Combined Consolidated Financial Statements Mota-Engil Africa B.V. 2013, 2012 and 2011

Transcription

1 Combined Consolidated Financial Statements 2013, 2012 and 2011

2 Index Combined consolidated statements of financial position 3 Combined consolidated income statements 4 Combined consolidated statements of comprehensive income 5 Combined consolidated statement of changes in equity 6 Combined consolidated statements of cash flows 7 Notes to the combined financial statements 8 1. General information and background 8 2. Accounting policies 9 3. Companies included in the consolidation Business and geographical segments Goodwill Intangible assets Property, plant and equipment Financial investments under the equity method Available for sale financial assets Accounts receivable Inventories Other current assets Cash and cash equivalents Borrowings Accounts payable Provisions Other current liabilities Share capital and reserves Non-controlling interests Sales and services rendered Other revenues Cost of goods sold, materials consumption and subcontractors Third-party supplies and services Wages and salaries Other operating expenses, net Depreciation and amortization Provisions and impairment losses Financial results Gains / (losses) in associates and jointly controlled companies Income tax Commitments Transactions with related parties Changes in perimeter Notes to the Consolidated Cash Flow Statement 56 Appendix A. Consolidated companies 57 2

3 Combined consolidated statements of financial position Assets Non-current Goodwill Intangible assets Property, plant and equipment Financial investments under the equity method Available for sale financial assets Trade and other receivables Other non-current assets Deferred tax assets Cash and cash equivalents Notes '000 '000 ' ,526 37,526 37, ,901 2, , , , ,085 26, ,085 13, ,272 3,178 2, ,552 58, , , ,638 Current Inventories 11 80,195 53,200 45,811 Trade receivables , , ,573 Other receivables , , ,623 Taxes receivable 10 18,441 19,760 3,037 Other current assets 12 95, ,041 86,289 Cash and cash equivalents demand deposits , , ,312 Cash and cash equivalents - term deposits 13 31, ,241,333 1,052, ,644 Total Assets 1,641,065 1,393,376 1,155,282 Liabilities Non-current Borrowings Other payables Provisions Deferred tax liabilities ,783 63,057 57, ,004 93,283 48, ,864 3,408 4, ,000 1, , , ,916 Current Borrowings , , ,568 Trade payables , , ,936 Other payables , , ,172 Taxes payable 15 51,329 22,335 8,389 Other current liabilities , , ,078 1,095, , ,143 Total Liabilities 1,285,433 1,104, ,059 Shareholders' equity Group equity before net profit for the year , , ,835 Consolidated net profit for the year 76,167 47,845 52,214 Own funds attributable to the Group 267, , ,049 Non-controlling interests 19 88,610 88,018 81,174 Total shareholders' equity 355, , ,223 Total shareholders' equity and liabilities 1,641,065 1,393,376 1,155,282 To be read with the Notes to the combined financial statements 3

4 Combined consolidated income statements Notes '000 '000 '000 Sales and services rendered 20 1,005, , ,525 Other revenues 21 19,328 42,681 34,970 Cost of goods sold, materials consumption and subcontractors 22 (409,055) (333,209) (298,698) Third-party supplies and services 23 (216,395) (146,909) (104,217) Wages and salaries 24 (147,766) (121,233) (84,938) Other operating expenses, net 25 (8,563) (10,480) (9,526) Depreciation and amortization 6, 7 and 26 (49,295) (38,537) (30,811) Provisions and impairment losses 27 (1,773) (3,215) (2,909) Financial income 28 12,227 5,547 8,860 Financial costs 28 (69,175) (39,846) (21,260) Gains / (losses) in associates and jointly controlled companies ,958 5,000 Consolidated net profit before income tax 134,959 90,924 86,996 Income tax 30 (30,008) (12,291) (6,728) Consolidated net profit for the year 104,950 78,633 80,267 Attributable: to non-controlling interests 19 28,783 30,788 28,053 to the Group 76,167 47,845 52,214 To be read with the Notes to the combined financial statements 4

5 Combined consolidated statements of comprehensive income '000 '000 '000 Consolidated net profit for the year 104,950 78,633 80,267 Other comprehensive income that might be recognized in the income statement Exchange differences stemming from translation of financial statements expressed in foreign currencies (14,110) (6,019) 11,170 Other comprehensive income/(expense) in investments in associates using the equity method (298) (1,341) 21 Total comprehensive income for the year 90,543 71,273 91,458 Attributable: to non-controlling interests 24,246 29,353 26,234 to the Group 66,296 41,919 65,224 To be read with the Notes to the combined financial statements 5

