/h4>

In 2016 transactions were carried out with ICDC. These were basically commercial transactions and the related balance receivable at 31 December 2016 was Euros 4,852 thousand (see note 23).

d) Impairment

Movements in the provision for impairment of receivables (see other disclosures on credit risk in note 24 d)) were as follows:

Thousands of Euros 2016 2015
At 1st January (37,013) (32,863)
Charge (19,318) (16,483)
Applications 126 617
Reversals 13,425 8,688
Transfers - (1,075)
Translation differences (699) 4,103
At 31st December (43,479) (37,013)

9.2. Other financial assets

Thousands of Euros 2016 2015
Equity instruments 88 88
Security and other deposits 46,269 42,648
Other guarantees 2,000 16,600
Other loans 572 881
Other financial assets 9,728 6,728
Total non-current 58,657 66,945
Security and other deposits 10,324 640
Other loans 4,139 3,741
Derivatives (note 10) 123 8,203
Other financial assets 5,148 3,134
Total current 19,734 15,718

Non-current security and other deposits are the amounts pledged to lessors to secure lease contracts. These amounts are measured at present value and any difference with their nominal value is recognised under prepayments for current or non-current assets. The interest on these assets included in the consolidated income statement in 2016 amounted to Euros 495 thousand (Euros 658 thousand in 2015). Current security and other deposits comprise amounts deposited with franchisees totalling Euros 2,958 thousand and other bank deposits totalling Euros 7,366 thousand.

At 31 December 2016 other guarantees consist of the amount withheld from the sellers in the acquisition of establishments from the Eroski Group, which will be released after five years, in accordance with the addendum to the framework contract signed on 7 August 2015. In 2015, in addition to this amount, this line item included deposits totalling Euros 14,600 thousand in respect of this transaction. These deposits were released to the Eroski Group in 2016 after an agreement was reached with the seller (see notes 4 and 17.2).

In both years other loans mainly consisted of loans extended by the Group to employees.

An asset derived from sales tax in Brazil is the main component of both the current and the non-current balance under other financial assets, totalling Euros 14,876 thousand in 2016 and Euros 9,862 thousand in 2015.

9.3 Current and non-current consumer loans from financing activities

These balances mainly reflect loans granted by FINANDIA, EFC and DIA Argentina to individuals resident in Spain and Argentina, respectively, and are calculated at amortised cost, which does not differ from their fair value.

In 2016, as in the preceding period, in Spain the effective interest rate of credit card receivables ranged from 0% for customers with charge cards to a variable nominal monthly rate of 2.16% for customers making use of revolving credit facilities. These rates may be changed subject to prior individual notification to the customer. In Argentina the nominal annual rate for customers using revolving credit facilities in 2016 was 52.75% and the annual nominal rate for financing purchases in 2-24 instalments was 20.31%.

Interest and similar income from these assets recognised in the consolidated income statement at 31 December 2016 amounted to Euros 1,700 thousand (Euros 2,087 thousand at 31 December 2015) (see note 21.1).

10. Derivate financial instruments and hedges

Details of derivative financial instruments at the 2016 and 2015 reporting dates are as follows

Thousands of Euros 2016 2015
Exchange derivatives - Cash flows hedges (note 9.2) 123 66
Exchange and interest derivatives - Fair value hedges (note 9.2 and 17.1) (6,589) 8,137
Exchange and interest derivatives - Fair value hedges (note 9.2 and 17.1) (11) (40)
Total (6,477) 8,163

The DIA Group holds various hedging instruments to mitigate possible adverse effects of exchange rates and interest rates. In both years the balance of the principal derivative financial instrument is that of a derivative arranged in Brazil in respect of bank loans from third parties.

The effect of these instruments on the consolidated income statements in the two periods was not significant.

11. Other equity-accounted investees

The balance under equity-accounted investees in 2016 and 2015 reflects the 50% investment in ICDC Services Sàrl (see note 1). This company commenced its activities in 2016. Also in 2016, DIA Paraguay's entry into the consolidated Group resulted in the acquisition of an indirect 10% interest in DIPASA.

12. Other assets

Details of other assets are as follows:

Thousands of Euros 2016 2015
Corriente Corriente
Prepayments for operating leases 3,191 3,339
Prepayments for guarantees 481 667
Prepayments for insurance contracts 657 809
Other prepayments 3,811 3,000
Total other assets 8,140 7,815

13. Inventories

Details of inventories are as follows:

Thousands of Euros 2016 2015
Goods for resale 662,640 554,276
Other supplies 6,952 8,213
Total inventories 669,592 562,489

At 31 December 2016 and 2015 there are no restrictions to the availability of any inventories.

The Group has taken out insurance policies to cover the risk of damage to its inventories. The coverage of these policies is considered sufficient.

14. Cash and cash equivalents

Details of cash and cash equivalents are as follows:

Thousands of Euros 2016 2015
Cash and current account balances 165,778 117,642
Cash equivalents 198,822 36,985
Total 364,600 154,627

Balances in current accounts earn interest at applicable market rates. Current investments are made for daily, weekly and monthly periods and have generated interest ranging from 0.05% to 0.15% in 2016 and from 0.1% to 0.97% in 2015.

The balance of cash equivalents at 31 December 2016 reflects the deposits maturing at under three months in Spain and Brazil. At 31 December 2015 this item consisted of deposits in Brazil.

15. Discontinued operations

In 2014 the Group decided to wind up Beijing DIA Commercial Co. Ltd. In 2015 the Group liquidated its net assets, including the cumulative translation differences, at an amount of Euros 1,477 thousand. The process to wind up this company was completed on 29 March 2016 (see notes 1 and 16.7).

16. Equity

16.1. Capital

At 31 December 2016 and 2015 share capital was Euros 62,245,651.30, represented by 622,456,513 shares of Euros 0.10 par value each, subscribed and fully paid. These shares are freely transferable.

At the Parent's general shareholders' meeting held on 24 April 2015, a share capital decrease was agreed through the redemption of own shares acquired under a share buy-back programme pursuant to Commission Regulation (EC) 2273/2003 of 22 December 2003. At the same general meeting, the shareholders authorised the board of directors to approve this decrease, with express powers to delegate this authority. On 27 July 2015 the Parent's board of directors agreed to delegate the powers conferred by the shareholders at their general meeting to specific legal representatives of the Parent, who in exercise of these powers carried out the share capital decrease by redeeming 28,614,045 own shares of DIA held in its portfolio with a par value of Euros 0.10 each, which represented 4.39% of the share capital (see note 16.3). On 2 October 2015 the deed of the capital decrease and the change to DIA's articles of association was filed with the Mercantile Registry of Madrid.

The Euros 184,411 thousand difference between the cost incurred to acquire the own shares used in this capital redemption and their par value was recognised with a charge of Euros 144,844 thousand to the share premium and a charge of Euros 39,567 thousand to reserves. DIA also appropriated an amount equal to the par value of the redeemed shares to a redeemed capital reserve, which will only become available if the conditions for reducing share capital set forth in article 335.c) of the Spanish Companies Act are met (see note 16.2).

As the redeemed shares were held by the Parent at the redemption date, no contributions were reimbursed as a result of this capital reduction.

The Parent’s shares are listed on the Spanish stock markets. According to public information filed with the Spanish National Securities Market Commission, the members of the board of directors control approximately 0.256% of the Parent’s share capital at the date of authorising these annual accounts for issue.

According to the same public information, the most significant shareholdings at the reporting date of these annual accounts are as follows:

  • Baillie Gifford & CO: 10.488%
  • Black rock INC.: 4.095%
  • Black Creek Investment Management INC: 3.069%

On 18 May 2015 Citigroup Global Markets Limited informed the Spanish National Securities Market Commission of the accelerated bookbuild offering of DIA shares undertaken on behalf of Cervinia Europe, S.à.r.l. and Blue Partners, S.à.r.l. This accelerated bookbuild offeringcomprised 55,200,000 DIA shares representing 8.48% of its share capital. On 19 May 2015 the aforementioned company reported the completion of this transaction for a total of Euros 408,480,000, with a price per share of Euros 7.40. This event resulted in the two proprietary directors, Mr. Nicolas Brunel and Mr. Nadra Moussalem, stepping down from the board of directors, having announced their resignation in letters dated 17 June 2015 received at the Parent's registered office on 18 June 2015. Mr. Juan María Nin Génova became a member of DIA's board of directors on 15 October 2015.

On 15 February 2016, the Parent’s board of directors approved the proposal of the Appointment and Remuneration Committee to appoint Ms. Angela Spindler as an independent co-opted director of DIA, thereby filling the vacancy left by the resignation of Mr. Nicolas Brunel on 17 June 2015.

At their annual general meeting on 22 April 2016, in addition to approving re-appointments and ratifications of directors, the shareholders were informed that Mr. Pierre Cuilleret had announced his resignation as independent director of DIA, to coincide with the upcoming expiry of his mandate, due to professional commitments that require his time and full attention. This decision was formalised, effective 22 April 2016, through a letter addressed to the board of directors. Moreover, the board of directors agreed to appoint Ms. Angela Lesley Spindler as a member of the Appointment and Remuneration Committee of DIA, following her ratification and re-appointment as director of DIA by the shareholders at the annual general meeting.

On 5 September 2016, the board of directors of DIA adopted the proposal of the Appointment and Remuneration Committee to appoint Mr. Borja de la Cierva Álvarez de Sotomayor as an independent co-opted director of the Company for the statutory three-year period, in order to fill the vacancy left by the resignation of Mr. Pierre Cuilleret on 22 April 2016.

