INTERNATIONAL AIRPORT FINANCE, S.A.
Madrid, August 27, 2020 LUXEMBOURG STOCK EXCHANGE – EURO MTF MARKET International Airport Finance, S.A. (the “Company”) hereby announces the following INFORMATION NOTICE Reference is made to the Third Amendment and Restatement to Common Terms Agreement and Facility Agreements, dated March 14, 2019 (the “CTA”) between Corporación Quiport S.A., as borrower (the “Borrower” or “Quiport”), the Company, as lender, and Citibank, N.A., as administrative agent. Pursuant to section 5.1(a) of the CTA, the Borrower has provided to the Company (a) copies of its unaudited balance sheet, its unaudited statements of income and cash flows and the statement of changes in members’ equity, and an independent auditor’s report, related to the second fiscal quarter of 2020 (the “Financial Statements”); (b) the key preliminary operating information of the airport as of June 2020, which has the passenger traffic information, including domestic and international traffic, cargo volumes, and aircraft movement (the “Operating Information”); and (c) the Borrower’s debt service coverage ratio as of June 2020 (“Debt Service Coverage Ratio”). The Financial Statements, the Operating Information, and the Debt Service Coverage Ratio are attached hereto as Schedule I, Schedule II, and Schedule III, respectively. INTERNATIONAL AIRPORT FINANCE, S.A.
SCHEDULE I
CORPORACIÓN QUIPORT S.A.
FINANCIAL STATEMENTS FOR THE SIX-MONTHS INTERIM PERIOD ENDED JUNE 30, 2020 AND THE INDEPENDENT AUDITORS’ REPORT
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CORPORACIÓN QUIPORT S.A.
FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2020
Contents Page
Independent auditors’ report 3
Statement of financial position 4
Statement of comprehensive income 5
Statement of changes in equity 6
Statement of cash flows 7
Notes to the financial statements 8
Abbreviations:
IAS International Accounting Standards IFRS International Financial Reporting Standards IFRIC International Financial Reporting Interpretations Committee SRI Internal Revenue Service FV Fair value FVTPL Fair value through profit or loss US$ U.S. dollars NQIA New Quito International Airport MSIA Mariscal Sucre International Airport CCC Canadian Commercial Corporation CCR Constructora CCR SAC EPC EPC Engineering, Procurement and Construction CORPAQ Corporación Aeropuerto y Zona Franca del Distrito Metropolitano de Quito ECL Expected Credit Losses EPMSA Empresa Pública Metropolitana de Servicios Aeroportuarios y Gestión de Zonas Francas y Regímenes Especiales (Ex - CORPAQ) DAC Civil Aviation Authority OPIC Overseas Private Investment Corporation IDB Inter-American Development Bank US EXIM Export Import Bank of the United States EDC Export Development Canada SAA Strategic Alliance Agreement VAT Value Added Tax CGE Comptroller General of the State
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Teléfonos: (593-2) 5000 051 KPMG del Ecuador Cía. Ltda. (593-4) 5000 051 Av. República de El Salvador, N35-40
y Portugal, Edif. Athos, pisos 2 y 3 Quito - Ecuador
Independent Auditors’ Report on Review of Interim Financial Statements
To the Shareholders’ Board and Directors of Corporación Quiport S. A.:
Introduction
We have reviewed the accompanying statement of financial position of Corporación Quiport S. A. (“the Company”) as at June 30, 2020, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the six-month period then ended, and notes, comprising significant accounting policies and other explanatory information. Management is responsible for the preparation and fair presentation of these interim financial statements in accordance with International Financial Reporting Standards (IFRS) including the requirements of IAS 34, ‘Interim Financial Reporting. Our responsibility is to express a conclusion on these interim financial statements based on our review.
Scope of Review
We conducted our review in accordance with the International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial statements do not give a true and fair view of the financial position of the Corporation as at June 30, 2020, and of its financial performance and its cash flows for the six month period then ended in accordance with IFRS including the requirements of IAS 34, ‘Interim Financial Reporting.
KPMG del Ecuador Cía. Ltda.
Jhonny R. Bolívar Isturiz, Partner August 7, 2020 - 3 -
CORPORACIÓN QUIPORT S.A.
STATEMENT OF FINANCIAL POSITION AT JUNE 30, 2020
(Unaudited) (Audited) ASSETS Note 30/6/2020 31/12/2019 (in thousands of U.S. dollars)
CURRENT ASSETS: Cash and banks 5 US$ 53,917 67,626 Investments 6 246 246 Trade and other receivables 7 31,793 42,757 Current tax assets 13 1,219 1,186 Other assets 8 972 2,097 Total current assets 88,147 113,913
NON-CURRENT ASSETS: Investments 6 20,452 20,457 Property and equipment 9 8,620 7,503 Intangible assets 10 721,563 725,446 Total non-current assets 750,635 753,406
TOTAL US$ 838,782 867,319
LIABILITIES AND EQUITY
CURRENT LIABILITIES: Borrowings 15 US$ 4,577 3,412 Trade and other payables 11 7,285 11,144 Accrued liabilities 12 279 8,555 Current tax liabilities 13 148 825 Contract liabilities 14 10,475 10,483 Total current liabilities 22,764 34,419
NON-CURRENT LIABILITIES: Contract liabilities 14 193,021 198,258 Borrowings 15 394,807 394,316 Defined benefits 417 420 Total non-current liabilities 588,245 592,994
Total liabilities 611,009 627,413
EQUITY: 16 Share capital 66,000 66,000 Legal reserve 33,000 31,749 Retained earnings 128,773 142,157 Total equity 227,773 239,906
TOTAL US$ 838,782 867,319
Francis Segovia Juan Carlos Zurita Chief Financial Officer General Accountant
See notes to the financial statements.
- 4 - CORPORACIÓN QUIPORT S.A. STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED JUNE 30, 2020
(Unaudited) (Unaudited) Three months ended Six months ended Note 30/6/2020 30/6/2019 30/6/2020 30/6/2019 (in thousands U.S. dollars) (in thousands U.S. dollars)
Revenue 17 US$ 9,440 42,862 47,401 85,075 Interest revenue 622 1,922 1,596 2,086 Financial costs 20 (13,427) (13,323) (26,959) (17,957) Amortization of intangible assets 10 (8 ,339) (8,266) (16,668) (16,516) Employee benefits 19 (2,157) (2,424) (4 ,595) (5,005) Services and supplies (1,371) (2,265) (3,570) (4,381) Professional fees (679) (1,091) (2,742) (2,253) Operation and maintenance fees 22.1 (77) (1,762) (1 ,562) (3,502) Maintenance and repair expenses (575) (831) (1 ,239) (1,554) Insurance expenses (609) (569) (1 ,214) (1,131) Utilities (378) (602) (994) (1,233) Equipment depreciation 9 (361) (283) (661) (546) Taxes and contributions (219) (533) (507) (913) Others (43) (300) (187) (570) Performance bond expenses (93) (32) (124) (63) Legal and extraordinary fees 5 (189) (108) (405) Employees' profit sharing 12 919 (1,847) - (4,670)
LOSS OR PROFIT FOR THE YEAR AND TOTAL COMPREHENSIVE US$ (17,342) 10,467 (12,133) 26,462 INCOME
Francis Segovia Juan Carlos Zurita Chief Financial Officer General Accountant
See notes to the financial statements.
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STATEMENT OF CHANGES IN EQUITY FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2020
Share Legal Retained Total capital reserve earnings (in thousands U.S. dollars)
Balances at December 31, 2018 US$ 66,000 25,412 330,661 422,073
Appropriation of legal reserve - 6,337 (6,337) - Profit of the period - - 26,462 26,462
Balances at June 30, 2019 US$ 66,000 31,749 350,787 448,535
Balances at December 31, 2019 US$ 66,000 31,749 142,157 239,906
Appropriation of legal reserve - 1,251 (1,251) - Loss of the period - - (12,133) (12,133)
Balances at June 30, 2020 US$ 66,000 33,000 128,773 227,773
Francis Segovia Juan Carlos Zurita Chief Financial Officer General Accountant
See notes to the financial statements.
- 6 - CORPORACIÓN QUIPORT S.A.
STATEMENT OF CASH FLOWS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2020 AND 2019
(Unaudited) (Unaudited) 30/6/2020 30/6/2019 (in thousands of U.S. dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Received from clients US$ 49,619 78,529 Paid to suppliers and employees (27,540) (31,402) Interest from financial liabilities (34) - Tax and contributions (1,338) - Other interest - (2,413) Net cash received from operating activities 20,707 44,714 CASH FLOWS FROM (IN) INVESTING ACTIVITIES: Increase of intangible assets (12,343) (10,236) Acquisition of equipment (1,641) (1,954) Net cash received used in investing activities (13,984) (12 ,190) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings received from related parties - 307,851 Borrowings payment - (67,162) Interest payments (21,322) (12,000) Interest received from investments 1,601 - Payment of financial obligations (137) - Acquisition of investments - (20,000) Financial cost payments (574) (684) Net cash used in financing activities (20,432) 208,005 CASH AND BANKS: Net increase (decrease) during the year (13 ,710) 240,529 Cash and banks at the beginning of the year 67,626 48,056 Cash and banks at the end of the year US$ 53,917 288,585
Francis Segovia Juan Carlos Zurita Chief Financial Officer General Accountant
See notes to the financial statements.
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CORPORACIÓN QUIPORT S.A.
NOTES TO FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2020
1. OPERATIONS AND GENERAL INFORMATION
Corporación Quiport S.A. (“the Corporation”, “the Concessionaire”, “Quiport” or “The Company”) was incorporated in Ecuador on September 11, 2002 by AECON Construction Group Inc., Andrade Gutierrez Concession S.A., Airport Development Corporation - ADC and Houston Airport System Development Corporation - HASDC. During 2012, Andrade Gutierrez Concession S.A. transferred its participation to CCR S.A. On December 11, 2015, AECON Construction Group and Airport Development Corporation (ADC) transferred their shareholding to Grupo Odinsa S.A., whereby 49.99% of the final shareholding in Quiport is held by CCR Group of Brazil, Grupo Odinsa S.A. of Colombia (49.99%) and HASDC 0.019%.
Quiport’s principal objective is to act as the concessionaire responsible for the administration, maintenance and operation of the New Quito International Airport and the execution of all activities inherent in the concession contract which was awarded by Corporación Aeropuerto y Zona Franca del Distrito Metropolitano de Quito (CORPAQ) (currently Empresa Pública Metropolitana de Servicios Aeroportuarios y Gestión de Zonas Francas y Regímenes Especiales - EPMSA) (Note 25).
The Company has an operation and maintenance contract, signed with ADC & HAS Management Ltd. “BVI” (currently Quiama Ltd. BVI) a joint venture comprised of ADC and HASDC, the subsidiary of which is the company Quito Airport Management Quiama Ecuador S.A. (formerly ADC & HAS Management Ecuador S.A.), that incurs various costs and expenses that are reimbursed by the Corporation.
The NQIA opened and began its operations on February 20, 2013. Since that date, Quiport has recorded 89% of the regulated revenue as revenue in the comprehensive income according to the SAA. (Note 25)
1.1 Current Situation of the Company's Operations - On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. On March 16, 2020, the Government of Ecuador through Official Decree No. 1017, declared a state of emergency due to public calamity throughout the national territory, in order to control the health emergency situation to guarantee the rights of people before the presence of the COVID-19 virus, generating a significant impact on daily life and on the production and supply chains of goods in Ecuador.
Management is constantly evaluating the effects of the outbreak on the operations and financial situation of the company, with the aim of applying appropriate measures to mitigate the effects of the outbreak on the operations and financial statements of the Company. Until the date of issuance of the financial statements, the operation is as follows:
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Since mid-March, 2020, its operations have decreased mainly in the operation of passenger flights. During the months of April and May, flight operations related to repatriation of foreigners and arrival of Ecuadorians from abroad and cargo flights were carried out.
The following measures were adopted by the Administration to mitigate the COVID- 19 effect:
- Renegotiation of contracts with the Company's suppliers and clients considering the current scenario of the outbreak.
- Negotiation of obligations contracted for services received, monitoring of the Company's liquidity.
- Optimization of expenses and costs.
- On June 1st, Mariscal Sucre International Airport restarted the commercial operations for passengers, applying rigorous security and health protocols for travelers, in accordance with the provisions of the National COE.
In view of the daily evolution of COVID-19, as well as its impact on the economy in Ecuador and globally, no estimate can be made of the effects on the Company's operations at the date of issuance of the financial statements.
In Management's opinion, the pandemic restrictions have caused a temporary reduction in the Company's operations, however, they consider that there is no risk of non-continuity, since operations would normalize once the quarantine period has ended.
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of Compliance - The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB).
2.2 Functional currency - The Corporation’s functional currency is the United States of America dollar (U.S. Dollar), the legal tender in circulation in Ecuador.
The amounts in the notes to the financial statements are expressed in thousands of U.S. dollars, unless otherwise specified.