6 Combined consolidated statements of changes in equity Currency translation reserve Other reserves Net Profit Own funds attributable to the Group Own funds attributable to non-controlling interests Shareholders' equity Balance as at January 1, 2011 (7,452) 131,399 57, ,260 37, ,407 Total comprehensive income for the period 8,804 4,206 52,214 65,224 26,234 91,458 Dividend distribution - (14,419) - (14,419) - (14,419) Transfers for other reserves - 57,313 (57,313) Changes to the consolidation perimeter and in the ownership interest in subsidiaries - (1,015) - (1,015) 17,793 16,778 Balance as at December 31, , ,483 52, ,049 81, ,223 Balance as at January 1, , ,483 52, ,049 81, ,223 Total comprehensive income for the period (3,892) (2,033) 47,845 41,919 29,353 71,273 Dividend distribution - (73,207) - (73,207) (22,490) (95,697) Transfers for other reserves - 52,214 (52,214) Changes to the consolidation perimeter and in the ownership interest in subsidiaries (20) 581 Balance as at December 31, 2012 (2,540) 155,057 47, ,362 88, ,380 Balance as at January 1, 2013 (2,540) 155,057 47, ,362 88, ,380 Total comprehensive income for the period (9,805) (66) 76,167 66,296 24,246 90,543 Dividend distribution (23,965) (23,965) Transfers for other reserves - 47,845 (47,845) Changes to the consolidation perimeter and in the ownership interest in subsidiaries Balance as at December 31, 2013 (12,345) 203,199 76, ,022 88, ,631 To be read with the Notes to the combined financial statements

7 Combined consolidated statements of cash flows Notes '000 '000 '000 OPERATING ACTIVITY Cash received from customers 610, , ,122 Cash paid to suppliers (482,273) (381,850) (337,421) Cash paid to employees (101,683) (89,237) (66,412) Cash generated from operating activities 26,266 62,857 16,289 Income tax paid (2,528) (5,838) (3,595) Other receipts generated by operating activities 7,093 31,120 3,824 Net cash from operating activities (1) 30,831 88,139 16,518 INVESTING ACTIVITY Cash receipts from: Financial investment 34 55,182 17,009 48,048 Property, plant and equipment 1,598 1,257 - Interest and similar income 4,486 2,671 4,155 Dividends 5,689 1,395 1,040 Other ,955 23,295 53,339 Cash paid in respect of: Financial investment 34 - (1,837) (1,573) Intangible assets (245) (1,931) (245) Property, plant and equipment (96,937) (71,907) (17,781) (97,182) (75,675) (19,600) Net cash from investing activities (2) (30,228) (52,380) 33,738 FINANCING ACTIVITY Cash receipts from: Repayments of loans obtained 193, , ,754 Supplementary capital , , , ,302 Cash paid in respect of: Loans obtained (72,766) (160,863) (103,962) Amortization of finance lease contracts (765) (640) (652) Interest and similar expense (42,000) (34,089) (21,751) Dividends (36,771) (49,282) (14,419) (152,302) (244,875) (140,785) Net cash from financing activities (3) 41,200 (40,264) (11,482) Variation of cash & cash equivalents (4)=(1)+(2)+(3) 41,803 (4,504) 38,774 Variations caused by changes to the perimeter 1, Exchange rate effect (9,464) 494 1,868 Cash & cash equivalents at the beginning of the year 116, ,312 79,665 Cash & cash equivalents at the end of the year 150, , ,312 To be read with the Notes to the combined financial statements

8 Notes to the combined financial statements 1. General information and background (hereafter also referred to as the Company ) is a private company with limited liability incorporated under the laws of the Netherlands, having its official seat in Amsterdam, the Netherlands, and its principal place of business at Prins Bernhardplein 200, 1097 JB Amsterdam, the Netherlands, registered with the Dutch trade register of the Chamber of Commerce under file number These combined consolidated financial statements as at 31 December 2013, 2012 and 2011 were issued to disclose consolidated historical financial information of the Company and are non-statutory financial statements and, therefore, do not intend to comply with financial reporting requirements in any specific jurisdiction. The Company was incorporated on October, 2012 by Mota-Engil SGPS, S.A. (hereafter also referred to as the Parent Company ), a public limited company incorporated under the laws of Portugal, having its official seat in Porto, Portugal, and its principal place of business at Rua do Rego Lameiro 38, parish of Campanhã, municipality of Porto, Portugal, registered with the Porto Registry of Companies under file number Mota-Engil SGPS, S.A. is listed on the PSI-20, the main stock market index of Euronext Lisbon. The principal activities of the Parent Company and its subsidiaries (collectively, the Parent Group ) are public and private construction work, transport concessions and environment and services in the following regions: Africa (hereafter also referred to as Africa Business ), Europe and Latin America. In 2012 the Parent Company started a process of internal reorganisation of shareholding stakes it owned in several companies of Africa Business, such as: - In October 2012 the Company was incorporated. to be the holding company for the African Business, with an outstanding share capital of EUR 18, In December 2013, the Parent Conpany performed a breakup-merger of Mota-Engil Engenharia e Construção, S.A. (hereafter also referred to as MEEC ), until then holding all engineering and construction companies of the Parent s Group, into Mota-Engil Engenharia e Construção África, S.A. (hereafter also referred to as MEEC Africa ), a company headquartered in Portugal. This operation allowed the detachment of part of the assets of the former, some of which were already allocated to the different existing branches, corresponding to the civil construction and public works activities MEEC had been conducting in the African Continent and integrating it, through a merger, in the latter company. The assets and liabilities of that company include all civil construction and public works activities that were conducted in South Africa, Angola, Cape Verde, Malawi, Mauritius, Mozambique, Zimbabwe and S. Tomé and Príncipe and are described in the demerger and merger by incorporation project approved by the companies involved in the process, together with the balance sheet of the merger as of 31 December In January 2014, the Parent Company, acting as the holder of the entire share capital of Mota- Engil Africa B.V. and Mota-Engil, Engenharia e Construção África, S.A., proceeded to transfer its shares in MEEC Africa to This operation was performed as an issuance of new shares of the Company against the non-cash contribution of the Parent Company, consisting in the contribution of the total shares of MEEC Africa. 8

