(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 1 - GENERAL
OPC Energy Ltd. (hereinafter – “the Company”) was incorporated in Israel on February 2, 2010. The Company’s registered address is 121 Menachem Begin Blvd., Tel Aviv, Israel. The Company’s controlling shareholder is Kenon Holdings Ltd. (hereinafter - the “Parent Company”), a company incorporated in Singapore, the shares of which are dual-listed on the New York Stock Exchange (NYSE) and the Tel Aviv Stock Exchange (hereinafter - the “TASE”). The Company's interim consolidated financial statements as of September 30 2021 include those of the Company and its subsidiaries as well as interests in associates (hereinafter, collectively - the "Group").
The Company is a publicly-traded company whose securities are traded on the TASE. As at the date of the report (commencing from January 2021), the Group is engaged in two reportable segments: (1) generation and supply of electricity and energy in Israel; and (2) maintenance, development, construction and management of renewable energy and conventional (gas-fired) power plants in the United States. In these segments, the Group is engaged in generation and supply of electricity and energy to private customers, Israel Electric Corporation Ltd. (hereinafter – “the IEC”) and the system operator, in initiation, development, construction and operation of power plants and facilities for the generation of energy and provision of management services for power plants in the United States that are owned by third parties. The Group manages its operations in Israel mainly through a wholly owned subsidiary, OPC Israel Energy Ltd. (hereinafter - “OPC Israel”), and its operations in the United States under another operational roof through the CPV Group (as defined in Note 6).
In Israel, the Group operates the Rotem Power Plant through OPC. Rotem Ltd. (hereinafter – “Rotem”) (which is held by the OPC Israel (80%) and by another shareholder (20%)) uses conventional technology, and has an installed capacity of approximately 466 megawatts (MW); the Hadera Power Plant, which is through OPC Hadera Ltd. (hereinafter – “Hadera”), which is wholly owned by OPC Israel, uses cogeneration technology and has an installed capacity of 144 MW. Furthermore, Hadera holds the Energy Center (boilers and turbines on the site of Hadera Paper Ltd. (hereinafter - “Hadera Paper”), which serves as backup for the supply of steam. In addition, OPC Israel wholly owns Zomet Energy Ltd. (hereinafter – “Zomet”), which is working to construct a power plant powered by natural gas, using conventional technology in an open cycle (a peaker plant) having an installed capacity of approximately 396 MW, located in the vicinity of the Plugot Intersection, near Kiryat Gat. In addition, as from September 2021 the Company supplies 110 MW in electricity under the virtual supply license. Furthermore, the Company is working to construct and operate facilities for generation of energy on the consumer’s premises, which generate electricity using natural gas and renewable energy and enters into arrangements for supply and sale of energy to consumers; in addition, the Company entered into an agreement to supply the equipment to, construct, operate and maintain the Sorek B energy facility and to supply the energy required by the Sorek B desalination facility, as stated in Note 24A(10) to the Annual Financial Statements.
The Group’s activities in Israel are subject to regulation, including, among other things, the provisions of the Electricity Sector Law, 1996, and the regulations promulgated thereunder, resolutions of the Israeli Electricity Authority, the provisions of the Law for Minimizing Market Centralization and Promoting Economic Competition, 2013, the provisions of the Economic Competition Law, 1988 and the regulations promulgated thereunder, as well as regulation in connection with licensing of businesses, planning and construction, and environmental protection. The Israeli Electricity Authority is authorized to issue licenses under the Electricity Sector Law (licenses for facilities having a generation capacity in excess of 100 MW also require approval by the Minister of Energy), supervise the license holders (including supply licenses and private generation licenses), determine tariffs and set benchmarks for the level, nature and quality of the services that are required from a holder of a “Essential Service Provider” license. Accordingly, the Israeli Electricity Authority supervises both the IEC and private electricity generators.