Through a letter dated 7 September 2016 addressed to the Parent and received at its registered office, Ms. Rosalía Portela de Pablo announced her resignation as independent director from the board of directors of DIA and, therefore, as member of the Audit and Compliance Committee, due to her appointment as executive chairwoman of the board of directors of DEOLEO, S.A.

On 14 December 2016, the board of directors of DIA adopted the proposal of the Appointment and Remuneration Committee to appoint Ms. María Luisa Garaña Corces as an independent co-opted director of DIA and member of the Audit and Compliance Committee until the following annual general meeting, in order to fill the vacancy left by the resignation of Ms. Rosalía Portela on 7 September 2016.

The Group manages its capital with the aim of safeguarding its capacity to continue operating as a going concern, so as to continue providing shareholder remuneration and benefiting other stakeholders, while maintaining an optimum capital structure to reduce the cost of capital.

To maintain and adjust the capital structure, the Group can adjust the amount of dividends payable to shareholders, reimburse capital, issue shares or dispose of assets to reduce debt.

Like other groups in the sector, the DIA Group controls its capital structure on a debt ratio basis. This ratio is calculated as net debt divided by adjusted EBITDA. Net debt is the sum of financial debt less cash and other items. Adjusted EBITDA comprises earnings before depreciation and amortisation, impairment and gains/losses on disposal of fixed assets and other non-current income and expenses.

In view of the ratios for 2016 and 2015, net debt has been calculated as follows:

Thousands of Euros 2016 2015
Total borrowings (note 17) 1,243,007 1,295,230
Less: cash and cash equivalents (notes 10 and 14) (364,723) (162,830)
Net debt 878,284 1,132,400
Adjusted EBITDA (*) 625,083 610,162
Debt ratio 1,4x 1,9x

(*) Adjusted EBITDA = EBITDA in note 5 plus non-current income/expenses in note 21.9

In the calculation of the debt ratio presented in the table above, derivatives recognised as assets in the consolidated statement of financial position are presented as a reduction in cash and cash equivalents (see notes 10 and 14), whereas those presented under liabilities in the consolidated statement of financial position are included under total borrowings (see note 17).

16.2. Reserves and retained earnings

Details of reserves and retained earnings are as follows:

Thousands of Euros 2016 2015
Legal reserve 13,021 13,021
Goodwill reserve - 12,829
Capital redemption reserve 5,688 5,688
Other reserves 242,399 55,785
Profit attributable to equityholders ot the parent 174,043 299,221
Total 435,151 386,544

The Parent’s legal reserve has been appropriated in compliance with article 274 of the Spanish Companies Act, which requires that companies transfer 10% of profits for the year to a legal reserve until this reserve reaches an amount equal to 20% of share capital. The legal reserve is not distributable to shareholders and if it is used to offset losses, in the event that no other reserves are available, the reserve must be replenished with future profits. At 31 December 2016, subsequent to the share capital decrease carried out in 2015, the Parent has appropriated to this reserve more than the minimum amount required by law.

Royal Decree 602/2016, of 2 December 2016, was published on 17 December 2016 and amends the Spanish General Chart of Accounts approved by Royal Decree 1514/2007, of 16 November 2007, with a view to including in accounting legislation the amendments introduced to the Spanish Code of Commerce and the Revised Spanish Companies Act, by final provisions one and four of Spanish Audit Law 22/2015, of 20 July 2015, applicable for years and interim periods commencing on or after 1 January 2016. One of these amendments consists of the elimination of the concept of intangible assets with indefinite useful lives, which from now on must be systematically amortised over the period in which they are expected to generate profits. In the absence of evidence to the contrary, it is assumed that the useful life of goodwill is 10 years and that recovery is on a straight-line basis. At 31 December 2015, the Parent's goodwill reserve had been appropriated in compliance with the Spanish Companies Act, which required Spanish companies to transfer profits equivalent to 5% of the goodwill presented on their statement of financial position to a non-distributable reserve until this reserve reached an amount equal to recognised goodwill. In the absence of profit, or if profit were insufficient, freely distributable reserves were to be used. At 31 December 2016, following publication of the aforementioned Royal Decree, no further appropriations are required to this goodwill reserve, which may be transferred to non-distributable voluntary reserves and, subsequently, the amount of the reserve that exceeds the carrying amount of goodwill may be transferred to freely distributable reserves.

An amount equal to the par value of the own shares redeemed in 2015 and 2013 has been appropriated to the redeemed capital reserve. It will only be available once the Parent meets the conditions for reducing share capital set forth in article 335.c) of the Spanish Companies Act (see note 16.1).

Other reserves include the reserves of the Parent and consolidation reserves, as well as the reserve for the translation of capital into Euros, totalling Euros 62.07. This non-distributable reserve reflects the amount by which share capital was reduced in 2001 as a result of rounding off the value of each share to two decimals.

At 31 December 2015 the Parent's distributable voluntary reserves remained negative in an amount of Euros 48,168 thousand, primarily as a result of the share capital decrease. Nevertheless, this situation was transitory until the distribution of the Parent's profit for 2015 set out in its annual accounts was approved by the shareholders at their annual general meeting on 22 April 2016.

16.3. Other own equity instruments

a) Own shares

On 27 July 2011, in accordance with article 146 and subsequent articles of the Spanish Companies Act, the board of directors of the Parent approved an own share buy-back programme, the terms of which are as follows:

  • The maximum number of own shares that can be acquired is equivalent to 2% of share capital.
  • The maximum duration of the programme will be 12 months, unless an amendment to the term is announced in accordance with article 4 of Commission Regulation (EC) No 2273/2003.
  • The purpose of the programme is to meet obligations derived from the remuneration plan for board members and from the terms of any share distribution or share option plans approved by the board of directors.
  • A financial intermediary will be appointed to manage the programme, in accordance with article 6.3 of Commission Regulation (EC) No 2273/2003.

By 13 October 2011 the Company had acquired 13,586,720 own shares, reaching the maximum number foreseen in the buy-back programme.

On 14 November 2011 the board of directors approved the derivative acquisition of the Parent's shares and the arrangement of any kind of financial instrument or contract to acquire own shares (in addition to those already held by the Parent at the date of approval) representing up to 2% of the Parent’s share capital.

As a result, on 21 December 2011 the Parent signed an agreement to acquire 13,586,720 own shares at a reference price of Euros 3.5580 per share. This contract included an option to acquire the shares at the agreed price by settling either in cash or at the difference between this agreed price and the share price on the contract expiry date, 21 January 2013. On expiry of this contract, the Parent agreed an extension, changing the contract settlement terms, leaving only the option of acquiring the shares for a price of Euros 5.1 per share on two expiry dates: 8,086,720 shares for Euros 41,242,272 on 21 July 2013, and the remaining 5,500,000 shares for Euros 28,050,000 on 21 January 2014. On the first of these expiry dates, 21 July 2013, the Parent exercised the option on 8,086,720 shares at the agreed price. On the second expiry date, 21 January 2014, the Parent signed an extension to the contract for the acquisition of 5,500,000 own shares, and undertook to acquire the shares on 21 January 2015. On this date the Parent renewed the contract to acquire these shares in two tranches. Tranche 1 for the purchase of 3,100,000 shares ended on 21 April 2015 and tranche 2 for the purchase of the remaining 2,400,000 shares matured on 21 January 2016. Finally, on 23 March 2015 the Parent acquired all of the first tranche and 1,400,000 shares of the second tranche in advance for a total of Euros 22,950,000. The acquisition of 1,000,000 shares at a price of Euros 5.10 per share was therefore pending (see note 17.1 (c)). On 21 January 2016 this last tranche was acquired for Euros 5,100,000 thousand.

As authorised by the then sole shareholder of the Parent in a decision taken on 9 May 2011 and in accordance with the Parent’s Internal Regulations of Conduct on Stock Markets and the Own Share Policy approved by the board of directors, on 7 June 2012 the board of directors agreed to buy back additional own shares up to a maximum amount equivalent to 1% of the Parent’s share capital. This scheme to buy back 6,793,360 shares ended on 2 July 2012. A further 800,000 shares were acquired on 4 April 2013..

At a meeting held on 26 July 2013, the Parent's board of directors, in exercise of the powers conferred on it by the shareholders at their general meeting, agreed to decrease DIA’s share capital by redeeming 28,265,442 own shares.

On 1 August 2014 the Parent signed an equity swap contract with Société Générale whereby the latter acquired 6,000,000 own shares at a price of Euros 6.1944 per share. The contract was settled on 1 September 2014, when the Parent recognised the shares in its own portfolio for a total of Euros 37,166,400. These 6,000,000 shares were acquired as part of the long-term incentive plan for 2014-2016 (see note 17.1 (c)).

On 20 February 2015 the Parent's board of directors agreed to carry out an own share buy-back programme (hereinafter the Buy-back Programme) in accordance with the authorisation conferred on the board of directors on 9 May 2011. The purpose of this Buy-back Programme was to decrease the Parent's share capital, following authorisation of the Programme by the shareholders at the general meeting. The shareholders of the Parent approved this share capital decrease at the general meeting held on 24 April 2015. The 28,614,045 shares acquired under the Buy-back Programme carried out throughout the previous year were fully used in the share capital decrease (see note 16.1).

The Parent purchased 821,000 shares amounting to Euros 4,048 thousand on 30 June 2016 and 3,179,000 shares totalling Euros 15,855 thousand on 31 July 2016 to cover the 2016-2018 long-term incentive plan (LTIP) approved by the shareholders at the general meeting held on 22 April 2016 as remuneration for Group executives.

