Report on the 3rd Quarter of 2009 (unaudited accounts) I HIGHLIGHTS. Growth of 22.6% in turnover, to million euros;

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2 Grupo Soares da Costa, SGPS, S.A. Public limited company Registered Office: Rua Santos Pousada, Porto Share Capital 160,000,000 Euros NIPC , Registered at Porto Companies Registration Office CONTACTS: General Press contact, Public Relations Investor relations Report on the 3rd Quarter of 2009 (unaudited accounts) I HIGHLIGHTS Growth of 22.6% in turnover, to million euros; EBITDA totalled 63.7 million euros (+ 9.6%); Financial results improved from to million euros; Pre-tax profit up by 97.7% to 11.1 million euros; Net Profit attributable to the Group grew by 46.4% to 7.4 million euros compared with 5.1 million euros; Order book continues at a high level, standing at 1,759 million euros at the end of Q (all comparisons relate to the same period in the previous year)

3 II GENERAL BACKGROUND In the midst of a major world recession that began in 2007 and deepened in 2008, and which this year has seen a sharp contraction in economic activity in the majority of developed countries together with historically low growth levels in the emerging economies, developments in recent months have given rise to a consensus that the recession is easing, boosting sentiments of confidence. In its most recent World Economic Outlook, considerably more optimistic than previous ones, the IMF depicts a scenario of recovery of the world economy in 2010, forecasting positive, albeit modest, growth in the developed economies (0.3% in the Eurozone, 1.5% in the USA and 1.7% in Japan), but more marked in the main emerging economies (3.5% in Brazil, 9% in China and 6.4% in India). In this initial recovery phase, given the currently low utilisation levels of installed capacity, this improvement will not follow through, however, into a recovery in labour markets, which in 2010 are expected to continue to experience continuing decline in employment with high associated economic and social costs, which will possibly prove to be one of the more worrying aspects. Portugal is experiencing a contraction in economic activity which, nevertheless, should turn out on an annual basis to be less (around -3%) than the EU average. The expectation is that Portugal will return to growth, albeit feeble, in In sector terms, in the construction market, although the value of tenders for contract works has been declining significantly, the value of contracts awarded to the end of September showed accumulated growth of 37% compared with the same period in the previous year resulting from the award of contracts put out to tender in previous years. In this context, a significant aspect has been public investment in the modernisation and refurbishment of the school estate. By contrast, the private market continues to decline, particularly in the housing segment. This dichotomy means that, according to recent figures 1, the global production index at the end of August stood at -4.1%, although with the engineering works segment showing a positive trend (+0.1%) compared with a sharply negative variation (-8.1%) in the construction of buildings. The employment index fell gradually to an accumulated decrease of -6.6% at the end of August. This improvement, albeit slight, in the sector generally regarded as driven by public investment translated into a recovery in the cement sales index (-15.4% in September 2009 compared with -16.5% in June and % in March) and some improvement in the confidence index. 1 Public and Private Works Market, Economic Analysis, September 2009, ANEOP (28.Oct.2009).

4 In Angola, one of the Group s key markets, international recovery in oil prices enabled growth to restart. The IMF revised upwards its forecast for GDP growth in the current year, which could be marginally positive (0.2%) contrary to previous forecasts (-3.6%) and foresees strong recovery potential in 2010, with growth close to double figures (+9.3%). The recent devaluation of the Kwanza against the US dollar helped to stabilise the currency market, which had been under some pressure, while the trend in inflation in recent months has been positive. However, certain seasonal aspects related to the year end together with the imported component suggest that the Angolan authorities will find it difficult to meet the target of 12.5%. In the United States, the major public investment plan and other anti-cyclical measures adopted by the government have checked the recession and laid the foundations for growth next year. In Romania, the effects of the world recession have had a strong impact, with GDP falling sharply 2 in the current year. The budget adjustment mechanisms demanded and the necessary structural reforms have run into implementation problems in the current recessionary scenario. Evaluation missions by various international organisations (the IMF, the World Bank and the European Union) at the end of October and beginning of November could lead to the unblocking of the funds needed to implement these reforms, although in certain cases they are dependent on certain conditions being met 3. III ACTIVITIES, ECONOMIC AND FINANCIAL INDICATORS There were no significant changes to the consolidation perimeter during the quarter just ended. It should be noted, however, for the purposes of comparison that the indicators for Q did not include at that time the contribution of Prince, a recently acquired US subsidiary. The Group's operations in the quarter just ended produced positive results as analysis of the indicators presented below demonstrates. The Group s positioning in terms of the diversity of geographical markets in which it operates and the healthy order book made it possible, despite the recessionary environment described in the previous section, to achieve a high level of business which was reflected in a turnover of million euros, an increase of 22.6% on the figure for the previous year (15.9% if we eliminate the Prince contribution from 2009 for comparison purposes). The 3rd quarter contributed million euros to this accumulated turnover, compared with million euros in the same period in the previous year. 2 Estimated at -7.5% according to Fitch Ratings in its Emerging Europe Sovereign Review: However, it is forecast to grow by 2% in 2010 and 4% in 2011, according to the same source. 3 One of these relates to the budget deficit, which should not exceed 5.9%.