9 The principal activity of the Company and its subsidiaries (collectively, the Group ) is public and private construction work and related activities in Africa. These combined Consolidated Financial Statements are presented in euros (thousand) which is the presentation currency of the Group. 2. Accounting policies Basis of preparation These non-statutory special purpose combined consolidated Financial Statements reflect the assets, liabilities, revenues, expenses and cash flows of the Group. Certain income, expenses, assets and liabilities of certain non-operating companies in the Group have not been included in these combined financial statements because the activities did not relate to the operating activities of the Group and the assets and liabilities will be transferred out of the non-operating company to the Parent prior to any disposal. These combined consolidated financial statements represent an aggregation of the financial information of the Group. These combined consolidated financial statements have been derived from the accounting records of the Company and its subsidiaries and are prepared in Euros ("Euro") using principles consistent with International Financial Reporting Standards as adopted by the European Union ( IFRS) by aggregating the historical results of operations, and the historical basis of assets and liabilities, of the Group. Euro is the reporting and functional currency of the Group. The combined consolidated financial statements are presented in thousands of euro, except when otherwise indicated. Rounding differences might occur. The combined financial statements have been prepared on a going concern basis. These combined consolidated financial statements may not be indicative of the Group's financial performance and do not necessarily reflect what the Group's combined results of operations, financial position and cash flows would have been had the Group operated as an independent entity during the periods presented. The list of individual legal entities included within these combined consolidated financial statements, which together with assets and liabilities of MEEC branches and other assets and liabilities form the Africa business, is provided in Appendix A. Companies included in the Combined Historical Financial Information. These entities have been classified as subsidiary or associate undertakings as described in Appendix A. All transactions and balances between entities included within the combined Group have been eliminated. Transactions and balances with the Parent, or other non-group entities controlled by the Parent are classified as related party transactions. To the extent that an asset, liability, revenue or expense is directly associated with the Group, it is reflected in the accompanying combined consolidated financial statements. Certain expenses, as described below, as well as debt and related interest expense have been allocated by the Parent to the Group. Management believes that such allocations are reasonable; however, they may not be indicative of either the actual results of the Group had the Group been operating as an independent entity for the periods presented or the amounts that will be incurred by the Group in the future. External suppliers and services charged by Mota-Engil Africa that are related to rental of equipment used in the African business entities have been reclassified to tangible assets depreciations, computed in accordance with their useful lives, on a consistent basis with the inclusion of such tangible assets in the combined balance sheets since 1 January 2011 up to 31 December 2013; External suppliers and services charged by Mota Engil Africa that are related to personnel and labour costs allocated to the African business, have been classified in the combined income statement as payroll costs per the related actual payroll costs incurred; 9

10 Income tax expense has been recomputed and recorded in each of the three year combined financial statements taking into consideration the actual income tax rates in each of the African countries where the operations occurred and are taxable. The combined consolidated statement of financial position as of January 1, 2011 is the following: Non-Current Assets January 1, 2011 Goodwill 36,086 Property, plant and equipment 136,203 Financial investments under the equity method 20,910 Other non-current assets 498 Current Assets Inventories 40,688 Trade and other receivables 640,067 Other current assets 49,374 Cash and cash equivalents 79, , ,794 Total Assets 1,003,490 Non-current liabilities Borrowings 55,794 Other payables 42,895 Provisions 4, ,524 Current liabilities Borrowings 107,881 Trade payables 119,587 Other payables 241,263 Other current liabilities 212, ,559 Total Liabilities 785,083 Shareholders' equity Own funds attributable to the Group 181,260 Non-controlling interests 37,147 Total shareholders' equity 218,407 Total shareholders' equity and liabilities 1,003,490 10