2.3 Basis of presentation - The financial statements have been prepared on a historical cost basis, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
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Fair value is the price that would be received to sell an asset or the price paid to transfer a liability between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Corporation takes into account the characteristics of the asset or liability that market participants would consider in pricing the asset or liability at the measurement date. Fair value for measurement or disclosure purposes in these financial statements is determined on such a basis, except for transactions related to share-based payments that are within the scope of IFRS 2, lease operations that are within the scope of IFRS 16, and measurements with similarities to fair value but are not fair value such as net realizable value in IAS 2 or the value in use in IAS 36.
In addition, for financial reporting purposes, the fair value measurements are classified as Level 1, 2 or 3 based on the degree of importance of the inputs to fair value measurement in their entirety, and which are described below:
Level 1: Are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2: Inputs other than the prices quoted in Level 1 that are observable for the asset or liability, whether directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
The principal accounting policies adopted in preparing the financial statements are set out below:
2.4 Revenue recognition - Is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Quiport recognizes revenue when it transfers control of a product or service to a customer. The Corporation recognizes revenues from the following major sources:
2.4.1 Regulated revenue - Comprises 89% of the regulated airports tariffs for passengers and services established in the concession contract which are recognized as a performance obligation satisfied at a point in time. Company Management has assessed that the performance obligation is satisfied when the passengers and airlines have made use of the airport facilities. Regulated tariff notifications are issued to airlines monthly (general services and domestic passengers) and every ten days (international passengers).
2.4.2 Non-regulated revenue - It is calculated and recognized as a performance obligation fulfilled over time, in accordance with the terms of the contracts signed and corresponds mainly to the leasing of commercial premises, offices, hangars and warehouses; internal passenger transport services; freight services; among others. The Administration has evaluated that the performance obligation is fulfilled in the time in which the client makes use of the services and / or of the leased facilities, in exchange for a fee. Also, in the case of non-regulated revenue services, the rates have a fixed and variable component.
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The recognition of advance payment at the beginning of the contract has been recognized as income received in advance and is recognized as revenue in profit or loss over the time of the contract. (Note 25)
In determining the transaction price, Quiport assesses the existence of a variable component. Revenue transactions are recorded net of discounts. Commercial incentives are recorded by decreasing revenues when there is reasonable certainty that clients will comply with all requirements to be entitled to such discounts. Management performs a monthly evaluation of whether clients will comply with their contractual requirements to record discounts in a timely manner.
2.4.3 Income from amortization of the deferred liability for the concession MSIA - See Note 2.11.
2.5 Costs and expenses - Are recorded at historical cost. Costs and expenses are recognized as incurred, regardless of the date on which payment was made, and are recorded in the period in which such were known.
2.6 Valuation of property and equipment - At cost of acquisition. Cost of property and equipment is depreciated in accordance with the straight-line method over the estimated useful lives of 20 years for improvements to installations, 10 years for furniture and fixtures, 5 years for vehicles and other assets (usufruct) and 3 years for computer equipment. Ordinary maintenance and repair expenses are charged as current airport operating expenses.
2.7 Intangible Assets - Quiport applies the Intangible Asset Model in accordance with IFRIC 12 Service Concession Arrangements and SIC 29 Disclosure - Service Concession Arrangements for the accounting of the Concession Contract and the corresponding disclosures in the financial statements.
The amount recorded for the concession relates to the cost of the asset received to be operated, which includes the construction costs of the NQIA and subsequent improvements to the referred asset, such as the costs and expenses related to obtaining the concession and the construction of the NQIA.
Amortization of intangible assets is charged to profit or loss based on the straight- line method. The Corporation took the remaining concession period of the NQIA as the useful life of the intangible asset, until January 26, 2041.
The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset.
2.8 Derecognition of intangible assets - An intangible asset is derecognized on disposal or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of intangible assets, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in profit or loss when the asset is derecognized.
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2.9 Impairment of tangible and intangible assets - At the date of each statement of financial position, the Corporation reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Corporation estimates the recoverable amount of the cash- generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units. Otherwise they are allocated to the smallest group of cash- generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of a cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the varying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately.
At June 30, 2020, no impairment of tangible and intangible assets has been determined. The Administration will evaluate in the following months the effects that COVID-19 could have. The Company considers that it will have greater certainty about the operation for the year with the results as of September.
2.10 Financial costs - Financial costs directly attributable to the acquisition and construction of assessed assets, that initially require a substantial period of time to prepare them for sale or use, are capitalized up to the date that the assets are substantially complete for sale or use. All other financial costs are recognized as a gain or loss in the period in which they are incurred. The financial costs generated during the construction period of the NQIA were included in the concession’s intangible assets.
2.11 Contract liabilities of the MSIA - Quiport recorded the concession right on revenues from the old airport (MSIA) granted by EPMSA (Ex CORPAQ) as an intangible asset and as contract liability (See Note 14). The intangible asset was amortized as from the effective date until the opening date of the NQIA. Contract liability is amortized over the operating period of the new airport (NQIA) as from the start of commercial operations of the new airport through to the end of the concession under the straight-line method. - 12 -
Deferred revenue is being recognized in profit or loss over the operating period of the new airport (NQIA) as from the start of commercial operations of the new airport through the end of the concession under the straight-line method in accordance with IAS 20, as a government grant related to assets.
2.12 Concessionaire contract liabilities - Correspond to amounts paid by concessionaires for the right to use commercial premises within the NQIA. These amounts are recorded as contract liabilities (in liabilities) at the time of payment. The revenues are subsequently recognized using the realization base over the effective contract period. Contract liabilities exceeding 12 months as of the statement of financial positions are classified as non-current liabilities.
2.13 Taxes - Quiport is deemed to be a free trade zone user of the Mariscal Sucre International Airport and is thereby tax exempt. A summary of the principal tax benefits is included in Note 13.
2.14 Provisions - Provisions are recognized only when the Corporation has a current obligation, either legal or implicit, deriving from a past event, and it is probable that fulfillment of that obligation will require resources and the amount of the obligation can be accurately estimated. Provisions are reviewed each year and updated to reflect the best estimate at the financial statements date. When the monetary effect in time is important, the provision amount is the present value of the expenses that would be incurred to fulfill the obligation.
2.15 Employee benefits
2.15.1 Employee profit-sharing - The Corporation recognizes a liability and an expense for employee profit-sharing in the Corporation’s income. This benefit is calculated based on 15% of net income in accordance with current legislation.
2.16 Leases - The Corporation has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated and continues to be presented in accordance with IAS 17 and IFRIC 4.
At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Corporation uses the definition of a lease in IFRS 16.
i. As a lessee
At commencement or on modification of a contract that contains a lease component, the Corporation allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Corporation has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.
- 13 - a. The Corporation has applied IFRS 16 using the modified retrospective approach whereby comparative information is not restated. The Corporation has disclosed its accounting policies under both IFRS 16 (for the current period) and IAS 17 (for the comparative period presented) to enable users to understand the current period and comparative information and significant changes in accounting policies.
The Corporation recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently amortized using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Corporation by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be amortized over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Corporation’s incremental borrowing rate. The Corporation determines its incremental borrowing rate through the market financing rate issued to the sector by the Central Bank of Ecuador in effect during the period to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
Fixed payments, including in-substance fixed payments;
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in the Corporation’s estimate of the amount expected to be payable under a residual value guarantee, if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Corporation presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the statement of financial position.
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Short-term lease and leases of low-value assets
The Corporation has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Corporation recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. ii. As a lessor
At inception or on modification of a contract that contains a lease component, the Corporation allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
When the Corporation acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, Quiport makes an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, Quiport considers certain indictors such as whether the lease is for the major part of the economic life of the asset.
Generally, the accounting policies applicable to the Corporation as a lessor in the comparative period were not different from IFRS 16.
a. Definition of a lease
Previously, the Corporation determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining whether an Arrangement contains a Lease. The Corporation now assesses whether a contract is or contains a lease based on the definition of a lease.
On transition to IFRS 16, the Corporation elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Corporation applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16.
b. As a lessee
As a lessee, the Corporation leases many assets including property and vehicles. The Corporation previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Corporation. Under IFRS 16, the Corporation recognizes right-of-use assets and lease liabilities for most of these leases - i.e. these leases are on-balance sheet.
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone price. - 15 -
However, for leases of property the Corporation has elected not to separate non-lease components and account for the lease and associated non-lease components as a single lease component.
The lease liabilities were measured at the present value of the remaining lease payments, discounted at the Corporation’s incremental borrowing rate. Right-of-use assets are measured at either:
- their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the Group’s incremental borrowing rate at the date of initial application: the Corporation applied this approach to its largest property lease; or
- The amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments: the Corporation applied this approach to all other leases.
The Corporation has tested its right-of-use assets for impairment on the date of transition and has concluded that there is no indication that the right-of- use assets are impaired. In particular, the Corporation:
- did not recognized right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application;
- did not recognized right-of-use assets and liabilities for leases of low value assets;
- excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application; and
- used hindsight when determining the lease term.
c. As a lessor
The Corporation leases out its own property and right-of-use assets. The Corporation has classified these leases as operating leases.
The Corporation is not required to make any adjustments to IFRS 16 for leases in which it acts as a lessor.
The Corporation has applied IFRS 15 Revenue from Contracts with Customers to allocate consideration in the contract to each lease and non- lease component.
2.17 Offsetting balances and transactions - As a general rule neither assets and liabilities nor income and expenses are offset in the financial statements, except in those cases in which compensation is required or permitted under a standard and such presentation reflects the essence of the transaction.
Income and expenses originating in transactions that, contractually or by statute, provide for the possibility of offset and that the Corporation has the intention of settling for their net amount or of realizing assets and proceeding to pay the liability simultaneously are presented net in profit or loss. - 16 -
2.18 Financial assets - Financial assets are classified into the following specified categories: “financial assets at fair value through other comprehensive income (FVTOCI)”, “financial assets at fair value though profit or loss (FVTPL)” and “amortized cost”. The classification depends on the Corporation’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.
A debt instrument is measured at amortized cost if both of the following conditions are met:
The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and,
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt instrument is measured at fair value through other comprehensive income if both of the following conditions are met:
The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and,
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. By default, all other financial assets are subsequently measured at FVTPL.
2.18.1 Financial assets subsequently measured at amortized cost - Financial assets subsequently measured at amortized cost are non- derivative financial assets with fixed or determinable payments, not traded in an active market. Loans and accounts receivable (including trade and other receivables, bank balances and cash and others) are measured at amortized cost using the effective interest method, less any impairment.
Interest income is recognized by applying the effective rate, except for short term receivables when the effect of discounting is immaterial.
2.18.2 Effective interest method - The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is a rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premium or discount) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
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The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss allowance.
Interest income is recognized using the effective interest method for debt instruments measured subsequently at amortized cost and at FVTOCI. For financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit‐impaired (see below). For financial assets that have subsequently become credit‐ impaired, interest income is recognized by applying the effective interest rate to the amortized cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit‐impaired financial instrument improves so that the financial asset is no longer credit‐impaired, interest income is recognized by applying the effective interest rate to the gross carrying amount of the financial asset.
Interest income is recognized in profit or loss and is included in the "Interest revenue" line item.
Impairment of financial assets
The Corporation recognizes a loss allowance for expected credit losses on trade receivables, other financial assets and lease receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
The expected credit losses are estimated using a provision matrix based on the Corporation’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
For trade and other receivables, other financial assets and lease receivables, Quiport recognizes a loss allowance for expected credit losses for the next twelve months (simplified scope). The expected credit losses on these financial assets are estimated using a provision matrix based on the Corporation’s historical credit loss experience adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
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For all other financial instruments, Quiport recognizes lifetime expected credit losses when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Corporation measures the loss allowance for that financial instrument at an amount equal to 12 months ECL. The assessment of whether lifetime ECL should be recognized is based on significant increases in the likelihood or risk of a default occurring since initial recognition instead of on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12 months ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.
Definition of default - Quiport considers the following as constituting a default event for internal credit risk management purposes as historical experience indicates that receivables that meet either of the following criteria are generally not recoverable.
When there is a breach of covenants (financial agreements) by the counterparty; or
Information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Corporation, in full (without taking into account any collaterals held by the Corporation).
Irrespective of the above analysis, the Corporation considers that default has occurred when a financial asset is more than 30 days past due unless the Corporation has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
The carrying amount of the financial asset is reduced by the expected credit losses directly for all financial assets. When a trade receivable is considered uncollectible, it is written off against the provision for expected credit losses. Subsequent recoveries of amounts previously written off are credited against the expected credit losses account. Changes in the carrying amount of the expected credit losses are recognized in profit or loss.