5 Key Economic and Financial Indicators Amounts in thousands of euros Items At At Variation Turnover % EBITDA % EBITDA margin 9.1% 10.2% -1.1 p.p. Operating Profit (EBIT) % Financial Profit % Profit before tax % Net profit attributable to the Group % In a macroeconomic environment characterised by intense competition, the Soares da Costa Group has maintained a broadly positive performance, as confirmed by the majority of the indicators, which show a substantial improvement on the same period last year. The reduction in the EBITDA margin of approximately one percentage point compared with the previous year, which was already evident at the end of the first quarter, should be seen as normal in the context of growth in the construction business, with turnover in the concessions business flattening out. The accumulated turnover at the end of Q and 2008 was distributed by geographical market as shown below: Distribution of Turnover by Geographical Market euros Amounts in thousands of Market At % At % Variation Portugal ,3% % 5.1% Angola ,4% % 30.6% USA ,7% % 113.8% São Tomé & Príncipe ,2% % -81.5% Mozambique ,5% % 37.2% Guinea ,5% % 19.8% Romania ,6% % -- Others ,7% % -11.2% Totals % % 22.6% Significant growth was achieved in practically all markets, including a marked recovery in the United States (over double the figure for Q and accounting for 6.7% of total turnover) through its Prince subsidiary the Group expanded its operations to the State of Georgia where, during the quarter under report, it was awarded the contract for and began the construction of the Fall Line Freeway. Also worthy of mention was the execution of the highway works for the US301 (SR 43) and Causeway Boulevard for Florida Department of Transportation (FDOT).

6 The domestic market grew by 5.1% compared with the previous year. Events during the quarter included the opening on time of the Pousada do Freixo in Porto, and completion of the works on the ER-230 Tondela- Carregal do Sal highway. Of greater importance in turnover terms were the works on the New IKEA Store in Loures, the Wellness Longevity Resort in Monchique, which should be completed by the end of the year, the Ruben A development, the Trofa Tunnel (a consortium project), the Quinta do Lorde Resort in Madeira, the works on Lot 2 AN2 of the Schools Estate and works for EDIA: the Pisão /Roxo and Torre do Lóbio effluent outfalls. In terms of consortia in which Sociedade de Construções Soares da Costa, SA participates, mention should be made of Hidroalqueva, ACE (with a 50% stake), LGC - Linha de Gondomar, Construtores, ACE (Gondomar Metro line, 30%) and Nova Estação, ACE (construction of Reboleira Metro station, 25%) in addition, of course, to CAET XXI (50%). International markets generated 52.7% of total consolidated turnover as a result of their stronger growth than that in the domestic market. The Portuguese Speaking African Countries (with the expected exception of São Tome and Principe) showed pronounced growth in activity during the year, which was particularly influenced by bridge projects (at Catumbela in Angola, over the Zambezi River in Mozambique, and over the river Cacheu in Guinea, all now open). During the third quarter, major events in Angola included the completion of the Torres Atlântico project (in consortium) and the concrete phases of the Sana Hotel Building and Largo do Ambiente Building, which have now reached the finishings phase. The excavation and containment works for the structure of Kinaxixi Shopping Centre were started. In Mozambique, the buildings of a hotel in Beira and the Vocational Training Centre in Inhambane (funded by Portugal) were completed during the quarter. Construction of a large building - the new Administrative Court was begun and the works on the Edifício Millenium were continued. Romania was the fourth largest market in turnover terms in 2009 as the result of the execution of works awarded in previous years, of which the following are the most important: Rehabilitation Works on the Galati Water Distribution System, Rehabilitation and Extension of the Pitesti Water Distribution System, and highway works such as the Rehabilitation and Modernisation of the DJ107D Alba-Mures Highway. In addition to the growth in operating indicators (turnover, EBITDA and EBIT), there was an improvement in financial profit resulting from the combination of containment of the net financing cost and the recognition of gains in associated companies, which includes in particular the profit of the Costa Rica subsidiaries consolidated by the equity method.