11 The following debt was transferred in 2011 and 2012 to MEEC Africa, for the purpose of preparation of these consolidated combined financial statements and following the breakup-merger which occurred in 2013: 2012 Cuurent 1 year 2 years 3 to 5 years over 5 years Total Non-Current Non-convertible bond loans 1,761 1,758 22,855 24,613 26,373 Amounts owed to credit institutions Bank loans 21,695 6,110 6,422 12,532 34,228 Overdraft facilities 21,569-21,569 Current Account facilities 63,811-63,811 Other loans obtained Commercial paper issues 1,160 3,481 19,705 23,186 24,346 Other loans Amounts owed to credit institutions Total 110,135 11,574 49,215-60, ,924 Bank loans 13,577 1,798 2,621 4,419 17,996 Overdraft facilities 28,739-28,739 Current Account facilities 21,075-21,075 Other loans obtained Commercial paper issues 12,550 20,041 24,928 44,970 57,520 Other loans 1, ,622 77,262 21,935 27,757-49, ,953 Application of new and revised IFRSs in issue but not yet effective The Group has elected to apply the same accounting policies as those applied in the historical reporting of financial information of Mota-Engil S.G.P.S., S.A. The following amendments to standards are effective for annual periods beginning on or after January 1, 2014, and have not been applied in preparing these consolidated financial statements. None of these amendments is expected to have a significant impact on the Group s Consolidated Financial Statements (any other standard not listed below has been applied in this historical financial information): EU Regulation IASB Standard or IFRIC Interpretation endorsed by European Union Issued in Mandatory for financial years beginning on or after Regulation no. 1256/2012 IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendment) IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests December 2011 January 1, 2014 Regulation no. 1174/2013 in Other Entities and IAS 27 Separate Financial Statements: Investment Entities (Amendment) October 2012 January 1, 2014 Regulation no. 1374/2013 Regulation no. 1375/2013 IAS 36 Impairment of Assets: Recoverable Amount Disclosures for Non- Financial Assets (Amendment) IAS 39 Financial Instruments: Recognition and Measurement: Novation of Derivatives and Continuation of Hedge Accounting (Amendment) May 2013 June 2013 January 1, 2014 January 1,

12 The following standards, interpretations and amendments are still pending for endorsement by the European Union: IFRS 9 - Financial Instruments (new) IFRIC 21 Levies (New) IASB Standard or IFRIC Interpretation IAS 19 Employee Benefits: Defined Benefit Plans - Employee Contributions (Amendment) Annual Improvements to IFRS s Cycle: IFRS 2 Share-Based Payment, IFRS 3 Business Combinations, IFRS 8 Operating Segments, IFRS 13 Fair Value Measurement, IAS 16 Property, Plant and Equipment, IAS 24 Related Party Disclosures and IAS 38 Intangible Assets (Amendment) Issued in November 2009 May 2013 November 2013 December 2013 Expected application for financial years beginning on or after To be determined January 1, 2014 July 1, 2014 July 1, 2014 Annual Improvements to IFRS s Cycle: IFRS 1 First-time Adoption of IFRS, IFRS 3 Business Combinations, IFRS 13 Fair Value Measurement and IAS 40 Investment Property (Amendment) December 2013 July 1, 2014 Since they are not mandatory, the Group has not applied any of the standards referred to above, and the effects of their application have not yet been fully estimated at the present date. The assets and liabilities of the business have not historically been held by a single legal entity or consolidated group, and accordingly, these combined financial statements have been prepared on a combined basis to reflect the assets, liabilities, revenues, expenses and cash flows of the African business. In addition, the combined financial statements also include those income and expenses, assets and liabilities and cash flows from Mota-Engil African entities which can be allocated to the African business. Management believes that such allocations have been made on a reasonable basis. IFRS does not provide guidance for the preparation of combined financial statements, and accordingly, in preparing such financial statements certain accounting conventions commonly used for the preparation of historically financial statements have been applied. The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Business combinations Acquisitions of subsidiaries and businesses other than those under common control are accounted for using the acquisition method. The consideration for each acquisition is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. Goodwill Differences between the acquisition price of the financial investments in Group companies (subsidiaries), plus the value of non-controlling interests, and the amount attributed at fair value of the identifiable assets and liabilities of these companies on the date of their acquisition, when positive, are recorded under the heading Goodwill and, when negative, after revaluation of their calculation, are recorded directly in the income statement. Differences between the acquisition price of financial investments in associates and joint ventures, and the amount attributed at fair value of the identifiable assets and liabilities of these companies, on the date of their acquisition, when positive, are maintained under the heading Financial investments stated through the equity method and when negative, after revaluation of their calculation, are recorded directly in the income statement. 12