The Group’s activity is subject to seasonal fluctuations as a result of changes in the energy demand management rate (hereinafter – “the TAOZ”), which is regulated and published by the Israeli Electricity Authority. The year is broken down into three seasons, as follows: summer (July and August), winter (December, January and February) and “transitional” (March through June and September through November), with a different tariff set for each season. The Company’s results are based on the generation component, which is part of the TAOZ, resulting in a seasonal effect.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
| A. | The Reporting Entity (cont.) |
In the United States, the Group operates - through the CPV Group, 70% of which is (indirectly) held by the Company - conventional power plants, power plants powered by natural gas (advanced generation combined cycle) and in the area of renewable energy. As at the approval date of the financial statements, CPV’s share of the natural gas-fired power plants is approximately 1,290 MW out of 4,045 MW (5 power plants), and in wind energy - CPV’s share is approximately 152 MW (one power plant).
In addition, the CPV Group holds rights to gas-fired and solar power plants that are under construction, with a capacity of approximately 1,258 MW and 126 MW, respectively (CPV’s share as at the approval date of the financial statements is approximately 126 MW and 126 MW, respectively). Furthermore, the CVP Group has a backlog of projects with various technologies under development with a total capacity of 7,092 to 7,492 MW.
electricity market in the United States is regulated both on the federal level (wholesale sale of electricity and interstate transmission) and state level (retail sale of electricity and distribution services to end consumers). The primary federal regulator is the Federal Energy Regulatory Commission (FERC), alongside state-level public service commissions exercising additional regulatory oversight. The electricity market in the United States operates under several regional or state market operators, known as Regional Transmission Organizations (RTO) or Independent System Operators (ISOs). The ISOs and RTOs are responsible for the day‑to‑day operation of the transmission system, the administration of the wholesale markets in their respective regions, and for the long-term transmission planning and resource adequacy functions.
The activity of the CPV Group is subject to, among other things, changes in federal and state legislation, federal and state energy regulations and federal and state environmental protection laws and regulations. These laws impact the ability of the facilities of the CPV Group to operate, the prices of the products they produce and the costs and charges involved in their production. Therefore, regulations, laws and decisions by the federal and state authorities, particularly public service committees, a federal energy regulatory committee and environmental protection authorities, have a direct and indirect impact on the CPV Group’s activity.
The revenues of the CPV Group from electricity generation are seasonal and impacted by variable demand, gas prices and electricity prices, as well as the weather. In general, with respect to power plants powered by natural gas, there is higher profitability in seasons where temperatures are at their highest or lowest - usually during summer and winter.
B. Impacts of the Spread of the Coronavirus
Due to the spread of the coronavirus (COVID‑19) (hereinafter - “the coronavirus crisis”) in 2020 as well as during the reporting period and thereafter, movement restrictions and restrictions on business activity were imposed by the State of Israel and countries throughout the world. In addition, the said Coronavirus Crisis has caused, among other things, uncertainty and instability in the Israeli and global financial markets and economy.
The operation of the Company’s active power plants in Israel, as well as the construction of the Zomet power plant, have continued throughout the restriction period, due to their designation as “essential enterprises”, while safeguarding the work teams and taking precautionary measures in order to prevent outbreak and spread of the infection at the Company’s sites. The continuity of the construction work on the Zomet power plant or the renovation and maintenance work at the Rotem and Hadera power plants might be impacted by movement restrictions due to the Coronavirus Crisis, in light of the need for the arrival of equipment and foreign work teams. As at the financial statements approval date, the Coronavirus Crisis has not had a material impact on the Company’s results of operations and its activity in Israel.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 1 - GENERAL (cont.)
B. Impacts of the Spread of the Coronavirus (cont.)
Spread of the virus and infections at the Company’s power plants and other sites, continuation of the Coronavirus Crisis for an extended period, a material impact of the Coronavirus Crisis on main suppliers (such as suppliers of natural gas, construction and maintenance contractors) or the Group’s main customers, or protracted movement restrictions, may adversely affect the Company’s activities and performance in Israel, as well as its ability to complete construction projects on time or at all and/or on its ability to execute future projects in Israel.