7 Despite the progressive growth in the Group's business, attention is drawn to the positive trend in the level of debt in the quarter. At the end of September, net debt was million euros compared with million euros at the end of the half year. In the real estate area the Group continued to pursue its internationalisation strategy with the execution of projects in Angola, having established a partnership with an Angolan group for the development of these undertakings ( Condomínio Luanda Sul ). In the concessions area (overlapping with the construction segment), the continued construction of the Transmontana Motorway was the main development. The following table shows the various indicators at the end of Q by business area. Breakdown of consolidated indicators by business areas Amounts in thousands of euros Business Area TURNOVER EBITDA Net Profit SdC, SGPS, SA + SHARED SERV CONSTRUCTION BA INDUSTRY BA REAL ESTATE BA CONCESSIONS BA TOTAL IV PRODUCTION AND ORDERS The pre-election period that occurred in the third quarter resulted in the postponement or temporary suspension of a number of ongoing projects in the domestic market, and was reflected in the low number of tenders announced or decided during the period. In addition, in terms of private customers, the climate of shrinking investment persisted, with a very small number of trade inquiries received. The most important contract works awarded during the quarter were: A12 Setúbal-Montijo Link road to Alto da Guerra, for Brisa; Shopping Maia Jardim Finishings and Installations, for Modelo Continente; Capinha Irrigation Block, for DGADR; Infrastructures of the Lisbon Logistics Platform, for Abertis.

8 In the United States in the quarter just ended, in addition to the works on the Fall Line Freeway in the State of Georgia described above, contracts were awarded for the SR 50 DB Avalon Road and SR 25/US (27) highway infrastructure works for Florida Department of Transportation. In Angola, the Group was awarded the contract for the second phase (finishings and construction trades) of the Hotel da Ilha and the Torres Dipanda. In the Industry business area, the Group s subsidiary Somafel was awarded the contract for the Rail Access Branch to the Port of Aveiro (3 rd Phase) and Maintenance of the Beira Alta Line - Pampilhosa/Vilar Formoso. Clear (Portugal) obtained the contract for the HVAC and plumbing works at Taipas Secondary School, and Clear (Angola) obtained the contract for the Moradias ZR6-B electricity works. After the end of the quarter, the concession contract for the New Tete Bridge in Mozambique was signed, in which the Soares da Costa Group, through Soares da Costa Concessões, SGPS, SA, has a 40% stake. This concession awarded for a period of 30 years involves investment during the construction stage estimated at 106 million euros. Construction will be undertaken by a consortium in which Sociedade de Construções Soares da Costa has a 43.5% stake. The order book continues to be healthy, totalling 1,759 million euros at the end of the quarter, an increase of 12% on the figure of 1,571 million euros in the same period last year. V CORPORATE INFORMATION, OWN SHARES During the quarter, the General Meetings of Shareholders held on 27 April 2009 approved the conversion of almost all non-voting preference shares into ordinary shares. In accordance with the amended Article 4 of the Articles of Association, the share capital is now represented by 159,994,482 ordinary shares and 5,518 non-voting preference shares, as published in a Notice to the Market on 14 September Also during the quarter just ended and following the movements during the previous six months in which some recovery of the stock markets was observed, the company disposed of the own shares which it still held (numbering 487,646), with the result that at the end of the quarter under report it no longer held any own shares. VI OUTLOOK TO THE END OF THE FINANCIAL YEAR In the light of the information contained in the annexed financial statements and the expected trend in the Group s business, it is probable that, notwithstanding the element of risk always involved in making

9 projections about future events, the Group will reach the end of the financial year having achieved its published targets. Porto, 16 November 2009 The Board of Directors

10 STATEMENT OF CONSOLIDATED FINANCIAL POSITION AS AT 30 SEPTEMBER 2009 AND 31 DECEMBER 2008 NON-CURRENT (Amounts in units of Euros) A S S E T S Notes 30-Sep Dec-2008 Net assets Net assets Intangible fixed assets: Goodwill Intangible assets: Fixed tangible assets: 9 and 10 Land and Buildings Basic equipment Fixed assets in progress Other tangible fixed assets Financial investments: Investment Properties 11 and Financial Investments in equity Loans to associated companies Other financial investments Assets on deferred taxes CURRENT Total non-current assets Inventories 12 and Accounts receivable: 13 and 20 Customers Taxation on profits for the year Other Accounts receivable Derived financial instruments Other current assets Cash and equivalents Total current assets Total assets Accountant The Board of Directors

11 STATEMENT OF CONSOLIDATED FINANCIAL POSITION AS AT 30 SEPTEMBER 2009 AND 31 DECEMBER 2008 (Amounts in units of Euros) EQUITY AND LIABILITIES Notes 30-Sep Dec-2008 EQUITY Share Capital Own Shares 16 - ( ) Reserves and retained profits 16 ( ) ( ) Net profit for the year Equity attributable to Group Minority interests LIABILITIES NON-CURRENT Total equity PROVISIONS Loans: Bond loans Bank loans Other loans received Accounts payable: Fixed assets suppliers Other accounts payable Liabilities on deferred taxes CURRENT Total non-current liabilities Loans: Bank loans Other loans received Accounts payable: Suppliers Fixed assets suppliers Advances on sales Taxation on profits for the year Other accounts payable Derived financial instruments Other current liabilities Total current liabilities Total liabilities Total equity and liabilities Accountant The Board of Directors

