MANAGEMENT REPORT MANDATORY INFORMATION CONSOLIDATED FINANCIAL INFORMATION

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2 // // MANAGEMENT REPORT 01 MARTIFER GROUP Message from the Board Highlights Key Financial Indicators Main Events 02 GUIDELINES Activity International Presence History Market Environment 03 FINANCIAL PERFORMANCE Consolidated Results Analysis Revenues EBITDA and Net Profit Consolidated Capex Consolidated Capital Structure Analysis 04 ANALYSIS BY SEGMENT Metallic Constructions RE Developer 05 INDIVIDUAL FINANCIAL INFORMATION 06 MARTIFER SHARE PERFORMANCE 07 FUTURE PROSPECTS 08 MAIN RISKS Financial Risks Operational Risks Legal Risks 09 PROPOSAL OF RESULTS ALLOCATION 10 OTHER INFORMATION // MANDATORY INFORMATION // CONSOLIDATED FINANCIAL INFORMATION 11 CONSOLIDATED FINANCIAL STATEMENTS 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 // ANNUAL REPORT 2016 //

3 // // INDIVIDUAL FINANCIAL INFORMATION 13 INDIVIDUAL FINANCIAL STATEMENTS 14 NOTES TO INDIVIDUAL FINANCIAL STATEMENTS // CORPORATE GOVERNANCE REPORT // AUDIT AND FISCAL REPORTS This translation into English of the Portuguese document was done only for the convenience of non-portuguese speaking shareholders. For all intents and purposes, the Portuguese version shall prevail. // ANNUAL REPORT 2016 // 3

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8 // MARTIFER GROUP MESSAGE FROM THE BOARD Dear Shareholders, In 2016, we continued to implement the Strategic Plan adopted in 2015, having implemented a series of crucial actions, among which we highlight the simplification of the corporate structure with the conclusion of the merger of several companies that were engaged in similar or complementary activities and of the liquidation of some companies that were inactive, the divestment of several non-core assets, namely real estate assets that contributed to the Group's debt reduction trend, and the sale of the financial stake in Martifer Solar, SA to the Voltalia group. In what concerns the current activity, 2016 was a difficult year, due to the arduous conditions of the world economy, particularly in the construction sector, due to the negative evolution of commodity prices and due to the occurrence of facts that affected some of the countries with relevance to the Group s activity, such as Saudi Arabia, the United Kingdom and Angola. However, we were able to withstand and generate the necessary liquidity to meet all financial commitments and still significantly reduce the gross and the net debt. The net result was negative and EBITDA decreased significantly when compared to 2015, although it is important to mention that it is heavily penalized by non-recurring events with no cash flow impact in excess of 40 million euros, namely impairments on Client credit, unfavorable exchange rate differences (GBP and AOA), impairments on fixed assets and the conclusion of the sale process of Nutre, SGPS, which resulted in an adjustment to the sale price of 14.7 million euros. In the Metallic Construction segment, the naval area performed very well and continues to consolidate the business, while the metal mechanic segment presented a weaker performance, due to the fall in turnover in important geographies such as the United Kingdom and Saudi Arabia. In the Renewables segment, we would like to highlight the conclusion of the construction of the wind farms of the Âncora project, which Ventinveste (172 MW) participated in. This was the largest project that Martifer Renewables has participated in to date. We are fully convinced that we are on the right track and, therefore, we will continue in 2017 to implement the Strategic Plan adopted in 2015, keeping focused on the main objectives defined in the Group's strategy: Strengthening of the international presence; Focus on the core business of metal constructions, shipbuilding and Renewables; Consolidation of the adopted organizational model, keeping focus on: Restructuring and adaptation of the structure in line with the reinforcement of the international presence; Improved business processes and operational efficiency; Development and retention of human resources; Optimization of the industrial footprint and adjustment of the productive layouts. Improvement of the Group's financial position and debt: Divestment in non-core businesses and sale of real estate assets; Reduction of cash costs, through a program of optimization of the cost structure and of the working capital; Gradual reduction of the debt and of the debt/ebitda ratio. To our collaborators and colleagues who have been crucial in the Group's achievement of its goals and in its recovery, we are grateful for the commitment and dedication shown and to all our stakeholders, we appreciate the support and trust placed in us. 8 // ANNUAL REPORT 2016 //

9 01 // HIGHLIGHTS Operating Income of 217 M, of which 202 M in Metallic Constructions and 15 M in Renewables Positive EBITDA of 4.4 M (margin of 2 %) Operating segments - Metallic Constructions and Renewables - with positive operational performance at EBITDA level Operational and investment Cash Flow with a good performance allowed a significant reduction of the Gross and the Net Debt compared to December Net Debt with a reduction of 24 M to 236 M Net profit attributable to the Group of M, strongly impacted by non-recurring events with no Cash Flow impact of more than 40 M Order book in the Metallic Constructions registers a value of 239 M, with the Naval area representing 42 % MAIN FINANCIAL INDICATORS M DEC-16 DEC-15 VAR.% Revenues 217,1 252,6-14% EBITDA 4,4 11,4-61% EBITDA margin 2,0% 4,5% -2,5 pp Depreciation & Amortization -10,7-12,0 10% Provisions & Impairment Losses -11,2 0,1 n.m. EBIT -17,6-0,5 <-100% EBIT margin -8,1% -0,2% -7,9 pp Financial Results -31,3 3,0 n.m. Profit before taxes -48,9 2,5 n.m. Income tax -1,2-0,5 <-100% Profit after taxes on continued operations -50,2 2,0 n.m. Discontinued operations -9,7-0,8 <-100% Attributable to non-controlling interests -9,6 0,2 n.m. Attributable to shareholders -0,1-1,0 90% Net Profit -59,9 1,2 n.m. Attributable to non-controlling interests -16,3 1,7 n.m. Attributable to shareholders -43,6-0,5 <-100% Earnings per share -0,446-0,005 <-100% MARTIFER GROUP 9

10 // M Capex Net Profit EBITDA Revenues MAIN EVENTS JANUARY 2016 Refurbishment of the Ilunion building (Torre 30) in Madrid, Spain Martifer Metallic Constructions was awarded a new project. The project developed by Ruiz Barbarín Arquitectos and ENAR - Envolventes Arquitectónicas as façade consultant consists of the works to execute the exterior façade of an old building located near the road M-30. Martifer acts as general contractor, having been selected directly by Hill International (property manager) in a tender. This façade is quite singular, since it is composed by around 6,000 sqm of cladding made by perforated aluminium sheet trays according to a previously developed shading system. These trays are sustained by a steel and aluminium structure created specifically for the project. Furthermore, in the exterior, 4,000 metres of a round tube will be placed, forming rings, which will provide the harmony intended by the architect. Merger of Martifer Metallic Constructions with Martifer Energy Systems and Martifer Global On 27 th January, with the registry in the Commercial Register Office, the merger by incorporation of the companies Martifer Energy Systems, SGPS, S.A. and Martifer Global - SGPS, S.A. in Martifer Metallic Constructions - SGPS, S.A. was materialised. With this merger, the incorporated companies were extinguished and all their assets, including rights, obligations, responsibilities and guarantees transited to the scope of Martifer Metallic Constructions - SGPS, S.A.. APRIL 2016 Award of three hotel-ships to West Sea West Sea was awarded with the construction of three hotel ships to cruise the Douro River, two 79-metre ships with a 126-passenger capacity each and one 80-metre ship with a 112-passenger capacity. The conclusion of the ships is forecasted for the first quarter of // ANNUAL REPORT 2016 //

11 01 // JUNE 2016 Riyadh Metro King Fahd Road Bridge Having the FAST Consortium (formed by FCC, Samsung and Alstom) as a client, Martifer is participating in the construction of a 264-metre bridge, over Riyadh s main highway, which will represent a challenge regarding the assembly process. A total of 2,347 tonnes of steel structure will be produced and assembled. Merger of Martifer Construções with several companies of the same business segment On 27 th June, with the registry in the Commercial Register Office, the merger by incorporation of the companies Martifer Inovação e Gestão, S.A., Martifer Gestão de Investimentos, S.A., Nagatel Viseu Promoção Imobiliária, S.A. and Gebox, S.A. in Martifer Construções Metalomecânicas, S.A. was materialised. With this merger, the incorporated companies were extinguished and all their assets, including rights, obligations, responsibilities and guarantees transited to the scope of Martifer Construções Metalomecânicas, S.A.. AUGUST 2016 Sale of the 55 % share owned in Martifer Solar An agreement was signed with Voltalia (French renewable energy company) for the sale of the 55% share owned in Martifer Solar, S.A.. Through this agreement, Voltalia acquired 100% of Martifer Solar, S.A. shares, excluding its subsidiaries in the USA, which will continue to be owned by Martifer Group. The acquisition price, Equity Value, of 100% of the shares is 9 million euros. DECEMBER 2016 ITER - The world's largest fusion power project Martifer was responsible for the design of the links, for manufacturing and for assembling approximately 5,940 tons of steel structure for Building 13 (Assembly Hall), 391 tons for Building 17(Cleaning Facility) and 343 tons for Building 61 (Site Services). Approximately 7,000 built-in boards were provided for buildings 11, 14 and 74. The Assembly Hall was the biggest challenge for Martifer, 60 meters high, 97 meters long and 60 meters wide. This construction complies with demanding manufacturing, assembly and quality standards. The assembly of the roof of the building was done using the technique of "Heavy Lift", in order to facilitate the assembly works and to reduce the assembly time initially foreseen by the client. MAIN POSTERIOR EVENTS Construction of the new Midland Metropolitan Hospital Martifer is participating in the construction of one of the most innovative health infrastructure projects in the United Kingdom, the new Midland Metropolitan Hospital. Located in Sandwell, west of Birmingham, it occupies an area of 6.76 hectares and will start operating in MARTIFER GROUP 11

12 // 01 With architecture by Edward William Architects office, this hospital is designed in 3 levels, each one corresponding to a functionality: the upper part includes the nursing areas, the middle the clinical areas and finally, the lower floor, the car parks. Its interior has several squares and gardens provided natural lighting in most of the facilities. Martifer has been part of the project since July 2016 and has the responsibility of providing, transporting and installing 16,500 sqm of modular podium facades, with terracotta and wooden coating in the nursing wards. Remodeling Al Faisaliah Shopping Center With Al Khozama Management Company as its Client, Martifer participates in the remodeling of the Al Faisaliah shopping center in Riyadh, Saudi Arabia, being responsible for the supply and assembly of 510 tonnes of metal structure, 4,300 sqm of glass facades and 3,900 sqm of stainless steel coating. Award of the construction of a Suction Dredger to West Sea West Sea was awarded the construction of a Trailing Split Suction Hoper Dredger, metres long, with a metre beam and a 4 metre draught. Reaching a speed of 9 knots, the ship will have a load capacity of 1,001 m3 and a maximum depth of dredging of -40 metres. Ventinveste completes wind farms Martifer Group participated in the construction and development of the Moimenta, Sernancelhe, Três Marcos and Vale do Chão wind farms, with the construction by Martifer Construções and the development by Ventinveste, a subsidiary of Martifer Group. This is the largest wind project in which Martifer group participated, with Ventinveste realizing the divestment of the projects in reference. Delivery of Douro Elegance and Douro Serenity hotel ships The West Sea delivered to Douro Azul two hotel ships that were baptized Douro Elegance and Douro Serenity. The baptism gala was held at the Pier de Gaia and Joss Stone and Sara Sampaio were the godmothers of the hotel ships. The party, with about 200 guests, included music, a multimedia and fireworks show in an evening full of glamour, which ended with a concert by Joss Stone. The presence of national and international public figures led to a great coverage by the media, from TV and general newspapers to magazines and channels dedicated to social life and fashion. With these two ships, West Sea and Navalria have 9 hotel ships sailing in the Douro River (8 for the Douro Azul and 1 for Scenic Cruises) in their construction portfolio. In April, the number will be 10 ships, with the completion of the construction of Emerald Radiance for Scenic Cruises. SUBSEQUENT EVENTS No other facts that affect the released financial information have occurred since the reference date of the results up until the relase of this report. 12 // ANNUAL REPORT 2016 //

