In a television speech Friday night President Hugo Chavez announced that,
Venezuela has decided to devalue its currency and to introduce a multi-tiered
exchange rate regime. The details of the legislation implementing the decision
will be published Monday Venezuelan time.
A more detailed quantification of the accounting impact of the devaluation for
EAC in 2009 will be addressed as soon as adequate clarity can be obtained
following the official devaluation decree. However, as a prioritized industry,
EAC expects that EAC Foods will continue to receive USD for its import
requirements and expansion programmes at a preferential rate.
It is expected that the official exchange rate of the bolivar (VEF) to the USD,
which has remained at 2.15 VEF since March 2005 will be fixed at 2.6 VEF, for
the importation of food, pharmaceuticals and other essential goods. For all
other items the USD exchange rate will be fixed at 4.3 VEF. The existence of a
third floating rate - until now known as the parallel rate - has been officially
acknowledged and will be managed through central bank intervention to avoid
In his announcement President Chavez did not mention anything regarding
treatment of foreign debt, dividend and royalty. Consequently, the official
devaluation decree will have to be awaited before quantification of the
accounting impact for 2009 and 2010 can be determined.
Accounting adjustment due to Venezuela now considered a hyperinflation economy
Irrespective of the devaluation, but due to the recent years' increased
inflation in Venezuela the country should for accounting purposes be considered
a hyperinflationary economy as of 31 December 2009. Under the International
Financial Reporting Standards (IFRS) this requires the application of IAS 29,
"Reporting in hyperinflationary economies" for 2009 and subsequent years. The
application of the standard affects the accounting presentation, but does not
affect the operation or the cash flow.
Essentially, IAS 29 requires the financial reporting for EAC Foods to be
restated to reflect the current purchasing power at the end of the reporting
period, and as a result all non-monetary assets such as fixed assets and
inventories etc. should be restated to the current purchasing power as at 31
December 2009 using a general price index from the date when they were first
recognised in the accounts. The income statement will be restated to reflect
changes in the general price index from the date of the transaction to the
reporting date 31 December 2009.
Outlook for 2009 and 2010
The outlook for 2009 will be re-assessed based on the information regarding the
devaluation expected from the Venezuelan Government during the next couple of
days, adjusted for hyperinflation and announced to the marked as soon as
adequate clarity can be obtained.
The expected outlook for 2010 will as usual be addressed in connection with the
announcement of the annual result for 2009, scheduled for 25 February 2010.
The East Asiatic Company Ltd. A/S
(A/S Det Østasiatiske Kompagni)
For additional information, please contact:
President & CEO Niels Henrik Jensen
+45 3525 4300
Group CFO Michael Østerlund Madsen
+45 3525 4300