12 SEPARATE STATEMENT OF CONSOLIDATED RESULTS FOR THE PERIODS ENDING AT 30 SEPTEMBER 2009 AND 2008 (Amounts in units of Euros) STATEMENT OF PROFIT AND LOSS Notes 30-Sep Sep-2008 Sales and services rendered Variation in production Other operating profits Operating turnover Cost of goods sold and materials consumed ( ) ( ) External supplies and services ( ) ( ) Personnel costs ( ) ( ) Depreciations & impairment losses ( ) ( ) Provisions and value adjustments ( ) ( ) Other operating losses 22 ( ) ( ) Operating costs ( ) ( ) Operating result of ongoing activities Net financing cost ( ) ( ) Profit and losses in associated Companies ( ) Other financial profit and losses ( ) ( ) Financial result 24 ( ) ( ) Profit before taxation Income Tax 25 ( ) ( ) Consolidated result for the year Attributable to Group Attributable to minority interests Profit per share of ongoing activities: 26 Basic 0,047 0,030 Diluted 0,047 0,030 Profit per share: 26 Basic 0,047 0,030 Diluted 0,047 0,030 Accountant The Board of Directors

13 SEPARATE STATEMENT OF CONSOLIDATED RESULTS FOR THE QUARTERS FROM 1 JULY TO 30 SEPTEMBER OF 2009 AND 2008 (Amounts in units of Euros) STATEMENT OF PROFIT AND LOSS 3rd Quarter 3rd Quarter Sales and services rendered Variation in production Other operating profits Operating turnover Cost of goods sold and materials consumed ( ) ( ) External supplies and services ( ) ( ) Personnel costs ( ) ( ) Depreciations & impairment losses ( ) ( ) Provisions and value adjustments ( ) ( ) Other operating losses ( ) ( ) Operating costs ( ) ( ) Operating result of ongoing activities Net financing cost ( ) ( ) Profit and losses in associated Companies ( ) Other financial profit and losses Financial result ( ) ( ) Profit before taxation Income Tax ( ) Consolidated result for the year Attributable to Group Attributable to minority interests ( ) (23.976) Profit per share 0,019 0,001 Accountant The Board of Directors

14 STATEMENT OF FULLY CONSOLIDATED INCOME FOR THE PERIODS ENDING AT 30 SEPTEMBER 2009 AND 2008 (Amounts in units of Euros) 30-Sep Sep-2008 Consolidated net result for the period Other full income Exchange rate differences arising from the transposition of financial statements in foreign currency ( ) Net variation of taxes, in fair value of derived financial instruments ( ) - Other variations Total fully consolidated income ( ) Attributable: to minority interests to the Group ( ) Accountant The Board of Directors

15 STATEMENT OF ALTERATIONS IN OWN CAPITAL FOR PERIODS ENDING AT 30 SEPTEMBER 2009 AND 2008 (Amounts in units of Euros) Item Share Capital Own Shares Reserves and retained profits Exchange conversion reserve Hedging derivatives Others Equity attributable to the shareholders of the mother company Minority interests Total own capital Balance on 01/Jan/ ( ) ( ) Dividends - - ( ) ( ) - ( ) Own Shares Others Fully consolidated income ( ) ( ) 45 ( ) ( ) Balance on 30/Sep/ ( ) ( ) ( ) Item Share Capital Own Shares Reserves and retained profits Exchange conversion reserve Hedging derivatives Others Equity attributable to the shareholders of the mother company Minority interests Total own capital Balance on 01/Jan/ ( ) Dividends Own Shares - ( ) ( ) - ( ) Others - - ( ) ( ) - ( ) Fully consolidated income Balance on 30/Sep/ ( ) ( ) Accountant The Board of Directors

16 CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIODS ENDING AT 30 SEPTEMBER 2009 AND 2008 AND THE QUARTER FROM 01 JULY TO 30 SEPTEMBER 2009 (Amounts in units of Euros) 30-Sep Sep rd Quarter 2009 Operating activities: Receipts from customers Payments to suppliers ( ) ( ) ( ) Payments to staff ( ) ( ) ( ) ( ) Payments/ receipt from income tax ( ) ( ) ( ) Other receipts /payments relating to operating activities ( ) ( ) ( ) ( ) Cashflow from operating activities ( ) Investment activities: Receipts from: Financial Investments Tangible fixed assets Interest and similar income Dividends Payments related to: Financial Investments Tangible fixed assets Intangible assets: Cashflow from investment activities ( ) ( ) ( ) Financing activities: Receipts from: Loans received Increases in capital, supplementary payments and share issue premiums Sale of own shares Interest received Payments related to: Loans received Depreciation of financial lease agreements Interest and similar charges Dividends Purchase of own shares Cashflow from financing activities Variation in cash and cash equivalents Effect of exchange rate differences Effect of alterations in shareholdings Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Accountant The Board of Directors