Other transactions during 2016 and 2015 included the transfer of 1,078,008 shares and 3,324,980 shares, respectively, to the Group’s directors and management personnel as remuneration, with charges of Euros 3,224 thousand and Euros 9,979 thousand to other reserves at 31 December 2016 and 2015, respectively. In 2014, 2013, 2012 and 2011, 393,219, 398,019, 115,622 and 85,736 shares were transferred, respectively, to the Group’s directors and management as remuneration.

As a result, at the 2016 reporting date the Parent holds 11,105,774 own shares with an average purchase price of Euros 5.9943 per share, representing a total amount of Euros 66,571,465.29. These own shares are to be used to meet obligations to deliver shares to executives under the plans described in note 20.

Movement in own shares during 2016 and 2015 is as follows:

  Number of shares Euros/share Total
31st December 2014 11,508,762 5.1147 58,864,185.94
Delivery of shares 28,614,045 6,9915 200,054,641.83
Purchase of shares (3.324.980) 5,4394 (18.085.767,45)
Capital reduction (28.614.045) 6,5448 (187.272.143,00)
31st December 2015 8,183,782 6.5448 53,560,917.32
Purchase of shares 4,000,000 4.9758 19,903,323.80
Delivery of shares (1,078,008) 6.3940 (6,892,775.83)
31st December 2016 11,105.774 5.9943 66,571,465.29

b) Other own equity instruments

This reserve includes obligations derived from equity-settled share-based payment transactions following the approval by the board of directors and shareholders of the 2011-2014 long-term incentive plan and a multi-year incentive plan for executives. The reserve also includes the 2014-2016 long-term incentive plan and the new 2016-2018 incentive plan, approved by the shareholders at the general meeting held on 22 April 2016, of which the employees were informed in June (see note 20).

16.4. Dividends

Details of dividends paid are as follows:

Thousands of euros 2016 2015
Dividends on ordinary shares 122,212 112,614
Dividend per share (in Euros) 0.20 0.18

Dividends per share (in Euros) are calculated based on the number of shares that entitle the holder to dividends at the distribution date, which in 2016 was 611,055,470 (625,632,815 shares in 2015).

The proposed distribution of the Parent's 2016 profit to be submitted to the shareholders for approval at their ordinary general meeting is as follows:

Basis of distribution Euros
Profit for the year 207,384,982.56
Total 207,384,982.56
Basis of allocation Euros
Dividends 128.383.655,19
Other reserves 79.001.327,37
Total 207.384.982,56

(*) The directors have proposed that an ordinary dividend of Euros 0.21 (gross) be distributed for each of the shares with the corresponding economic rights. This figure is an estimate based on there being 611,350,739 shares that confer the right to receive this dividend, following any necessary corrections. This estimate may vary depending on several factors, including the volume of shares held by the Parent.

The distribution of profit for 2015, approved by the shareholders at the ordinary general meeting held on 22 April 2016, was as follows:

Basis of distribution Euros
Profit for the year 216,975,254.59
Total 216,975,254.59
Basis of allocation Euros
Dividends 122,211,094.00
Goodwill reserve 2,340,690.06
Other reserves 92,423,470.53
Total 216,975,254.59

16.5. Earnings per share

Basic earnings per share are calculated by dividing net profit for the period attributable to the Parent by the weighted average number of ordinary shares in circulation throughout the period, excluding own shares.

The weighted average number of ordinary shares outstanding is determined as follows:

  Weighted average ordinary shares in circulation at 31/12/2016 Ordinary shares at 31/12/2016 Weighted average ordinary shares in circulation at 31/12/2015 Ordinary shares at 31/12/2015
Total shares issued 622,456,513 622,456,513 644,015,040 622,456,513
Own shares (9,276,954) (11,105,774) (18,069,243) (8,183,782)
Total shares available and diluted 613,179,559 611,350,739 625,945,797 614,272,731

Details of the calculation of basic earnings per share are as follows:

  2016 2015
Average number of shares 613,179,559 625,945,797
Profit for the period in thousands of Euros 174,043 299,221
Profit per share in Euros 0.28 0.48

There are no equity instruments that could have a dilutive effect on earnings per share. Diluted earnings per share are therefore equal to basic earnings per share.

16.6. Non-controlling interests

Non-controlling interests at 31 December 2016 and 2015 reflect that held in Compañía Gallega de Supermercados, S.A.

16.7. Translation differences

Details of translation differences at 31 December 2016 and 2015 are as follows:

Thousands of euros 2016 2015
Argentina (36,384) (33,110)
Brazil (17,131) (53,262)
China(*) (6,258) (7,311)
Totales (59,773) (93,683)

(*) The translation differences relating to Beijing DIA Commercial Co. Ltd., included in China, whose assets and liabilities were liquidated at 31 December 2015, were recognised as gains/losses on discontinued operations at 31 December 2015 (see note 15).

17. Financial liabilities

Details of financial liabilities in the consolidated statement of financial position at 31 December are as follows

Thousands of euros 2016 2015
Non-current liabilities
Non-current borrowings 1,062,273 920,951
Other non-current financial liabilities 2,785 17,906
Current liabilities
Current borrowings 180,734 374,279
Trade and other payables 1,952,848 1,518,843
Other financial liabilities 134,642 145,679
Total financial liabilities 3,333,282 2,977,658

17.1. Borrowings

Details of borrowings are as follows:

Thousands of euros 2016 2015
Debentures and bonds long term 794,652 495,862
Syndicated credits (Revolving credit facilities) 97,360 297,580
Mortgage loans 2,632 4,834
Other bank loans 126,351 95,652
Finance lease payables (note 6) 31,305 19,185
Guarantees and deposits received 9,469 7,838
Other non-current borrowings 504 -
Total non-current borrowings 1,062,273 920,951
Debentures and bonds long term 5,587 3,500
Mortgage loans 2,218 2,145
Other bank loans 61,819 137,468
Other financial liabilities 39,944 42,266
Finance lease payables (note 6) 11,634 7,736
Credit facilities drawn down 41,355 175,073
Expired Interests 520 778
Guarantees and deposits received 5,817 4,760
Liabilities derivatives (note 10) 6,600 40
Other current borrowings 5,240 513
Total current borrowings 180,734 374,279

a) Bonds

The Parent has outstanding bonds with a nominal value of Euros 800,000 thousand at 31 December 2016 (Euros 500,000 thousand at 31 December 2015), all of which were issued as part of a Euro Medium Term Note programme approved by the Central Bank of Ireland. Details of bond issues are as follows:

Issuing Company Currency Issue date Amount in thousand of euros Voucher Maturity date
DIA, S.A EUR 22/07/2014 500,000 1.50% 22/07/2019
DIA, S.A EUR 28/04/2016 300,000 1.00% 28/04/2021

On 18 April 2016, the Parent successfully completed a second bond issue amounting to Euros 300,000 thousand, with an issue price of 99.424%. These bonds were issued on the Irish Stock Exchange.

b) Loans and borrowings

Syndicated loans

These types of loans have been extended to the Parent by various national and foreign entities. Details at 31 December 2016 and 2015 are as follows:

Description Limit in thousand of euros Currency Outstandings in thousand of euros Signed date Maturity date
2016 2015
Sindicated (*) 300,000 EUR 99,000 300,000 21/04/2015 75,000
21/04/2018
225,000
21/04/2019
Sindicated 400,000 EUR - - 03/07/2014 03/07/2019

(*) May be extended for a further two years up to 2020, subject to agreement between the parties.

In March 2016 the first extension to the syndicated loan arranged in April 2015 was carried out for Euros 225,000 thousand maturing in April 2019.

These loans are subject to compliance with certain covenant ratios linked thereto, as defined in the agreement. At 31 December 2016 all covenant ratios, which are calculated on the basis of the DIA Group’s consolidated annual accounts, have been met. Details are as follows:

Financial covenant Syndicated loans in 2014 and 2015
Total net debt / EBITDA <3.50x

Total net debt and Ebitda figures are calculated according to the definition included in the syndicated contract. Thus, these figures do not agree with the figures included in the notes 5 and 16.1 in this document.

Mortgage and other bank loans

Details of the maturity of mortgage and other bank loans, grouped by type of operation and company, at 31 December 2016 and 2015 are as follows:

2016
Type Owner Currency Maturity in thousand of euros Total
2017 2018 2019 2020
Mortgage Beauty by DIA EUR 1,324 632 421 394 2,771
Mortgage Twins Alimentación EUR 894 942 243 - 2,079
  Mortgage Loans EUR 2,218 1,574 664 394 4,850
Loan DIA EUR 10,017 121,014 - - 131,031
Loan DIA Brasil EUR 46,637 - - - 46,637
Loan Grupo El Arbol EUR 1,805 500 2,000 - 4,305
Loan DIA Argentina EUR 3,360 2,270 567 - 6,197
  Other Loans EUR 61,819 123,784 2,567 - 188,170
2015
Type Owner Currency Maturity in thousand of euros Total
2016 2017 2018 2029-2020
Mortgage Beauty by DIA EUR 1,296 1,324 632 799 4,051
Mortgage Twins Alimentación EUR 849 894 942 243 2,928
  Mortgage Loans EUR 2,145 2,218 1,574 1,042 6,979
Loan DIA EUR 90,008 69,973 20,000 - 179,981
Loan DIA Brasil EUR 34,294 - - - 34,294
Loan Grupo El Arbol EUR 2,359 1,805 500 2,000 6,664
Loan DIA Argentina EUR 2,807 1.374 - - 4,181
Commercial paper DIA Portugal EUR 8,000 - - - 8,000
  Other Loans EUR 137,468 73,152 20,500 2,000 233,120

Mortgage loans have been secured by certain properties owned by the Group and accrue interest at rates between 2.00% and 5.07% at 31 December 2016.