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14 // GUIDELINES ACTIVITY Martifer began its activity in 1990 in the steel structures sector. Since 2014, as a consequence of the strategic focus of the business, Martifer has concentrated its operations in the metallic constructions sector. The Group holding, Martifer, SGPS, S.A., also develops other activities and manages financial participations, namely in the renewables segment, through the promotion and development of wind farms. HOLDING Martifer SGPS, S.A. is the holding company of the Group. With the changes in the governance model implemented in 2012, Martifer SGPS, S.A. positions itself as a financial holding, establishing and defining rules and policies for the Group and monitoring the activity of the business areas, which were given a greater degree of independence and power. The business areas act independently, although they follow the strategic guidelines defined at the holding level, having the annual budgets and business plans approved by Martifer SGPS, S.A. s executive board members. METALLIC CONSTRUCTIONS Martifer Metallic Constructions, SGPS, S.A., subholding for the Metallic Constructions business segment and 75% owned by Martifer, SGPS, S.A., is a player with global recognition in the sector. The company (and its subsidiaries) is focused on two major geographic areas: Europe and the Middle East and Africa, and has industrial units that allow it, from those areas, to build the most complex projects in diversified places such as Jeddah in Saudi Arabia, Djelfa in Algeria, or Lyon in France. Its industrial units are located in Portugal, in Romania, in Angola, in Mozambique (in partnership) and in Algeria (in partnership). This business area bases its development strategy on the differentiation of its engineering quality and its vocation for complex projects. Martifer Metallic Constructions aims to follow a directed strategy, by partnering with companies from complementary segments, which will allow it not only to offer more complete solutions, but also to gain a greater dimension, especially internationally. It provides global and innovative engineering solutions, namely in the metal mechanical constructions, aluminium and glass façades, infrastructures for oil & gas and in the naval industry segments (via its subsidiaries Navalria and West Sea). This industrial and commercial activity has a production capacity that allows it to complete projects in several continents and it employed 1,484 people at the end of RENEWABLES Martifer Renewables, SGPS, S.A., subholding for the Renewables business sector and 100% owned by Martifer, SGPS, S.A., acts as a developer of renewable energy, mainly in wind and PV power projects. More than accumulating power in operation, Martifer Renewables strategy is focused on the rigorous use of capital in the development and construction of projects, having implemented an asset rotation policy in projects under development, construction management, asset management and operation and maintenance (O&M). This business area, which had 40 employees at the end of the year, has a wide experience in the development and management of wind farms and solar PV parks, being present in five countries: in the Iberian Peninsula, in Central Europe and in Latin America. Owning, in total or in partnership, a portfolio of over 250 MW in operation, Martifer Renewables has already developed and built 14 // ANNUAL REPORT 2016 //

15 02 // more than 1,000 MW in different geographies, having had as partners in the latest projects that were sold relevant companies such as IKEA, Banco Santander, CPFL, Tractelbel and Solaire Direct. In summary, the group is currently organized as follows: METAL MECHANICAL CONSTRUCTIONS ALUMINIUM AND GLASS FAÇADES NAVAL INDUSTRY DEVELOPMENT OF WIND POWER ASSETS CONSTRUCTION MANAGEMENT TECHNICAL AND OPERATION MANAGEMENT GUIDELINES 15

16 // INTERNATIONAL PRESENCE 16 // ANNUAL REPORT 2016 //

17 02 // HISTORY 1990 In February 1990, Martifer is established as a limited company, with the capital of approximately 22,500 Euros (at the time: 4,500 thousand Escudos) and is headquartered in the Industrial Zone of Oliveira de Frades, where it continues to be today. At the end of its first year of activity, Martifer had 18 employees and a turnover of 240,000 Euros On 26 th May, the company which already has 100 employees, is transformed into a Public Limited Company therefore changing its shareholder structure. The company's capital is held by MTO SGPS (currently I M SGPS) and ENGIL SGPS (currently MOTA-ENGIL SGPS). In Portugal, Expo 98 takes place with Martifer participating in several projects, such as the Vasco da Gama Tower In November, Martifer begins its internationalisation process in Spain with the objective of becoming one of the reference companies in metallic constructions in this country Martifer builds its second industrial unit in Portugal, located in Benavente, to meet the construction needs for the Euro 2004 stadiums In February 2003, Martifer continues with the internationalisation process by building an industrial unit in Gliwice, in Poland. It starts operating in the 2 nd half of In February, Martifer begins activity in the renewable energy equipment sector, through Martifer Energia. This company dedicates itself to the manufacturing of metallic towers for wind turbines and is based in the Industrial Zone of Oliveira de Frades. In November, Martifer SGPS, S.A. is created with the objective to manage the social holdings of all Martifer Group companies. GUIDELINES 17

18 // The metallic structures activity widens its market to Central Europe, opening branches in Romania, in the Czech Republic, in Slovakia and in Germany. Investments are initiated in the area of Agriculture and Biofuels in Romania. Martifer becomes one of the reference shareholders of the German company REpower Systems AG, one of the largest producers worldwide of wind power equipment, ending the year with a financial holding of 25.4%. In June, REpower Portugal is established, aimed at the market of building and giving assistance to wind farms and assembling wind turbines. In August, Martifer Group creates yet another company called M Energy (today, Martifer Renewables) with the main purpose of centralising the management of all the activities in the area related to the promotion of renewable energy In March, through the Ventinveste Consortium, Martifer submitted its application to the tender for the attribution of licences for the production of wind power in Portugal. In May, Martifer Solar is formed with the social object related to the projecting, design, manufacturing and installation of solar panels. At the end of the year, Martifer is awarded the 1st prize of excellence for the promotion of new areas of investment and business, awarded by the Chamber of Commerce and Industry of Romania In February, Martifer, together with the Indian Group Suzlon, launches a takeover bid on Repower Systems AG. The consortium takes control of 56.93% of the company, and, thanks to an agreement between Areva and Suzlon, the consortium took control of 87.1% of the voting rights of Repower Systems. Martifer agrees to sell its participation in Repower Systems to Suzlon in 2009 for 270 million Euros. The Ventinveste consortium - formed by Martifer, Galp Energia, Enersis, Efacec and REpower Systems AG - came in first place in "Phase B" of the public tender launched by the Portuguese government for the attribution of 400 MW of injection capacity and the respective reception points associated to the production of electric power in wind farms. In June, the Initial Public Offer (IPO) for the Company was concluded. The Company received 199 million Euros in funds through the offer of 25 million shares which were placed at the peak of the price range, 8 Euros per share. After the IPO, the Company had 65 thousand new shareholders. Martifer Solar formalised the contract with Spire Corporation for the turnkey supply of the automated production line of photovoltaic modules with an annual capacity of 50 MW. The Group was also awarded "Organic Grower of the Year 2007 by A.T. Kearney s "Global Growth Assessment. 18 // ANNUAL REPORT 2016 //

19 02 // 2008 Martifer Energy Systems buys Navalria. The acquisition price reached 4.7 million Euros. The Chairman and Vice-Chairman of Martifer, Carlos Martins and Jorge Martins win the 2 nd edition of the national award attributed by Ernst & Young, Entrepreneur of the Year The industrial units for the assembly of wind turbines, components for wind farms and PV modules start producing Martifer and Hirschfeld create a Joint Venture for the production of wind energy components in the USA. The metallic construction plant in Angola (15,000 tonnes of capacity) begins production in the 2 nd semester of the year. Martifer Renewables surpasses 100 MW of installed capacity in May and, at the end of the year, it is awarded MW in the first wind power auction held in Brazil. In October, the Group adopts the new governance model: Carlos Martins takes on the role of Chairman, Jorge Martins becomes CEO and Mário Couto is appointed CFO In March, Martifer sold 11% of Prio Foods and Prio Energy for million Euros, thereby reducing its participation from 60% to 49% in these companies and in the respective subsidiaries. Also in March, the subsidiary Martifer Metallic Constructions acquired 45% of the capital of Martifer Alumínios from HSF SGPS, owning the company's entire capital. In April, Martifer Solar increased its capital to 50 million Euros to meet the company's investment needs, thereby strengthening its capital structure. In September and in October, Martifer Solar finalises the construction of the two largest photovoltaic solar plants in the African Continent in the islands of Sal and Santiago, in Cape Verde. At the end of the year and following the asset rotation policy of Martifer Renewables, the Group sold the wind farms held in Germany, Bippen and Holleben, with 53.1 MW of installed capacity. Still in December, Martifer Solar signs an agreement with EDP to sell 60% of the company Home Energy. GUIDELINES 19

20 // Martifer becomes a multinational company with over 3,000 employees worldwide and focused essentially on two business areas: metallic constructions and solar energy solutions. This year, the Group increases its exposure to markets outside Europe with its entry into promising markets. In the metallic constructions area, the first semester highlights the start of the construction of a metallic structures plant in one of the markets with the biggest growth potential in the next years: Brazil. In the solar segment, we witnessed the awarding of the first photovoltaic solar energy project in India, in June. In February, and following the strategic guideline of the Group to focus itself on its core activities, Martifer sold its 50% participation in REpower Portugal to REpower Systems AG is the year of full operation of the Martifer Metallic Constructions plant in Brazil. With a capacity to produce 12,000 tons of steel structures per year, this unit aims to respond to the great projects of the company in Brazil. Martifer Solar is awarded its first contract in Brazil: a PV installation with 300 kw in a General Motors plant in Joinville, State of Santa Catarina. The company also continues its internationalization process entering Ukraine, Romania and Mexico In 2013, Martifer Solar builds Latin America s largest PV plant (30 MW) in Mexico. The company was in charge of the Engineering, Procurement and Construction of the plant and was also responsible for the O&M services. Martifer Renewables concluded the third wind farm in Poland (Rymanów) for Ikea Group. The farm with 26 MW was inaugurated in June. In November, following an international public tender, Martifer Energy Systems and Navalria, Martifer Group s subsidiaries, are awarded the subconcession of the lands and the infrastructures of the Viana do Castelo Shipyard (ENVC). 20 // ANNUAL REPORT 2016 //