17 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 1. Materially relevant operations occurring between 1 January and 30 September 2009 Nothing relevant to report. 2. Analysis of cash and cash equivalents 30 Sept Dec-08

18 ACCOUNTING POLICIES AND EXPLANATORY NOTES AT 30 SEPTEMBER INTRODUCTORY NOTE The company currently named GRUPO SOARES DA COSTA, SGPS, S.A. ( Company ) was incorporated on 02 June 1944, under the name of Soares da Costa, Lda., trading company by shares, having been transformed in a public limited company by Company Deed of 01 May 1968 and assuming the Company name Sociedade de Construções Soares da Costa, S.A.. At 30 December 2002, after a Group re-organisation process, the company assumed its current name and changed the object into Management of shareholdings as an indirect way of carrying out economic activity". The current share structure of the Grupo Soares da Costa can be represented as per the annexed diagram, which shows the Group holding company, GRUPO SOARES DA COSTA, SGPS, S.A., a company with share capital open to public investment, and four subholdings, one for each major sector or business area: Soares da Costa Construção, SGPS, S.A. which includes the portfolio of company shareholdings of the civil construction and public works areas, with special reference to Sociedade de Construções Soares da Costa, S.A., the Groups' national construction company. Soares da Costa Indústria, SGPS, S.A. which includes the shareholdings in companies engaged in supplementary industrial activities in construction, mainly in metalwork and machinery and railway and marine infrastructure. Soares da Costa Imobiliária, SGPS, S.A. which includes the shares in companies which follow the real estate segment and real estate management. Soares da Costa Concessões, SGPS, S.A. bringing together the portfolio of shareholdings of associate companies connected to the concessions. The full list of the companies included in the consolidation and the consolidation methods applied are set out in the following notes. The sectors Grupo Soares da Costa does business in are not subject to seasonality. Monetary values mentioned in the notes are presented in units of Euros, unless otherwise indicated. The financial statements have not yet been audited. 2. MAIN ACCOUNTING POLICIES The main accounting policies adopted in preparing these consolidated financial statements are as follows: 1

19 2.1. Bases of presentation The interim consolidated financial statements for the nine-month period ending on 30 September 2009 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting. The consolidated financial statements assume that the Company is a going concern and were compiled from the ledgers and accounting records of the companies included in the consolidation, which were kept according to the accounting principles accepted in Portugal, and adjusted in the consolidation process to ensure that the consolidated financial statements comply with International Standards on Financial Reporting as adopted in the European Union, in force for the financial year starting at 01 January 2005, from which date the Company began applying IAS/IFRS. In preparing the annexed financial statement, estimates were used, which affect the amounts reported in assets and liabilities, as well as those reported in income and costs for the period reported. All estimates and assumptions made by the Board of Directors were based on the best information available on events and transactions in progress at the date when the financial statements were approved. The Company Board of Directors believes that the attached consolidated financial statements and subsequent notes give a fair presentation of the consolidated financial information. For the purpose of these financial statements the Group has not implemented any standards or interpretations that have already been issued by IASB but which have a subsequent date for mandatory application. The amendments that have already been approved will not significantly affect the Group's financial statements Consolidation principles The following methods of consolidation were adopted by the Group: a) Group companies Full consolidation method Shareholdings in companies where the Group directly or indirectly holds more than 50% of the voting rights at the General Shareholders Meeting and/or controls their financial and operational policy (definition of control used by the Group), were included in the consolidated financial statements by the full consolidation method. The interests corresponding to third party shares in these companies are presented under minority interests, being included in the consolidated balance in own capital and in the profit and loss statement under consolidated results for the year. When losses attributable to minorities are greater than the minority interest in a subsidiary s own capital, then the Group absorbs this excess and any additional losses, except when the minorities have an obligation and are able to cover said losses. If the subsidiary subsequently reports a profit, then the Group appropriates all profits until the minority share of losses absorbed has been recovered. The assets and liabilities of each company in the group are identified at their fair value at acquisition. Any excess of acquisition cost over the fair value of the net assets and liabilities acquired is recognised as goodwill (Note 2.2.d)). If there is a negative difference between acquisition cost and the fair value of net assets and liabilities acquired, this is recognised as income for the year Minority interests include the proportion of the fair value of assets and liabilities identifiable at acquisition which belong to third parties. The results of subsidiaries acquired or sold during the year are included in the financial statements from acquisition or until the date when they are sold. Whenever necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group. Transactions, balances and dividends distributed between group companies are eliminated in the consolidation. Goodwill resulting from the intercompany sale of investees is also eliminated. Companies consolidated by the full consolidation method are identified at Note 3. 2