In 2016 the Parent repaid in advance a Euros 60,000 thousand loan signed in December 2015 and another Euros 50,000 thousand loan arranged in 2016. A new loan amounting to Euros 101,000 thousand was arranged in December 2016.

At 31 December 2015 this item included Euros 8,000 thousand in drawdowns on current debt instruments defined as “commercial paper” that DIA Portugal had negotiated with the banks. There were no outstanding drawdowns at 31 December 2016.

Credit facilities

The Group has arranged credit facilities with various financial institutions, subject to the following limits (in thousands of Euros):

Year Limit granted Amount available Amount used
31/12/2016 133,357 92,002 41,355
31/12/2015 280,074 105,001 175,073

Moreover, at 31 December 2016 the Parent has other uncommitted credit facilities, with a limit of Euros 210,000 thousand (limit of Euros 90,000 thousand at 31 December 2015). The credit facilities that the Group held in 2016 and 2015 accrued interest at market rates.

c) Other financial liabilities

Other financial liabilities include the prevailing equity swap contracts signed by the Parent. Details of operations carried out in 2016 are as follows:

Start date Expiration date Number of shares Thousands of euros
30/09/2016 22/12/2016 10,000,000 57,063
22/12/2016 22/03/2017 1,000,000 5,706
22/12/2016 22/12/2017 6,000,000 34,238

Details of operations carried out in 2015 were as follows:

Start date Expiration date Number of shares Thousands of euros
21/01/2015 21/01/2016 1,000,000 5,100
01/09/2015 30/09/2015 6,000,000 37,166
30/09/2015 30/09/2016 6,000,000 37,166

d) Maturity of borrowings

The maturities of borrowings are as follows:

Thousands of euros 2016 2015
Less than one year 180,734 374,279
One to two years 232,976 82,716
Three to five years 816,003 829,404
Over five years 13,294 8,831
Total 1,243,007 1,295,230

17.2. Other non-current financial liabilities

Details of other non-current financial liabilities are as follows:

Thousands of Euros 2016 2015
Capital grants 785 1.306
Other non-current financial liabilities 2,000 16,600
Total grants and other non-current financial liabilities 2,785 17,906

At 31 December 2016 other non-current financial liabilities of Euros 2,000 thousand reflect the amounts withheld from the seller in the acquisition of establishments from the Eroski Group, which will be released after five years, in accordance with the addendum to the framework contract signed on 7 August 2015. In 2015, in addition to this amount, this line item included deposits totalling Euros 14,600 in respect of the same transaction. These deposits were released to the Eroski Group in 2016 after an agreement was reached with the seller (see notes 4 and 9.2).

17.3. Trade and other payables

Details are as follows:

Thousands of euros 2016 2015
Suppliers 1,754,389 1,376,937
Advances received from receivables 2,454 1,172
Trade payables 196,005 140,734
Total Trade and other payables 1,952,848 1,518,843

Suppliers and trade payables essentially include current payables to suppliers of goods and services, including those represented by accepted giro bills and promissory notes.

Trade and other payables do not bear interest.

The Group has reverse confirming operations with limits of Euros 678,061 thousand and Euros 673,209 thousand at 31 December 2016 and 2015, respectively. Drawdowns total Euros 333,258 thousand at 31 December 2016 and Euros 286,149 thousand at 31 December 2015.

The information required from Spanish DIA Group companies under the reporting requirement established in Spanish Law 15/2010 of 5 July 2010, which amended Spanish Law 3/2004 of 29 December 2004 and introduced measures to combat late payments in commercial transactions, is as follows:

  2016 2015
Days Days
Average payment period to suppliers 45 45
Paid operations ratio 46 45
Pending payment transactions ratio 40 40
  Amount (euros) Amount (euros)
Total payments made 4,881,824,952 4,066,913,971
* Total payment pending 509,127,690 366,286,558

* Receptions unbilled and invoices included in the confirming lines at the year end previously mencioned, are not included in this amount.

17.4. Other financial liabilities

Details of other financial liabilities are as follows:

Thousands of euros 2016 2015
Personnel 69,262 65,905
Suppliers of fixed assets 60,300 77,235
Other current liabilities 5,080 2,539
Total other liabilities 134,642 145,679

17.5. Fair value estimates

The fair value of financial assets and liabilities is determined by the amount for which the instrument could be exchanged between willing parties in a normal transaction and not in a forced transaction or liquidation.

The Group generally applies the following systematic hierarchy to determine the fair value of financial assets and financial liabilities:

  • Level 1: Firstly, the Group applies the quoted prices of the most advantageous active market to which it has immediate access, adjusted where appropriate to reflect any differences in credit risk between instruments traded in that market and the one being valued. The current bid price is used for assets held or liabilities to be issued and the asking price for assets to be acquired or liabilities held. If the Group has assets and liabilities with offsetting market risks, it uses mid-market prices for the offsetting risk positions and applies the bid or asking price to the net position, as appropriate.
  • Level 2: When current bid and asking prices are unavailable, the price of the most recent transaction is used, adjusted to reflect changes in economic circumstances.
  • Level 3: Otherwise, the Group applies generally accepted valuation techniques using, insofar as is possible, market data and, to a lesser extent, specific Group data.

Assets and liabilities at fair value have been measured using Level 2 inputs, except in the case of non-current bonds and debentures, which belong to level 1. Specifically:

  • Trade and other receivables, trade and other payables and other current financial assets and liabilities approximate their carrying amounts, due, largely, to the short-term maturities of these instruments.
  • The fair value of unlisted instruments, bank loans, finance lease payables and other non-current financial assets and liabilities is estimated by discounting future cash flows, using the available rates for debts with similar terms, credit risk and maturities, and is very similar to their carrying amount.
  • Derivative financial instruments are contracted with financial institutions with sound credit ratings. The fair value of derivatives is calculated using valuation techniques based on observable market data for forward contracts.
  • The fair value of non-current listed instruments and bonds has been measured based on listed market prices and amounts to Euros 823,344 thousand at 31 December 2016 (compared with a carrying amount of Euros 794,652 thousand).

18. Provisions

Details of provisions are as follows:

Thousands of euros Provisions for long-term employee benefits under defined benefit plans Tax provisions Social security provisions Legal contingencies provisions Other provisions Total provisions
At 1st January 2015 2,270 33,021 14,007 16,890 19,912 86,100
Translation differences - (72) (2,519) (923) (97) (3,611)
Charge 486 4,622 5,874 5,245 2,023 18,250
Applications - (12,820) (3,068) (3,680) (1,349) (20,917)
Reversals (109) (848) (2,430) (9,168) (16,188) (28,743)
Transfers - 60 230 927 (1,217) -
Other movements 53 353 - - 18 424
At 31st December 2015 2,700 24,316 12,094 9,291 3,102 51,503
Translation differences - (20) 1,334 381 (45) 1,650
Charge 423 870 8,585 4,419 773 15,070
Applications - (1,142) (4,021) (2,325) (265) (7,753)
Reversals (441) (925) (6,493) (5,043) (1,891) (14,793)
Other movements 43 109 - - 12 164
At 31st December 2016 2,725 23,208 11,499 6,723 1,686 45,841

18.1. Provisions for taxes, legal contingencies and employee benefits

As regards the provisions for taxes deriving from the risk of tax inspections, in 2015 the Parent applied provisions of Euros 7,020 thousand in respect of tax inspections relating to income tax for 2005 and Euros 5,800 thousand for tax risks deriving from the sale of DIA France.

In 2016, charges and applications of provisions for lawsuits filed by employees (related to social security contributions) include charges of Euros 5,914 thousand for social security contingencies and applications of Euros 3,430 thousand for similar contingencies in Brazil. Reversals mainly comprise provisions of Euros 3,690 thousand recognised by the Parent to cover the risks derived from the sale of DIA France.

Reversals of provisions for legal contingencies in 2016 primarily comprise a Euros 2,881 thousand provision made by the Parent to cover legal risks derived from the sale of DIA France. In 2015 the Parent released Euros 2,010 thousand of the provision made to cover risks derived from the sale of DIA France. The use and reversals of this provision in 2015 included movements in the provision made at 31 December 2014 by the Parent related to the sale of DIA Turkey after the agreement was signed with the buyers on 22 June 2015.

18.2. Other provisions

Reversals of other provisions in 2016 reflect the cancellation of the contingent consideration for which provision was made in 2015 in connection with business acquisitions (see note 4 (b)).

In 2015, other provisions totalling Euros 16,188 thousand were released, including that for the variable price arising from the acquisition of Grupo El Árbol, considering the appraisal made by an independent expert.

19. Tax assets and liabilities and income tax

Income tax

Details of the income tax expense/income are as follows:

Thousands of euros 2016 2015
Current income taxes
Current period 69,179 50,270
Prior periods' current income taxes (1,802) 958
Total current income taxes 67,377 51,228
Deferred taxes
Source of taxable temporary differences 12,200 4,240
Source of deductible temporary differences (29,456) (158,046)
Reversal of taxable temporary differences (6,438) (9,658)
Reversal of deductible temporary differences 25,436 29,626
Total deferred taxes 1,742 (133,838)
TOTAL INCOME TAX 69,119 (82,610)

Due to the different treatment of certain transactions permitted by tax legislation, the accounting profit of each Group company differs from taxable income.

