Annual Report of ACS Group - Grupo ACS

Consolidated
Financial Statements
Neither from the reading of the Iberdrola 2010 fi nancial statements, nor from other information provided by the same
Iberdrola and by the Iberdrola shareholders represented in its Board of Directors, have events been identifi ed causing losses
that may have an impact on the estimated future cash fl ows on said investment. Likewise, we want to point out that,
according to the information published by the same Iberdrola, the stock market capitalisation at 31 December 2010 was 1.09
times its book value, its EBITDA has grown by 10.5% over that of the 2009 period and its net recurring profi t experienced
growth of 5.6% in 2010, reaching EUR 2,581.9 million.
Therefore, since there is no objective evidence of impairment, in the event that, according to the divided discount and cash
fl ow calculations, the recoverable value of the investment should be greater than the book value, the ACS Group deems
that the drop in the market price above the aforementioned levels and periods must not involve the recognition of an
impairment loss.
In any event, given that there are signs of impairment due to the Iberdrola market price being below the weighted
average cost, the Company has performed an impairment test internally on its ownership interest in Iberdola based upon
the future dividend discount method and other available information on its investee Iberdola. The use of this methodology
starts from the consideration that, both the gain/loss of ACS due to its holding in Iberdrola, such as the cash fl ows derived
from said interest come mainly from the dividends received by Iberdrola. Despite being the number one shareholder of
Iberdrola, by not having access to detailed information related to the strategic plan, it deems that the public information
based on the future dividend discount of the company as more coherent for the calculation of the recoverable amount of
the investment.
In this regard, Iberdrola’s shareholder compensation policy has remained very stable over the last years (recurring payout of
67.4% on the net profi t in the last two years) and there are no signs that there will be signifi cant changes, since the company
made its intentions public on 24 February 2010 when it presented its 2010-2012 strategic plan, to keep the shareholder
compensation in line with the increase of the company’s net profi t (the company makes estimates in its strategic plans on
this fi gure). The main scenarios start from the last dividend paid by the company and the growth in the dividend estimate is
based upon the strategic plan presented by Iberdrola for the next 3 years and perpetual growth of 3% from then on (in this
regard, we should point out that the annual accumulative growth rate of the dividends paid by Iberdrola in the 1989-2009
period was 5.8% and the growth estimates of “The Economist Intelligence Unit” (dated 7 December 2010) in real terms of
the GDP for Spain (2.2% in 2015) and infl ation (2% in 2015). The discount rate of its equity was 8.12%.
The impairment test has a high sensitivity to variations in the discount rate, growth in residual value and performance of
the company dividends. Therefore variations of a certain relevancy in the same rates could give rise to an impairment being
recorded.
Even when being in possession of said 20.2% (an amount which in itself and according to the current accounting standards,
must be interpreted as a presumption that ACS exercises signifi cant infl uence over Iberdrola), for the time being and to date
it has not been possible to secure a position on the Iberdrola Board of Directors. The ACS Group has taken this circumstance to
the courts by challenging the resolutions reached in the General Shareholders’ Meeting of Iberdrola in March 2010. However,
it is the intention of ACS to gain access to Iberdrola’s Board of Directors, which would mean the direct qualifi cation of the
investment in Iberdrola as an associate. This is a very peculiar and absolutely exceptional circumstance, on which the Group’s
Management is fully confi dent that the court will give a decision favourable to the interests of the ACS Group, even though
on the approval date of these fi nancial statements there is a ruling from the lower mercantile court against the interests of
the ACS Group.
96
ANNUAL REPORT 2010
ACS GROUP