As of financial statements’ approval date, the pandemic continues causing business and economic uncertainty. During the reporting period, there was a trend of recovery in the volume of economic activity worldwide, including lifting of some of the movement restrictions, reopening of businesses and commerce. At the same time, as of the financial statements approval date, alongside high vaccination rates - due to the outbreak of new strains - the pandemic continues to spread significantly in Israel and other countries, and accordingly, movement restrictions and restrictions on activities have been imposed and may be imposed in the future on activities.
The spread of the Coronavirus has had a significant impact on economic activity in the USA and around the world. The activity of the CPV Group's power plants continued despite the Coronavirus Crisis, with adjustments being made as stated below. The Coronavirus Crisis resulted in a change in the work schedules and shifts of the employees of the CPV Group, a reduction of self‑initiated shutdowns for purposes of periodic maintenance, extension of the unplanned periodic maintenance period, adaptations on the part of the Group to employees working from home and other workplace adjustments. In addition, the Group was and continues to be required to make adjustments relating to information security at the power plants. Moreover, the Coronavirus Crisis affects the availability of suppliers and parties involved in the development and construction processes of the projects of the CPV Group.
It is noted that, as of the approval date of the financial statements, there is no certainty as to the duration of the Coronavirus Crisis, its scope and impact on the markets or parties relating to the CPV Group’s activity, and therefore - the CPV Group is unable to assess with any degree of certainty and completeness the impact of the Coronavirus Crisis. The outbreak of the virus and the (possible) spread thereof at the power plants of the CPV Group or restrictions on business activity in the areas in which it operates - as well as the measures that shall be taken worldwide as a result, impact on the economy and commodity markets in the U.S. in general, and on the prices of electricity and natural gas in particular – could impact CPV’s activity (even materially), thwart the completion of the project under construction (as detailed in Note 7A) and delay advancement of CPV’s projects under development, as well as impact the ability to execute its future projects.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 2 – BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
A. Statement of compliance with International Financial Reporting Standards (IFRS)
The condensed consolidated interim financial statements were prepared in accordance with International Accounting Standard 34 (hereinafter – “IAS 34”) - “Interim Financial Reporting” and do not include all of the information required in complete Annual Financial Statements. These statements should be read in conjunction with the financial statements for the year ended December 31 2020 (hereinafter – “the Annual Financial Statements”). In addition, these financial statements were prepared in accordance with the provisions of Section D of the Securities Regulations (Periodic and Immediate Reports) 1970.
The condensed consolidated interim financial statements were approved for publication by the Company’s Board of Directors on November 25, 2021.
B. Functional and presentation currency
The New Israeli Shekel (NIS) is the currency that represents the primary economic environment in which the Company operates. Accordingly, the NIS is the Company’s functional currency. The NIS also serves as the presentation currency in these financial statements. Currencies other than the NIS constitute foreign currency.
C. Use of estimates and judgments
In preparation of the condensed consolidated interim financial statements in accordance with the IFRS, the Company’s management is required to use judgment when making estimates, assessments and assumptions that affect implementation of the policies and the amounts of assets, liabilities, income and expenses. It is clarified that the actual results may differ from these estimates.
Management’s judgment, at the time of implementing the Group’s accounting policies and the main assumptions used in the estimates involving uncertainty, are consistent with those used in the Annual Financial Statements, except as stated below.
Allocation of acquisition costs:
the Group makes estimates with respect to allocation of excess cost to tangible and intangible assets and to liabilities. In addition, when determining the depreciation rates of the tangible and intangible assets and liabilities, the Group estimates the expected life of the asset or liability. These estimates are based on, among other things, an independent appraiser.