2.18.3 Derecognition of financial assets - Quiport derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers substantially all the risks and rewards of ownership of the financial asset. If Quiport neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Corporation recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Corporation retains substantially all the risks and rewards of ownership of a transferred financial asset, Quiport continues to recognize the financial asset as well as any collateralized borrowing for the proceeds received. - 19 -
On derecognition of a financial asset measured at amortized cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. In addition, on derecognition of an investment in a debt instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss. In contrast, on derecognition of an investment in equity instrument which the Corporation has elected on initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investment revaluation reserve is not reclassified to profit or loss but is transferred to retained earnings.
2.19 Financial liabilities and equity instruments issued by Quiport - Debt and equity instruments are classified as financial liabilities in accordance with the substance of the contractual arrangements.
Financial liabilities are classified as current liabilities unless Quiport has unconditional entitlement to defer settlement during at least 12 months after the statement of financial position date.
2.19.1 Financial liabilities subsequently measured at amortized cost - Financial liabilities subsequently measured at amortized cost (including loans and trade accounts payable and others) are subsequently measured at amortized cost using the effective interest method.
The effective interest rate method is used to calculate the amortized cost of a financial asset and liability and to allocate the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts the cash flows receivable or payable (including all fees and points paid or received that form part of the effective interest rate, transaction costs and other premiums or discounts) estimated over the expected life of the financial liability (or, where appropriate), in a shorter period to the net carrying amount on initial recognition.
2.19.2 Derecognizing a financial liability - Quiport derecognizes a financial liability if, and only if, its contractual obligations are extinguished, canceled or fulfilled. The difference between the carrying amount and the consideration paid and payable is recognized in profit and loss for the year.
3. ADOPTION OF NEW AND REVISED STANDARDS
3.1 Application of new and revised International Financial Reporting Standards with mandatory application in the current year
During the period, Quiport has applied various IFRS amendments issued by the International Accounting Standards Board (IASB), and which are of mandatory application as of January 1, 2020 or subsequently, and which had no significant impact on Quiport’s financial statements.
Amendments to References to the Conceptual Framework in IFRS
The International Accounting Standards Board (the IASB) has issued a revised Conceptual Framework, this new Framework: - 20 -
Reintroduces the terms stewardship and prudence. Introduces a new asset definition that focuses on rights and a new liability definition that is likely to be broader than the definition it replaces but does not change the distinction between a liability and an equity instrument. Removes from the asset and liability definitions references to the expected flow of economic benefits-this lowers the hurdle for identifying the existence of an asset or liability and puts more emphasis on reflecting uncertainty in measurement. Analyzes historical cost and current value measures and provides some guidance on how the IASB would go about selecting a measurement basis for a particular asset or liability. States that the primary measure of financial performance is profit or loss, and that only in exceptional circumstances will the IASB use other comprehensive income and only for income or expenses that arise from a change in the current value of an asset or liability. Analyzes uncertainty, derecognition, unit of account, the reporting entity and combined financial statements. Together with the revised Conceptual Framework, the IASB has also issued Amendments to References to the Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however, update those pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the framework they are referencing to or to indicate that definitions in the standard have not been updated with the new definitions developed in the revised Conceptual Framework.
At the issue date of the financial statements, Management is in the process of evaluating the impact of amendments of Conceptual Framework on its financial statements. Consequently, the effects of applying the referred standard on the financial statements and their disclosures cannot be determined. However, the Company anticipates that it will have no problems.
Amendments to IAS 1 and IAS 8 regarding the definition of materiality
The changes in Definition of Material (Amendments to IAS 1 and IAS 8) all relate to a revised definition of 'material' which is quoted below from the final amendments:
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
Amendments to IFRS 16 lessees in accounting for eligible rent concessions
The Board has issued amendments to IFRS 16 (the amendments) to provide practical relief for lessees in accounting for rent concessions. Under the standard’s previous requirements, lessees assess whether rent concessions are lease modifications and, if so, apply the specific guidance on accounting for lease modifications. This generally involves remeasuring the lease liability using the revised lease payments and a revised discount rate. - 21 -
In light of the effects of the COVID-19 pandemic, and the fact that many lessees are applying the standard for the first time in their financial statements, the Board has provided an optional practical expedient for lessees. Under the practical expedient, lessees are not required to assess whether eligible rent concessions are lease modifications, and instead are permitted to account for them as if they were not lease modifications.
Rent concessions are eligible for the practical expedient if they occur as a direct consequence of the COVID-19 pandemic and if all of the following criteria are met:
‐ the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; ‐ any reduction in lease payments affects only payments originally due on or before 30 June 2021; and ‐ there is no substantive change to the other terms and conditions of the lease.
The way in which a lessee accounts for rent concessions to which it applies the practical expedient will depend on the facts and circumstances. In some cases, the lessee will recognize the benefit of the rent concession in profit or loss as if it were a variable lease payment.
If a rent concession does not qualify for the practical expedient or the lessee chooses not to apply the practical expedient, then the previous guidance continues to apply.
The amendments were issued on 28 May 2020 and, for practical purposes, can be adopted immediately, subject to any local endorsement process. At the issue date of the financial statements, Management is in the process of evaluating the impact of amendments.
Annual improvements to IFRS Cycle 2015-2017
The annual improvements include amendments to the following standards:
IFRS 3 Business Combinations - Clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business.
3.2 New and revised standards issued but not effective
Quiport has not applied the following new and revised International Financial Reporting Standards (IFRS) that have been issued but are not yet effective:
Effective from IFRS Titles periods beginning on or after
Classification of Liabilities Amendments to classification of January 1, 2021 as Current or Non-Current liabilities as Current or Non- ( A me ndme nt s t o IA S 1) Curre nt e ( IA S 1)
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The Corporation has not completed the impacts analysis of the new standards that are mandatory for 2021. Early application of the new and revised standards is permitted.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of the financial statements in conformity with IFRS requires that Management make certain estimates and establish various assumptions inherent to the entity’s economic activity with the purpose of determining the valuation and presentation of certain items forming part of the financial statements. In Management’s opinion, such estimates and assumptions were based on the best information available at the time, but actual results could differ from those estimates.
The following critical accounting estimates and judgments have been used by Quiport management in the process of applying accounting criteria:
4.1 Asset impairment - At the end of the period, the Corporation determines whether there are any indicators of impairment of its assets by the examination of internal and external information.
The recoverable amount of a cash generating unit is the higher of its fair value less costs of disposal and its value in use. This valuation process involves the use of methods such as discounted cash flows. Such estimated cash flows are based on significant management assumptions about key factors that may affect future business performance, such as a larger number of customers, tariff increases, investments, salary increases, capital structure, cost of capital, etc. Actual results might differ from estimates, and therefore projected cash flows might be materially affected if any of the above-mentioned factors is subject to changes in the near future.
At June 30, 2020, the Corporation determined that there were no impairment indicators for its assets, therefore no impairment losses were recognized. The Administration will evaluate in the next months the effects that COVID-19 could have. The Company considers that it will have greater certainty about the operation for the year with the results as of September.
Valuation of the business model - Classification and measurement of financial assets depends on the results of the SPPI and the business model test (See Note 2.18). Quiport determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective.
This valuation is based on all the relevant evidence, including how the performance of the assets is evaluated and measured, the risks that affect the performance of the assets and how they are managed and how the asset managers are compensated. Quiport monitors financial assets measured at amortized cost to understand the reason for their disposal and whether the reasons are consistent with the business objective for which the asset was held. Monitoring forms part of the ongoing valuation that Quiport undertakes of whether the business model for which the remaining financial assets are held continues to be appropriate and, if it is not appropriate, whether there has been a change in the business model and therefore a prospective change to the classification of those assets.
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Estimated useful lives of equipment, intangibles assets and deferred income - The estimate of the useful lives and residual value is performed as described in Note 2.6, 2.7, 2.11 and 2.12 respectively.
4.2 Key sources of estimation uncertainty
Key assumptions regarding the future and other key sources of estimation uncertainty in the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the next financial year are discussed below.
Calculation of the provision for expected credit losses - In measuring the provision for losses, the Corporation uses reasonable and bearable forward-looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other.
The loss from default is an estimate based on the difference between contractual cash flows due and those the lender would expect to receive, taking into account cash flows from collateral improvements and comprehensive credit.
The probability of default is an estimate of the probability of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.
5. CASH AND BANKS
A detail of the cash and banks balance is as follows:
(Unaudited) (Audited) 30/06/2020 31/12/19
Cash US$ 10 25 Foreign banks 49,803 60,996 Local banks 4,104 6,605 Total US$ 53,917 67,626
Foreign banks - Corresponds to cash held in current accounts at Citibank N.Y.
Local banks - Include balances in the Fideicomiso Mercantil Quiport On Shore Trust bank account in which all regulated income is received, until transferred to the Municipality of Quito by the Trust and the Corporation’s own account. Also includes the bank account in which collection of non-regulated income is received, which is managed by the Trust to fulfill the obligations contracted by Quiport.
6. INVESTMENTS
A detail of the investment balance is as follows:
- 24 - Annual interest (Unaudited) (Audited) Issuer rate Final 6/30/2020 12/31/2019
International Airport Finance, S. A. 12% Mar-33 US$ 20,698 20,703
6/30/2020 12/31/2019 Capital US$ 20,000 20,000 Generated interest 3,107 1,907 Paid interest (2,407) (1,207) Amortized cost (2) 3 US$ 20,698 20,703
Classification: 6/30/2020 12/31/2019 Current US$ 246 246 Non-current (1) 20,452 20,457 Total US$ 20,698 20,703
(1) Corresponds to the withholding of the credit risk of 5% of the total capital received, which was incorporated in Citibank NY in March 2019. (See Note 15). (2) During 2020, US$1,200 of interest was generated. On March 2020, US$1,200 corresponding to interest will be credited to the Company's accounts.
7. TRADE AND OTHER RECEIVABLES
(Unaudited) (Audited) 6/30/2020 12/31/2019 Trade receivables: Invoices issued US$ 7,724 6,754 Provision for expected credit losses (488) (465) Subtotal 7,236 6,289 Contract assets 91 8,354 7,327 14,643
Other receivables: Advances to suppliers 7,776 8,382 EPMSA (Ex Corpaq) 1,364 1,364 Others 305 363 Accounts receivable from related parties (ver Note 22) 15,021 18,005
Total US$ 31,793 42,757
Trade accounts receivable - Include principally invoices issued to form part of the Fideicomiso Mercantil de Administración y Garantía Quiport Onshore Trust related to non- regulated income and the 89% of notifications from regulated income issued on behalf of the Municipality (See Note 25).
The principal clients comprise airlines for services rendered. At June 30, 2020 and December 2019, the total of airlines were 67 and 45, respectively.
- 25 - The average credit period on regulated revenue is 4 days and is 15 days on non-regulated revenue. No interest is charged on trade receivables.
Before accepting any new customer, the Corporation uses a credit scoring system to assess the potential customer's credit quality and defines credit limits by customer.
The following table details the risk profile of trade receivables based on the Corporation’s provision matrix. As the Corporation’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished between the Corporation’s different customer bases.
Aging of receivables that are past due but not impaired:
Trade receivables - days past due
June 30, 2020 : Not past due < 30 31 - 60 61- 90 91 - 120 > 120 Total
Expected credit loss rate 0,08% 0,62% 1,76% 7,18% 8,38% 20,59%
Estimated gross carrying amount at default 2,585 1,138 680 1,073 597 1,651 7,724
Expected credit 2 7 12 77 50 340 488 loss
Trade receivables - days past due
December 31, 2019 : Not past due < 30 31 - 60 61- 90 91 - 120 > 120 Total
Expected credit loss rate 0,10% 0,86% 2,41% 4,24% 4,34% 20,08%
Estimated gross carrying amount at default 1,930 1,391 704 330 392 2,007 6,754
Expected credit loss 2 12 17 14 17 403 465
Movements in the expected credit losses (ECL) accounts:
(Unaudited) (Audited) 6 Months 6 Months 6/30/2020 6/30/2019
Beginning balance US$ 465 285 Provision 23 45 Ending balance US$ 488 330
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Provision for Bad Debt TAME EP: During 2019, the Company and the airline TAME signed a payment agreement for the recovery of accounts receivable related to non regulated revenues. During the year 2020, TAME has not complied with the payment agreements.
On May 19, 2020, the Government of Ecuador decreed the liquidation of TAME, granting a term of 240 days to conclude the process. As of the date of our review (July 2020), the airline has not communicated the balance settlement plans with its creditors.
The balance receivable as of June 30, 2020 amounts to US$3,695. The Administration in a preliminary evaluation has determined an impairment for US$382. However, it considers that at the end of the third quarter or by the end of the year the airline's decision regarding the settlement of the balances will be known and will be able to accurately determine the amount of the loss.
The adjustment for expected loss would be recognized in this year, once the airline determines the amount to be paid to Quiport.
Accrued for revenue - Comprises the provision for revenue from airport charges in June 2020 and December 2019, respectively, corresponding to regulated revenue not notified and non-regulated revenue pending invoicing. In July 2020 and January 2020, notifications and invoices were issued for the provisioned amounts. During the period ended June 2020, corresponding notifications and invoices were issued for the provisioned values.