21 02 // 2014 In the beginning of the year, Martifer signs the contract for the subconcession of the lands and the infrastructures of the old Viana do Castelo Shipyard (ENVC). It is in May that West Sea, the company created by Martifer to administer the subconcession, starts operating in Viana do Castelo. At the end of the year, West Sea signs the first shipbuilding contract. Also in 2014, Brazil hosts the FIFA World Cup. Martifer Metallic Constructions participated in the construction of three stadiums: Arena Fonte Nova (Salvador da Bahía), Arena Castelão (Fortaleza) and Arena da Amazônia (Manaus). Martifer Solar was also present in this event, with the installation of the PV roof of the Mineirão Stadium, in Belo Horizonte It is in 2015 that West Sea signs a contract with the Portuguese Navy for the construction of two Ocean Patrol Vessels. In the Renewables sector, the Group concludes and sells its fourth wind power project in Poland, Gizalki, to Ikea Group, and signs an agreement for the sale of a MW wind portfolio to EDP Renováveis 2016 In 2016 the production of wind towers for the Âncora project was completed. This project began in 2014 and involved more than 100 employees entirely dedicated to the production of 84 wind towers. The Âncora project has four wind farms in operation (171.6 MW). This project includes two wind towers coated with elements projected and designed by two internationally renowned artists, Vhils and Joana Vasconcelos, in what is considered the largest contemporary art project in height. In the naval sector, the first ship built by the West Sea in Viana do Castelo was delivered to Douro Azul. Viking Osfrid is a vessel very similar to the two hotel ships built in 2014 by Navalria (Viking Hemming and Viking Torgil). It is 79 meters long and accommodates 106 passengers. GUIDELINES 21

22 // MARKET ENVIRONMENT GLOBAL ECONOMY World GPS 2017 forecast, % increase on a year earlier Source: IMF Economic Growth The growth prospects show a modest recovery of the world economy in the next few years. Latin America is expected to grow at a low rate, where the political signs left by Brazil throughout 2016 show that they will represent serious difficulties in the future. In the previous year, the world economy is estimated to have grown 2.2 %, the lowest rate since the 2009 recession. In a weighted way, forecasts point to a growth of 2.7 % and 2.9 % in 2017 and in 2018, respectively. As commodity prices tend to increase, raw-materials-exporting economies will tend to register a relative recovery in growth. In the fourth quarter, the price of most industrial commodities continued the upward trend of 2016 after reaching lows at the beginning of the year. Metal prices are projected to rise by approximately 11 % in 2017 due to the announced cut on the supply side, which includes the closure of large lead and zinc mines. 22 // ANNUAL REPORT 2016 //

23 02 // In this point, China's invaluable role is to be highlighted, since the risks of a price drop of metals are centered in a slowdown in China's growth and in a more than expected production. On the opposite side, the risks of price rise are related to the number of government restrictions on the supply side. In agricultural commodities, a slight recovery is expected during the year In this context, the expected increase in the price of oils and raw material components is approximately 3 % due to the expectation of adverse weather conditions, which translates into a lower supply from Eastern Asia, partly offset by a decline in seed prices. The forecast for the seed prices is supported by the biggest and best offer coming from Central Asia, Europe and North America. Increased investment in emerging commodity exporting markets and developing economies emerging markets has declined sharply since 2010 and was below the long-term average in about twothirds of those economies in According to the World Bank, the weakness of the investment occurs at a time when most of those countries have a great need for investment, especially in the areas of health, education, infrastructure and urbanization. Despite the stabilization of commodity prices throughout 2016, the fall accumulated over the last few years, particularly since 2011, created a major shock in terms of the robust balance of trade for commodity-exporting countries. Some of them are still in a process of restructuring and adapting due to the perspective of the maintenance of low commodity prices. The GDP of the commodityexporting countries grew by 0.3 % in 2016, well below the growth rate of 5.6 % registered in importing countries. In sum, the main sources of deceleration in investment growth in commodity-exporting countries are: prospects of weak GDP growth; aggravation of trade balance terms; rapid growth of credit and excess debt; increased uncertainty. GUIDELINES 23

24 // Global Indicators ( e) f 2018e GDP, anual var. % USA 2,20% 1,70% 2,40% 2,60% 1,60% 2,30% 2,10% Euro Zone -0,80% -0,20% 1,20% 2,00% 1,70% 1,50% 1,50% Germany 0,69% 0,60% 1,59% 1,49% 1,74% 1,65% 1,74% Portugal -3,20% -1,40% 0,90% 1,60% 1,20% 1,40% 1,50% Inflation, anual var. % USA 2,10% 1,50% 1,60% 0,10% 1,30% 2,40% 2,10% Euro Zone 2,50% 1,40% 0,40% 0,00% 0,20% 1,50% 1,50% Germany 2,12% 1,60% 0,78% 0,13% 0,26% 1,40% 1,68% Portugal 2,80% 0,40% -0,30% 0,50% 0,80% 1,40% 1,50% Unemployment Rate, Annual var. % USA 8,10% 7,40% 6,20% 5,30% 4,90% 4,80% 4,70% Euro Zone 11,40% 12,00% 11,60% 10,90% 10,00% 9,70% 9,30% Germany 5,40% 5,20% 5,00% 4,60% 4,30% 4,50% 4,60% Portugal 15,70% 16,20% 14,10% 12,40% 11,00% 10,10% 9,40% Weight of the Deficit, % GDP USA -9,30% -6,40% -5,80% -4,60% -3,20% -2,70% -2,70% Euro Zone -3,70% -3,00% -2,50% -1,80% -2,10% -1,70% -1,40% Germany 0,10% 0,00% -0,20% 0,20% 0,80% 0,50% 0,70% Portugal -6,40% -4,90% -4,00% -2,40% -2,30% -2,30% -2,20% Price of Crude USD per Barrel 111,1 110,8 57,3 37,3 56,82 57,13 64,0 Interest Rates, End of year (%) Interest Rates - Fed (Fed Funds) 0,25% 0,25% 0,25% 0,50% 0,75% 1,0% 1,3% - ECB 0,75% 0,25% 0,05% 0,05% 0,00% 0,00% 0,00% - BoE 0,50% 0,50% 0,50% 0,50% 0,25% 0,50% 0,75% Long-term Interest Rates (10 y Bonds) USA 1,76% 3,03% 2,17% 1,80% 1,82% 2,52% 2,64% Euro Zone 1,32% 1,93% 0,54% 0,63% 0,20% 0,30% 0,30% United Kingdom 1,83% 3,02% 1,76% 1,81% 1,18% 1,22% 1,28% Exchange Rates, End of year EUR/USD 1,32 1,38 1,20 1,09 1,05 1,025 0,95 Source: Reuters, IMF reports, OECD, INE, World Bank, European Central Bank 24 // ANNUAL REPORT 2016 //

25 02 // THE PULSE OF PORTUGAL The Portuguese GDP in 2017 is expected to grow 1.4 %, following 2016 when it stood at 1.2 %. The growth outlook for the Portuguese economy for the period stabilizes at 1.5 %, which, although close to the projected value for the Euro zone, it is still lower. This lack of convergence with the Euro zone shows the structural constraints to the growth of the Portuguese economy. The recommendations made to Portugal involve a continuation of structural reforms to combat inefficiencies in the labor market, the unfavorable demographic situation and especially the high levels of indebtedness of the public and private sectors. According to the Bank of Portugal s economic bulletin from December 2016, there are several indicators that show the good Portuguese performance: - Acceleration of the economic activity in 2016, especially in the 3rd Quarter; - Stronger growth of private consumption; - Reduction of unemployment in a context of weak growth in productivity; - Maintenance of steady growth in domestic demand, with a favorable return on investment; - Very robust growth of exports implying continued market share gains; - Moderate wage growth and slight acceleration of the private sector GDP deflator; - Rising inflation expectations; - Downside risks to economic activity in 2017/2018. GUIDELINES 25

26 // After 2016, external demand should accelerate over the horizon, although with less dynamism than the one observed in the period prior to the international financial crisis. In addition, monetary and financial conditions should remain favorable. The major driver in the Portuguese economy is projected to be the Gross Fixed Capital Formation (GFCF), based on a recovery of the business investment that will bring sustainability and dynamism to the national economy. In a progressively more favorable external environment, the economic recovery should remain sustained by the dynamism of exports. Having this said and bringing together all the facts previously mentioned, it is evident that consistent lines are drawn for the reorientation of productive resources of the sectors more exposed to international competition, the reduction of unemployment, the maintenance of the surplus in the trade balance and the continuation of the reduction of the private non-financial sector indebtedness. MARKET RISKS AND VOLATILITY During the year of 2016, the main index of volatility - VIX INDEX - closed the year reaching points, having hit the maximum value of on 11 th February. The minimum values were recorded on 19 th August, set at points and the average value of the index was points. During the first quarter of 2016, the United Nations proceeded to withdraw the sanctions against Iran due to the reduction and conversion of the Iranian nuclear program and, on the other hand, North Korea announced the first detonation of a hydrogen bomb, which increased the tension with the UN, especially with China. In addition, in December 2015, the difficulty of reaching the ceasefire and the start of negotiations between Bashar al-assad and Syrian rebel groups also influenced the index in early In June, the referendum in the United Kingdom, which became known as Brexit, catapulted volatility to 25.6 points. Between early September and early November, volatility was high due to the US presidential debates, which culminated in volatility reaching points the day before the election. 26 // ANNUAL REPORT 2016 //

27 02 // THESE ARE THE MAIN RISKS IDENTIFIED FOR China undergoes prolonged economic slowdown China is expected to experience a strong economic slowdown in 2018, with growth decelerating to 4.2 %. The political reorganization of the upper tiers of the Chinese Communist Party planned for late 2017 will allow President Xi Jinping to change economic policy in Given the growing dependence of western manufacturers and retailers on the Chinese market and on other emerging markets, an extended slowdown of the Chinese growth will have a marked global impact. - One or more countries leave the Euro Zone The resignation of the Italian Prime Minister Matteo Renzi has once again focused concerns on the health of the Euro Zone's third largest economy and of its banks. On the other hand, the focus on Greece's weaknesses has also recently increased, with the IMF warning in February that the country's debt burden could become "explosive" unless debt was forgiven by the Euro Zone countries. The risk is growing exponentially and opening a window of opportunity for populist politicians. - Because of external and internal pressures, the EU begins to divide itself The UK's decision in June 2016 to become the first country to leave the EU raised concerns. Although the UK has an ambivalent attitude towards Europe, the hostility of the UK is mirrored by other European parties. Having this in mind, there is the risk that parties in the EU will consider holding a referendum to ease support for populist parties. Moreover, the number of international trade agreements would need to be renegotiated as the bloc began to disintegrate, and the probable defragmentation of the Euro Zone would translate into a massive global currency volatility. GUIDELINES 27

28 // US currency depreciation and higher interest rates lead to a corporate debt crisis in emerging markets The possibility of a faster tightening monetary cycle in the United States after the election of Donald Trump, coupled with the renewed strength of the US dollar and with the expectation of a shock in the Chinese economy in 2018, increased the risk of large outflows of capital in emerging markets and a bet on investments with lower risk levels. The countries most vulnerable to the restrictive US monetary policy are those with budget deficits, with little political credibility, and those that are more dependent on commodity exports. Any debt crisis in emerging markets would cause panic in all capital markets and may require governments to take action to protect their banks. 28 // ANNUAL REPORT 2016 //