13 Furthermore, differences between the acquisition cost of investments in subsidiaries based abroad and the fair value of the identifiable assets and liabilities of these subsidiaries on the date of their acquisition are recorded in the reporting currency of these subsidiaries, and converted to the Group s reporting currency (Euro) at the exchange rate in force on the reporting date. Any currency conversion differences created during this conversion are recorded under the heading Currency conversion reserve. For each business combination the Group measures any non-controlling interest in the acquired entity in proportion to the non-controlling interest in the identifiable net assets of the acquired entity. Transactions of purchase or sale of interests in entities that are already controlled, without such resulting in loss of control, are treated as transactions between equity holders affecting only the equity headings, without there being impact under the Goodwill heading or in the income statement. Furthermore, when a sale transaction results in a loss of control, the assets and liabilities of the entity are derecognised, and any interest retained in the disposed entity is remeasured at fair value, where any loss or gain calculated with the disposal is recorded through profit or loss. On an annual basis and with reference to the accounts closing date, the Company carries out formal tests of impairment of goodwill. Whenever the amount at which the positive consolidation difference is recorded is higher than its recoverable amount, an impairment loss is recognised, recorded in the income statement under the heading Other operating costs. The recoverable amount is the highest value between net sales price and the value in use. The net sales value is the amount which would be obtained with the disposal of the asset in a transaction within the reach of the parties involved, minus the costs directly attributable to the disposal. The value in use is the present value of the estimated future cash flow that is expected to arise from the continued use of the asset and from its disposal at the end of its useful life. The recoverable amount is estimated for each asset, individually or, where this is not possible, for the cash generating unit (CGU) to which the asset belongs. An impairment loss is recognised for a CGU if, and only if, its recoverable amount is less than its carrying amount. The impairment loss is allocated to reduce the carrying amount of the assets of the unit or group of units in the following order: first, to goodwill allocated to the CGU; and then, to the other assets of the unit or group on a pro rata basis based on the carrying amount of each asset in the unit or group of units. Impairment losses on goodwill cannot be reversed. Intangible assets Intangible assets are recorded at acquisition or production cost, minus amortisations and any accumulated impairment losses, and recognised only if it is likely that they will generate future economic benefits for the Group, and if their value can be reasonably measured and if the Group has control over them. Brands and patents without defined useful life are recorded at their acquisition cost, and are not subject to amortisation, with their value being subject to impairment tests on an annual basis and whenever there are indications of impairment. Software and development costs are amortised through the straight-line method over a period between three to six years. Research expenses are recognised as a cost for the year when they are incurred. 13

14 Property, plant and equipment Property, plant and equipment are recorded at acquisition cost minus any subsequent accumulated depreciation and any accumulated impairment losses. Construction in progress represent assets still under construction/development, and are recorded at acquisition cost minus any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the asset s useful life..depreciation begins as long as the underlying asset is available for use and in the necessary conditions, in terms of quality and technical reliability, to operate as intended by the Group s Board of Directors. Useful life is determined by management based on the asset s expected use term; wear out rate, technical obsolescence and the residual value. Residual value attributable to the asset is estimated based on the residual value prevailing at the date of estimate of a similar asset which has reached the end of its useful life and has been operating under conditions similar to those in which the asset will be used. Depreciation rates used correspond to the following years of estimated useful lives: Buildings 20 to 50 Equipment Basic equipment 3 to 10 Administrative equipment 4 to 10 Transport equipment 3 to 10 Tools and utensils 3 to 6 Other tangible assets 3 to 10 Expenses related to replacement of property plant and equipment components are added to the respective asset, with the net value of the replaced component written off and recorded at Other operating costs line. Maintenance and repair costs that neither increase useful life nor give rise to significant improvements of the asset are expensed when they occur. Depreciation and amortisation of the tangible and intangible assets are recorded on a monthly basis under the heading Amortisation, in the income statement. Any changes to the period of estimated useful life of the tangible assets are carried out prospectively. At each balance sheet date, the Group reviews carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss if any. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Leasing A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. An operating lease is a lease other than a finance lease. The classification of leasing into finance or operating is undertaken based on the substance and not the form of the contract. 14