20 b) Jointly controlled companies Proportional consolidation method Shareholdings in jointly controlled companies were included in the consolidated financial statements by the proportional consolidation method, as from the date when control began to be shared. According to this method, assets, liabilities, income and costs for these companies were integrated in the consolidated financial statements, item by item, in proportion to the amount of control attributable to the Group. Excess of acquisition cost over the fair value of the assets and liabilities identifiable for each jointly controlled body at acquisition is recognised as goodwill (Note 2.2.d)). If there is a negative difference between acquisition cost and the fair value of net assets and liabilities acquired, this is recognised as income for the year Whenever necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group. Transactions, balances and dividends distributed between group companies are eliminated in the consolidation, in proportion to the amount of control attributable to the Group. Goodwill resulting from the intercompany sale of investees is also eliminated. Classification of the financial investments in jointly controlled companies is determined on the basis of shareholder agreements that regulate joint control, in the effective percentage of shares or voting rights held. Financial interests in Complementary Groupings of Enterprises (ACE s), were generally consolidated in the financial statements by the proportional consolidation method. Companies consolidated by the proportional consolidation method are identified at Note 4. c) Associated Companies Equity Method Shareholdings in associate companies, enterprises where the Group has significant influence but does not have control or joint control through sharing in the enterprises financial or operational decisions generally investments representing 20% to 50% of share capital are registered by the equity method. According to the equity method, shareholdings are registered at their acquisition cost adjusted by the corresponding value of the Group share in own capital variations (including the net result) of associates, offset against gains or losses for the year and dividends received. Excess of acquisition cost over the fair value of the assets and liabilities identifiable for each associated company at acquisition is recognised as goodwill (Note 2.2.d)). If there is a negative difference between acquisition cost and the fair value of net assets and liabilities acquired, this is recognised as income for the year. Investment in associates is assessed when there are indications that assets may be impaired. Any impairment losses found to exist are registered as costs in the profit and loss statement. When the Group s proportion of associates accumulated losses exceeds the investment value, then that investment is reported as a null value. Financial investments in associate companies are broken down in Note 5. d) Goodwill The differences between the acquisition cost of investments in group companies, jointly controlled bodies and associates, and the fair value of those enterprises at acquisition, were recorded as intangible assets under Goodwill (in the case of investments in group companies and jointly controlled bodies). There is no depreciation of goodwill, rather, it is tested annually for losses through impairment. Any impairment loss is immediately registered in the profit and loss statement for the year, affecting the financial statements, and is not subsequently reverted. Differences between the acquisition cost of investments in foreign-based group companies, jointly controlled bodies and associates, and the fair value of those enterprises assets and liabilities at acquisition, are recorded in the reporting currency of those enterprises, and converted to the reporting currency of the Group 3

21 (Euro) at the rate of exchange in force at the time of the balance. Exchange differences generated in this conversion are registered in Own Capital under exchange conversion reserve. e) Conversion of foreign entities financial statements Foreign entities are considered to be those which operate abroad, and have organisational, economic and financial autonomy. The assets and liabilities in the financial statements of foreign entities are converted to Euros using the exchange rates at the date of the balance, and costs and income and cash flow in those financial statements are converted to Euros using the average exchange rate for the year. The resulting exchange difference is recorded in own capital under Exchange conversion reserve. The goodwill and fair value adjustments resulting from the acquisition of foreign entities are treated as assets and liabilities of that entity and converted to Euros according to the exchange rate at the date of the balance. Whenever a foreign entity is sold, the accumulated exchange difference is recognised in the profit and loss statement as an alienation gain or loss. The quotas used to convert the accounts of group companies, jointly controlled bodies and foreign associates to Euros were as follows: Exchange rate on e exchange rate in Exchange rate onge exchange rate in 30-Set-09 3rd Quarter Dec rd Quarter 2008 American dollar EUR/USD Mozambican Metical EUR/MZN S. Tomé and Príncipe dobra EUR/STD 23, , , , Angolan kwanza EUR/AOA Romanian leu EUR/ROL Israeli shekel EUR/ILS Investment Properties Essentially, investment properties are land and buildings owned to obtain rents or capital appreciation or both, and not for use in the production or supply of goods or services, or for administrative purposes or for sale in the ordinary run of business. Investment properties are registered at cost. When the financial statements were transposed to the reference framework of IAS/IFRS (01 January 2004), materially relevant investment properties were adjusted to reflect their fair value at conversion ( deemed-cost ). Costs incurred in the use of investment properties, namely, maintenance, repairs, insurance, and property tax (municipal tax), are recognised as a cost in the consolidated profit and loss statement for the respective year. Improvements expected to generate future additional economic benefits are capitalized under investment properties. The amortisation method used for investment property is the straight line basis, using an amortisation rate for a useful working life of 100 years Tangible fixed assets Tangible fixed assets acquired by 31 December 2003, the transition date to IAS/IFRS, are recorded at deemed cost, minus depreciations and impairment losses. The deemed cost was determined as follows: - Land and buildings Market value as at 31 December 2003 determined by independent assessment - J. Curvelo, Lda.. 4