A reconciliation of accounting profit for the year with the total taxable income of the Group (calculated as the sum of the taxable income stated in the tax return of each Group company) is as follows:

Thousands of euros 2016 2015
Profit for the period before 243,120 218,116
taxes from continuing operations (93) -
Profit for the period before tax 243,027 218,116
Tax calculated at the tax rate of each country 58,017 58,164
Unrecognised tax credits 3,743 3,577
Non-taxable income (1,894) (3,691)
Non-deductible expenses 7,757 1,654
Deductions and credits for the current period (1,009) (4,647)
Adjustments for prior periods (1,802) (958)
Adjustments for prior periods - deferred taxes 1,827 (142,280)
Unrecognised deferred taxes 1,857 (1,126)
Other adjustments 407 4,385
Tax rate's change adjustment 216 396
Total income tax 69,119 (82,610)

The tax rates of each of the different countries or jurisdictions in which the Group operates have been taken into account to perform this reconciliation. Details of these rates are as follows:

  • DIA, Twins, Beauty by DIA, Petra, GEA, Cía. Gallega, Eshopping: 25%
  • Finlandia: 30%
  • Portugal: 26,42%
  • Argentina: 35%
  • Brazil: 34%
  • China: 25%
  • Switzerland: 24%

The Spanish companies Distribuidora Internacional de Alimentación, S.A. (parent) and Twins Alimentación, S.A., Pe-Tra Servicios a la Distribución, S.L., Beauty by Dia, S.A., Grupo El Árbol Distribución y Supermercados S.A., Compañía Gallega de Supermercados S.A. and Dia Eshopping, S.L. (subsidiaries) filed consolidated tax returns in 2016 as part of tax group 487/12, pursuant to Title VII, Chapter VI of the Spanish Corporate Income Tax Law 27/2014 of 27 November 2014.

Tax assets and liabilities

Details of the tax assets and liabilities for 2016 and 2015 recognised in the consolidated statement of financial position at 31 December are as follows:

Thousands of euros 2016 2015
Deferred tax assets 314,273 271,480
Taxation authorities, VAT 39,816 41,160
Taxation authorities 31,271 28,314
Current income tax assets 8,832 49,663
Total tax assets 394,192 390,617
Deferred tax liabilities 44,109 3,193
Taxation authorities, VAT 46,448 55,475
Taxation authorities 39,046 37,464
Current income tax liabilities 15,505 4,111
Total tax liabilities 145,108 100,243

On 20 January 2017 the Parent received a refund of Euros 8,011 thousand from the taxation authorities. At the reporting date of these annual accounts this amount was recognised as a current tax asset. Furthermore, on 29 January 2016 the Parent received a refund of Euros 40,764 thousand from the taxation authorities.

A reconciliation of details of deferred tax assets and liabilities (before consolidation adjustments) with the deferred taxes recognised in the consolidated statement of financial position (after consolidation adjustments) is as follows:

  2016 2015
Capitalised tax loss carryforwards 226,172 240,060
'+ Deferred tax assets 91,535 70,253
Total deferred tax assets 317,707 310,313
Assets offset (3,434) (38,833)
Deferred tax assets 314,273 271,480
Deferred tax liabilities 47,543 42,026
Liabilities offset (3,434) (38,833)
Deferred tax liabilities 44,109 3,193

Details of and movements in the Group’s tax assets and liabilities (before consolidation adjustments) are as follows:

DEFERRED TAX ASSETS

2015
Thousands of euros 1 Jan 2015 Adjustments to tax rate Profit/(loss) Others Exchange gains/losses '31 Dec 2015
Additions Disposals
Provision 21,015 (145) 12,392 (1) 242 (7,440) (26,063)
Onerous contracts 234 8 450 (176) - - 516
Portfolio provisions 9,063 (156) 1,399 (6,399) - - 3,907
Share-based payments 4,007 229 31 (2,199) 174 - 2,242
Other remuneration 258 85 332 - - - 675
Loss carryforwards 117,648 (529) 135,190 (12,274) 25 - 240,060
Others 41,143 147 8,613 (8,577) (441) (4,035) 36,850
Total non-curent deferred tax asset 193,368 (361) 158,407 (29,626) - (11,475) 310,313
2016
Thousands of euros 1 Jan 2016 Adjustments to tax rate Profit/(loss) Others Exchange gains/losses '31 Dec 2016
Additions Disposals
Provisions 26,063 (4) 10,217 (1,034) - 2,248 37,490
Onerous contracts 516 (2) 224 (440) - - 298
Portfolio provisions 3,907 - - (3,907) - - -
Share-based payments 2,242 (1) 2,049 - - - 4,290
Other remuneration 675 - 71 (79) - - 667
Loss carryforwards 240,060 (216) 120 (13,792) - - 226,172
Deductions activation - - 2,315 - 540 - 2,855
Difference between depretation tax-accounting 25,897 - 11.074 (102) (7) 1,384 38,246
Others 10,953 (5) 3,614 (6,082) - (791) 7,689
Total non-curent deferred tax asset 310,313 (228) 29,684 (25,436) 533 2,841 317,707

DEFERRED TAX LIABILITIES

2015
Thousands of euros 1 Jan 2015 Adjustments to tax rate Profit/(loss) Net Equity Others Exchange gains/losses '31 Dec 2015
Additions Disposals Disposals
Goodwill 1,427 (9) 80 (113) - - - 1,385
Amortisation and depreciation 26,970 (229) 1,640 (5,337) - (18) (512) 22,504
Portfolio provisions 20,405 311 - (4,183) - - - 16,533
Other (575) (40) 2,487 (25) (2) (242) 1 1,604
Total non-current deferred tax liabilities 48,227 33 4,207 (9,658) (2) (270) (511) 42,026
2016
Thousands of euros 1 Jan 2016 Adjustments to tax rate Profit/(loss) Net Equity Others Exchange gains/losses '31 Dec 2016
Additions Disposals Disposals
Goodwill 1,385 - 54 (5) - - - 1,434
Amortisation and depreciation 22,504 (6) 6,937 (3,052) - (7) (80) 26,296
Portfolio provisions 16,533 - - (3,307) - - - 13,226
Strore sales - - 4,413 - - - - 4,413
Others 1,604 (6) 808 (74) (153) - (5) 2,174
Total ID de Pasivo No Corriente 42,026 (12) 12,212 (6,438) (153) (7) (85) 47,543

Furthermore, the consolidated Group has not recognised deductible temporary differences totalling Euros 53,585 thousand deriving from the impairment of the investments held by the Parent and Grupo El Árbol Distribución y Supermercados.

Based on the tax returns, the Group companies have the following accumulated tax losses, deductions and exemptions to be offset in future years amounting to Euros 997,847 thousand in 2016 and Euros 1,047,637 thousand in 2015.

Thousands of euros Years in which generated Limitation period (years) Loss carryforwards activated Loss carryforwards non-activated
Not subjetc to limitation 2017 2018 2019 2020 2021 >2021 TOTAL
Distribuidora Internacional de Alimentación, S.A. 2014 351,423 - - - - - - 351,423 351,423 -
Twins Alimentación, S.A. 2004-2007 91,405 - - - - - - 91,405 91,405 -
Pe-Tra Servicios de distribución, S.L. 1997-1999 18,549 - - - - - - 18,549 - 18,549
Beauty by DIA, S.A. (en 2015 Schlecker, S.A.) 2012 945 - - - - - - 945 945 -
Grupo EL Arbol, Distribución y Supermercados, S.A. 2000-2014 453,780 - - - - - - 453,780 453,780 -
Compañía Gallega de Supermercados, S.A. 2002-2014 3,497 - - - - - - 3,497 3,497 -
DIA ESHOPPING, S.L.U. 2015 393 - - - - - - 393 393 -
Dia Tian Tian Manag. Consulting Service & Co. Ltd. 2012-2016 - 3,527 - - - 1,487 - 5,014 - 5,014
Shanghai DIA Retail Co. Ltd. 2012-2016 - 8,135 16,415 14,441 15,424 14,563 - 68,978 - 68,978
Dia Portugal Supermercados S.U., Lda 2012-2014 - - 922 - - - 2,941 3,863 3,863 -
Total Bases imponibles negativas   919,992 11,662 17,337 14,441 15,424 16,050 2,941 997,847 905,306 92,541

In accordance with Royal Decree-Law of 3/2016 of 2 December 2016, from 2016 onwards, the Spanish consolidated tax group may offset tax loss carryforwards up to a maximum of 25% of taxable income prior to offset, which extends the period of recovery of the deferred tax asset; the company has carried out extensive tests to ascertain the probable recovery of such tax credits.

In 2015 the following subsidiaries included in the consolidated tax group of DIA in Spain capitalised tax loss carryforwards generated in years prior to joining the tax group:

  • Grupo El Árbol, Distribución y Supermercados S.A.: an amount of Euros 113,445 thousand
  • Compañía Gallega de Supermercados S.A.: an amount of Euros 933 thousand.
  • Twins Alimentación S.A.: an amount of Euros 19,793 thousand.