29

30 // FINANCIAL PERFORMANCE INTRODUCTORY NOTE In September 2014, the Group started to classify the solar business unit (consisting of Martifer Solar, SA and its subsidiaries) as a non-current asset held for sale. This change resulted from the fact that Martifer is presently putting into action its plan to sell its economic interest (currently 55 %) in Martifer Solar. Since the requirements of IFRS 5 are fulfilled, the contribution to Martifer s consolidated results coming from this segment is presented in an autonomous line in the Consolidated P&L. The contribution of assets and liabilities of the operational unit, classified as held for sale, are also presented in separate lines from the Group s remaining consolidated assets and liabilities on 31 st December The breakdown of these contributions is included in the Notes to the Consolidated Financial Statements. It should be noted that the 55 % stake held in Martifer Solar, SA was sold to Voltalia Group in August Through the sale agreement, Voltalia acquires 100 % of the shares of Martifer Solar, SA, excluding its US entities that will continue to be owned by Martifer Group. CONSOLIDATED RESULTS ANALYSIS M DEC-16 DEC-15 VAR.% Revenues 217,1 252,6-14% EBITDA 4,4 11,4-61% EBITDA margin 2,0% 4,5% -2,5 pp Depreciation & Amortization -10,7-12,0 10% Provisions & Impairment Losses -11,2 0,1 n.m. EBIT -17,6-0,5 <-100% EBIT margin -8,1% -0,2% -7,9 pp Financial Results -31,3 3,0 n.m. Profit before taxes -48,9 2,5 n.m. Income tax -1,2-0,5 <-100% Profit after taxes on continued operations -50,2 2,0 n.m. Discontinued operations -9,7-0,8 <-100% Attributable to non-controlling interests -9,6 0,2 n.m. Attributable to shareholders -0,1-1,0 90% Net Profit -59,9 1,2 n.m. Attributable to non-controlling interests -16,3 1,7 n.m. Attributable to shareholders -43,6-0,5 <-100% Earnings per share -0,446-0,005 <-100% 30 // ANNUAL REPORT 2016 //

31 03 // REVENUES REVENUES DEC-16 DEC-15 M WEIGHT M WEIGHT VAR.% Martifer Consolidated 217,1 100% 252,6 100% -14% Metallic Constructions 202,3 93% 238,1 94% -15% Renewables 15,1 7% 14,0 6% 7% Others, Holding and Adjust. -0,3 0% 0,5 0% n.m. In 2016, the total operating income was million Euros (252.6 million Euros in 2015), 93 % of which is in the Metallic Constructions segment and 7 % in the Renewables segment. The Operating Revenues of the Renewables segment, amounting to 15 million Euros, result from the activity of the wind parks and solar farms in exploration and from the sale of projects. The decrease of 14 % compared to 2015 is mainly due to the sale of the Brazilian companies of the Metallic Constructions segment, which in 2015 contributed with approximately 21 million Euros. Moreover, the operating revenue in the Metallic Constructions segment continues to be penalized by the strong recession in the construction sector, particularly in Europe, which the Group has been trying to counter via internationalization, clearly betting on emerging countries that present themselves globally as the engine of construction. As regards turnover (sales and services), in 2016 it amounted to 206 million Euros compared to 221 million Euros in Analyzing the turnover by geography - considering the location of the companies that generated the turnover in 2016, Portugal accounts for 51 % of total sales and services rendered and the remaining 49 % is divided as follows: European Union (excluding Portugal) ) 25 %, Angola 18 %, Saudi Arabia 3 %, Latin America 2 % and Others 1 %. BREAKDOWN OF SALES AND SERVICES RENDERED BY ORIGIN 2016 VERSUS 2015 Angola 18% 2016 Saudi Arabia Others 3% 1% Latin America 9% Saudi Arabia 9% 2015 Portugal 34% Latin America 2% Portugal 51% Angola 15% EU (others) 25% Others 1% EU (others) 32% FINANCIAL PERFORMANCE 31

32 // 03 Analyzing the turnover by geography - considering the location of Clients and the destination of the sales and services rendered - in 2016, Portugal accounts for only 32 % of the total sales and services rendered and the international market 68 % divided as follows: European Union (excluding Portugal) 31 %, Angola 26 %, Saudi Arabia 3 %, Latin America 2 % and Others (mainly Algeria and Morocco) 6 %. BREAKDOWN OF SALES AND SERVICES RENDERED BY DESTINATION 2016 VERSUS Others Saudi Arabia 6% 3% Portugal 32% Saudi Arabia 10% 2015 Others 4% Portugal 20% Angola 26% Angola 16% Latin America 2% Latin America 10% EU (others) 40% EU (others) 31% EBITDA AND NET PROFIT EBITDA DEC-16 DEC-15 M MARGIN M MARGIN VAR.% Martifer Consolidated 4,4 2% 11,4 5% -61% Metallic Constructions 0,2 4% 9,2 4% -98% Renewables 4,2 30% 2,7 19% 59% Others, Holding and Adjust. 0,0-0,5 n.m. In 2016, the consolidated EBITDA recorded a positive value of 4.4 million Euros, to which the Renewables segment contributed with 4.2 million Euros and the Metallic Constructions segment contributed with 0.2 million Euros. This decrease is mainly due to the decrease in the EBITDA of the Metallic Constructions segment, which at the end of 2016 amounted to a positive 0.2 million Euros, which compares with a positive 9.2 million euros in This decrease is mainly due to the delay in the beginning of some projects in different geographies. In the Renewables segment, EBITDA reached 4.2 million Euros compared with 2.7 million Euros in 2015 and thus represents a 59 % increase. Depreciation and amortization decreased slightly in 2016 to 11 million Euros compared to 12 million Euros in Provisions and impairment losses on fixed assets amounted to 11.2 million Euros (provisions of -1.3 million Euros and impairment losses of 12.5 million Euros), compared with -0.1 million Euros in 2015 (-2.5 million Euros in provisions and 2.4 million Euros in impairment losses on fixed assets). Impairment in 2016 is related to Szczecin's real estate project in Poland, one of the plants in Portugal and wind farms in Poland and in Romania. Operating Results (EBIT) were negative at 17.6 million Euros, compared with -0.5 million Euros in Consolidated Financial Results were negative at 7.4 million Euros and losses on associated companies and joint ventures amounted to 24 million Euros. What contributed to this result was the recognition of an impairment amounting to 14.7 million Euros for the 32 // ANNUAL REPORT 2016 //

33 03 // receivable from the sale of Nutre following the decision of the court in the case with Bunge and the impairment of 10 million Euros relating to the company that holds the financial investments in the United States. The Consolidated Net Profit was million Euros in 2016 (-43.6 attributable to the Group), due to the increase in impairments and losses in associated companies and joint ventures. NET PROFIT DEC-16 DEC-15 M WEIGHT M WEIGHT VAR.% Martifer Consolidated -59,9 100% 1,2 100% n.m. Metallic Constructions -25,4 42% 6,4 544% n.m. Renewables 0,3-1% 3,4 290% -91% Solar (discontinued operation) -17,8 30% -2,2-186% <-100% Holding, Others and Adjust. -16,9 28% -6,4-548% <-100% * Consolidated result of Martifer Solar until July since in August 2016 Martifer Solar and its subsidiaries were sold to Voltalia Group. The difference arises from the consolidation adjustments included in the "Holding, Others and Adjust." line. CONSOLIDATED CAPEX The amount of investment in tangible and intangible fixed assets in 2016 was 3.1 million Euros, applied in the Metallic Constructions segment (1 million Euros), mainly in the naval area, and in the Renewables (2,1 million Euros), mainly in wind and solar projects in Central Europe and in Latin America. CAPEX DEC -16 DEC -15 M WEIGHT M WEIGHT VAR. (%) Martifer Consolidado 3,1 100% 4,4 100% -30% Construção Metálica 1,0 32% 2,3 54% -58% Renewables 2,1 68% 2,0 46% 3% Outras 0,0 0% 0,0 0% n.m. FINANCIAL PERFORMANCE 33

34 // 03 CONSOLIDATED CAPITAL STRUCTURE ANALYSIS FINANCIAL POSITION M DEC-16 DEC-15 VAR. % Fixed Assets (including Goodwill) 142,4 163,0-13% Other non-current assets 69,3 76,0-9% Inventory and Receivables 152,7 179,3-15% Cash and cash equivalents 53,1 40,6 31% Non-Current assets held for sale 0,0 147,7 n.m. Total Assets 417,5 606,6-31% Shareholders Equity -7,7 40,0 n.m. Non-controlling interests -30,2-26,5-14% Non-controlling interests related with Non-Current assets held for sale 0,0-1,9 n.m. Total Equity -37,9 11,7 n.m. Non-current debt and leasings 273,4 286,1-4% Other non-current liabilities 31,5 32,6-3% Current debt and leasings 15,5 14,8 5% Other current liabilities 134,9 124,6 8% Liabilities related with assets held for sale 0,0 137,0 n.m. Total Liabilities 455,4 595,0-23% The total assets amounted to 418 million Euros (607 million on 31 st December 2015), while non-current assets reached 211 million Euros (239 million Euros in 2015). The total equity on 31 st December 2016 recorded million Euros, which compares with 11.7 million Euros on 31 st December 2015, with -7.7 million Euros attributable to shareholders in 2016 and 40 million Euros in On 31 st December 2016 the liquidity ratio recorded 137 % (130 % in 2015) and the solvency ratio 126 % (138 % in 2015). 34 // ANNUAL REPORT 2016 //

35 03 // NET DEBT During 2016, the decreasing trend was maintained, in line with the goals set in Martifer Group s strategic plan. Thus, on 31 st December 2016, the consolidated Net Debt reached 236 million Euros, reflecting a 24 million Euro reduction when compared with the previous year. M METALLIC CONSTRUCTIONS RENEWABLES HOLDING MARTIFER CONSOLIDATED Net Debt Net Debt This is largely a result of the implementation of the Group's Financial Restructuring Strategic Plan, which included the signing of restructuring agreements with banks, implementation of a plan for the disposal of non-core assets and consequent improvement in the performance of the working capital of the Group. TREND OF CONSOLIDATED NET DEBT (M ) Note: Net Debt = (Borrowings + Financial Leases (+/-) Derivatives Cash and Cash Equivalents The signing of the Restructuring Agreements with the banks in the year 2015 enabled the adjustment of the maturity of the inflows of the Group's operating activity and the investment/divestment to the outflows of the financing activity through a matched rescheduling of the maturity over time, extending the average maturity of the debt making it coincide with the degree of permanence of its long-term assets. Currently the average maturity of the Group's debt is 6 years. In 2017, the Group will maintain its debt reduction strategy, continuing the premises defined in its Strategic Plan, namely regarding the implementation of the non-core asset disposal plan. FINANCIAL PERFORMANCE 35