During the reporting period, the Company classified transaction expenses in respect of the CPV Group acquisition and expenses for an early repayment fee - which were previously stated under the business development expenses line item and under the finance expenses line item, respectively - to two separate line items in the income statement. Accordingly, the Company reclassified from the business development line items to the expenses in respect of the CPV Group acquisition a total of NIS 4 million for the nine- and three-month periods ended September 30, 2020. In addition, the Company reclassified from the finance expenses line item to the early repayment line item a total of NIS 41 million for the year ended December 31, 2020.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
| A. | Accounting Policy for New Transactions or Events |
The Group applies the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control exists when the Group is exposed, or has rights to variable returns from its involvement with the acquiree and has the ability to affect those returns through its power over the acquiree. When testing for control, substantive rights held by the Group and others are taken into account. On acquisition date, the acquirer recognizes a contingent liability assumed in a business combination if there is a present obligation resulting from past events and its fair value can be reliably measured. The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree, the liabilities incurred by the acquirer to the previous owners of the acquiree as well as equity interests issued by the Group. In addition, goodwill is not updated in respect of utilization of tax loss carryforwards that existed on the date of the business combination.
Costs associated with the acquisition incurred by the acquirer in respect of a business combination, such as: brokers’ commissions, consultants’ fees, legal fees, valuations and other fees and commissions relating to professional services or consulting services, except for those relating to issuance of debt or equity instruments in connection with the business combination, are recognized as expenses in the period in which the services were received.
Goodwill
The Group recognizes goodwill on acquisition date according to the fair value of the consideration transferred less the net amount of the identifiable assets acquired and the liabilities assumed. Goodwill is initially recognized as an asset based on its cost, and in subsequent periods, is measured at cost less accumulated impairment losses.
To test for impairment, goodwill is allocated to each of the Group’s cash‑generating units that is expected to benefit from the synergy of the business combination. Cash‑generating units to which goodwill was allocated are tested for impairment each year, or more frequently if there are indications of a possible impairment of the unit, as stated. Where the recoverable amount of a cash‑generating unit is lower than the carrying mount of that cash‑generating unit, the impairment loss is first allocated to the reduction of the carrying amount of any goodwill attributed to that cash‑generating unit. Thereafter, the balance of the impairment loss, if any, is allocated to other assets of the cash‑generating unit, pro rata to their carrying amounts. A goodwill impairment loss is not reversed in subsequent periods.
Associates are entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is the power to participate in making decisions relating to the financial and operational policies of the investee company. In testing for significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account.
Investments in associates are accounted for using the equity method and are initially recognized at cost. The investment cost includes transaction costs. Transaction costs that are directly attributable to an expected acquisition of an associate are recognized as an asset under the deferred expenses line item in the statement of financial position. These costs are added to the investment cost on the acquisition date. The consolidated financial statements include the Group’s share of the income and expenses in profit or loss and of other comprehensive income of associates, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. Where the Group disposes of part of an investment that is an associate that includes foreign operations while maintaining significant influence, the proportionate part of the cumulative amount of the exchange rate differences is reclassified to the statement of income.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
| A. | Accounting Policy for New Transactions or Events (cont.) |
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to NIS at exchange rates in effect at the reporting date. The income and expenses of foreign operations are translated to NIS at exchange rates in effect at the transaction dates. Foreign exchange differences are recognized in other comprehensive income and are presented in equity in the foreign operations translation reserve (hereinafter – “translation reserve”). When the foreign operation is not a wholly-owned subsidiary of the Company, the pro rata share of the foreign operation translation difference is allocated to the non-controlling interests.
Generally, foreign exchange rate differentials from loans received from or provided to a foreign operation, including foreign operations that are subsidiaries, are recognized in profit or loss in the consolidated financial statements.