At June 30, 2020, includes US$1,302 for regulated revenue and US$1,211 for non- regulated revenue (US$6,927 of regulated revenue and US$1,427 of non-regulated revenue at December 31, 2019).
EPMSA (Ex Corpaq) - At June 30, 2020 and December 2019, constitutes an account receivable related to reimbursements for US$1 million and the difference for fuel levy.
8. OTHER ASSETS
(Unaudited) (Audited) 6/30/2020 12/31/2019
Prepaid insurance US$ 908 2,097 Others prepaid expenses 64 -
Total US$ 972 2,097
Prepaid insurance - Comprises premiums on insurance policies contracted to cover the airport’s operation, related principally to property, operational liability and terrorism (See Note 23).
Other prepaid expenses - Comprises the expenses incurred to obtain the loan with International Airport Finance S.A. In March 2019, the Company reclassified this balance of $4,700 loan balance, which is being amortized based on the term of the loan. As of June 2020, the balance includes prepaid expenses to suppliers.
- 27 - 9. PROPERTY AND EQUIPMENT
A detail of property and equipment is as follows:
(Unaudited) (Audited) 6/30/2020 12/31/2019
Cost US$ 15,809 14,031 Accumulated depreciation (7,189) (6,527)
Total US$ 8,620 7,503
Classification: Land US$ 47 47 Other assets 591 702 Vehicles 1,807 2,021 Machinery and equipment 643 546 Furniture and fixtures 596 485 Computer equipment 1,355 263 Right-of-use asset 570 445 Equipment in transit 3,011 2,994
Total US$ 8,620 7,503
Movements in property and equipment, net, were as follows:
Land and Machinery Furniture other and and Computer Equipment Right-of- assets Vehicles equipment fixtures equipment in transit use assets Total
Net balance at December 31, 2018 (Audited) US$ 970 2,484 266 422 35 974 5,151
Additions - - - - - 3,130 3,130 Adoption IFRS 16 (1) ------669 669 Transfers - - 398 237 260 (895) - - Write-offs - - - (102) - - - (102) Reclassification to intangible assets - - - - - (215) - (215) Depreciation expense (221) (463) (118) (72) (32) - (224) (1,130)
Net balance at December 31, 2019 (Audited) 749 2,021 546 485 263 2,994 445 7,503
Additions - - - - - 1,642 277 1,919 Reclasifications to intangible assets - - - - - (139) - (139) Transfers - - 173 154 1,159 (1,486) - - Write-offs ------(2) (2) Depreciation expense (111) (214) (76) (43) (67) - (150) (661)
Net balance at June 30, 2020 (Unaudited) US$ 638 1,807 643 596 1,355 3,011 570 8,620
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(1) As of January 1, 2019, the Corporation includes as part of property and equipment the right-of-use asset for US$669. As of June 30, 2020 the expense for the period was US$150.
10. INTANGIBLE ASSETS
(Unaudited) (Audited) 6/30/2020 12/31/2019
Intangible asset NQIA US$ 720,794 724,715 Software 769 731
Total US$ 721,563 725,446
Intangible Asset NQIA - A summary of the intangible asset NQIA is as follows:
(Unaudited) (Audited) 6/30/2020 12/31/2019
New airport construction US$ 796,392 796,392 Expansions, improvements to infrastructure equipment and others 175,780 163,134 Accumulated amortization (251,378) (234,811)
Total US$ 720,794 724,715
New Airport construction - Pursuant to the Concession Contract, Quiport built the new airport in exchange for the right and obligation to develop, operate, administer, manage, improve and maintain it during the concession period.
The airport construction includes the interest expense, as well as costs and commissions established in the respective loan contracts. Such were capitalized during the construction period of the new airport.
It also includes amounts paid to the sponsor related to the pre-operational expenses and other providers for services rendered in obtaining the concession contract for the NQIA.
Expansions, improvements to infrastructure equipment and others - Comprises complementary works undertaken in construction of the NQIA, including enhancements, upgrades to the existing airport infrastructure, cargo apron, and surroundings. Also includes investment capital projects for the improvement of the infrastructure. The capital projects are focused on the Airport buildings, installations and equipment in compliance with the Concession Contract.
According to the Second Amendment to the Concession Contract, Quiport shall directly contribute up to US$10 million to pay for the security equipment cost and have no obligation regarding to the Highway Contribution under the Concession Contract. (See Note 25).
The movements of the intangible asset NQIA are as follows:
- 29 - (Unaudited) (Unaudited) 6 Months 6 Months 6/30/2020 6/30/2019
Beginning balance US$ 724,715 735,718 Additions (1) 12,646 10,236 Amortization (2) (16,567) (16,353)
Ending balance US$ 720,794 729,602
(1) Mainly corresponds to expansion of the passenger terminal, the cargo platform and improvements in the international arriving area.
(2) The amortization expense in the statement of profit or loss includes: US$16,567 (US$16,353 in 2019) of NQIA and the amortization expense of software for US$101 (US$163 in 2019). (See note 18). The intangible asset is being amortized from February 20, 2013 using the straight-line method over the concession period.
11. TRADE AND OTHER PAYABLES
(Unaudited) (Audited) 6/30/2020 12/31/2019
Trade payables: Accounts payable to related parties (see note 22) US$ 2,829 4,744 Local suppliers 1,208 2,990 Foreign suppliers 561 242 Others 190 64 Other payables: Provision of services 1,289 1,772 Accounts payable EPMSA 1,208 1,332
Total US$ 7,285 11,144
Local suppliers - Principally comprise accounts payable to suppliers for services and goods received related to the airport operation.
Account payable EPMSA - Comprise accounts payable for the usufruct agreement that gives the right to use special equipment for use by the NQIA. During 2018 the contract was renewed for five more years. In addition, includes US$900 as part provisions for services payable to EPMSA.
- 30 - 12. ACCRUED LIABILITIES
(Unaudited) (Audited) 30/6/2020 31/12/2019
Employees' profit sharing US$ - 8,441 Social benefits 279 114
Total US$ 279 8,555
Employee profit-sharing - In accordance with current legislation, workers are entitled to a 15% share in the Corporation’s liquid of net profits.
Through agreement No.77 of the Ministry of Labor, the Corporation was authorized to consolidate its employee profit-sharing with the profit-sharing generated by QUIAMA Quito Airport Management Ecuador S.A. and consolidate such as one company, and that was paid in April 2020 to all workers.
In order to calculate and pay the individual 15% employee profit-sharing, the Corporation includes the employees of SFM Facility Servicios Complementarios S.A. and Protección, Seguridad y Vigilancia S.A., which provide cleaning and security services since such companies provide complementary and continuous services in the airport’s installations. Movements in the provision for employee profit-sharing were as follows:
(Unaudited) (Audited) 6/30/2020 12/31/2019
Beginning balance US$ 8,441 11,183 Provision for the period - 8,441 Payments made (1) (8,441) (11,183)
Ending balance US$ - 8,441
(1)In April 2020, the Company made the payment of the employee profit-sharing to its employees for US$8,441.
13. TAXES
13.1 Current year assets and liabilities - A summary of current tax assets and liabilities is as follows:
- 31 - (Unaudited) (Audited) 6/30/2020 12/31/2019
Current tax assets: Overseas remittance tax US$ 8 8 Withholdings 60 57 VAT 30 - Bank guarantee 1,121 1,121
Total US$ 1 ,219 1 ,186
Current tax liabilities: Value added tax - VAT payable US$ 10 299
Withholdings payable 138 526
Total US$ 148 825
As of March 31, 2020, Quiport has a bank guarantee for US$1,121 million granted by Produbanco in favor of the Internal Revenue Service with an expiration date of June 22, 2046, corresponding to 10% of the charges established by the challenge of the Determination Law No 17510-2018-00462, issued on January 9, 2019 by the Internal Revenue Service.
13.2 Income tax - On December 8, 2005, the 2005-13 resolution from the National Free Trade Zone Council (hereinafter “CONAZOFRA”) was published on the Official Gazette No. 161, by which QUIPORT was registered as a user of the Free Trade Zone (“FTZ”), managed by Corporación Aeropuerto y Zona Franca del Distrito Metropolitano de Quito (“CORPAQ”) and was thus granted the benefits provided under the law for 20 years.
Pursuant to the Investment Protection Agreement, Ecuador has guaranteed Quiport specific legal and tax stability with respect to the legal framework in effect on June 24, 2003. Furthermore, these rights were reaffirmed on August 9, 2010, when Quiport, the Municipality and the Management Unit entered into the Strategic Alliance Agreement, whereby the Municipality recognized the existence of the Free Trade Zone Tax Exemption and agreed to indemnify Quiport for any tax incurred arising from its loss.
The Free Trade Zone Law enacted on February 19, 1991, entitles FTZ users to a 100% income tax exemption. Chapter XII of the Tax Law pertaining to Free Trade Zones establishes the following:
. Management companies and users of free trade zones shall, in all their acts and contracts undertaken in the free trade zone, benefit from exemption from all income tax or any substitute tax thereof, as well as from value added tax, and payment of provincial, municipal and any other taxes created, even if express exoneration is required.
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. Free trade zone users shall benefit from total exoneration of all taxes imposed on patents and all current taxes applicable to production, use of patents and trademarks, technology transfers and the repatriation of earnings.
. Management companies and users of free trade zones shall benefit from the exemptions indicated in this chapter for a period of 20 years as from the referred resolution. Such period may be extended if required by Consejo Nacional de Zonas Francas – CONAZOFRA.
. Payments made by users for occasional services received from overseas technicians are income tax exempt and shall not give rise to withholdings.
On January 11, 2007, through resolution No. 2007-02, CONAZOFRA approved the request submitted by Quiport to be a user in the Free Trade Zone of the old Mariscal Sucre International Airport (MSIA) with entitlement to the benefits included in the Free Trade Zone Law up to 5 years.
The Organic Code of Production, Trade and Investment published in the Official Gazette on December 29, 2010, eliminates the FTZ regime, but maintains all the rights and obligations established when the user’s acquired such designation for previously registered FTZ users.
On October 6, 2011, the Corporation requested to Empresa Pública Metropolitana de Servicios Aeroportuarios y Gestión de Zonas Francas y Regímenes Especiales (EPMSA), as Administrator of the Free Zones of the New Quito International Airport (NQIA) and the Mariscal Sucre International Airport (MSIA), to ratify and extend the periods granted for the operation of the New Quito International Airport Project (the Project), which includes not only construction of the new airport but also operation of the former airport, until March 31, 2013.
On October 12, 2011, EPMSA recommended to the Coordinating Ministry of Production, Employment and Competitiveness, in its capacity of President of the Sector Board for Production, accepting the ratification and extension of the period requested by Quiport.
On November 30, 2011, the members of the Sector Board for Production resolved to approve that the petition submitted by Quiport with respect to both the Mariscal Sucre International Airport (MSIA) as well as the New Quito International Airport (NQIA) to extend and ratify the qualifications of Free Trade Zones users within the framework of the Strategic Alliance Agreement and Construction Contract.
Despite the facts mentioned above, on February 24, 2017, the Internal Revenue Service (SRI) started a tax assessment for fiscal year 2013. In addition, on January 26, 2018, and on June 14, 2018, Quiport received notices upon tax assessments in connection to fiscal years 2014 and 2015, respectively. Details of the revisions described above are included in note 24.
The years 2016 to 2020, remains open for review by the SRI, and based on the evaluation of legal advisors and management, it is considered possible the existence of determinations by the concepts mentioned above.
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Tax Reforms
On December 31, 2019, by means of the Supplement to Official Registry No. 111, the Organic Law on Tax Simplification and Progressivity was published. The main aspects introduced by this Law are indicated below:
- Dividends and profits distributed in favor of all types of taxpayers are taxed at an effective rate of 10%, regardless of their tax residence, except for companies resident in Ecuador. This rate would increase to 14%, over the unreported proportion, when the company that distributes the dividend does not comply with reporting on its shareholding composition.
- The capitalization of profits will not be considered as distribution of dividends, including that made in previous years.
- The advance of income tax will be voluntary and equivalent to 50% of the tax caused in the previous year minus the withholdings made in that fiscal year.
- As of fiscal year 2021, the provisions made to meet the employer's retirement of personnel who have completed at least 10 years of work in the same company will be deductible; provided that such securities are managed by specialized companies and authorized in the administration of funds. Provisions to meet the eviction payment will also be deductible.
- A unique and temporary contribution applicable to companies that carry out economic activities and that have generated taxable income equal to or greater than US$1,000,000 is established in the fiscal year of 2018. This contribution will be paid in fiscal years 2020, 2021 and 2022 and may not exceed 25% of the income tax caused in 2018; nor can it be used as a tax credit or as a deductible expense.