On 30 June 2016, the Parent was informed by the taxation authorities of the commencement of an inspection of the following taxes for the following periods:

Tax Periods
Income tax 2013-2015
Value added tax 2013-2016
Personal income tax 2013-2016
Bussines activites tax 2013-2016

The inspection is ongoing at the reporting date, although no probable contingencies for the Parent have been identified at the date on which these consolidated annual accounts were authorised for issue. The directors do not expect that any major additional liabilities in relation to the consolidated annual accounts taken as a whole will arise as a result of these inspections, the years open to inspection or the appeals submitted.

20. Share-based payment transactions

On 7 December 2011 the DIA board of directors approved a long-term incentive plan for 2011-2014 and a multi-year variable remuneration plan proposed by the Appointment and Remuneration Committee. Both of these plans are settled in Parent shares. The shareholders approved these plans at their general meeting and beneficiaries were informed of the plan regulations on 11 June 2012.

Under the long-term incentive plan, executives (including the executive director) of the Group were entitled to variable remuneration settled though shares in the Parent. The receipt of these incentives was dependent on whether the Parent and the Group met certain business targets over the 2011-2014 period, as well as certain indicators relating to the value of these shares. Beneficiaries were also required to remain as employees of or maintain their commercial relationship with the Parent and/or its subsidiaries on the plan reference dates. The settlements for the 2011-2014 plan were made in 2015 and 2016.

Under the multi-year variable remuneration plan, executives of the Group were awarded variable remuneration settled though shares in the Parent. Amounts relating to 2011 and 2012 were settled in 2013 and January 2014 and remuneration for 2013 and 2014 was to be settled in 2015 and January 2016, dependent on the Parent and the Group meeting certain business targets. Beneficiaries were also required to remain in the employment of or maintain their commercial relationship with the Parent and/or its subsidiaries on the plan settlement dates.

On 25 April 2014 the shareholders at their general meeting approved a long-term incentive plan for 2014-2016, to be settled with a maximum of 6,981,906 Parent shares, for the executive directors, senior management and other key personnel of DIA and its subsidiaries, as determined by the board of directors. To receive the shares, the personnel who voluntarily join the plan must meet the requirements in its general terms and conditions. The purpose of the plan is to award and pay variable remuneration in DIA shares, according to compliance with business objectives for the Parent and the Group. At 31 December 2016 the Parent estimates that 5,333,908 shares is the maximum number that will be awarded under this plan.

On 22 April 2016 the shareholders at their general meeting approved a long-term incentive plan for 2016-2018, to be settled with a maximum of 9,560,732 Parent shares, for the executive directors, senior management and other key personnel of DIA and its subsidiaries, as determined by the board of directors. To receive the shares, the personnel who voluntarily join the plan must meet the requirements in its general terms and conditions. The purpose of the plan is to award and pay variable remuneration in DIA shares, according to compliance with business objectives for the Parent and the Group. At 31 December 2016 the Parent estimates that 4,311,286 shares is the maximum number that will be awarded under this plan.

In 2016 the costs recognised in respect of these plans amount to Euros 15,000 thousand (Euros 4,249 thousand in 2015) and are recognised in personnel expenses in the consolidated income statement. The balancing entry was recognised under other own equity instruments. The payments made in relation to the long-term incentive plan for 2011-2014 and the multi-year incentive plan amounted to Euros 5,634 thousand and Euros 15,429 thousand in 2016 and 2015, respectively, with transfers of 998,772 and 3,242,482 own shares, respectively.

21. Other income and expenses

21.1. Other income

Details of other income are as follows:

Thousands of Euros 2016 2015
Fees and interest to finance companies (note 9.2) 1,700 2,087
Service and quality penalties 34,729 30,646
Revenue from lease agreements (note 8) 26,415 23,025
Other revenue from franchises 14,639 11,365
Revenue from commercial fees from concessions 828 827
Other income 32.665 28.265
Total other operating income 110,976 96,215

Penalties for service and quality include the income obtained by the Group from the collection of penalties charged to suppliers for lack of service or lack of quality in accordance with the agreements established with them.

21.2. Merchandise and other consumables used

This item includes purchases, less volume discounts and other trade discounts, and changes in inventories, as well as the cost of products sold by the finance company.

21.3. Personnel expenses

Details of personnel expenses are as follows:

Thousands of euros 2016 2015
Salaries and wages 646,272 653,742
Social Security 164,901 168,739
Defined contribution plans (63) 324
Other employee benefits expenses 19,484 19,751
Parcial total personnel expenses 830,594 842,556
Expenses for share-based payment transactions 15,509 4,677
Total personnel expenses 846,103 847,233

The increase in expenses of share-based payment transactions is mostly attributable to the expense accrued in connection with the new 2016-2018 incentive plan (see note 20).

21.4. Operating expenses

Details of operating expenses are as follows:

Thousands of euros 2016 2015
Repairs and maintenance 48,358 52,829
Utilities 90,180 86,147
Fees 23,315 23,220
Advertising 56,265 55,055
Taxes 22,579 23,576
Rentals, property (note 8) 310,880 299,769
Rentals, equipment (note 8) 5,585 7,045
Other general expenses 96,387 96,393
Total operating expenses 653,549 644,034

21.5. Amortisation, depreciation and impairment

Details are as follows:

Thousands of euros 2016 2015
Amortisation of intangible assets (note 7.2) 9,682 8,862
Depreciation of property, plant and equipment (note 6) 223,271 205,164
Total amortisation and depreciation 232,953 214,026
Impairment of intangible assets and goodwill (note 7) 646 234
Impairment of property, plant and equipment (note 6) 12,616 10,779
Total impairment 13,262 11,013

21.6. Gains and losses on the disposal of fixed assets

Net gains of Euros 4,336 thousand were generated on asset disposals in 2016, compared with net losses of Euros 12,340 thousand incurred in 2015. In Spain, the net gains totalled Euros 9,253 thousand in 2016 (net losses of Euros 7,230 thousand in 2015). In Portugal, net losses recognised in 2016 amounted to Euros 166 thousand (Euros 1,078 thousand in 2015). In Argentina, net losses recognised in 2016 amounted to Euros 4,572 thousand (Euros 3,156 thousand in 2015). These losses are mainly due to stores being remodelled to the new DIA Maxi, DIA Market and Clarel formats.

These amounts mainly pertain to property, plant and equipment.

Proceeds from the sale of these fixed assets totalled Euros 38,546 thousand in 2016 (Euros 2,854 thousand in 2015) and mostly derived from the sale of certain properties owned by the DIA Group to third parties.

21.7. Finance income and finance costs

Details of finance income are as follows:

Thousands of euros 2016 2015
Interest on other loans and receivables 2,794 2,446
Dividends received - 2
Exchange gains (note 21.8) 4,567 2,791
Change in fair value of financial instruments - 274
Other finance income 4,728 3,752
Total financial income 12,089 9,265

Details of finance costs are as follows:

Thousands of euros 2016 2015
Interest on bank loans 25,193 22,314
Intereses on debentures and bonds 11,181 8,872
Finance expenses for finance leases (note 6) 3,628 1,589
Exchange losses (note 21.8) 4,193 9,899
Financial expenses assigment of receivables operations (notes 9.1 (b) and 24 (d)) 139 -
Other finance expenses 19,787 22,617
Total financial expenses 64,121 65,291

At 31 December 2016 and 2015, interest on bank loans includes the finance costs associated with bank loans, primarily in Spain, Brazil and Argentina.

Interest on bonds includes the accrued interest and costs as a result of the bond issues described in note 17.1 (a).

Other finance costs at 31 December 2016 and 2015 primarily reflect the bank debit and credit interest rates in Argentina linked to its revenues.

21.8. Foreign currency transactions

Details of the exchange differences on foreign currency transactions are as follows:

Thousands of euros 2016 2015
Currency exchange losses (note 21.7) (4,193) (9,899)
Currency exchange gains (note 21.7) 4,567 2,791
Trade exchange losses (562) (1,167)
Trade exchange gains 849 888
Total 661 (7,387)

21.9. Non-recurring income and expenses

Details of non-recurring income and expenses classified according to their nature in the consolidated income statement are as follows:

Thousands of euros 2016 2015
Commercial margin (4,591) (6,032)
Personnel expenses 61,859 71,656
Operating expenses 15,706 28,643
Parcial total non-current expenses 72,974 94,267
Share-based payments transactions expenses 15,171 4,374
Amortisation and depreciation 584 -
Total non-current expenses 88,729 98,641

Such income and expense comprise non-recurring items such as those associated with the reorganisation of the Group, improvements in the productivity and efficiency of processes, the business combinations carried out and incentive plans.

22. Commitments and contigencies

a) Commitments

Commitments pledged and received by the Group but not recognised in the consolidated statement of financial position comprise contractual obligations which have not yet been executed. The two types of commitments relate to cash and expansion operations. The Group also has lease contracts that represent future commitments undertaken and received.

Off-balance-sheet cash commitments comprise:

  • available credit facilities which were unused at the reporting date;
  • credit commitments undertaken by the Group’s finance company with customers within the scope of its operations, and banking commitments received.

Expansion operation commitments were undertaken for expansion at Group level.

Finally, commitments relating to lease contracts for property and furniture are described in note 8 Operating Leases.