15 Tangible assets acquired under finance lease contracts are recorded as property, plant and equipment and their corresponding accumulated depreciation and any outstanding debts is stated in accordance with the contractual financial plan. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each year during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. In leases considered as operating, the lease payments owed are recognised as an expense in the income statement on a linear basis during the lease period. Financial assets and liabilities Financial assets and liabilities are recognised in the statement of the financial position when the Group becomes a contracting party of the respective financial instrument. a) Financial instruments The Group classifies financial investments into the following categories: Investments recorded at fair value through profit or loss, Loans and accounts receivable, Investments held to maturity, Investments available for sale and Loans and accounts payable. The classification depends on the intention underlying the acquisition of the investment. The classification is defined at the time of the initial recognition and reappraised on a half-year basis. Investments recorded at fair value through profit or loss are divided into two subcategories: Financial assets held for trading and Investments recorded at fair value through profit or loss. A financial asset is classified into this category, particularly, when acquired for the purpose of its sale in the short term or if the adoption of valuation through this method eliminates or significantly reduces an accounting lag. Derivative instruments are also classified as held for trading, unless they are assigned to hedging operations. Assets of this category are classified as current assets if they are held for trading or if expected to be realised within 12 months of the reporting date. Loans and accounts receivable are non-derivative financial assets, with fixed or variable repayment, which are not listed in active markets. These financial investments arise when the Group provides cash, products or services directly to a debtor with no intention to negotiate the debt. Loans and accounts receivable are classified as current assets, except in cases where their maturity is longer than 12 months after the reporting date, in which case they are classified as non-current assets. In both cases, this category appears in the statement of the financial position, included under the headings Customers and Other debtors. Investments available for sale include non-derivative financial assets intended to be sold or those that do not fall under the previous categories. This category is included in non-current assets unless the Board of Directors intends to sell the investment within 12 months as of the reporting date. Investments held to maturity are classified as non-current investments, unless they fall due within 12 months as of the reporting date. All purchases and sales of these investments are recognised on the date of the signing of the respective purchase and sale contracts, regardless of the financial settlement date. These investments are initially recorded at their acquisition value, which is the value paid on the acquisition date and corresponds to their fair value on that date, including transaction costs. After initial recognition, investments recorded at fair value through profit or loss and investments available for sale are revalued at their fair values as marked to market as at the reporting date, with no deduction relative to any transaction costs which might occur up to their sale. Gains or losses arising from a change in the fair value of investments available for sale are recorded in the consolidated statement of comprehensive income, under the heading Fair value reserves investments 15

16 available for sale until the investment is sold, received or disposed of in any form, or in situations where the fair value of the investment is lower than its acquisition cost and this situation is considered a significant or permanent impairment loss, at which time the accumulated gain or loss is recorded separately in the income statement. Gains or losses arising from a change in the fair value of the investments held for trading are recorded in the income statement for the year. Gains and losses realised or not arising from a change in the fair value of Investments recorded at fair value through profit or loss are recorded in the income statement for the year. Fair value of investments is based on current market prices. If the market to which the investments belong is not an active market (unlisted investments), the Group records them at acquisition cost minus any accumulated impairment losses. The fair value of listed investments is calculated based on the closing price of the respective market as at the reporting date. The Group performs valuations as at each reporting date whenever there is an evidence that a financial asset might be impaired. In case equity instruments classified as available for sale demonstrate a significant or long decline in fair value to the level below their cost that indicates impairement. For all other assets, objective indications of impairment may include: - significant financial difficulties by the counterparty in settling its debts; - failure to meet payments in due time by the counterparty relative to credit extended by the Group; and - high probability that the counterparty might enter into bankruptcy or debt restructuring proceedings. For financial assets recognised at amortised cost, the amount of the impairment is calculated as the difference between their book value and the present value of future cash flow discounted at the initial effective interest rate. The book value of financial assets is reduced directly by any detected impairment losses, with exception of the accounts receivable from customers and other debtors for which the Group constitutes a specific account of Accumulated impairment losses. When an account receivable from customers and other debtors is considered unrecoverable, it is written-off against the Accumulated impairment losses account. Amounts received subsequently relative to written-off accounts receivable and other debtors are credited to the income statement for the year. Changes to Accumulated impairment losses are recorded in the income statement for the year. Gains or losses arising from a change in fair value of available for sale investments are recognized directly in equity, until the investment is sold or otherwise disposed, of or until it is determined to be impaired. Cumulative gain or loss previously recognized in equity is transferred to net profit or loss at that time. Investments held to maturity are recorded at amortised cost through the effective interest rate method, net of amortisation of principal and interest received if any. Dividends received relative to equity instruments classified as Investments available for sale are recognised in the income statement in the year when the right to receive them was established. b) Trade and other receivables Trade and other debtors are recorded at their nominal value less any accumulated impairment losses, so that they reflect their net realisable value. c) Borrowings Borrowings are recorded at amortised cost. Any costs incurred with the issue of loans are recorded as a deduction to the debt and recognised, over the lifetime of these loans, in accordance with the effective interest rate method. 16