14. CONTRACT LIABILITIES
A summary of contract liabilities is as follow:
(Unaudited) (Audited) 6/30/2020 31/12/2019
Contract liabilities US$ 274,969 275,341 Accrued recognition of contractual liabilities (71,473) (66,600)
Total US$ 203,496 208,741
Classification: Current US$ 10,475 10,483 Non-current 193,021 198,258
Total US$ 203,496 208,741
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Contract liabilities comprises:
(Unaudited) (Audited) 6/30/2020 12/31/2019
MSIA concession right US$ 200,612 205,485
Contractual liabilities - concessionaires 2,884 3,256
Total US$ 203,496 208,741
MSIA Concession Right - As part of the concession to construct and operate the NQIA, Quiport was granted the right to operate the old airport (MSIA) until the new airport began operations on February 20, 2013 (See Note 25). Consequently, Quiport determined the fair value of this right and recorded it as an intangible asset and as contract liabilities. The intangible asset was fully amortized during the construction period and up to the beginning of operations in the NQIA. The Contract liability is being amortized over a straight line and during the remainder of the concession period.
Contract liabilities - concessionaires - Corresponds to concession rights on commercial premises and publicity services paid in advance by clients and that are amortized using the straight-line method over the contract periods.
Movements in contract liabilities were as follows:
(Unaudited) (Unaudited) 6 Months 6 Months 6/30/2020 6/30/2019
Balances, beginning of year US$ 208,741 219,257 Additions - 71 Recognition of MSIA income (Note 17) (4,873) (4,873) Recognition of concessionaire income (Note 17) (372) (453)
Ending balance US$ 203,496 214,002
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15. BORROWINGS AND LEASE LIABILITIES
(Unaudited) (Audited) 6/30/2020 12/31/2019
Unsecured at amortized cost: Related companies US$ 398,778 397,260 Lease liabilities 606 468
Total US$ 399,384 397,728
Classification: Current US$ 4,577 3,412 Non-current 394,807 394,316
Total US$ 399,384 397,728
A detail of borrowing balances is as follows:
(Unaudited) (Audited) 6/30/2020 12/31/2019 Balance: Capital US$ 400,000 400,000 Interest payable 15,167 14,000 Amortized cost (16,389) (16,740)
US$ 398,778 397,260
6/30/2020 12/31/2019 Movements: Opening balance US$ 397,260 145,133 Additions - 400,000 Capital payments - (66,092) Capital payments (related parties) - (79,041) Interest generated 26,000 41,311 Interest payments (24,833) (27,311) Amortized cost 351 (16,740)
US$ 398,778 397,260
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Related companies - A detail of borrowings payable to related parties is as follows:
(Unaudited) (Audited) 6/30/2020 31/12/2019
Capital US$ 400,000 400,000 Amortized cost (16,389) (16,740) Interest payable 15,167 14,000
Total US$ 398,778 397,260
Borrowings - Comprises funds received as loans maturing in 2033 and generating an annual interest rate of 13.00%.
A detail of the loans payable to related parties is as follows:
(Unaudited) (Audited) 6/30/2020 12/31/2019
International Airport Finance, S.A. US$ 400,000 400,000 Interest payable 15,167 14,000 Amortized cost (16,389) (16,740)
Total US$ 398,778 397,260
On March 14, 2019, International Airport Finance S. A. (IAF), incorporated in Spain in January 2019 by ODINSA S.A., Companhia de Participacoes em Concessoes, S. A. and HAS Development Corporation; acting as a special purpose vehicle (SPV), issued bonds for the amount of US$400,000 maturing in March 2033 with an interest rate of 12%.
With the funds generated from the placement of these bonds, the IAF granted a loan to the Company for the same amount and maturity, and interest rate of 13% for the first period, with which the Company made the payment of the outstanding loans it had with related companies for US$80,068, as well as the constituted in December 2018 for US$66,999, being credited to the Corporation's account at Citibank N.Y. the remaining amount for US$252,933. As of June 30, 2020, interest has been generated for approximately US$26,000 (US$41,311 between March 2019 to December 2019).
The main conditions agreed upon were: a) Report financial statements every 60 days after the end of the first three fiscal quarters. Annual Financial Statements 120 days after the end of the fiscal year. b) Report the Company's budgets no later than 45 days before the start of the new fiscal year. c) Report the occurrence of events as determined in the signed loan agreements.
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d) Purchase 5% of the total amount in the transaction equivalent to US$20,000. (See Note 6).
During 2019, the Company capitalized costs related to obtaining the loan such as: counsel and brokerage fees of approximately US$17,604, which will be amortized over the life of the debt.
Details of interest payable is as follows:
(Unaudited) (Audited) 6/30/2020 12/31/2019
International Airport Finance S.A.: US$ 15,167 14,000
During 2020, Quiport paid the interest to related parties for US$24,833 (During 2019 paid US$106,379 for principal and interest to subdebt loan and related parties). A detail as follows:
(Unaudited) (Audited) 6/30/2020 12/31/2019
International Finance Airport , S.A. US$ 24,833 26,311
Subdebt Loan Green Coral (ex AECON Investment Corp.) - 22,203 Alba Concession Inc. (ex - AG Concessions Inc.) - 26,524 Icaros Development Corp. - 27,156 Black Coral Investment Inc. - 4,185
Total US$ 24,833 106,379
Reconciliation of liabilities arising from financing activities
The following table details changes in the Corporation's liabilities arising from financing activities, which include both cash and non-monetary changes. Liabilities arising from financing activities are those for which cash flows will be classified in the statement of cash flows as financing activities.
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January 1, Cash flows Other June 30, 2020 (1) changes (2) 2020
Related parties: Capital US$ 400,000 - - 400,000 Amortized cost (16,740) - 351 (16,389) Interest 14,000 - 1,167 15,167
Total US$ 397,260 - 1,518 398,778
January 1, Cash flows Other December 2019 (1) changes (2) 31, 2019
Related parties: Capital US$ 70,351 (70,351) 400,000 400,000 Amortized cost - - (16,740) (16,740) Interest 8,690 (8,690) 14,000 14,000 Bridge loan 66,092 (66,092) - -
Total US$ 145,133 (145,133) 397,260 397,260
(1) Corresponds to principal and interest payments to senior and subdebt loan.
(2) Includes interest provision and amortized cost adjustments. Additionally, it includes US$17,604 corresponding to the capitalization of financial costs. As of June 30, 2020, includes interest pending payment and amortized cost for the period.
16. EQUITY
Share capital - Authorized share capital consists of 66,000,000 shares with a nominal value of US$1.00 each.
On February 17, 2020, the shareholder made an endorsement of the Company's shares. A detail of the corporate shareholding is as follows:
N° Shareholders Shares 2020 2019
Quiport Holdings S.A. 30,690,000 30,690,000 Odinsa S.A. 30,690,000 30,690,000 Has Development Corporation S.A. 4,620,000 4,591,118 Icaros Development Corporation S.A. - 28,882 66,000,000 66,000,000
Legal reserve - The Ecuadorian Companies Law requires that at least 10% of annual earnings be appropriated as a legal reserve until such reaches at least 50% of the share capital. On April 2020 the appropriation was made for US$1,251 (US$6,337 in 2019). This reserve is not available for the payment of cash dividends but can be fully capitalized.
Dividends – On December 16, 2019, Quiport paid a dividend of US$230,000 to shareholders of retained earnings. No dividends have been distributed during 2020.
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17. REVENUE
(Unaudited) (Unaudited) 3 Months 6 Months 6/30/2020 6/30/2019 6/30/2020 6/30/2019 Regulated revenue: Passenger tariffs US$ 637 18,753 16,641 37,594 Airport services tariffs 4,731 10,984 15,696 22,083 Subtotal 5,368 29,737 32,337 59,677
Non-regulated revenue: Non-regulated revenue 1,759 11,059 10,879 21,275 Recognition of concessionaire contract liabilities (Note 14) 183 238 371 453 Subtotal 7,310 41,034 43,587 81,405
Commercial incentives (307) (628) (1,063) (1,235)
Recognition of MSIA contract 2,437 2,437 4,873 4,873 liabilities (Note 14)
Others revenue - 18 4 32
Total US$ 9,440 42,862 47,401 85,075
Estimation of Impairment of - - (23) (45) accounts receivable (Note 7)
Regulated revenue - Corresponds to the regulated revenue of NQIA. In accordance with the renegotiation process and as an outcome of the Strategic Alliance Agreement, the Corporation has been entitled to receive the 89% of regulated revenue starting in the Airport Opening day (February 20, 2013) until the end of the concession period, 11% of regulated revenues are transferred to the Municipality of Quito. This amount shall increase to 12% during the final 5 years of the concession period.
At June 30, 2020 and December 31, 2019, total passenger departures were 527,050 and 2,520,571, respectively, and total flights were 15,964 and 59,511, respectively.
Details of participation are as follows:
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Total Participation regulated 89% 11% revenue Quiport Municipality
Six months - period 2020
Regulated revenue: Passenger tariffs US$ 18,698 16,641 2,057 Airport services tariffs 17,636 15,696 1,940
Total US$ 36,334 32,337 3,997
Six months - period 2019
Regulated revenue: Passenger tariffs US$ 42,241 37,594 4,647 Airport services tariffs 24,811 22,083 2,729
Total US$ 67,052 59,677 7,376
Non-regulated revenue - Details of non-regulated revenues are as follows:
- 41 - (Unaudited) (Unaudited) 3 Months 6 Months 6/30/2020 6/30/2019 6/30/2020 6/30/2019
Aeronautical revenue: Cargo US$ 612 962 1,548 1,917 Check-in counters 31 1,039 914 2,059 Aircraft handling GSE 166 825 905 1,643 Fuel levy 162 617 757 1,190 Aeronautical services 148 345 493 687 Catering services 34 212 229 456 Bussing (service) 17 359 150 705 Incineration 41 155 183 311 Hangars - 154 126 307 Others 147 265 408 559
Subtotal 1,358 4,933 5,713 9,834
Non-aeronautical revenue: VIP lounge (54) 1,848 1,342 3,430 Duty free (34) 1,654 1,152 3,091 Advertising 285 708 925 1,266 Car parking 15 961 813 1,901 Retail 29 334 284 631 Food & beverage 119 266 236 416 Others 224 593 785 1,159
Subtotal 584 6,364 5,537 11,894
Others - 18 4 32
Subtotal and Others US$ 1,942 11,315 11,254 21,760
Commercial incentives - During 2020 and 2019, the Corporation continued with its incentive program to increase passenger traffic. As a result of this program, Quiport issued credit notes for US$1,063 to airlines during January until June 2020 (US$1,235 in 2019).
Main commercial premises leasing agreements:
A summary of the principal lease contracts are as follows:
Fuel Facilities Agreement - Servicio de Aviación Allied Ecuatoriana C. L. (Allied) as a Fuel Facility Operator entered into an agreement with Quiport on April 1, 2009, for the construction, operations and maintenance of the Fuel Facilities at the New Quito International Airport, and the furnishing of Fuel Facilities Services and related services at the New Airport. The initial term of this agreement was 20 years as of July 15, 2013. An addendum was performed with an additional extension of 5 years.
Allied built, maintains and operates the Fuel Facilities under standards satisfactory to Quiport. Allied pays to Corporación Quiport S.A. the Fuel Concession Fee and an annual fee as a percentage of revenues derived from the Fuel Facilities Services.
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Quiport’s responsibilities, among others, are to provide reasonable cooperation in seeking assistance from relevant authorities, providing right of access to Allied and its subcontractors to the Fuel Facilities sites and the relevant areas of the New Quito International Airport, and providing information regarding any event that could potentially affect the project.
Duty Free Agreement - Quiport and Attenza DF Ecuador S.A. entered into a contract on July 30, 2012. The contract establishes that Quiport shall grant the commercial space to the Duty-Free Operator for building and providing services in accordance with such agreement. The initial terms of contract was for 12 years as of February 20, 2013. An addendum was performed with an extension period of 3 additional years.
Administrative Building- Quiport and Quitotelcenter S.A. entered into an agreement on November 06, 2013 whereby Quiport provides rights to Quitotelcenter to commercially have a space for the construction and administration of a building for using such infrastructure as commercial offices and the provision of other services required by the airport such as food, beverages and services areas and airport businesses-related activities.
Quitotelcenter shall pay Quiport a share based on the billing and another share as an office lease for 1,700 square meters. The agreement will be in force until January 26, 2041.
Gas Station Contract - Quiport and Aeroquitoserv S.A. entered into an agreement, on March 1, 2015, whose purpose is to lease the space of 5470 square meters to adapt and build a gas station. The term of this contract is 12 years with the possibility of extending three more years.
Hotel Agreement - Quiport S.A. and Promotores Inmobiliarios “PRONOBIS” S.A. (Operator) entered into an agreement on August 2013. The purpose of this agreement is to provide to the Operator access to build and operate the HOTEL in accordance with the terms and conditions of this contract. This agreement will be in force until January 26, 2041.