22 - Basic equipment Market value as at 31 December 2003, determined by internal assessment of assets from a user perspective, corroborated by an external assessment by an independent body J. Curvelo, Lda.. - Others Acquisition cost or revalued acquisition cost in accordance with the principles generally accepted in Portugal. Assets acquired after 31December 2003, are recorded at acquisition cost minus accumulated depreciations and impairment losses. Depreciations are calculated on a straight line basis once the assets are in conditions to be used and are applied systematically throughout the useful life of the assets, which is determined in function of the expected use of the asset by the GROUP, the natural wear and tear expected, the likelihood of technical obsolescence and the residual value attributable. The residual value attributable to the asset is determined on the basis of estimated value recoverable at the end of its useful life. The depreciation rates used correspond to the following estimated useful life periods: Useful life Buildings Basic equipment 2-20 Other Tangible Assets 3-10 Intangible fixed assets in progress are recorded at acquisition or production cost, minus any impairment losses. Gains and losses from sale or abatement of tangible fixed assets are determined as the difference between the selling price and the net accounting value at time of sale/abatement, and are registered in the profit and loss statement as other operational gains or other operational losses Intangible assets: Intangible assets, with the exception of goodwill, are recorded at acquisition cost, minus accumulated depreciations and impairment losses. Intangible assets are only recognised if they are likely to produce future economic benefits for the Group, can be controlled by the Group and if their value can be reasonably measured. The year s depreciations for intangible assets are registered in the profit and loss statement under Depreciations and impairment losses. The amortization method used for intangible assets with a finite useful life is the straight line basis. A useful life of between 3 and 5 years is used for these assets, except for concession agreement charges which are amortized according to the straight line basis over 12-month periods during the term of the concession Financial Assets and Liabilities a) Financial Investments Financial investments are recognized at the date the risks and rewards inherent thereto are substantially transferred. They are initially recorded at acquisition price, i.e. the fair value of the price paid including transaction expenses. Financial investments are classified into investments held until maturity and investments evaluated at fair value from results. Following initial recognition, investments stated at fair value through profit and loss are revalued at their fair value, from which transaction costs that may have been incurred on the sale are not deducted. Investments 5

23 in own capital instruments not listed in regulated markets for which the fair value cannot be reliably estimated, are maintained at acquisition cost minus any impairment losses. Gains or losses arising from an alteration to the fair value of investments evaluated at fair value from results are registered in the consolidated profit and loss statement for the year. b) Accounts receivable Third party debts are registered at their nominal value minus any impairment losses, recognised under impairment losses in accounts receivable, such that they reflect the realisable net value. c) Loans Loans are registered under liabilities at nominal value. Any inherent costs that are paid in advance at the time of taking out the loans, are recognised linearly in the profit and loss statement for the year throughout the lifetime of the loans, classified under Other current assets. Financial costs in banking interest and similar costs (namely Stamp Duty), are registered in the consolidated statement of profit and loss according to the accruals basis for the years, with any amounts due and not paid at the date of the balance being classified under other current liabilities. d) Accounts payable Accounts payable are registered at nominal value. Usually these third party debts do not attract interest. e) Discounted notes and accounts receivable sold to factors Discounted notes and accounts receivable sold to factors (with recourse) are presented in assets at their nominal value and in liabilities at the advance already received. Interest charges are recognised in accordance with the accruals basis for the years. f) Cash and equivalents The amounts included under cash and equivalents correspond to cash flow, bank deposits and term deposits and other short-term cash applications Leases Lease agreements are classified as: - financial leases if all risks and advantages inherent to ownership are substantially transferred; - operating leases if all risks and advantages inherent to ownership are not substantially transferred. Classification of leases as financial or operating is made in function of the substance and not the form of the contract. The values of fixed assets acquired through financial lease agreements are recorded in assets and their respective expenditure is recorded under liabilities. The depreciations of these assets, calculated as per 2.4 supra, are recorded in the depreciations for the year. The portion of capital included in rents paid is registered as reductions to those responsibilities and interests included in those rents are registered as financial costs for the respective year. In the case of leases considered as operating, rents due are recognised as a cost in the profit and loss statement throughout the period of the lease agreement at "External supplies and services" Inventories 6