Itemised details of commitments at 31 December 2016 and 2015 are as follows:

22.1. Pledged

2016

Thousands of Euros at 31st December 2016 In 1 year In 2 years 3-5 years > 5 years Total
Guarantees 30,500 250 1,183 10,506 42,439
Credit facilities to customers (finance companies) 79,129 - - - 79,129
Cash 109,629 250 1,183 10,506 121,568
Purchase options 9,630 14,643 5,999 37,716 67,988
Commitments related to commercial contracts 16,743 4,016 1,469 117 22,345
Other commitments 2,118 2,009 2,502 16,578 23,207
Transactions / properties / expansion 28,491 20,668 9,970 54,411 113,540
Total 138,120 20,918 11,153 64,917 235,108
2015
Thousands of Euros at 31st December 2015 In 1 year In 2 years 3-5 years > 5 years Total
Guarantees 27,483 59 625 9,112 37,279
Credit facilities to customers (finance companies) 77,700 - - - 77,700
Cash 105,183 59 625 9,112 114,979
Purchase options - 9,630 22,626 37,930 70,186
Commitments related to commercial contracts 16,914 3,917 2,784 28 23,643
Other commitments 2,302 2,917 3,487 19,419 28,125
Transactions / properties / expansion 19,216 16,464 28,897 57,377 121,954
Total 124,399 16,523 29,522 66,489 236,933

The Parent is the guarantor of the drawdowns on the credit facilities made by its Spanish subsidiaries, which at 31 December 2016 amounted to Euros 1,687 thousand (Euros 1,270 thousand in 2015).

22.2. Received:

2016
Thousands of Euros at 31st December 2016 In 1 year In 2 years 3-5 years > 5 years Total
Available credit facilities 92,002 - - - 92,002
Available sindicated revolving credit facilities 601,000 - - - 601,000
Available confirming lines 344,803 - - - 344,803
Available commercial paper facilities 45,000 - - - 45,000
Cash 1,082,805 - - - 1,082,805
Guarantees received for commercial contracts 28,300 5,950 25,961 38,726 98,937
Other commitments - - 49 199 248
Transactions / properties / expansion 28,300 5,950 26,010 38,925 99,185
Total 1,111,105 5,950 26,010 38,925 1,181,990
2015
Thousands of Euros at 31st December 2015 In 1 year In 2 years 3-5 years > 5 years Total
Available credit facilities 105,000 - - - 105,000
Available revolving credit facilities 400,000 - - - 400,000
Available confirming lines 387,060 - - - 387,060
Available commercial paper facilities 62,000 - - - 62,000
Cash 954,060 - - - 954,060
Guarantees received for commercial contracts 31,611 7,380 20,124 27,300 86,415
Other commitments - - - 163 163
Transactions / properties / expansion 31,611 7,380 20,124 27,463 86,578
Total 985,671 7,380 20,124 27,463 1,040,638

b) Contingencies

In 2014 DIA Brazil was inspected by the local taxation authorities, as a result of which it has received two additional tax assessments, one amounting to Euros 12,549 thousand (Brazilian Reais 43,054 thousand) in relation to a discrepancy concerning tax on income from discounts received from suppliers, and another amounting to Euros 73,030 thousand (Brazilian Reais 250,551 thousand) in relation to the recognition of movements of goods and the consequent impact on inventories.

In 2016, the initial administrative ruling on the discrepancy concerning income from suppliers was unfavourable. A legal defence is being mounted and the legal counsel believe there are sufficient grounds to win a ruling favourable to DIA Brazil. As regards the latter proceedings, an unfavourable decision was handed down via administrative channels, despite the stock movements having been shown to be in line with the criteria followed in all the countries in which the DIA Group operates. A ruling has yet to be handed down on the appeal filed against this ruling. Nevertheless, based on the reports from the external legal counsel, the probability of losing this lawsuit continues to be considered remote.

23. Related parties

Transactions other than ordinary business or under terms differing from market conditions carried out by the directors of the Parent

In 2016 and 2015 the directors of the Parent have not carried out any transactions other than ordinary business or applying terms that differ from market conditions with the Parent or any other Group company.

Transactions and balances with ICDC

Transactions with ICDC in 2016 totalled Euros 18,433 thousand and primarily consisted of commercial transactions. At 31 December 2016 the balance receivable from ICDC amounts to Euros 4,852 thousand (see note 9.1 (c)).

Transactions with directors and senior management personnel

Details of remuneration received by the directors and senior management of the Group in 2016 and 2015 are as follows:

Thousands of euros 2016 2015
Directors 2,756 5,235
Senior management personnel 4,175 10,912

In 2016 and 2015 the directors of the Parent earned Euros 1,188 thousand and Euros 1,089 thousand, respectively, (included in the table above) in their capacity as board members.

In 2016 and 2015 the shares of the four-year incentive plan for 2011-2014 were awarded and the value of the shares awarded to one executive who is both a board member and a member of senior management was recognised as remuneration earned in those years.

Article 39.5 of the Parent’s articles of association requires the disclosure of the remuneration earned by each of the present members of the board of directors in 2016 and 2015. Details are as follows:

2016

Board members Financial instruments Fixed remuneration Variable remuneration Others
Ms Ana María Llopis Rivas 51.4 124.2 - -
Mr. Ricardo Currás de Don Pablos (*) 522.7 669.4 462.8 7.2
Mr. Julián Díaz González 38.3 81.6 - -
Mr. Juan Maria Nin Genova 32.7 92.1 - -
Mr.Richard Golding 35.9 98.8 - -
Mr. Mariano Martín Mampaso 41.9 94.7 - -
Mr. Pierre Cuilleret 11.8 26.9 - -
Ms. Rosalía Portela de Pablo 22.4 64.1 - -
Mr. Antonio Urcelay Alonso 32.7 94.1 - -
Ms. Angela Lesley Spindler 34.0 72.7 - -
Mr. Borja de la Cierva 10.5 28.6 - -
Ms. María Luisa Garaña 1.2 2.6 - -
Total 836 1,450 463 7

(*) Remuneration as director plus remuneration as Board member.

During 2016 and 2015 the members of the board of directors and senior management personnel of the Group have not carried out transactions other than ordinary business or applying terms that differ from market conditions with the Parent or Group companies.

The civil liability insurance premiums paid by the Group in respect of directors and senior management personnel totalled Euros 29 thousand in 2016.

The directors of the Group and their related parties have had no conflicts of interest requiring disclosure in accordance with article 229 of the Revised Spanish Companies Act.

24. Financial risk management: Objectives and policies

The Group’s activities are exposed to market risk, credit risk and liquidity risk.

The Group’s senior executives manage these risks and ensure that its financial risk activities are in line with the appropriate corporate procedures and policies and that the risks are identified, measured and managed in accordance with DIA Group policies.

A summary of the management policies established by the board of directors of the Parent for each risk type is as follows:

a) Financial risk factors

The Group’s activities are exposed to various financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk, and cash flow interest rate risk. The Group's global risk management programme focuses on uncertainty in the financial markets and aims to minimise potential adverse effects on the Group’s profits. The Group uses derivatives to mitigate certain risks.

Risks are managed by the Group’s Finance Department. This department identifies, evaluates and mitigates financial risks in close collaboration with the Group’s operational units.

b) Currency risk

The Group operates internationally and is therefore exposed to currency risk when operating with foreign currencies, especially with regard to the US Dollar. Currency risk is associated with future commercial transactions, recognised assets and liabilities, and net investments in foreign operations.

In order to control currency risk associated with future commercial transactions and recognised assets and liabilities, Group entities use forward currency contracts negotiated with the Treasury Department. Currency risk arises on future commercial transactions in which the recognised assets and liabilities are presented in a foreign currency other than the Company’s functional currency.

In 2016 and 2015 the Group has performed no significant transactions in currencies other than the functional currency of each company. However, the Group has contracted exchange rate insurance policies for non-recurrent transactions in US Dollars.

The hedging transactions carried out in US Dollars during 2016 amounted to US Dollars 6,552 thousand (US Dollars 5,359 thousand in 2015). This amount represented 66.09% of the transactions carried out in this currency in 2016 (98.38% in 2015). At 2016 year end, outstanding hedges in this currency total US Dollars 1,803 thousand (US Dollars 1,284 thousand in 2015) and expire in the next 11 months. These transactions are not significant with respect to the Group’s total volume of purchases.

The Group holds several investments in foreign operations, the net assets of which are exposed to currency risk. Currency risk affecting net assets of the Group’s foreign operations in Argentinian Pesos, Chinese Yuan and Brazilian Reais is mitigated primarily through borrowings in the corresponding foreign currencies.

In 2016, had the Euro strengthened/weakened by 10% against the US Dollar, with the other variables remaining constant, consolidated post-tax profit would have been Euros 328 thousand higher/lower (Euros 271 thousand in 2015), mainly as a result of translating trade receivables and debt instruments classified as available-for-sale financial assets.

The translation differences included in other comprehensive income are significant due to the major depreciation of the Argentinian Peso and, above all, the strong appreciation of the Brazilian Real in 2016. Had the exchange rates in the countries where the Group operates that use a currency other than the Euro depreciated/appreciated by 10% the translation differences would have varied by +32.71% / -32.71%, respectively, in the equity of the DIA Group.

The Group’s exposure to currency risk at 31 December 2016 and 2015 in respect of the balances outstanding in currencies other than the functional currency of each country is immaterial:

c) Price risk

The Group is not significantly exposed to risk derived from the price of equity instruments or listed raw material prices.

d) Credit risk

The Group does not have significant concentrations of credit risk. The Group has policies to ensure that wholesale sales are only made to customers with adequate credit records. Retail customers pay in cash or by credit card. Derivative and cash transactions are only performed with financial institutions that have high credit ratings. The Group has policies to limit the amount of risk with any one financial institution.