17 d) Accounts payable Accounts payable, included under the headings trade and other payables which do not incur interest, are recorded at their nominal value, which is substantially equivalent to their fair value, since the effect of any discount is considered immaterial due to short-term period of settlement. e) Financial liabilities and equity instruments Financial liabilities and equity instruments are classified in accordance with the contractual substance of the transaction. The Group defines equity instruments as those where the underlying contract of the transaction shows that the Group holds a residual interest in a set of assets after deduction of a series of liabilities. Cash and cash equivalents The amounts included under the heading Cash and cash equivalents correspond to cash, bank sight and term deposits and other cash investments falling due within less than three months, that are repayable on demand and have an insignificant risk of change of value. Inventories Merchandise and raw materials and consumables are valued at the lowest value between the average acquisition cost and the respective market value (estimate of their sales price minus the costs to be incurred with their disposal). Finished and semi-finished products, by-products, and products and work in progress are valued at production cost, which is lower than their market value. Production costs include the cost of raw material, direct labour and general factory costs. Inventory obsolescence provision is recorded to reflect the difference between the cost value of the inventories and their respective net realisation value, in cases where the latter is lower than the cost as at the reporting date. Accrual accounting Income and expenses are recorded in the year to which they relate, independently of the date of the corresponding payment or receipt. Income and expenses for which their real amount is not known are estimated. Other current assets and Other current liabilities include income and expenses of the reporting year which will only be invoiced in the future. Those captions also include receipts and payments that have already occurred but will only correspond to income or expenses in future years, thus being recorded in the income statement of the future period. Revenue Revenue is recorded at the fair value of the assets received or receivable, net of discounts and expected returned products. a) Production and services rendered that have not been invoiced The Group recognises the net income of the works of each contract in accordance with the percentage completion method, which is defined as being the ratio between the costs incurred in each work up to a given date and the sum of these costs with the costs estimated to complete the work. The differences obtained between the values resulting from the application of the percentage completion to the estimated income and the invoiced values are stated under the subheadings "Production not invoiced" or "Advance billing, included under the headings Other current assets and Other current liabilities respectively. 17

18 Variation in the work relative to the amount of revenue agreed in the contract is recognised through profit or loss for the year when it is probable that the customer will approve the amount of revenue arising from the variation and it may be measured reliably. Claims for reimbursement of costs not included in the contract price are included in the revenue of the contract when the negotiations reach an advanced stage, indicating that it is likely that the customer will accept the claim and it can be measured reliably. In order to meet costs to be incurred during the works warranty period, the Group recognises a liability on an annual basis to meet this legal obligation, which is calculated taking into account the annual volume of production and the historical records of costs incurred in the past with works during the warranty period. When it is likely that the total costs foreseen in the construction contract exceed the income defined therein, the expected loss is recognised immediately in the income statement for the year. b) Civil construction works and public works of short duration In these service contracts, the Group recognises the income and costs as they are invoiced or incurred, respectively. c) Recognition of costs and income in real estate business Relevant costs incurred with real estate undertakings are calculated taking into account the direct construction costs as well as all the costs related to the preparation of projects and licensing of works. Costs imputable to the funding, supervision and inspection of the undertaking are also added to the cost of real estate undertakings, provided that they are still underway. For the effect of capitalisation of financial costs and costs related to the supervision and inspection of the undertaking, it is considered that it is underway if awaiting decision of the authorities involved or if it is under construction. Should the undertaking not be at either of these stages, it is considered stopped and the capitalisation referred to above is suspended. Pursuant to IFRIC 15, sales generated by the real estate business are recognised when all the risks associated to the asset are substantially transferred to the buyer (that is, at the time of the signing of the property deed). d) Sales and all other businesses Revenue arising from sales and all other business is recognised at the time of its realisation or with reference to the completion stage of the transaction as at the reporting date, provided that all of the following conditions are met: the amount of the revenue can be measured reliably; it is probable that future economic benefits associated to the transaction will flow into the Group; the costs that have or will be incurred with the transaction can be measured reliably; and the completion stage of the transaction as at the reporting date can be measured reliably. Other income Interest income is recognised using the effective interest rate method, provided that it is likely that Group will receive economic benefits and their amount can be measured reliably. Revenue derived from dividends is recognised when the Group s right to receive the corresponding amount is established. 18