18. SERVICE COSTS AND ADMINISTRATIVE EXPENSES
A detail of service costs and administrative expenses is as follows:
- 43 - (Unaudited) (Unaudited) 3 Months 6 Months 30/6/2020 30/6/2019 30/6/2020 30/6/2019
Financial costs US$ 13,427 13,323 26,959 17,957 Amortization of intangible assets 8, 339 8,266 16,668 16,516 Employees benefit expenses 2,157 2,424 4,595 5,005 Services and supplies 1,371 2,265 3,570 4,381 Professional fees 679 1,091 2,742 2,253 Operating and maintenance fees (Note 22) 77 1,762 1,562 3,502 Employees' profit-sharing (919) 1,847 - 4,670 Maintenance and repair expenses (1) 575 831 1,239 1,554 Insurance 609 569 1,214 1,131 Utilities 378 602 994 1,233 Deprec iat ions (2) 361 283 661 546 Taxes and contributions 219 533 507 913 Others (3) 131 521 419 1,038
US$ 27 ,404 34 ,317 61 ,130 60,699
(1) In accordance with the operation and maintenance contract signed with ADC & HAS Management Ecuador S.A. (currently Quiama Quito Airport Management Ecuador S.A.), the latter company incurs various costs and expenses that are reimbursed by the Corporation. (2) Includes depreciation expense for right-of-use asset of US$150 (See Note 9). (3) Include Impairment of account receivables for US$23 of June 2020 and US$45 of June 2019.
19. EMPLOYEE BENEFITS
(Unaudited) (Unaudited) 3 Months 6 Months 30/06/20 30/06/19 30/06/20 30/06/19
Employee salaries US$ 1,401 1,547 2,934 3,162 IESS and legal benefits 455 473 980 1,059 Employee insurance 154 122 300 253 Other benefits 147 240 375 481 Training - 42 6 50
Total US$ 2,157 2,424 4,595 5,005
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20. FINANCIAL COSTS
(Unaudited) (Unaudited) 3 Months 6 Months 6/30/2020 6/30/2019 6/30/2020 6/30/2019
Foreign bank loans US$ - - - - Related companies (Note 15) 13,000 15,744 26,000 15,744 Subdebt loan - (2,531) - 1,027 Bridge loan - - - 940 Subtotal 13,000 13,213 26,000 17,711 Cost amortization 53 72 351 72 Interest generated from lease liability 22 17 34 28 Others 352 21 574 146
Total US$ 13,427 13,323 26,959 17,957
21. FINANCIAL INSTRUMENTS
21.1 Financial risks management - During the normal course of its business and financing activities, Quiport is exposed to different types of financial risks that may significantly affect, to a greater or lesser extent, the economic value of its cash flows and activities and, consequently, its revenue.
The following is a definition of the risks faced by Quiport, the nature and quantification thereof, and a description of the mitigation measures currently used by Quiport, if any.
21.1.1 Credit risk management - Credit risk refers to the risk that a counterpart will default on its contractual obligations resulting in financial loss to Quiport. As a means of mitigating the risk of financial loss from defaults, the Corporation has a process of obtaining reasonable guarantees, where appropriate, from new commercial clients operating and/or leasing facilities at the airport. Management diligently monitors potential events that could affect counterparty risk.
Trade receivables consist of airline operators and commercial clients, with a significant concentration of potential credit risk exposure from a small group of counterparties in the same industry. Quiport has monitored performance of the most significant counterparties and believes that they do not represent a material risk of default or financial loss to the Corporation.
The adjustment for expected loss will be recognized in September to the COVID 19 impact, once the airline TAME EP determines the amount to be paid to Quiport. (See note 7).
21.1.2 Interest rate risk - Quiport is not exposed to interest rate risks since loans are not exposed to external factors.
- 45 - 21.1.3 Liquidity risk - Financial Management is ultimately responsible for liquidity management. Financial Management has built an appropriate liquidity risk management framework for the management of short, medium and long-term funding and liquidity Quiport requirements. Quiport manages liquidity risk by maintaining adequate reserves and reserve borrowing facilities, by continuously monitoring forecasts and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Quiport practices a careful liquidity risk management and, therefore, keeps enough cash and other readily available financial assets to fulfill its payables and borrowings. Quiport during 2020 and 2019 has generated positive cash flows from operating activities and working capital, supported by strong earnings.
On March 31, 2020, US$24,833,333 was paid from IAF to the bond holders, corresponding to the payment of interest on the debt, as stipulated in the Loan Agreement. During April to June 2020, the Company to the IAF U$8,321,954, as advances for the payment of loans, which will be compensated in September as established in the loan contract. In addition, to date the Company has made payments to suppliers that carry out expansion and improvement work at the international passenger terminal and no breaches are reported in its contractual agreements.
21.1.4 Capital Risk - The greater part Quiport’s capital structure comprises loans granted by International Airport Finance S.A., capital paid in by shareholders and net income. The project set up a series of trusts to ensure recovery of amounts invested and to guarantee the appropriate management of resources and, consequently, payment of obligations.
(Unaudited) (Audited) 2020 2019
Total liabilities US$ 611,009 627,413 Less cash and banks (53,917) (67,626)
Adjusted net debt US$ 557,092 559,787
Total equity US$ 227,773 239,906
Adjusted net debt equity ratio 2.45 2.33
21.2 Categories of financial instruments - Details of financial assets and liabilities held by the Corporation are as follows:
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(Unaudited) (Audited) 6/30/2020 12/31/2019 Financial assets: Amortized cost: Cash and banks (Note 5) US$ 53,917 67,626 Investments (Note 6) 20,698 20,703 Trade and other receivables (Note 7) 31,793 42,757
Total US$ 106,408 131,086
Financial liabilities: Amortized cost Trade and other payables (Note 11) US$ 7,285 11,144 Borrowings and financial liabilities (Note 15) 399,384 397,728
Total US$ 406,669 408,872
21.3 Fair value of financial instruments - Except as detailed in the following table, Management believes that the carrying amounts of financial assets and liabilities recognized at amortized cost in the financial statements approximate to their fair value: (Unaudited) (Audited) 6/30/2020 12/31/2019 Carrying Carrying Fair value Fair value amount amount Financial liabilities: Amortized cost: Related companies US$ 398,778 415,167 397,260 414,000
21.4 Valuation techniques and presumptions applied for the purpose of measuring the fair value of financial instruments - The fair value of financial liabilities is determined at level 3 as follows:
Non-active market: valuation technique - If the market for a financial liability is not active, the Corporation establishes the fair value using valuation techniques that include the use of available information on recent transactions between interested and duly informed parties, reference to other substantially similar instruments and / or the analysis of discounted cash flows based on appropriately supported assumptions (example: with prices or market rates). Level 3.
22. SIGNIFICANT RELATED COMPANIES TRANSACTIONS AND BALANCES
22.1 Principal transactions with related companies
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(Unaudited) (Unaudited) 6 Months 6 Months 6/30/2020 6/30/2019
Administrative and logistic expenses: Quito Airport Management Quiamaecuador S.A. and total US$ 7,290 8,247
Interest paid: Green Coral (ex AECON Investment Corp.) US$ - 327 Alba Concessions - 377 Icaros Development Corporation - 268 Black Coral Investments Inc. - 55 International Airport Finance S. A. 24,833 15,744
Total US$ 24,833 16,771
Operation and maintenance fee: Quito Airport Management Quiama Ltd. US$ 1,562 3,502 and total (Note 18)
Reimbursement: Quito Airport Management Quiamaecuador S.A. and total US$ 127 74
Software acquisition: Compañía de Partip. Em Concessoes EngelogTec and total US$ 97 97
22.2 Balances pending at the end of the reporting
Balances owed by related Balances owed to related parties parties (Unaudited) (Audited) (Unaudited) (Audited) 30/06/20 31/12/19 30/06/20 31/12/19
Quito Airport Management Quiama Ltd. US$ - - 1,562 3,570 Quito Airport Management Quiamaecuador 1,606 1,078 1,170 1,174 S.A. Companhia de Particip. Em Concessões - - 97 -
Subtotal US$ 1,606 1,078 2,829 4,744
International Airport Finance, S.A. (1) US$ 13,415 16,927 - -
Total US$ 15,021 18,005 2,829 4,744
(1)The Company has made cash advances to International Airport Finance (IAF) during January to June 2020 for US$21,321, to cover interest payments in 2020, as established in the loan agreement with its related party.
On March 30, 2020, Corporación Quiport made the payment of the interest on the debt that remains with the International Airport Finance IAF, through compensation with the amounts paid for US$24,833.
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23. INSURANCE
The following are the main insurance policies in place at March 31, 2020:
Insured Policy amount Liabilities guaranteed (in thousands in U.S. dollars)
Third party liability for personal injury and General liabilities 25,000 property. Directors and Officers 10,000 Directors and Officers liability and legal cost Fraud or dishonest acts caused by the employee Crime 10,000 and a third party Economic losses or damages caused as a Terrorism and sabotage 667,000 consequence of terrorism and sabotage to the property Property damage and business 667,000 Multi-risk contract for the property. interruption Losses or damages caused by incidents related to Pymes 1,737 fire, earthquake and theft in connection with the usufruct agreement. Operator liability in connection with aviation Airport operator's liability 1,000,000 activities
Vehicles 134 All-risk vehicles in connection with the usufruct
Vehicles 1,000 All-risk vehicles
24. CONTINGENCIES
A detail of the contingencies is as follows:
24.1 Comptroller Resolutions
Pursuant to the Comptroller Law (Ley Orgánica de la Contraloría General del Estado), published in the Supplement of Official Gazette No. 595 of June 12, 2002 (the “Comptroller Law”), the CGE is an independent governmental institution. This institution was created by the Comptroller Law, with the mission to oversee and regulate the management and disposition of the funds and assets of public entities and, among others, of public resources managed by concessionaire corporations, including Quiport, as well as to examine the accounts related thereto.
The CGE has oversight responsibilities related to state contracts in Ecuador. Based on this authority and in the normal course of business, beginning in May 2015, the CGE undertook an audit of the Concession Contract, the Strategy Alliance Agreement and their related agreements. On January 7, 2016, the CGE issued a report regarding its investigation for the period from August 21, 2010 to March 23, 2015. Any period from March 23, 2015 until the date of these financial statements are still open for review. Prior years are outside the scope of any future investigation from the CGE. On August 5, 2016, the CGE issued Notices for Predetermination of Civil Liability Nos. 1371, 1372 and 1378 (collectively, the “Predeterminations”), for an aggregate amount of US$138,884. - 49 -
Quiport commented on the Predeterminations to the CGE on October 13, 2016, and submitted arguments supported by evidence and independent legal and financial reports, confirming that the Predeterminations contained errors of fact and law, were untimely, and were outside the competence of the CGE. Notwithstanding Quiport’s comments, on May 16, 2017, the CGE issued Resolutions Nos. 10376, 10377, 10378 and 10379 (collectively, the “Resolutions”) confirming the Predeterminations and finding Quiport liable for the same amount determined on the predeterminations.
In response to the Resolutions, Quiport filed a Request for Reconsideration with the CGE on July 14, 2017. On June 30, 2017, Quiport filed with EMPSA a letter in connection with a potential declaration of a Political Event under the Concession Contract. In addition, on August 21, 2017, the CGE issued Resolutions Nos. 00667, 00670, 00675 and 00677, which expressly rejected the Request for Reconsideration and confirmed the Resolutions.
On September 12, 2017, in accordance with the Concession Contract, Quiport provided notice to the Municipality and the Management Unit that the CGE’s failure to reconsider the Resolutions and issuance of the Writs constituted a Political Event under the Concession Contract.
On September 20, 2017, Quiport commenced four lawsuits against the CGE and the Attorney General of Ecuador before the Administrative Contentious Court of Ecuador requesting that each of the Resolutions be declared null and void on the basis of the CGE’s lack of competence to issue them, or, alternatively, that they be declared to have no effect.
A detail of the open cases is as follows:
Case No. 17811-2017-01032 related to resolution No. 10376 by a potential amount in controversy of US$4.5 million plus interest. A preliminary hearing was held on June 21, 2018. At December 31, 2019, a favorable ruling was achieved for Quiport, rendering the glossary ineffective. CGE did not appeal making the decision final.
Case No. 17811-2017-01033 related to resolution No. 10377 by a potential amount in controversy of US$200 plus interest. A preliminary hearing was held on May 8, 2018, and the trial hearing was scheduled for June 2, 2020. However, as a result of the state of emergency, the hearing was suspended and the court has not yet set a new date. The Administration considers the possibility of an unfavorable judgement to be remote.
Case No. 17811-2017-01034 related to resolution No. 10379 by a potential amount in controversy of US$57.4 million plus interest. A preliminary hearing was scheduled for February 1, 2019, but this one was suspended. By a later order, the preliminary hearing was set for March 20, 2020. However, due to the health emergency and the provision of the Judicial Council to suspend attention in the country's courts, as well as the terms and procedural terms the hearing did not took place. The court must notify the new date and time of the hearing. The Administration considers an unfavorable outcome in this case to be possible.