24 Inventories, raw materials and consumables are valued at either acquisition cost or net realizable value, whichever is lower. The cost method used by the Group in the movement of raw materials and consumables is average weighted cost. Finished and semi-finished products, sub-products and products and work in progress are valued at either production cost or net realizable value, whichever is the lower. Production costs include the cost of raw material, direct labour and general manufacturing costs. The cost method is average cost. The net realizable value is the normal Sales price minus finishing and marketing costs Financial costs in loans obtained Financial costs related to loans obtained are recognised as a cost according to the accruals basis for the years. Consolidated for the first time by the proportional method in 2008, the associated company SCUTVIAS Autoestradas da Beira Interior, S.A. capitalised a total of 241,883,040 Euros in prior years as an integral part of the cost of tangible fixed assets. A total of 5,029,254 Euros was capitalised in the first half of 2009 as an integral part of the cost of tangible fixed assets. The Group s consolidated financial statements accordingly present 85,648,871 Euros in this item Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and that a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at the time of each balance and are adjusted to reflect the best estimate at that date Income Tax Income tax is calculated on the basis of the taxable results (which differ from accounting results) of the companies included in the consolidation in accordance with the tax rules in force in the place where the head office of each Group company is situated. Deferred taxes refer to the temporary differences between the figures for assets and liabilities for the purposes of financial reporting and the respective amounts for taxation purposes. Assets and liabilities for deferred taxes are calculated and annually assessed using the tax rates expected to be in force at the reversion date of temporary differences. Assets for deferred taxes are quoted when there are reasonable prospects of sufficient financial profits for them to be used. At the time of each balance, the temporary differences underlying assets for deferred taxes are re-assessed to recognise assets for deferred taxes not previous registered because they failed to meet the conditions for registration, and/or to reduce their amount in function of current expectations of future recuperation. Deferred taxes are registered as cost or income for the year, except where they are the result registered directly in own capital, in which case deferred tax is registered under the same item Presentation of the Balance Sheet Realisable assets and demandable liabilities that are more than a year old at the time of the balance are presented, respectively, as non-current assets and liabilities Recognition of costs and income a) Building contracts For the recognition of income and costs of building contracts, the percentage finished method was adopted. According to this method, income directly related to work in progress is recognised in the profit and loss statement in function of the percentage finished, which is determined by the ratio between costs incurred at the time of the balance and total estimated costs for the works. The differences between profits earned 7

25 through the application of this method and the invoices issued are recorded under Other current assets or Other current liabilities, according to the nature of the difference. Income and costs relating to the promotion of real-estate are deferred in the balance until the respective execution has been fully or substantially terminated. Variations in works in the amount of return agreed in the contract are recognised in the year s results when it is highly possible that the client will approve the return amount arising from the variation, and that this can be reliably measured. Claims for reimbursement of costs not included in the contract price are included in contract revenue when negotiations are at an advanced stage and it is probable that the client will accept the claim, and that it is reliably measurable. b) Real-estate construction Recognition of sales from real-estate construction is made at the time when the legal transfer of the property occurs, or, exceptionally, when possession or inherent risks of the property are transferred to the promissory buyer and the sale is considered to be irreversible. c) Other activities Profits from sales and service provision in general are included when they occur. Financial income from delayed payment by clients are included when there is significant evidence that they are recoverable. d) Costs in preparing bids Costs in preparing bids are recognised in the profit and loss statement for the year when they were incurred, since the outcome of the bid is not controllable. e) Accrual basis accounting The group companies record their income and expenses on an accrual basis, whereby income and expenses are recognised as and when generated independently of when they are received or paid. The differences between the amounts received and paid and the corresponding income and expenses generated are recorded under Other current assets or Other current liabilities, depending on the nature of the difference Balances and transactions expressed in foreign currency Transactions in currency other than the Euro are recorded at the rates in force at the time of the transaction. On each balance date, monetary assets and liabilities expressed in foreign currency are converted to Euros using the rates in force at that time. Exchange differences, both favourable and unfavourable, due to discrepancies between the exchange rates in force at the time of the transaction and those in force when payments were made or received, or as at the date of the balance, have been recorded as Other financial gains and losses in the consolidated profit and loss statement for the year Impairment of non-current assets, except for goodwill An assessment of impairment is made at the time of each balance, and whenever an event or change in circumstances indicates that the figure registered for the asset may not be recovered. Whenever the figure registered for the asset is higher than its recoverable value, this is recognised as an impairment loss, registered in the profit and loss statement. The recoverable amount is either the net sales price or the use value, whichever is the higher. The net sales price is the amount obtained from alienating the asset in a transaction accessible to the parties involved minus the costs directly attributable to the alienation. The value-in-use is the current value of estimated future cash flows that are expected and that arise from constant use of the asset and its alienation at the end of its 8