19 Costs related to the preparation of proposals Costs incurred with the preparation of proposals for various tenders are recognised in the income statement for the year when they are incurred, since the outcome of the proposal is not controllable. Own work capitalised Own work capitalised basically corresponds to construction and improvement work, carried out by the actual companies, as well as major repair of equipment and includes costs related to materials, direct labour and general expenses. These expenses are capitalised only when the following requirements are met: the assets developed are identifiable; there is strong probability that the assets will generate future economic benefits; and the development costs are measurable in a reliable manner. Foreign currency translation All transactions in foreign currency are recorded in the functional currency at the time of their initial recognition through the application, to the amount in foreign currency, of the spot exchange rate between the functional currency and the foreign currency as at the transaction date. At the end of each reporting period: a) monetary items in foreign currency are converted at the closing rate; b) non-monetary items which are measured in terms of historical cost in a foreign currency are converted through use of the exchange rate as at the transaction date; and c) non-monetary items which are measured at fair value in a foreign currency are converted at the exchange rates as at the date when the fair value was determined. Currency conversion differences arising from the settlement of monetary items or from the conversion of monetary items at rates which are different from those used to convert them in the initial recognition during the period or in previous financial statements are recognised through profit or loss for the period when they occur, unless they arise from a monetary item which is part of a net investment in a foreign operating unit. In this case, these currency conversion differences are initially recognised in other comprehensive income and reclassified from equity to profit or loss at the time of the disposal of the net investment. In preparing the combined consolidated financial statements, the net income and financial position of entities belonging to the combination perimeter, whose functional currencies are not the currency of a hyperinflationary economy, are converted into Euro, which is the presentation currency of the Group, using the following procedures: a) the assets and liabilities of each statement of the financial position presented are converted at the closing rate as at the reporting date; b) the income and costs of each comprehensive income statement or separate income statement that is presented are converted at the annual average rates; and c) all the resulting currency translation differences are recognised under other comprehensive income, affecting the equity heading Currency translation reserve. At the time of the disposal of these foreign entities, the accumulated currency translation differences are recorded in the income statement for the year. The information on the functional currencies (primary economic environment) of the main subsidiaries is broken down as follows: 19

20 Subsidiary Mota-Engil Engenharia e Contrução África, S.A. Head Office Portugal Business segment Holdding Country/foreign currency Euro (EUR) Functional currency Euro (EUR) Mota-Engil Angola, S.A. Angola Angola Angolan kwanza (AOA) US Dollar (USD) Vista Waste Management, Lda Angola Angola Angolan kwanza (AOA) Angolan kwanza (AOA) Angola branch of Mota-Engil Engenharia e Contrução África, S.A. Angola Angola Angolan kwanza (AOA) US Dollar (USD) Malawi branch of Mota-Engil Engenharia e Contrução África, S.A. Malawi SADC Malawian kwacha (MWK) Euro (EUR) Mozambique branch of Mota-Engil Engenharia e Contrução África, S.A. Mozambique SADC Mozambican metical (MZN) Euro (EUR) Cosamo (Proprietary) Limited South Africa SADC South African rand (ZAR) South African rand (ZAR) Consolidation differences and adjustments to fair value of the assets and liabilities of foreign entities are treated as assets and liabilities in foreign currency and are converted into Euro using the exchange rates as at the reporting date. The financial statements of subsidiaries and branches expressed in foreign currency are converted into Euro. The exchange rates used to convert the accounts of the Group s foreign companies, joint ventures and associates into Euro were as follows: Currency exchange Year end Average US Dollar EUR / USD Angola Kwanza EUR / AOK S. Tomé and Príncipe DobraEUR / STD 24, , , , , , Cape Verde Escudo EUR / CVE Malawian Kwacha EUR / MWK Mozambique Metical EUR / MZN South Africa Rand EUR / ZAR Income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in other comprehensive income. The Group is subject to income taxes in numerous jurisdictions. The amount of income tax included in the income statement is determined in accordance with the rules established by the different domestic tax authorities, based on which income taxes are payable or recoverable. Deferred tax assets and liabilities, arising from temporary differences between the carrying amounts of assets and liabilities and the tax base of assets and liabilities, are calculated using the substantively enacted tax rates expected to apply when they are realised or settled. Deferred tax assets are recognised if it is probable that they will be realised. Deferred tax assets and liabilities where a legally enforceable right to offset exists and within the same tax group are presented net in the balance sheet. Portuguese companies which are members of an economic group may opt to be taxed under the special tax regime of group taxation (RETGS). In this regime companies are subject to overall taxation on the mathematical sum of their respective taxable profits, whether positive or negative. Since January 2010 the Parent Company is covered by the referred regime and covers all the subsidiaries held directly or indirectly by the Parent Company through at least 90% (this threshold was reduced to 75% as of January ) of the share capital and which are resident in Portugal and subject to Corporate Income Tax. MEEC Africa is included in this tax group. According to the Portuguese Controlled Foreign Corporations (CFC) rules, in force until 31 December 2013, profits of companies resident outside Portugal and subject to a more favourable taxation regime are imputed to the Portuguese resident shareholders. This provision is applicable where the Portuguese resident shareholders hold, directly or indirectly, at least 25% of the non-resident company or where more than 50% of the non-resident company is held, directly or indirectly, by Portuguese residents, each 20