- 50 - Case No. 17811-2017-01035 related to resolution No. 10378 by a potential amount in controversy of US$76,7 million plus interest. A preliminary hearing was held on July 9, 2018. The reinstatement of the trial hearing was held on September 25, 2019 and the lawsuit was accepted verbally. On October 17, 2019, the written majority decision was notified, confirming the nullity of the contested administrative act and voiding the gloss. The Office of the Comptroller General of the State filed an appeal in cassation, which was notified to Quiport. Quiport already answered the appeal and we are waiting for the National Court to set a day and time for the respective audience. The Administration considers a possible unfavorable outcome in the cassation phase.
With regard to ongoing lawsuits and in the event of an unfavorable decision, Quiport has the right to appeal to the National Court. In addition, Quiport separately notified to the government of Ecuador of the existence of a Political Event under the Investment Protection Agreement. In accordance with the Investment Protection Agreement, Quiport has the right to commence international arbitration proceedings any time.
The Quiport management’s position regarding to the General Comptroller of Ecuador’s Resolutions is that Quiport is not liable, which is supported with the opinion of its legal advisors who ratify that the resolutions should be declared null and void. As of the date of these financial statements, no amount has been recognized for this legal proceeding.
Non-compliance event
Until December 20, 2018 (the date the loan was in effect), Quiport complied with all agreements under the Common Terms Agreement, except for the following, which is explained below:
According to a communication received on June 30, 2017, after Quiport communicated to EMPSA a possible declaration of a political event under the Concession Contract; the Original Managing Agent ("The Royal Bank of Scotland NV"), by itself, and on behalf of the Original Senior Lenders (Export Development Canada, Export-Import Bank of the United States, Inter-American Investment Corporation and Overseas Private Investment Corporation) and without prior notice to Quiport, has the power to reserve all of its rights, remedies, powers and privileges under the Common Terms Agreement entered into on May 23, 2006 (Original Common Terms Agreement) upon the occurrence of a Political Event; breach or event of breach or other violation that may exist. ("Reservation of Rights").
Under the Original Common Terms Agreement, the occurrence of a Political Event that has had, or could reasonably be expected to have had, a material adverse effect constitutes an event of default, which would give the Original Prime Lenders the right to accelerate the terms of the loan payment. Since the political event existed at the end of fiscal year 2017 and Quiport did not receive a waiver, as of that date and based on the alleged default, Quiport classified the loan as current as of December 31, 2017.
- 51 - As indicated in note 15, on December 20, 2018, the assignment agreement became effective, through the guarantor the original lenders agreed to sell the foreign bank loan to the new lenders, thus the agreements of the Common Terms Agreement became void.
On September 12, 2017, Quiport notified the Municipality and EPMSA that the State Comptroller General did not reconsider its resolutions, confirming that Quiport is responsible for the payment of a total amount of US$138,884,709.11; and that the issuance of such resolutions constitutes a political event under the Concession Agreement and the Strategic Alliance Agreement. Additionally, on September 12, 2017, Quiport separately notified the Ecuadorian State of the existence of a political event under the Investment Protection Agreement.
On March 22, 2018, in accordance with the Concession Agreement, Quiport notified the Municipality and EPMSA that the final determination of the IRS for fiscal year 2013 constitutes a Political Event under the Concession Agreement.
Additionally, on April 12, 2018, Quiport separately notified the Ecuadorian State of the existence of a political event under the Investment Protection Agreement.
In connection with the final determination of the IRS for fiscal year 2014, Quiport notified the Municipality and EPMSA on December 26, 2018 that such final determination constitutes a Political Event under the Concession Agreement. This condition as of December 31, 2019, was corrected.
24.2 Internal Revenue Service On February 24, 2017, the Internal Revenue Service (SRI) started a tax assessment for fiscal year 2013. In addition, on January 26, 2018, and on June 14, 2018, Quiport received notices upon tax assessments in connection to fiscal years 2014 and 2015, respectively.
On February 20, 2018, Quiport received SRI Final Determination No. 17201824900154057, which concluded that Quiport were not eligible for certain exemptions as free trade zone users and were liable for approximately US$7.6 million plus interest in respect of Income Tax for fiscal year 2013. Quiport filed an administrative claim on March 19, 2018 in connection to the Final Determination No. 17201824900154057, which was rejected by the SRI on September 10, 2018 through resolution No. 117012018RREC280266. Therefore, Quiport filed a lawsuit before the Ecuadorian tax courts on December 5, 2018 against the September 10, 2018 SRI Resolution and, on January 9, 2019, the court admitted the lawsuit.
In connection to the 2013 Income Tax Dispute, on March 22, 2018, in accordance with the Concession Contract, Quiport provided notice to the Municipality and EPMSA that the SRI’s Final Determination for the fiscal year 2013 constitutes a Political Event under the Concession Contract. In addition, on April 12, 2018, Quiport separately notified Ecuador of the existence of a Political Event under the Investment Protection Agreement.
- 52 - With respect to the claims filed by Quiport before the Contentious Administrative Court of Ecuador on September 20, 2017, requesting that the resolutions be declared null and void or, alternatively, that they be declared ineffective. Preliminary hearings were held on May 8, June 21, and July 9, 2018, and the fourth preliminary hearing is scheduled for November 7, 2018. The substantive hearings have been scheduled for 22 August 2018, 25 March and 23 May 2019. On December 5, 2018, Quiport filed a lawsuit with the Tax Court (Tribunal de lo Contencioso Tributario - TDCT) against the resolution of the IRS that rejected the administrative claim for income tax for fiscal year 2013.
On September 19, 2019, the TDCT issued a ruling in favor of Quiport. On October 21, 2019, the SRI filed an appeal in cassation. On January 8, 2020, a judge was assigned to handle the admissibility of the appeal. The Administration and its legal advisors have qualified as possible the probability of a ruling.
The Administration's position that Quiport is not liable with respect to these determinations is supported by the opinion of its legal advisors who confirm that the briefs should be declared null and void. As of the date of these financial statements, no amount has been recognized for this procedure.
On November 26, 2018, Quiport received SRI Final Determination No. 17201824901288349, which concluded that Quiport was not eligible for a tax exemption and was liable for approximately US$10 million plus interest regarding to the Income Tax for fiscal year 2014. On December 21, 2018, Quiport filed an administrative claim against the November 26, 2018 SRI Final Determination and the Tax Authority has 120 business days to resolve the challenge.
The Internal Revenue Service (SRI), denied the claim and confirmed the Tax Determination Act.
On September 12, 2019, Quiport filed a lawsuit with the TDCT against the resolution of the IRS that rejected the administrative claim for Income Tax for Fiscal Year 2014 for US$14,5. The TDCT set the preliminary hearing for April 2, 2020 at 9:30 a.m. However, due to the suspension of the face-to-face working day (in public and private institutions), issued by Executive Decree 1017, the preliminary hearing did not took place, and should be scheduled for a new date. The Administration, together with its legal advisors, has qualified an unfavorable ruling as possible.
In connection with the 2014 income tax dispute, Quiport notified the Municipality and EPMSA on December 26, 2018 that such Final Determination constitutes a Political Event under the Concession Agreement.
On January 16, 2019, Quiport received Final Determination No. 17201924900048637 from SRI, which concluded that Quiport was not eligible for a tax exemption and was liable for approximately US$17 million plus interest with respect to the 2015 income tax. Quiport filed an administrative complaint on February 11, 2019. The SRI rejected the complaint. Therefore, on October 30, 2019, Quiport filed a challenge before the TDCT against the SRI Resolution on the rejection of the administrative complaint on Income Tax 2015 for US$22,7. On December 3, 2019, the TDCT ordered the suspension of the effects of the challenged act. The TDCT set the preliminary hearing for June 1, 2020. However, due to the suspension of the face-to-face work day (in institutions public and private), issued by Executive Decree 1017, the preliminary hearing was carried - 53 - out and should be scheduled for a new date. The Administration, together with its legal advisors, has classified an unfavorable ruling as possible.
Quiport management’s position regarding to the non-payment of taxes and tax contributions is supported by the opinion of its legal advisors who ratify that Quiport is entitled to the Income Tax exemption due to it continues to be applicable for all free trade zone users and administrators that are still in operation for the term of their authorization and failing to recognize the income tax exemption would infringe several guarantees granted by the Ecuadorian State, including the general and specific guarantees of legal stability granted to QUIPORT in respect of the tax legal framework, in accordance to the Investment Protection Agreement. As of the date of these financial statements, no amount has been recognized for this proceeding.
Quiport’s administration expects that the Tax assessments for the years 2017, 2018 and 2019 will come in a short time.
25. COMMITMENTS
At June 30, 2020, the Corporation’s most important commitments and agreements are as follows: Concession Contract - CORPAQ and Canadian Commercial Corporation entered into the First Amended and Restated Concession Contract relating to the Project, dated as of June 22, 2005, which amended and restated the Concession Contract entered into by such parties on September 16, 2002, and which was further amended by such parties pursuant to the First Deed of Amendment, dated as of January 27, 2006 (as amended, modified, novated, restated and supplemented from time to time, the "Concession Contract"). CORPAQ, CCC and Quiport entered into that certain First Amended and Restated Novation Agreement, dated as of June 22, 2005, which amended and restated the Novation Agreement entered into by such parties on September 16, 2002, and pursuant to which the Concession Contract has been novated so as to replace CCC with Quiport as the Concessionaire thereunder.
The Concession Contract establishes a concession period of 35 years from January 27, 2006 (the Effective Date). The purpose of the concession is to operate, administer, manage, and maintain the old airport (MSIA) until the date of transfer to the New Quito International Airport (NQIA) and design, develop, administer, manage, operate and maintain at the new airport site. Upon termination of the concession period, all installations will be handed back to Municipality.
Strategic Alliance Agreement - As a result of the adoption of the 2008 Constitution and other changes to the relevant legal framework, the Constitutional Court declared that the public nature of the revenues derived from the charges for the various airport services at the Old Airport, as well as other airports of the country, and ordered that the relevant agreements be modified to reflect an accurate participation framework for income derived from such regulated sources. As a result, Quiport entered into the Strategic Alliance Agreement to establish a structure for the public and private contributions to the project, as well as the distribution of the economic benefits derived from their respective contributions. Under the Strategic Alliance Agreement, the Municipality is entitled to participate in the economic benefits of the project by way of the Municipality Economic Benefit Participation 11% of the collection from airport charges and Quiport is entitled to participate in the economic benefits of the project 89% of the collection from airport charges.
- 54 - In accordance with the Strategic Alliance Agreement and related documents, for the period from the Airport opening date to the end of the concession period, because of the participation of the Municipality in the economic benefits of the project, the Surcharge Collector (Quiport) will cause the transfer of 11% of the Regulated Charges collected by the Surcharge Collector with respect to each calendar quarter to the NQIA Trust Account; it further provides that, for each calendar quarter occurring within the last five years of the concession period, the Collector shall transfer 12% of the regulated charges collected to the NQIA trust account.
The Regulated Charges include: a) Airport services tariffs (landing, lighting, parking, embarking bridge) and; b) Passenger tariffs: TUT (Terminal use tariff), CFR (Crash, fire and rescue) and ATC (Air Traffic Control)
Participation in the economic benefits is not subject to any adjustment in the event of the Project’s actual financial yield being greater or less that the forecast of the Negotiating Parties.
The regulated tariffs will not be increased at any time prior to opening the new airport. On the opening date of the new airport, the regulated charges were established at the maximum permitted level pursuant to Appendix 9 of the Concession Contract. Thereafter, the tariffs have been adjusted for inflation in accordance with the Municipality Ordinance 335.
Second Amendment to the Concession Contract - Pursuant to the Strategic Alliance Agreement, on August 9, 2010, the Second Amendment to the Concession Contract was signed between the Municipality and the Corporation, in which the economic benefits for the project were set out; and, a provision in connection to the security equipment was introduced into the Concession Contract, by which Quiport, without prejudice to the Municipality’s obligations, contribute up to US$10 million to pay for the cost of security equipment instead of the highway contribution.
Third Amendment to the Concession Contract - Upon the Municipality’s request, Quiport, the Municipality and EPMSA agreed on this amendment that the opening date of the New Quito International Airport shall be on February 20, 2013.
Consultants regarding to clause 7.2.14 of Concession Contract - Due to changes to the Airport Development Reference Manual of IATA (the “IATA Manual”) made in December 2014, the Comptroller General of Ecuador concluded in its final report DAPyA- 0006-2016 dated January 1, 2016, that the standards in the Concession Contract were no longer aligned with those of the IATA Manual and made certain recommendations to the Municipality. Quiport, the Municipality and EPMSA subsequently have engaged in discussions with respect to certain amendments to the Concession Contract in this respect.