The credit risk presented by the Group is attributable to the transactions it carries out with the majority of its franchisees and is mitigated through the bank and other guarantees received, which are described in note 22. Details are as follows:

Thousands of miles 2016 2015
Trade operarations non-current 69,345 51,291
Trade operations current 135,261 112,054
Guarantees received (98,937) (86,415)

Non-current commercial transactions reflect the financing of the starting inventory of the franchisees, which is repaid monthly based on the cash generation profile of the business. Current commercial transactions entail the financing of supplies.

In 2016 the Group entered into agreements to transfer supplier trade payables with and without recourse (see notes 3 (m) and 9.1 (b)). The accrued cost of the transfer of these payables in 2016 amounted to Euros 139 thousand (see note 21.7). Undue balances at 31 December 2016 amount to Euros 88,449 thousand, all of which are without recourse.

The Group's exposure to credit risk at 31 December 2016 and 2015 is shown below. The accompanying tables reflect the analysis of financial assets by remaining contractual maturity dates:

2016

Thousands of euros Maturity 2016
Guarantees según contrato 46.269
Guarantees 2,020 2,000
Equity instruments - 88
Other loans 2018-2021 572
Trade receivables 2018-2035 69,345
Other non-current financial assets 2018-2020 9,728
Consumer loans from finance companies 2018 401
Non-current assets   128,403
Guarantees 2017 10,324
Other loans 2017 4.139
Other finantial assets 2017 5,148
Trade receivables 2017 256,010
Receivables from group companies 2017 4,852
Consumer loans from finance companies 2017 6,220
Current assets   286,693

2015

Thousands of euros Maturity 2015
Guarantees según contrato 42,649
Other Guarantees 2020 16,600
Equity instruments - 88
Other loans 2017-2020 881
Trade receivables 2017-2032 51,290
Other non-current finantial assets 2017-2020 6,728
Consumer loans from finance companies 2017 458
Non-current assets   118,694
Guarantees 2016 640
Others loans 2016 3,741
Other finantial assets 2016 3,134
Trade receivables 2016 221,193
Consumer loans from finance companies 2016 6.548
Current assets   235,256

The Group has taken out credit and surety insurance policies to ensure the collectability of certain trade receivables for sales. The trade receivables covered by these policies totalled Euros 6,037 thousand at 31 December 2016 (Euros 2,772 thousand at 31 December 2015).

The returns on these financial assets totalled Euros 5,015 thousand in 2016 and Euros 5,109 thousand in 2015.

Details of non-current and current trade and other receivables by maturity in 2016 and 2015 are as follows:

Current

  Thousand of euros
Current Between 0 and 1 month Between 2 and 3 month Between 4 and 6 month Between 7 and 12 month Total
31st december 2016 195,814 30,784 30,353 1,607 2,304 260,862
31st december 2015 166,024 13,046 36,214 3,213 2,696 221,193

Non-current

  Thousands of euros
2 years 3 and 5 years >5 years Total
31st december 2016 21,895 33,866 13,584 69,345
31st december 2015 14,552 28,529 8,209 51,290

The Group’s general policy is to recognise an impairment loss for the entire amount of any outstanding receivable past due by over six months, including any amounts insured with Crédito y Caución.

e) Liquidity risk

The Group applies a prudent policy to cover its liquidity risks, based on having sufficient cash and marketable securities as well as sufficient financing through credit facilities to settle market positions. Given the dynamic nature of its underlying business, the Group’s Finance Department aims to be flexible with regard to financing through drawdowns on contracted credit facilities.

The Group’s exposure to liquidity risk at 31 December 2016 and 2015 is shown below. These tables reflect the analysis of financial liabilities by remaining contractual maturity dates:

2016

Thousands of euros Maturity 2016
Debentures and bonds long term 2019-2021 794,652
Syndicated credits (Revolving credit facilities) 2018 97,360
Mortgage loan 2018-2020 2,632
Other bank loans 2018-2019 126,351
Finance lease payables 2027 31,305
Guarantees and deposits received según contrato 9,469
Other non-current financial debt 2022 504
Other non-current financial liabilities 2020 2,785
Total non-current financial liabilities   1,065,058
Debentures and bonds long term 2017 5,587
Mortgage loan 2017 2,218
Other bank loans 2017 61,819
Other financial liabilities 2017 39,944
Finance lease payables 2017 11,634
Credit facilities drawn down 2017 41,355
Expired interest 2017 520
Guarantees and deposits received 2017 5,817
Derivatives 2017 6,600
Other financial debts 2017 5,240
Trade and other payables 2017 1,952,848
Suppliers of fixed assets 2017 60,300
Personnell 2017 69,261
Other current liabilities 2017 5,081
Total current financial liabilities   2,268,224

2015

Thousands of euros Maturity 2015
Debentures and bonds long term 2019 495,862
Syndicated credits (Revolving credit facilities) 2018 297,580
Mortgage loan 2017-2020 4,834
Other bank loanstd> 2017-2018 95,652
Finance lease payables 2017-2027 19,185
Guarantees and deposits received según contrato 7,838
Other non-current financial liabilities 2020 17,906
Total non-current financial liabilities   938,857
Debentures and bonds long term 2016 3,500
Mortgage loan 2016 2,145
Other bank loans 2016 137,468
Other financial liabilities 2016 42,266
Finance lease payables 2016 7,736
Credit facilities drawn down 2016 175,073
Expired interest 2016 778
Guarantees and deposits received 2016 4,760
Derivatives 2016 40
Other financial debts 2016 513
Trade and other payables 2016 1,518,843
Suppliers of fixed assets 2016 77,235
Personnel 2016 65,905
Other current liabilities 2016 2,539
Other current liabilities   2,038,801

Details of non-current financial debt by maturity in 2016 and 2015 are as follows:

2016

  Thousands of euros
2018 2019-2021 Over 2022 Total
Debentures and bonds long term - 794,652 - 794,652
Syndicated credits (Revolving credit facilities) 97,360 - - 97,360
Mortgage loan 1,558 1,074 - 2,632
Bank loan 123,784 2,567 - 126,351
Finance lease payables 10,149 17,334 3,822 31,305
Guarantees and deposits received - - 9,469 9,469
Other non-current financial debt 126 375 3 504
Total non-current debt 232,977 816,002 13,294 1,062,273

2015

  Thousands of euros
2017 2018-2020 Over 2021 Total
Debentures and bonds long term - 495,862 - 495,862
Syndicated credits (Revolving credit facilities) - 297,580 - 297,580
Mortgage loan 2,217 2,617 - 4,834
Bank loan 73,137 22,515 - 95,652
Finance lease payables 7,362 10,830 993 19,185
Guarantees and deposits received - - 7,838 7,838
Total non-current debt 82,716 829,404 8,831 920,951

The finance costs accrued on these financial liabilities totalled Euros 28,755 thousand and Euros 25,068 thousand in 2016 and 2015, respectively.

f) Cash flow and fair value interest rate risks

The Group’s interest rate risk arises from interest rate fluctuations that affect the finance cost of non-current borrowings issued at variable rates.

The Group contracts different interest rate hedges to mitigate its exposure, in accordance with its risk management policy. At 31 December 2016 and 2015 there were no outstanding derivatives contracted with external counterparties to hedge interest rate risk related to long-term financing.

During 2016 fixed-rate debt as a percentage of the volume of average gross debt totalled 59.33%, compared with 78.70% in the previous year.

Group policy is to keep financial assets liquid and available for use. These balances are held in financial institutions with high credit ratings.

A 0.5 percentage point rise in interest rates would have led to a variation in profit after tax of Euros 1,355 thousand in 2016 (Euros 513 thousand in 2015).

25. Other information

25.1. Employee information

The average headcount of full-time equivalent personnel, distributed by professional category, is as follows:

  2016 2015
Management 209 206
Middle management 1,719 1,568
Other employees 40,739 40,850
Total 42,667 42,624

At year end the distribution by gender of Group personnel and the members of the board of directors is as follows:

  2016 2015
Female Male Female Male
Board members 3 7 2 7
Senior management 1 8 1 8
Other management 60 141 61 140
Middle management 688 1,079 609 993
Other employees 28,020 14,488 29,276 14,635
Total 28,772 15,723 29,949 15,783

During 2016 the Group employed an average of one executive (one in 2015), six middle management personnel (five in 2015) and 518 other employees (469 in 2015) with a disability rating of 33% or above (or an equivalent local classification).

25.2. Audit fees

KPMG Auditores, S.L., the auditor of the annual accounts of the Group, and other affiliates of KPMG International have invoiced the following fees for professional services during the years ended 31 December 2016 and 2015:

2016

Thousands of euros KPMG Auditores, S.L. Other companies associated with KPMG International Total
Audit services 409 227 636
Other accounting review services 109 71 180
Tax advisory services - 40 40
Other services - 47 47
Total 518 385 903

2015

Thousands of euros KPMG Auditores, S.L. Other companies associated with KPMG International Total
Audit services 410 224 634
Other accounting review services 105 86 191
Tax advisory services - 62 62
Other services - 510 510
Total 515 882 1,397

The amounts detailed in the above tables include the total fees for services rendered in 2016 and 2015, irrespective of the date of invoice..

25.3. Environmental information

The Group takes steps to prevent and mitigate the environmental impact of its activities.

The expenses incurred during the year to manage this environmental impact are not significant.

The Parent’s board of directors considers that there are no significant contingencies in connection with the protection and improvement of the environment and that it is not necessary to recognise any environmental provisions.

26. Events after the reporting period

At the date of authorisation for issue of these consolidated annual accounts, no events have occurred that require disclosure in this note.

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