36 // // ANNUAL REPORT 2016 //

37

38 INTERNATIONAL OUTLOOK // ANALYSIS BY SEGMENT METALLIC CONSTRUCTIONS SECTOR TRENDS According to Euroconstruct's analysis, the prospect in the European construction sector deteriorated throughout The first analysis came just a few days before Brexit and although it did not cause a direct disaster in the economy, the medium-term expectations changed considerably. These medium-term expectations strongly influence the construction sector and, therefore, the forecast is currently less favorable. Cumulatively, China and Germany have slowed down, the uncertainty in the US has increased and the European banks are still not very solid. The construction sector has the potential to grow by approximately 2.1 % in Euroconstruct forecasts a marginal increase in public spending, which is a key factor for the strengthening of the sector. In 2016 the increase in production was greatly due to Germany, which in the coming years will tend to dissipate its influence. France and Italy are sure to continue to grow in production over the next few years. The subsector of the construction of private residences was revised upwards during the year 2016 with a growth of 3.9 %. Although this growth is encouraging, the forecast for the coming years remains rather cautious due to the general uncertainty regarding financing conditions. Non-residential construction is at the beginning of the recovery process following the downward trend seen in the recent years. Growth is expected to be between 1.5 % and 1.8 %. For the civil engineering sector, the outlook is quite different from the abovementioned sectors where the preliminary data for 2016 are of a 1 % decrease. However, given the possibility of new structural funds for Eastern European countries, civil engineering is expected to recover and grow by 1.8 % by // ANNUAL REPORT 2016 //

39 04 // ACTIVITY The order book at the end of 2016 reached 239 million Euros, spread by several countries. From the most recent contracts, we highlight the following projects: In Portugal, wind towers for Brechfa Forest West in the United Kingdom, the Loulé Shopping Center, the Polar Express vessel and the Trailing Split Suction Hoper Dredger; In the UK, the Royal Wharf housing complex and the Midland Metropolitan Hospital; In France, the cultural center MECA; In Saudi Arabia, the King Fahd Bridge - Riyadh Metro and the Al Faisaliah Shopping Center; In Angola, the IMOB building; In Algeria, the International Airport of Es Senia; In Mozambique, the Fabris Beleza facilities. ORDER BOOK BY GEOGRAPHY GEOGRAPHY TOTAL % Africa 42 18% 42 0 Algeria 21 9% 21 0 Sub-Saharan Africa 21 9% 21 0 Eastern Europe and Middle East 31 13% 29 2 Western Europe % Metallic Constructions 66 28% 61 5 Naval Industry % TOTAL % RESULTS M DEC-16 DEC-15 VAR.% Revenues 202,3 238,1-15% EBITDA 0,2 9,2-98% EBITDA margin 0,1% 3,9% -3,8 pp Depreciation & Amortization -4,9-5,9 18% Provisions & Impairment Losses -8,9 3,3 n.m. EBIT -13,6 6,6 n.m. EBIT margin -6,7% 2,8% -9,5 pp Financial Results -10,3 0,8 n.m. Profit before taxes -23,9 7,4 n.m. Income tax -1,5-1,0-46% Net Profit -25,4 6,4 n.m. Attributable to non-controlling interests 0,1 0,3-75% Attributable to shareholders -25,5 6,1 n.m. ANALYSIS BY SEGMENT 39

40 // 04 Operating Income from the Metallic Constructions segment amounted to million Euros in 2016, which corresponds to a decrease of about 15 % compared to 2015, with Portugal representing approximately 54 % and the remaining 46 % distributed over several geographies. About 37.5 million Euros, 34 % of the operating revenues generated in Portugal, are related to sales and services rendered to external markets, which in addition to the 92 million Euros generated in the various geographies, totals million Euros. Euros, that is to say about 64 % of the total operating revenues, and reflects the efforts of internationalization and of focus in countries with economic growth and with an infrastructure investment plan that the Group has been pursuing. Saudi Others Arabia 1% 5% Angola 20% EU (others) 9% Portugal 54% France 4% United Kingdom 7% EBITDA in 2016 stood at a positive 0.2 million Euros, penalized mainly due to the delay in the beginning of some projects in several geographies, due to impairment of client credit, due to unfavorable exchange differences and due to some non-recurring events. EBIT was negative at 13.6 million Euros, compared with a positive value of 6.6 million Euros in 2015, significantly impacted by the recognition of impairments in non-operating assets. Net Financial Charges (interest and other financial charges) in 2016 amounted to 3.9 million Euros compared to -2.3 million Euros (net income) in 2015, the year when it benefited from the positive impact of the financial restructuring. Net Profit at the end of 2016 totaled million Euros compared to 6.4 million Euros in The Net Financial Debt of the Metallic Constructions segment on 31 st December 2016 amounted to 82 million Euros, less 14 million Euros than on 31 st December The total CAPEX at the end of 2016 was 1 million Euros, of which the most important was the increase in the operational capacity in Portugal, namely in the naval area. 40 // ANNUAL REPORT 2016 //

41 PANORAMA INTERNACIONAL 04 // RENEWABLES SECTOR TRENDS The global investments in renewable energy have maintained the increasing trend of the last decade, and in 2016 the amount invested surpassed US$ 287 billion, which reflects the continuity of the bet in the sector. With regards to the wind energy sector, capacity figures increase from year to year. In fact, new records of installed capacity are recurring year-on-year. The 2016 numbers present an installed capacity of 64 GW. By 2017, this number is also expected to be exceeded. ANALYSIS BY SEGMENT 41

42 PANORAMA INTERNACIONAL // 04 Today Asia dominates the wind energy market, holding most of the installed capacity worldwide. China has set a target of 250 GW by 2020; however, the 2016 result turned out to be lower than planned with the installation of 23 GW instead of 30 GW. In Europe the numbers were surprisingly strong with Germany surpassing 50 GW last year, followed by France and the Netherlands. In Latin America, Brazil dominates the market despite some political and economic problems. Not neglecting Brazil's dominance, it is important to highlight Argentina as it began the year with a change in government and with a very fragile industry, and yet ended 2016 with a pipeline of 1.4 GW and with growth prospects. ACTIVITY Martifer Renewables, SGPS, S.A., subholding for the Renewables business sector and 100 % owned by Martifer, SGPS, S.A., acts as a developer of renewable energy, mainly in wind and PV power projects. More than accumulating power in operation, Martifer Renewables strategy is focused on the rigorous use of capital in the development and construction of projects, having implemented an asset rotation policy in projects under development, construction management, asset management and operation and maintenance (O&M). This business area, which had 40 employees at the end of the year, has a wide experience in the development and management of wind farms and solar PV parks, being present in five countries: in the Iberian Peninsula, in Central Europe and in Latin America. Owning, in total or in partnership, a portfolio of over 250 MW in operation, Martifer Renewables has already developed and built more than 1,000 MW in different geographies, having had as partners in the latest projects that were sold relevant companies such as IKEA, Santander Bank, CPFL, Tractelbel and Solaire Direct. In 2016 Martifer Renewables completed the sale to Solaire Direct and to Tractebel of the projects Floresta (107.5 MWp), Assú I (112.5 MWp) and Assú II (187.5 MWp) and acquired in Poland 50 % of the wind project Warta which is in the ready-to-build phase. In Portugal, the Ventinveste associate concluded the construction of wind farms with a capacity of MW. 42 // ANNUAL REPORT 2016 //

43 04 // RESULTS M DEC-16 DEC-15 VAR.% Revenues 15,1 14,0 7% EBITDA 4,2 2,7 59% EBITDA margin 30,2% 18,9% 11,3 pp Depreciation & Amortization -5,9-5,5-6% Provisions & Impairment Losses -2,9-1,7-70% EBIT -4,6-4,6 1% EBIT margin -32,6% -32,7% 0 pp Financial Results 6,0 7,4-19% Profit before taxes 1,4 2,8-49% Income tax -1,1 0,6 n.m. Net Profit 0,3 3,4-91% Attributable to non-controlling interests 0,0 0,1-46% Attributable to shareholders 0,3 3,3-91% The RE Developer s total Revenues amounted to around 15 million euros which result from the assets in operation and from selling projects. The EBITDA reached 4 million Euros in 2016, showing a 59 % increase when compared to the previous year. Revenues in this segment remain focused on the external market. Portugal 0% Latin America 28% Spain 30% Romania 29% Poland 13% The Net Profit was positive in 0.3 million Euros in 2016, with the contribution of the financial results, influenced by net financing costs and by financial holdings. The total Capex in 2016 amounted to 2.1 million Euros and was mainly applied in the development of wind and solar projects. The Net Debt in 2016 totalled around 26 million Euros, an 8 million Euro increase when compared with the previous year, as a consequence of the gross debt reduction and increase in cash. ANALYSIS BY SEGMENT 43

44 // // ANNUAL REPORT 2016 //

45

46 // INDIVIDUAL FINANCIAL STATEMENTS During 2016, the level of services that Martifer SGPS, S.A. (the Group s holding) provided to other Group companies was similar to the previous years, in particular 2013 to 2015, when a great part of the services that had been previously provided by the company have been transferred to the business areas, following the strategy of allocating greater autonomy to the business areas, with consequent greater decentralization and accountability. The Net Profit of Martifer, SGPS, S.A. was negative amounting to 31.6 million Euros, comparing to a positive Net Profit of 1.4 million euros in the previous year. The most significant impacts on net income were impairment losses on financial investments (17 million Euros) and the impairment losses of 14.7 million Euros recognized on the receivable from the sale of Nutre, SGPS in Interest and similar expenses amounted to 2.8 million Euros, which represents a significant reduction compared to the previous period (3.7 million Euros). The Company's equity amounted to 29 million Euros, with total assets of million Euros and total liabilities of million Euros. Debt amounts to 129 million Euros and its maturity is over a 1 year. 46 // ANNUAL REPORT 2016 //

47

48 // MARTIFER SHARE PERFORMANCE SHARE PERFORMANCE Martifer PSI Source: Reuters TRADED VOLUME shares Source: Reuters Stock market performance in the fourth quarter of 2016 was positive. The US stock market recorded the fourth consecutive quarter of gains by appreciating 3.31 %, the best quarterly performance in 2016, increasing accumulated gains since the beginning of the year to 6.08 %, with the technology and raw materials sectors registering a strong overperformance, which is not accompanied by Europe, 48 // ANNUAL REPORT 2016 //

49 06 // with a negative trend. The best performance on the European side was recorded by the German DAX index, which appreciated 8.58 % in the quarter and even momentarily canceled all losses since the beginning of the year, nevertheless ending the quarter depreciating 2.16 % in The European financial sector was also penalized by the uncertainty surrounding the largest German bank. Portugal is in line with other European markets, dropping about 9 % in the year, even with a positive quarter of 2 %. During the fourth quarter of 2016, the value of the shares of Martifer, SGPS, S.A. decreased, with a devaluation of around 8 %. Since the beginning of the year, it has fallen by 26 %. The price of the Martifer stock closed the year of 2016 at 0.179/share. The maximum price reached was 0.23 per share and the minimum 0.175/share. The average daily volume of Martifer shares traded during 2016 was 15,035 shares, approximately one quarter of the average volume transacted in the year 2015, around 55,047 shares. On the other hand, it is important to point out a drop of about 35 % in the average daily traded volume of PSI20 in the same period. Martifer s market value on 31 st December 2016 was 22.7 million euros. PURCHASE OF OWN SHARES In accordance with CMVM regulation 5/2008, article 11, numbers 1 and 2, we confirm that Martifer SGPS, SA (Martifer) didn t purchase own shares on the Stock Exchange during Therefore, Martifer holds 2,215,910 own shares representing 2.22 % of its share capital. MARTIFER SHARE PERFORMANCE 49