- 55 - Operation and Maintenance Agreement - On August 24, 2005, Quito Airport Management Quiama Ltd. (formerly known as “ADC & HAS Management Ltd.”), a company incorporated under the laws of British Virgin Island, entered into an agreement with Quiport for the provision of airport services in Mariscal Sucre International Airport. To undertake this contract, the operator shall administer the employee payroll and the operation and maintenance of airside and landside facilities, buildings and improvements of the Airport. Expenses incurred in the execution of the contract shall be reimbursed by Quiport.
Usufruct Agreement - On March 1, 2018, EPMSA and Quiport entered into the usufruct contract for certain goods used in the operation, maintenance and service for accidents, fire and rescue at the new airport. This usufruct contract grants to Quiport the right to use and receive the economic benefit generated by these assets for a 5-year period as from the opening date of the new airport in exchange for a payment. Upon conclusion of the contract term, Quiport will surrender the goods in the same conditions in which they were at the time of signing the contract, taking into account normal wear and tear. Therefore, Quiport is responsible for the administration, maintenance and custody of the goods.
26. SUBSEQUENT EVENTS
Between June 30, 2020 and the date of the issuance of these financial statements (August 7, 2020), no events occurred that in the opinion of Management could have a material effect on the financial statements.
27. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by Management and authorized for issue on July 7, 2020.
- 56 - INTERNATIONAL AIRPORT FINANCE, S.A.
SCHEDULE II
MARISCAL SUCRE INTERNATIONAL AIRPORT DEPARTING PASSENGERS STATISTICS COMPARISON 2019/2020 DEPARTING 2019 PASSENGER JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGE TOTAL INTERNATIONAL 94,792 88,561 102,644 93,028 95,096 89,616 115,875 125,623 106,579 82,601 84,152 88,554 97,260 1,167,121 DOMESTIC 110,610 108,150 112,815 116,431 115,592 112,745 124,645 118,607 104,608 100,419 111,222 117,610 112,788 1,353,454 Total 2019 205,402 196,711 215,459 209,459 210,688 202,361 240,520 244,230 211,187 183,020 195,374 206,164 210,048 2,520,575
VARIATION 2019-2018 INTERNATIONAL 6.6% 1.2% -1.9% -1.5% 2.6% 2.1% 3.1% 2.1% 1.4% -14.7% -8.5% 4.0% -0.3% DOMESTIC 6.9% 9.0% -4.1% -3.9% -4.5% -8.2% -7.1% -10.3% -10.9% -16.7% -5.7% -5.2% -5.5% TOTAL 6.7% 5.3% -3.1% -2.9% -1.4% -3.9% -2.5% -4.3% -5.1% -15.8% -7.0% -1.5% -3.1%
DEPARTING 2020 PASSENGER JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGE TOTAL INTERNATIONAL 94,217 92,185 55,847 2,243 3,075 4,014 41,930 251,581 DOMESTIC 109,314 106,949 50,067 1,133 2,062 5,984 45,918 275,509 Total 2020 203,531 199,134 105,914 3,376 5,137 9,998 87,848 527,090
VARIATION 2020-2019 INTERNATIONAL -0.6% 4.1% -45.6% -97.6% -96.8% -95.5% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -55.4% DOMESTIC -1.2% -1.1% -55.6% -99.0% -98.2% -94.7% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -59.3% TOTAL -0.9% 1.2% -50.8% -98.4% -97.6% -95.1% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -57.5%
Preliminary Key Operating Information Q2 - 2020 MARISCAL SUCRE INTERNATIONAL AIRPORT AIRCRAFT MOVEMENTS COMPARISON 2019/2020 AIRCRAFT MOVEMENTS 2019 AIRCRAFT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGETOTAL PASSENGERS DOMESTIC 2,848 2,582 2,892 2,806 2,853 2,673 2,680 2,901 2,739 2,885 2,786 2,885 2,794 33,530 PASSENGERS INTERNATIONAL 1,598 1,369 1,497 1,443 1,542 1,523 1,706 1,780 1,552 1,409 1,555 1,718 1,558 18,692 CARGO INTERNATIONAL 643 643 577 652 619 551 570 578 592 620 653 591 607 7,289 * MILITARY AND OTHERS 217 123 124 174 160 174 148 127 99 372 124 146 166 1,988 Total 2019 5,306 4,717 5,090 5,075 5,174 4,921 5,104 5,386 4,982 5,286 5,118 5,340 5,125 61,499
VARIATION 2019-2018 PASSENGERS DOMESTIC 20.7% 23.1% 8.6% 8.4% 0.3% -8.0% -12.5% -5.7% 1.6% 5.1% 1.3% 0.0% 2.6% PASSENGERS INTERNATIONAL 10.2% 3.7% 1.6% 2.0% 5.5% -0.8% 1.0% 5.0% -2.7% -12.0% 1.9% 7.0% 1.8% CARGO INTERNATIONAL 20.2% -0.2% 16.3% 18.5% 5.5% 13.6% 16.3% 14.2% 15.2% 8.4% 36.0% 19.2% 14.7% MILITARY AND OTHERS -35.6% -59.1% -59.1% -44.8% -27.3% -37.9% 22.3% 21.0% 73.7% 156.6% -6.8% 36.4% -18.0%
AIRCRAFT MOVEMENTS 2020 AIRCRAFT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGETOTAL PASSENGERS DOMESTIC 2,925 2,684 1,457 130 153 279 1,271 7,628 PASSENGERS INTERNATIONAL 1,728 1,599 1,024 88 105 112 776 4,656 CARGO INTERNATIONAL 769 745 492 484 635 560 614 3,685 * MILITARY AND OTHERS 167 143 136 178 153 135 152 912 Total 2020 5,589 5,171 3,109 880 1,046 1,086 2,814 16,881
VARIATION 2020-2019 PASSENGERS DOMESTIC 2.7% 4.0% -49.6% -95.4% -94.6% -89.6% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -54.2% PASSENGERS INTERNATIONAL 8.1% 16.8% -31.6% -93.9% -93.2% -92.6% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -48.1% CARGO INTERNATIONAL 19.6% 15.9% -14.7% -25.8% 2.6% 1.6% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% 0.0% MILITARY AND OTHERS -23.0% 16.3% 9.7% 2.3% -4.4% -22.4% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -6.2%
Preliminary Key Operating Information Q2 - 2020 ARRIVING STATISTICS MARISCAL SUCRE INTERNATIONAL AIRPORT ARRIVING CARGO STATISTICS TM. COMPARISON 2019/2020 ARRIVING TM 2019 Cargo TM JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGE TOTAL INTERNATIONAL 2,618.70 2,984.85 3,301.27 2,918.77 2,958.25 3,015.76 2,704.58 2,850.30 2,715.50 3,026.56 3,086.93 2,948.76 2,927.52 35,130.23 DOMESTIC* 118.49 112.85 142.22 105.12 101.51 100.80 85.04 103.18 121.76 179.64 114.54 101.03 115.52 1,386.18 Total 2019 2,737.19 3,097.70 3,443.49 3,023.89 3,059.76 3,116.56 2,789.62 2,953.48 2,837.26 3,206.20 3,201.47 3,049.79 3,043.03 36,516.41
VARIATION 2019-2018 INTERNATIONAL TM 14.6% 30.7% 8.4% 12.8% 15.5% -2.3% -0.7% -1.1% -18.9% -7.8% -0.8% -5.0% 2.4% DOMESTIC TM 11.9% -3.4% 17.2% -5.7% -7.0% -7.5% -26.0% -24.2% 37.9% 79.2% -8.2% -14.9% 2.2%
ARRIVING TM 2020 Cargo TM JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGE TOTAL INTERNATIONAL 2,748.31 2,997.23 2,521.46 2,285.42 2,809.58 3,130.36 2,748.73 16,492.36 DOMESTIC* 123.35 117.48 148.05 109.43 105.67 104.93 118.15 708.91 Total 2020 2,871.66 3,114.70 2,669.51 2,394.85 2,915.25 3,235.29 2,866.88 17,201.28
VARIATION 2020-2019 INTERNATIONAL TM 4.9% 0.4% -23.6% -21.7% -5.0% 3.8% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -7.3% DOMESTIC TM 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% 4.1%
Preliminary Key Operating Information Q2 - 2020 MARISCAL SUCRE INTERNATIONAL AIRPORT DEPARTING CARGO STATISTICS TM COMPARISON 2019/2020 DEPARTING TM 2019 Cargo TM JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGE TOTAL INTERNATIONAL 19,652.95 19,579.63 16,677.62 18,997.85 16,893.55 14,627.68 14,644.43 15,467.07 16,115.49 16,181.87 17,547.22 16,498.20 16,906.96 202,883.56 DOMESTIC 322.29 303.73 332.75 322.57 373.92 373.08 355.24 362.39 315.40 387.31 331.22 312.43 341.03 4,092.33 Total 2019 19,975.24 19,883.36 17,010.37 19,320.42 17,267.47 15,000.76 14,999.67 15,829.46 16,430.89 16,569.18 17,878.44 16,810.63 17,247.99 206,975.89
VARIATION 2019-2018 INTERNATIONAL TM 17.6% -5.1% 14.6% 15.3% -7.1% -2.2% 4.6% 2.9% 2.5% -7.4% 19.2% 7.1% 4.7% DOMESTIC TM -13.3% -17.0% 4.4% 6.0% -5.5% -9.2% 0.4% -0.1% -6.0% -0.8% -14.0% -18.4% -6.5% TOTAL TM 16.9% -5.3% 14.4% 15.1% -7.0% -2.4% 4.5% 2.8% 2.4% -7.2% 18.4% 6.5% 4.4%
DEPARTING TM 2020 Cargo TM JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVERAGE TOTAL INTERNATIONAL 23,329.30 21,747.84 12,127.28 12,627.73 15,374.48 13,947.04 16,525.61 99,153.67 DOMESTIC 310.46 306.00 191.48 17.33 31.05 200.34 176.11 1,056.67 Total 2020 23,639.75 22,053.84 12,318.76 12,645.07 15,405.54 14,147.39 16,701.72 100,210.34
VARIATION 2020-2019 INTERNATIONAL TM 18.7% 11.1% -27.3% -33.5% -9.0% -4.7% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -6.8% DOMESTIC TM -3.7% 0.7% -42.5% -94.6% -91.7% -46.3% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -47.9% TOTAL TM 18.3% 10.9% -27.6% -34.6% -10.8% -5.7% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -7.6%
Preliminary Key Operating Information Q2 - 2020 INTERNATIONAL AIRPORT FINANCE, S.A.
SCHEDULE III COPORACION QUIPORT S.A. DEBT SERVICE COVER RATIO CALCULATION January 01st at June 30th, 2020 Source Contract Clause TOTAL January February March April May June Statement of Account - Citibank Amounts deposited in the Offshore Collection Acc. - Collection (a) 11.282.691 9.458.730 10.277.438 3.753.968 1.554.169 1.973.886 38.300.881 Statement of Account - Citibank Amounts deposited in the Offshore Collection Acc. - Interest (a) 30.453 16.694 14.403 6.094 8.144 0 75.789 Statement of Account - Citibank Amounts deposited in the Offshore Collection Acc. - Bond Interest (a) 0 0 1.200.000 0 0 0 1.200.000
Statement of Account - Citibank Amounts deposited to Offshore EPS Acc. (b. i) -573.289 -439.643 -513.961 0 0 0 -1.526.892 Statement of Account - Citibank Amounts deposited to Offshore Tax Reserve Acc. (b. i) 0 0 0 0 0 0 0 Statement of Account - Citibank Amounts deposited to Onshore O&M Exp. Acc. (b. i) 0 0 0 0 -781.298 -949.164 -1.730.462 Statement of Account - Citibank Amounts deposited to Ecuador Operator Acc. (b. i) 0 0 0 0 0 0 0 Statement of Account - Citibank Amounts deposited to Operator Fee. (b. i) 0 0 0 0 0 -3.568.327 -3.568.327 Statement of Account - Citibank Amounts deposited to Offshore O&M Exp. Acc. (b. i) -1.012.941 -1.338.084 -170.000 -110.000 -50.000 -100.000 -2.781.025
Borrower records Total Capital Expenditures paid (b.iv) -2.039.533 -1.920.512 -2.635.978 -750.006 -5.663.859 -261.598 -13.271.485
Cash Flow Available for Debt Service (a - b) 7.687.381 5.777.185 8.171.902 2.900.056 -4.932.844 -2.905.203 16.698.478
Debt Service at 13% interest rate (Borrower) 26.000.000 Ratio 0,64
Total Capital Expenditures paid, excluding any expentitures made in connection Borrower records with the implementation of the Master Plan and the security equipment -781.041 -251.318 -1.217.549 -346.927 -1.130.076 -152.204 -2.249.909 expenditures.
Cash Flow Available for Debt Service - Adjusted 8.945.873 7.446.379 9.590.331 3.303.135 -399.061 -2.795.809 26.090.847
Debt Service at 13% interest rate (Borrower) 26.000.000
Ratio 1,00