When the settlement of loans received from or provided to a foreign operation is neither planned nor likely in the foreseeable future, gains and losses from foreign exchange rate differentials arising from these monetary items are included in the investment in the foreign operation, net, and are recognized in other comprehensive income and stated in equity under the translation reserve.
| 3. | Share-based compensation transactions |
The fair value of the amount due to employees in respect of the cash-settled rights to participate in CPV Group’s earnings, is recognized as an expense against a corresponding increase in the liability, over the period in which unconditional entitlement to payment is achieved. The liability is remeasured at each reporting date until the settlement date. Any change in the fair value of the liability is recognized as a general and administrative expense in profit and loss.
| B. | New Standards and Amendments to New Standards that Have Yet to Be Adopted |
1. Amendment to IAS 1 - “Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current”
The Amendment replaces certain classification requirements of current or non-current liabilities. For example, pursuant to the amendment, a liability will be classified as non‑current if an entity has the right to defer the payment for a period of at least 12 months after the reporting period, which is “substantive” and exists at the end of the reporting period. A right exists as at the reporting date only if an entity is in compliance with the conditions for deferment of the payment as at that date. In addition, the amendment clarifies that a conversion right of a liability will affect its classification as current or non‑current, unless the conversion component is capital-based.
The Amendment will become effective for reporting periods commencing on January 1 2023. Early application is permissible. The Amendment is to be applied retrospectively, including adjustment of the comparative data.
The Group has yet to begin examining the ramifications of the amendment’s application for the financial statements.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
2. Amendment to IAS 16 - “Property, Plant, and Equipment: Proceeds before Intended Use”
The amendment revokes the requirement whereby in calculating costs that are directly attributable to property, plant and equipment, the net proceeds from the sale of any items produced in the process (such as samples produced at the time of testing the equipment) should be deducted from the costs of testing the proper functioning of the asset. Rather, the said proceeds are to be recognized in profit and loss in accordance with the relevant standards and the cost of the items sold is to be measured pursuant to the measurement requirements of IAS 2 - “Inventory”.
The amendment will enter into effect for reporting periods commencing on January 1 2022 or thereafter. Early application is permissible. The amendment is to be applied retrospectively, including revision of the comparative data, but only for items of property, plant and equipment that were brought to the location and status required for them to be able to function in the manner contemplated by management after the earliest reporting period presented on first-time application of the amendment. The cumulative effect of the amendment will adjust the opening balance of the retained earnings of the earliest reporting period presented.
The Group has considered the potential effect of the application of the standard and is of the opinion that such application is not expected to have a material effect on the financial statements.
3. Amendment to IAS 12, Income Tax: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
The amendment reduces the applicability of the exemption from recognition of deferred taxes as a result of temporary differences created on the date of initial recognition of assets and/or liabilities, such that the said exemption will not apply to transactions that give rise to equal and offsetting temporary differences. As a result, entities will be required to recognize a deferred tax asset or liability in respect of such temporary differences on the date of initial recognition of transactions that give rise to equal and offsetting temporary differences, such as lease transactions and provisions for dissolution and rehabilitation.
The amendment will be applied as of the annual reporting period starting on January 1 2023, by adjusting the opening balance of the retained earnings or as an adjustment to another capital line item in the period in which the amendment was adopted. Early application is permissible.
The Group has not yet begun to examine the effects of the amendment on the financial statements.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 4 – FINANCIAL INSTRUMENTS
Financial instruments measured at fair value for disclosure purposes only
The carrying amounts of certain financial assets and financial liabilities, including short‑term and long‑term deposits, cash and cash equivalents, restricted cash, trade receivables, other receivables, derivative financial instruments, trade payables and other payables, and some of the Group’s long-term loans are the same as or approximate to their fair values.
The fair values of the other financial assets and financial liabilities, together with the carrying amounts stated in the statement of financial position, are as follows:
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Loans from banking corporations and others (Level 2) | | | | | | | | |
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Loans from banking corporations and others (Level 2) | | | | | | | | |
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Loans from banking corporations and others (Level 2) | | | | | | | | |
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(*) Includes current maturities and interest payable.
Derivative financial instruments are measured at fair value, using the Level 2 valuation method. The fair value is measured using the discounted future cash flows method, on the basis of observable inputs.