50 // // ANNUAL REPORT 2016 //

51

52 // FUTURE PROSPECTS The year 2017 presents some uncertainties worldwide, arising from recent events such as Brexit or the new administration of the United States of America, or even from events occurring in the same year like the elections in several countries of the European Union. These events will condition the economic performance of many countries; especially some, where Martifer Group has a significant presence. In this sense, we project another challenging year but we remain confident in the defined strategy and we believe that we will be able to overcome the difficulties and achieve an improvement in the Group's profitability. In 2017 we will continue to implement the defined strategy: to reinforce the international presence, focusing on core geographies and attractive opportunities in markets profitable above average; to reinforce the order book in the Naval and Aluminium areas and the sustainable growth in the Renewables segment; to reduce indebtedness through the sale of non-core assets; to resize and adequate the structure in all geographies where we are present: to improve processes and operational efficiency. 52 // ANNUAL REPORT 2016 //

53

54 // MAIN RISKS FINANCIAL RISKS A) PRICE RISK The volatility of the price of raw materials constitutes a risk for the Group in the Metallic Constructions segment. The anti-dumping measures/rates already implemented by the European Union in relation to Chinese steel and aluminum products, caused a significant increase in the price that affected the operational activity of the metal constructions business. Thus, in 2016 there was a sharp rise in the price of this commodity as a consequence of the implementation of these measures, which was, however, followed by a strong stabilization of prices in the second half of the year. For the year 2017, price stabilization is expected to remain stable within the range recorded in the last quarter of 2016, tending towards the upper limit of the interval. Martifer has sought to mitigate this risk through a strict procurement planning, which has allowed for economies of scale in the quantity of raw material purchased and consequent price fixing and simultaneous control of flows through phased delivery of materials. On the other hand, it has also controlled this risk through contracts with clients that allow passing on the changes in the price of the raw material in the amount paid by the client and ensuring, with its suppliers, fixed prices for large projects. Evolution of the Price of Steel jan-15 abr-15 jul-15 out-15 jan-16 abr-16 jul-16 out-16 B) CURRENCY RISK Currency risk has a strong correlation with other risk types, with highlight to its relation with the countries risk, through the evolution of economies and their impact on inflation and on interest rates, and with credit risk, via currency fluctuations that may jeopardize future financial flows, reflecting the possibility of registering gains or losses resulting from changes in the foreign exchange rates between different currencies. Exposure to the currency risk results in a greater exposure mainly from operational activities (in which expenses, income, assets and liabilities are expressed in a currency other than the reporting currency of the Group), from transactions between these subsidiaries and other Group companies and from the existence of transactions with external parties made by the operational companies in a currency other than the reporting currency of the Group. The Group s currency risk management policy aims to reduce the sensitivity of its results in exchange rate variations. 54 // ANNUAL REPORT 2016 //

55 08 // Subsidiaries, in their day-to-day operational activities, seek to use their local currency. Likewise, loans contracted by foreign subsidiaries are preferably denominated in their local currency. Thus, allowing the matching of cash flows locally and consequently the elimination of the exchange rate risk of economic nature. In what regards exchange rates hedging, hedges are sporadic as their cost is sometimes considered excessive in relation to the risk level involved. However, whenever considered suitable, the Group contracts exchange rates hedging in order to cover the risk. During 2016, the worsening of the scarcity of tradable currencies in Angola stands out as a consequence of the maintenance of oil prices at very low levels. This high scarcity of tradable currencies had serious consequences in the devaluation of the Angolan currency (Kwanza), which forced Martifer Group to liquidate local suppliers in a timely manner in order to obtain a natural exchange rate hedge through local commercial transactions. The Group has been trying to mitigate this risk through financial instruments presented by its clients (e. g. letters of credit) in order to maintain the regular financial flow. Also in 2016, UK's announcement of Brexit and the US election triggered a climate of uncertainty that directly affected the appreciation of the British Pound and the US Dollar. The Group has managed to circumvent the risk of exposure to these currencies, taking advantage of the fact that many of the supplies are contracted in these currencies. C) INTEREST RATE RISK Interest rate risk reflects the possibility of changes in future interest charges on loans contracted due to the evolution of the market interest rate levels. The cost of financial debt contracted by the Group is indexed to short term base rates, reviewed yearly or less, plus a negotiated risk premium. Therefore, variations in interest rates may affect the Group s results. The Group s exposure to interest rates is related to financial liabilities contracted with a fixed and/or floating rate. In the first case, the Group faces a risk of fair value variation in these assets or liabilities, since every change in market rates involves an opportunity cost. In the second case, such change has a direct impact on interest value, consequently causing cash variations. During the year 2016, benchmark interest rates in the Euro Zone remained at very low levels in line with what has been seen in recent years. Thus, according to the European Central Bank's projections published in March 2017 ("March 2017 ECB staff macroeconomic projections for the euro area"), short-term interest rates are expected to remain negative until However, there are already in place growth forecasts for medium and long-term rates. Martifer Group's exposure to interest rate risk is currently very low, not only due to the expected maintenance of very low indexes, but also as a consequence of the restructuring agreements signed with the banks in 2015, which made it possible to temporarily stabilize the spreads at fairly competitive levels. D) LIQUIDITY RISK Liquidity risk reflects the Group s ability to satisfy its financial responsibilities with the financial resources available. The main goal of the liquidity risk management program is to ensure that the Group has available, whenever needed, the financial resources to satisfy its responsibilities and pursue the outlined strategies, honouring all its obligations towards third parties, through an adequate management of the financing cost/maturity ratio. As mentioned above, at the end of 2015 the Group restructured its debt with financial institutions, through the rescheduling of bank financing repayments over time, increasing the debt maturity in order to make it coincide with the long term assets continuity and at the same time to allow the cash surpluses to be sufficient to comply with its responsibilities. MAIN RISKS 55

56 // 08 Therefore, and having in mind the medium/long term features of the investments made, the debt service accompanies the maturity of the associated assets, not jeopardizing the commitments from its short-term operational activity in the pursuit of the Group s goal to adequate the inflows maturity of the operational activity and investment (divestment) to the outflows of the financing activity. As a consequence of the previously mentioned measures, it is verifiable that on 31 st December 2015, the Current Assets largely surpass the Current Liabilities. Therefore, the liquidity risk is quite reduced, due to Martifer s capacity to transform its short-term assents into liquidity. The financial direction accompanies the implementation of the risk management policies defined by the Board, in order to ensure that the economic and financial risks are identified, measured and managed according to those policies. E) CREDIT RISK The worsening of the worldwide economic conditions or the adversities affecting local, national and international economies can influence Martifer Group s Clients default rate, with possible negative impacts on the Group s results. The Group undergoes credit risk in its operational activity: Trade Receivables and Other Receivables. Aware of this reality, the Group tries to assess all its Clients credit risk in order to establish credit limits, with the ultimate purpose of ensuring the collection of the due amounts within the negotiated periods. With this objective in mind, the Group uses credit rating agencies, regular risk analysis and credit control and collects from and manages cases in litigation, procedures which are all considered essential to manage the credit conceded and to minimize the risk of credit default. OPERATIONAL RISKS A) METALLIC CONSTRUCTIONS Operational risks in the Metallic Constructions area, which also incorporated the energy equipment area as of 2011 and the naval area as of 2014, are currently divided into three risk sources clients, suppliers and external risks, which in turn are sub-divided into specific problems. Regarding the client risk one can identify, for example, issues at the contractual level, such as the lack of convergence in the interpretation and application of the contractual dispositions, the distaste or dissatisfaction with the service/product and also the risk of non-payment of the price stipulated following the delivery of the projects. In terms of demand volatility, it is important to note that the business area partly depends on the launch of public tenders for public infrastructures (e.g. bridges, airports, train stations). Within the scope of public tenders, Martifer is subject to complex regulatory demands, specific to each country, namely in matters concerning the presentation of the proposals and the preparation of complex administrative documentation files to satisfy the project s specifications defined by the contracting entity. This may represent additional costs for Martifer Group. It must be highlighted that, despite the dependence on public tenders, Martifer has been able to win deals from private parties, thereby reducing its exposure to this risk. Under the supplier risk, Martifer Construções as a specialist in engineering projects very often relies on subcontractors. If these fail in the execution of their work, the project s delivery deadline cannot be met, in a domino effect. In other words, there is also a risk of delays in delivering the projects, with the inherent contractual penalties. Finally, in terms of external risks and considering that the area of Metallic Constructions is strongly correlated with economic growth and with gross fixed capital formation, it is therefore sensitive to the current economic environment. Accordingly, the worsening of the sovereign debt crisis in Europe and the negative development of commodities price also raises other problems, namely the 56 // ANNUAL REPORT 2016 //

57 08 // austerity plans that imply severe transversal cuts in public investment and the significant decrease in liquidity throughout the financial system, which often causes highly attractive projects to be shelved due to lack of capital. In order to mitigate these risks, the Metallic Constructions area diversified its projects in different geographies, namely by entering markets that register stronger growth in the construction sector, such as Angola and Algeria, or even by visiting countries such as Saudi Arabia, which will allow to compensate both the effects of economic recession in Portugal and the economic slowdown in Europe. B) RENEWABLES The productivity indices associated with the renewable energy business depend not only on the operational costs, but also on its revenues (price and volume of energy produced by the assets). The equipment usage and other exogenous factors, such as the wind that, in turn, depends on the farm location, influence energy production and, consequently, influence its results. Whenever the wind speed is below or above the equipment s limits, no energy is produced. These limits vary according to the manufacturer and the type of turbine. Additionally, each turbine has a power curve that determines the generated power of each wind speed. The readiness and power curve of each turbine is contractually guaranteed, with indemnities being payable by the suppliers for situations where their readiness is not satisfied or the power curve is not attained. This risk is also mitigated through the geographical distribution of the wind turbines in the wind farms, allowing the set-off of wind velocity variations on each farm and ensuring the relative stability of the volume of the total produced energy. Regarding solar photovoltaic energy, the exogenous factors are more easily forecasted and therefore the revenues variation is minimized. LICENCING: Wind farms and solar parks are subject to rigorous regulations in matters such as their development, construction, licensing and operation. If the relevant authorities in the jurisdictions in which the Group operates stop or reduce their support in the development of wind farms and solar parks, such actions may have a significant impact on the activity. LEGAL RISKS Martifer is subject to national and local laws and regulations in the various geographies and markets where it operates. These aim to ensure, among other, labour rights, environment protection, spatial planning and the maintenance of an open and competitive market. Thus, the legal and regulatory changes that affect the conditions conducive to the development of the Groups activities and that consequently harm or impede the attainment of the strategic objectives require the Company to adapt to the new regulatory realities. The management of legal risk is carried out by the legal department of the holding company and of each of the Group s Business Areas and is monitored within the scope of reviews performed by internal legal and fiscal service providers dedicated to the respective activities, which operate in the dependence of the Board of Directors and of the Management, conducting their work in articulation with the other fiscal and financial departments, so as to ensure the protection of the Company s interests and ultimately those of the stakeholders, in strict compliance with their legal duties. The members of the legal departments and internal advisory service providers referred to above have specialized formal qualifications and undergo regular formal training and updating. Legal and fiscal advisory services are also ensured, nationally and internationally by external professionals, selected amongst reputable firms and in accordance with the highest standards of competence, ethics and experience. MAIN RISKS 57