The Group enters into transactions in derivative financial instruments in order to hedge foreign currency risks and risks of changes in the CPI. Derivative financial instruments are recorded based on their fair value. The fair value of the derivative financial instruments is based on prices, rates and interest rates that are received from banks, brokers and through accepted trading software. The fair value of the derivative financial instruments is estimated on the basis of the data received, using valuation and pricing techniques that are characteristic of the various instruments in the different markets. The fair value measurement of long-term derivative financial instruments is estimated by discounting the cash flows arising from them, based on the terms and conditions and term to maturity of each instrument and using market interest rates for similar instruments as at the measurement date. Changes in the economic assumptions and the valuation techniques could materially affect the fair value of the instruments.
In addition, in the reporting period, the following loans were added to the Group: loans used to acquire the CPV Group, a loan that was consolidated for the first time as part of the business combination, as well as a loan obtained under Keenan’s new financing agreement. These loans are the same or approximate to their fair value in light of the variable interest rates on some of the loans.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 4 - FINANCIAL INSTRUMENTS (cont.)
Set forth below are data regarding the representative foreign exchange rates of the US dollar (hereinafter - “USD”) and the euro (hereinafter - “EUR”) and the Consumer Price Index (hereinafter - “CPI”):
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Changes during the 9-month period ended on: | | | | | | | | | | | | |
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Changes during the 3-month period ended on: | | | | | | | | | | | | |
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Changes during the year ended on: | | | | | | | | | | | | |
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NOTE 5 - REVENUES FROM SALES AND SERVICES
Disaggregation of revenues from sales:
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Revenues from sale of electricity | | | | | | | | | | | | | | | | | | | | |
Revenues from sale of steam | | | | | | | | | | | | | | | | | | | | |
Revenues from provision of services | | | | | | | | | | | | | | | | | | | | |
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Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
Business combination that occurred during the reporting period
Further to that which is stated in Note 25L to the annual financial statements, on January 25 2021, the acquisition of 70% of the rights and holdings in the CPV Group (hereinafter – “the Transaction Completion Date”) was completed. The acquisition was executed through a limited partnership, CPV Group LP (hereinafter – “the Acquirer”), which is held, indirectly, by the Company (approximately 70% by the limited partner). The acquired CPV Group entities are: CPV Power Holdings LP (hereinafter – “CPVPH”); Competitive Power Ventures Inc. (hereinafter – “CPVI”); and CPV Renewable Energy Company Inc. (hereinafter – “CPVREC”) (CPVPH, CPVI and CPVREC will be jointly referred to hereinafter as – the “CPV Group”).
The CPV Group is engaged in the development, construction and management of power plants using renewable energy and conventional energy (power plants powered by natural gas of the advanced‑generation combined‑cycle type) in the United States through subsidiaries and associates. The CPV Group holds rights in active power plants that it developed and constructed – both in the area of conventional energy and in the area of renewable energy. In addition, through an asset management group, the CPV Group is engaged in provision of management services to US-based power plants using a range of technologies and fuel types, by means of signing asset‑management agreements, usually for short to medium terms.
On the Transaction Completion Date, in accordance with the mechanism for determination of the consideration as defined in the acquisition agreement, the Acquirer paid the Sellers a consideration that was set at the total amount of about USD 648 million (constituting an acquisition price of USD 630 million with certain adjustments to working capital, the cash balance and debt balance), and approximately USD 5 million for a deposit in the same amount, which remains in the CPV Group. In May 2021, the consideration for the CPV Group acquisition transaction was adjusted, as a result of which the Sellers paid CPV Group an immaterial amount. It is noted that, in respect of 17.5% of the rights to the Three Rivers project under construction (hereinafter – the “Project under Construction”), a sellers’ loan, in the amount of USD 95 million (hereinafter – the “Seller’s Loan”) was granted to CPVH. The Seller’s Loan is for a period of up to two years from the Transaction Completion Date, bears an annual interest of 4.5%, which is to be paid quarterly and secured by a lien on shares of the holding company that owns the rights to the Project under Construction and rights pursuant to the management agreement of the Project under Construction. For details regarding changes in the holdings in the Project under Construction and in the Seller’s Loan in the reporting period – see Note 7A.