58 // // ANNUAL REPORT 2016 //

59

60 // PROPOSAL OF RESULTS ALLOCATION The Board of Directors recommends to the General Shareholders Meeting, the allocation of the net profit resulting from the Individual Financial Information totalling of 31,655, Euros, recorded in 2016, as follows: Retained Earnings 31,655, Euros. The Board of Directors also proposes to the General Shareholders' Meeting that the aforementioned amount of the net result of 31,655, Euros and part of the negative retained earnings of previous years, in the amount of 154,844, Euros, totaling 186,500,000 Euros be covered by the application of the available balance sheet premium in the amount of 186,500,000 Euros. Oliveira de Frades, 5 th April 2017 The Board of Directors, Carlos Manuel Marques Martins (Chairman of the Board of Directors) Jorge Alberto Marques Martins (Vice-Chairman of the Board of Directors) Pedro Nuno Cardoso Abreu Moreira (Member of the Board of Directors) Arnaldo José Nunes da Costa Figueiredo (Member of the Board of Directors) Jorge Bento Ribeiro Barbosa Farinha (Member of the Board of Directors) Luís Valadares Tavares (Member of the Board of Directors) 60 // ANNUAL REPORT 2016 //

61

62 // OUTRAS INFORMAÇÕES BUSINESS DEVELOPED BY NON-EXECUTIVE MEMBERS OF THE BOARD OF DIRECTORS In addition to incorporating Martifer SGPS, SA s Board of Directors, almost every non-executive board member integrates, at least, one of the nominated Committees by the Board (Committee for Corporate Governance, Committee for Ethics and Conduct or Committee for Risk). Each of these Committee s rules are published in the Group s website and the functions and activities developed throughout 2016 are outlined in the Corporate Governance Report. Throughout the year, the non-executive members of the Board have shared and expressed relevant opinions regarding specific business segments based on their performance, the risks associated and the outlook, maintaining regular communication with the executive Board Members, and the Board Members and Directors of the business units. PERMITS GIVEN TO BUSINESS TRANSACTIONS BETWEEN THE COMPANY AND ITS BOARD MEMBERS, ACCORDING TO ARTICLE 397 OF THE PORTUGUESE COMPANIES CODE In 2016 there are no transactions subject to the 397 th regime of the Commercial Companies Code. OTHER INFORMATION Martifer SGPS, S.A. doesn t present any debt to the State or any other public entity, including Social Security. In addition to the audit services, the Chartered Accountant provided the following services to the Group permitted by law and by the regulations in force: Agreed procedures - Adjusted Financial Statements of Martifer Solar S.A. without assets of the United States Review of Prio Energy's EBITDA (procedure forecasted in the sale agreement celebrated in 2013) Review of covenants calculation of the company Eviva Nalbant Review of the IRC estimate in the company Martifer Renewables Brazil BV 62 // ANNUAL REPORT 2016 //

63

64 // MANDATORY INFORMATION SHAREHOLDINGS OF THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES In accordance with articles 447 and 448 of the Portuguese Companies Code, the securities issued by Martifer, SGPS, SA and companies dominated by it, held by members of the governing bodies in the period from 1 st January 2016 through to 31 st December 2016, are the following: HOLDER GOVERNING BODY NO. SHARES HELD ON 31/12/2016 Carlos Manuel Marques Martins* Board of Directors 420,542 Jorge Alberto Marques Martins Board of Directors 230,260 I M SGPS, S.A. ** Board of Directors 42,405,689 Arnaldo José Nunes da Costa Figueiredo Board of Directors 3,000 MOTA-ENGIL, SGPS, S.A. *** Board of Directors 37,500,000 Luís Valadares Tavares Board of Directors - Jorge Bento Ribeiro Barbosa Farinha Board of Directors - Pedro Nuno Cardoso Abreu Moreira Board of Directors - Américo Agostinho Martins Pereira Supervisory Board - Carlos Alberto da Silva e Cunha Supervisory Board - Paulo Sérgio Jesus das Neves Supervisory Board - António Baia Engana Supervisory Board - Hermínio António Paulos Afonso Statutory Auditor, representing PriceWaterhouseCoopers José Joaquim Neiva Nunes de Oliveira General Meeting - Luís Leitão Marques Vale Lima General Meeting - Luís Neiva Nunes de Oliveira General Meeting - * Shares held by the company Black & Blue Investimentos, S.A. (Carlos Manuel Marques Martins is a board member in this company and, together with his household, are sole shareholders). ** Directors Carlos Manuel Marques Martins and Jorge Alberto Marques Martins are holders of the share capital of I M SGPS, SA and are, respectively, its Chairman of the Board of Directors and Director. *** Arnaldo José Nunes da Costa Figueiredo is a member of the Board of MOTA-ENGIL, SGPS, S.A. - EVENTS DESCRIBED IN ARTICLE 447 OF THE PORTUGUESE COMPANIES CODE NAME OF THE MEMBER OF THE GOVERNING BODY GOVERNING BODY NO. SHARES HELD ON 31/12/2016 Carlos Manuel Marques Martins Board of Directors 420,542 Jorge Alberto Marques Martins Board of Directors 230,260 Pedro Nuno Cardoso Abreu Moreira Board of Directors - Arnaldo Nunes da Costa Figueiredo Board of Directors 3,000 Luís António de Valadares Tavares Board of Directors - Jorge Bento Ribeiro Barbosa Farinha Board of Directors - Carlos Alberto da Silva e Cunha Supervisory Board - Américo Agostinho Martins Pereira Supervisory Board - Paulo Sérgio Jesus das Neves Supervisory Board - António Baia Engana Supervisory Board - 64 // ANNUAL REPORT 2016 //

65 // Directors Carlos Manuel Marques Martins and Jorge Alberto Marques Martins, respectively Chairman and Vice-Chairman of the Board of Directors, besides the shares held as described above, are sole equal shareholders of I M SGPS, SA, that on 31 st December 2016 held a total of 42,405,689 shares of Martifer SGPS, S.A.. Transactions by the members of the governing bodies in 2016: In 2016 there were no transactions of shares by the members of the corporate bodies. HOLDERS OF QUALIFYING SHAREHOLDINGS According to paragraph 1b) of article 8 of CMVM regulation number 5/2008, and fulfilling article 448 of the Portuguese Companies Code, the following is the list of qualifying shareholders, with an indication of the number of shares and percentage of voting rights held, calculated according to article 20 of the Securities Code (CMVM), as of 31 st December 2016: SHAREHOLDERS NO. OF SHARES % OF SHARE CAPITAL % OF VOTING RIGHTS 1 I M SGPS, SA 42,405, % 43.37% Carlos Manuel Marques Martins* 420, % 0.43% Jorge Alberto Marques Martins* 230, % 0.24% Total Imputable to I M SGPS, SA 43,056, % 44.03% Mota-Engil SGPS, SA 37,500, % 38.35% Arnaldo José Nunes da Costa Figueiredo ** 3, % 0.00% Total Imputable to Mota-Engil, SGPS, SA 37,503, % 38.35% % Voting rights = No. Of held shares / (Total no. of Shares Own Shares) * Member of the Board of I M SGPS, S.A. ** Member of the Board of Mota-Engil SGPS,S.A. MANDATORY INFORMATION 65

66 // STATEMENT OF COMPLIANCE ACCORDING TO ARTICLE 245, NUMBER 1, PARAGRAPH C) OF THE SECURITIES CODE (CMVM) (Free translation from the original in Portuguese) Dear Shareholders, According to article 245, number 1, paragraph c) of the Securities Code (CMVM) and to the best of our knowledge: (i) The information contained in the consolidated management report faithfully reports the evolution of trading, the performance and the position of Martifer, SGPS, SA and of the companies in its consolidation perimeter and contains a description of the main risks and uncertainties facing its business; and (ii) The information contained in its individual and consolidated financial statements and accompanying notes was prepared in accordance with the applicable accounting practices, giving a true and fair view of the assets, liabilities, financial position and results of Martifer, SGPS, SA and of the companies included in its consolidation perimeter. Oliveira de Frades, 5 th April 2017 The Board of Directors, Carlos Manuel Marques Martins (Chairman of the Board of Directors) Jorge Alberto Marques Martins (Vice-Chairman of the Board of Directors) Pedro Nuno Cardoso Abreu Moreira (Member of the Board of Directors) Arnaldo José Nunes da Costa Figueiredo (Member of the Board of Directors) Jorge Bento Ribeiro Barbosa Farinha (Member of the Board of Directors) Luís Valadares Tavares (Member of the Board of Directors) 66 // ANNUAL REPORT 2016 //

67

68 // 68 // ANNUAL REPORT 2016 //

69

70 // CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENTS FOR THE YEARS AND 2 ND HALFS ENDED ON 31 ST DECEMBER 2016 AND 2015 (The consolidated financial statements were originally issued in Portuguese - Note 44) NOTES FY 2016 FY ND HALF 2016 (NON AUDITED) 2 ND HALF 2015 (NON AUDITED) Sales and services rendered 3 e 4 205,871, ,885, ,037,291 97,076,424 Other income 5 11,190,128 31,700,364 2,266,775 21,082,656 Cost of goods sold 6 (63,187,251) (67,803,434) (35,564,852) (30,975,088) Subcontractors 7 (62,806,422) (53,741,731) (34,197,216) (23,817,403) External supplies and services 8 (34,093,318) (53,677,811) (15,171,585) (26,300,061) Staff costs 9 (37,439,505) (51,027,329) (17,905,312) (22,325,975) Other expenses 10 (15,131,280) (14,946,252) (7,464,936) (12,135,716) 3 4,403,440 11,389, ,604,837 Amortizations 3, 18, 19 (10,741,029) (11,979,677) (5,091,652) (5,193,115) Provisions 3, 11, 33 1,302,664 2,510,217 (1,231,032) 2,987,680 Impairment losses 3, 11 (12,548,076) (2,438,713) (9,363,387) (2,347,197) Operating income 3 (17,583,001) (519,017) (15,685,906) (1,947,795) Financial income 12 4,654,707 19,324,708 (2,094,091) 16,120,235 Financial expenses 12 (12,088,037) (16,251,158) (5,683,653) (2,345,623) Gains/(losses) on associate companies and joint arrangements 3, 13 (23,909,279) (35,768) (23,646,928) (22,914) Profit before tax of continued operational units (48,925,610) 2,518,765 (47,110,578) 11,803,903 Income tax 14 (1,238,302) (545,697) (64,741) 129,497 Profit after tax of continued operational units 3 (50,163,912) 1,973,068 (47,175,319) 11,933,400 Earnings from discontinued operations 3, 28 (9,688,570) (800,771) (6,032,285) (865,500) Attributable to: non-controlling interests 28 (9,587,743) 192,574 (7,864,610) 349,739 owners of Martifer 28 (100,827) (993,345) 1,832,325 (1,215,239) Profit for the year 3 (59,852,482) 1,172,297 (53,207,604) 11,067,900 Attributable to: non-controlling interests 29 (16,267,343) 1,654,786 (12,861,327) 3,034,675 owners of Martifer 16 (43,585,139) (482,490) (40,346,276) 8,033,224 Earnings per share: 16 Basic and diluted (0.4457) (0.0049) (0.4126) from continued operations (0.4447) (0.4313) from discontinued operations (0.0010) (0.0102) (0.0124) The accompanying notes are part of these financial statements. 70 // ANNUAL REPORT 2016 //