The Company partially hedged its exposure to changes in the cash flows from payments in dollars in connection with the agreement for acquisition of the CPV Group by means of forward transactions and dollar deposits. The Company chose to designate the forward transactions as an accounting hedge. On the Transaction Completion Date, the Company recorded an amount of approximately NIS 103 million that was accrued in a hedge capital reserve to the investment cost in the CPV Group. This cost was recorded under the goodwill line item and increased the acquisition cost by approximately USD 32 million.
The contribution of the CPV Group to the Group’s income and loss from the acquisition date until September 30 2021 amounted to NIS 123 million and NIS 84 million, respectively. Management estimates that had the acquisition taken place as early as January 1 2021, the revenue amount in the consolidated statement of income for the nine‑month period ended September 30 2021 would have been NIS 1,163 million and the consolidated loss for that period would have been NIS 209 million.
Determination of fair value of assets and liabilities identifiable as of the acquisition date:
The acquisition of the CPV Group was accounted for according to the provisions of IFRS 3 - “Business Combinations”. Thus, on the Transaction Completion Date, the Company included the net assets of the CPV Group in accordance with the fair value.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 6 – SUBSIDIARIES (cont.)
Business combination that occurred during the reporting period (cont.)
Set forth below is the fair value of the identifiable assets and liabilities acquired:
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Cash and cash equivalents | | | | | | | | |
Trade and other receivables | | | | | | | | |
Long-term restricted deposits and cash | | | | | | | | |
Investments in associates | | | | | | | | |
Property, plant & equipment | | | | | | | | |
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Derivative financial instruments | | | | | | | | |
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Other long‑term liabilities | | | | | | | | |
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The aggregate cash flows accrued to the Group as a result of the acquisition transaction:
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Cash and other cash equivalents paid | | | | | | | | |
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Cash and other cash equivalents acquired | | | | | | | | |
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Goodwill created as part of the business combination reflects the potential of future activities of the CPV Group in the market in which it operates. The Group expects that part of the goodwill will be allowed as a deduction for tax purposes. Due to the acquisition, goodwill was recognized as follows:
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Less fair value of the identifiable assets, net | | | | | | | | |
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Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 6 – SUBSIDIARIES (cont.)
Business combination that occurred during the reporting period (cont.)
Costs relating to the business combination
In the reporting period and in 2020, the Group incurred legal expenses and due diligence costs attributable to the acquisition totaling approximately NIS 2 million and NIS 42 million, respectively. These costs were recorded in the statement of income in the said periods under the “Transaction expenses in respect of acquisition of the CPV Group” line item.
The Project Companies of the CPV Group:
The CPV Group holds rights in active power plants and in power plants under construction and under development – both in the conventional and renewable energy areas, through subsidiaries and associates. Set forth below are details regarding the main projects held through the subsidiaries of the CPV Group. For details relating to major projects held by associates of the CPV Group – see Note 7. For information about the main agreements of the subsidiaries of the CPV Group – see Note 9K.
| | | Year of commercial operation | | | | | |
Ownership stake as of September 30 2021* | | |
CPV Keenan II Renewable Energy Company, LLC (hereinafter - "Keenan") | | | | | | | | | | |
CPV Maple Hill, LLC (hereinafter - "Maple Hill") | | Under construction. Commercial operation is expected begin in the second half of 2022. | | | | | | | | |
CPV Rogue's Wind, LLC (hereinafter - "Rogue's Wind") | | Towards construction. Commercial operation is expected begin in the second half of 2023. | | | | | | | | |
(*) The holding rate is that of the CPV Group, which is a subsidiary of the Company and indirectly held by the Company (70%).