71 11 // CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS AND 2 ND HALFS ENDED ON 31 ST DECEMBER 2016 AND 2015 (The consolidated financial statements were originally issued in Portuguese - Note 44) FY 2016 FY ND HALF 2016 (NON AUDITED) 2ND HALF 2015 (NON AUDITED) Profit for the year (59,852,482) 1,172,297 (53,207,603) 11,067,900 Amounts that will be reclassified by results Fair value of cash flow hedges (derivatives), net of tax (28,108) 137,271 8,138 1,326 Exchange differences arising from (i) translating foreign operations; (ii) net investment in subsidiaries and (iii) goodwill (1,019,143) (4,072,691) 533,257 (2,009,380) Income recognized directly in equity (1,047,250) (3,935,421) 541,394 (2,008,054) Total comprehensive income for the period (60,899,732) (2,763,124) (52,666,209) 9,059,846 Attributable to: non-controlling interests (16,756,336) 194,182 (12,664,257) 2,380,980 owners of Martifer (44,143,397) (2,957,306) (40,001,952) 6,678,865 Total comprehensive income for the period from continued operations (44,204,978) (1,971,719) (39,852,344) 8,169,009 from discontinued operations (16,694,754) (791,405) (12,813,865) 890,837 The accompanying notes are part of these financial statements. CONSOLIDATED FINANCIAL STATEMENTS 71

72 // 11 CONSOLIDATED STATEMENTS OF THE FINANCIAL POSITION FOR THE YEARS ENDED ON 31 ST DECEMBER 2016 AND 2015 (The consolidated financial statements were originally issued in Portuguese - Note 44) NOTES FY 2016 FY 2015 ASSETS Non-current assets Goodwill 17 10,980,675 10,980,675 Intangible assets 18 2,407,152 2,904,590 Tangible fixed assets ,977, ,147,425 Investment properties 20 20,826,300 25,951,708 Financial assets under the equity method 3, 21 4,848,908 3,150,644 Available for sale investments 22 6,009,794 4,266,234 Other non-current receivables 24 32,761,393 36,662,933 Deferred tax assets 14 4,854,801 5,942, ,666, ,006,415 Current assets Inventories 23 8,222,869 8,657,442 Trade receivables 24 71,092,276 74,986,130 Other receivables 24 40,658,733 52,761,111 Income tax 14, ,394 1,029,684 Current tax assets 25 6,355,573 5,872,971 Other current assets 26 25,820,407 36,029,340 Cash and cash equivalents 27 53,087,694 40,549,549 Derivatives 37 3,221 31,114 Non-current assets held for sale ,707, ,792, ,624,683 Total assets 3 417,458, ,631,099 EQUITY Issued capital 50,000,000 50,000,000 Share premium 186,500, ,500,000 Treasury stock (2,868,519) (2,868,519) Reserves (197,790,042) (193,099,200) Profit for the year (43,585,139) (482,490) Equity attributable to owners of Martifer (7,743,700) 40,049,791 Non-controlling interests (30,169,515) (26,500,022) Non-controlling interests attributable to non-current assets held for sale 28 - (1,877,184) Total equity (37,913,215) 11,672,584 LIABILITIES Non-current liabilities Borrowings ,546, ,818,851 Obligation under finance leases 31 12,876,453 10,235,296 Trade payables and Other payables 32 11,230,557 11,667,063 Provisions 33 19,325,876 19,973,592 Deferred tax liabilities , , ,936, ,611,101 Current liabilities Borrowings 30 15,502,287 13,828,525 Obligation under finance leases 31 25, ,858 Trade payables 32 59,908,138 61,211,154 Other payables 32 11,662,550 16,550,243 Income tax ,330 2,257,208 Current tax liabilities 35 3,266,242 2,972,076 Other current liabilities 36 59,209,750 41,559,999 Derivatives Liabilities related with non-current assets held for sale ,979, ,435, ,347,414 Total liabilities 3 455,372, ,958,514 Total equity and liabilities 417,458, ,631,099 The accompanying notes are part of these financial statements 72 // ANNUAL REPORT 2016 //

73 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED ON 31 ST DECEMBER 2016 AND 2015 (The consolidated financial statements were originally issued in Portuguese - Note 44) 11 // ISSUED CAPITAL SHARE PREMIUM TREASURY STOCK FAIR VALUE RESERVES CASH FLOW HEDGE DERIVATIVES FOREIGN CURRENCY TRANSLATION RESERVES OTHER RESERVES NET PROFIT OF THE YEAR EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT NON- CONTROLLING INTERESTS Balance on 1st January ,000, ,500,000 (2,868,519) 4,004 (19,282,953) (80,526,421) (93,535,824) 40,290,287 (24,942,297) 15,347,990 Appropriation of the profit of (93,535,824) 93,535, TOTAL EQUITY COMPREHENSIVE INCOME FOR THE YEAR Profit for the year (482,490) (482,490) 1,654,786 1,172,296 Exchange differences arising from (i) translating foreign operations and (ii) net investment in subsidiaries (2,596,242) - - (2,596,242) (1,510,281) (4,106,524) Exchange differences arising on goodwill , ,608 15,225 33,833 Other changes in equity of parent company and subsidiaries ,034-85, ,818 34, ,271 Total comprehensive income for the year ,034 (2,577,635) 85,784 (482,490) (2,957,306) 194,182 (2,763,125) Share capital increase in subsidiaries , ,200 Other changes in equity of parent company and subsidiaries (574,435) - (574,435) - (574,435) Changes in the consolidation perimeter ,291,250-3,291,250 (4,072,288) (781,038) Non-controlling interests transactions (5) - (5) (2) (8) Balance on 31 st December ,000, ,500,000 (2,868,519) 21,038 (21,860,588) (171,259,650) (482,490) 40,049,791 (28,377,206) 11,672,585 Balance on 1st January ,000, ,500,000 (2,868,519) 21,038 (21,860,588) (171,259,650) (482,490) 40,049,791 (28,377,206) 11,672,585 Appropriation of the profit of (482,490) 482, COMPREHENSIVE INCOME FOR THE YEAR Profit for the year (43,585,139) (43,585,139) (16,267,343) (59,852,482) Exchange differences arising from (i) translating foreign operations and (ii) net investment in subsidiaries Other changes in equity of parent company and subsidiaries (537,220) - - (537,220) (481,923) (1,019,143) (21,038) (21,038) (7,070) (28,108) Total comprehensive income for the year (21,038) (537,220) - (43,585,139) (44,143,397) (16,756,336) (60,899,732) Other changes in equity of parent company and subsidiaries (180,032) - (180,032) (80,524) (260,557) Changes in the consolidation perimeter (3,470,062) - (3,470,062) 15,044,551 11,574,489 Balance on 31 st December ,000, ,500,000 (2,868,519) - (22,397,808) (175,392,235) (43,585,139) (7,743,700) (30,169,515) (37,913,215) The accompanying notes are part of these financial statements CONSOLIDATED FINANCIAL STATEMENTS 73

74 // 11 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS AND 2 ND HALFS ENDED ON 31 ST DECEMBER 2016 AND 2015 (The consolidated financial statements were originally issued in Portuguese - Note 44) NOTES FY 2016 FY ND HALF 2016 (NON AUDITED) 2 ND HALF 2015 (NON AUDITED) OPERATING ACTIVITIES Receipts from customers 256,842, ,274, ,839, ,320,008 Payments to suppliers (178,305,871) (197,332,517) (81,679,245) (86,733,122) Payments to employees (38,211,316) (51,898,967) (18,857,782) (24,611,979) Cash generated from operations 40,325,089 31,042,817 12,302,589 18,974,906 Income tax paid/received (1,026,212) (1,160,709) (560,803) (329,316) Other receipts/(payments) relating to operating activities (14,528,309) (2,318,336) (12,286,493) (4,948,558) Cash generated from other operating activities (15,554,521) (3,479,045) (12,847,296) (5,277,874) Net cash generated by operating activities from discontinued operations 28 (14,010,816) 11,175,384 (8,086,357) 17,697,327 Net cash generated by operating activities (1) 10,759,752 38,739,156 (8,631,063) 31,394,359 INVESTING ACTIVITIES Receipts arising from: Financial assets 42 6,701,645 10,740,108 3,712,849 9,619,182 Intangible assets Tangible fixed assets 4,741,381 2,814,668 1,411,802 1,327,866 Interest and similar income 2,892, , ,122 (309,702) Others 248, ,392 (536,248) (2,613) 14,584,351 14,440,766 5,452,525 10,635,001 Payments arising from: Financial assets 42 (2,035,789) - (1,427,942) - Tangible fixed assets (3,956,180) (4,502,497) (1,778,450) (896,135) Intangible assets (95,549) (348,219) (32,505) (299,999) Others (217,006) (104,049) (14,157) 243,077 (6,304,524) (4,954,765) (3,253,054) (953,057) Net cash generated by investing activities from discontinued operations 28 5,150,739 1,222,829 4,791, ,652 Net cash generated by investing activities (2) 13,430,566 10,708,830 6,990,964 10,377,596 FINANCING ACTIVITIES Receipts arising from: Borrowings 7,845, ,187,666 4,077, ,682,057 Others 9,489 49,010 (2,986,476) 6,417 7,855, ,236,676 1,090, ,688,474 Payments arising from: Borrowings (21,445,056) (250,723,853) (8,886,221) (139,062,544) Leasings (963,569) (1,492,745) (395,492) (1,157,294) Interest and similar costs (7,831,980) (10,588,202) (3,267,900) (5,129,616) Others (229,117) (23,873) (188,819) (12,463) (30,469,722) (262,828,673) (12,738,432) (145,361,917) Net cash generated by financing activities from discontinued operations 28 3,220,911 (5,082,561) 8,454,326 (13,624,700) Net cash generated by financing activities (3) (19,393,331) (16,674,558) (3,193,541) (14,298,143) Net increase in cash and cash equivalents (4)=(1)+(2)+(3) 4,796,987 32,773,428 (4,833,640) 27,473,812 Changes in the consolidation perimeter and others (1,952,166) (7,455,930) 10,302,051 (7,486,275) Effect of foreign exchange currencies (2,397,278) (1,133,591) (440,285) (547,579) Cash and cash equivalents at the beginning of the period 52,640,152 28,456,245 48,059,568 33,200,193 Cash and cash equivalents at the end of the period from continuing operations 27 53,087,694 40,549,549 53,087,694 40,549,549 from discontinued operations 28-12,090,603-12,090,603 The accompanying notes are part of these financial statements 74 // ANUAL REPORT 2016 //

75

76 // NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INTRODUCTORY NOTE Martifer SGPS, S.A., with its registered head office at Zona Industrial, town of Oliveira de Frades, in Portugal ( Martifer SGPS or Company ), and its group of companies (all denominated Group ), have as their main activities metallic constructions (steel structures, aluminium and glass façades, infrastructures for oil & gas and naval industry) and the promotion and development of renewable energy projects (Note 3). Martifer SGPS was incorporated on 29 th October 2004, having its share capital been realized through the delivery of market valued shares that the shareholders held in Martifer Construções, S.A., a company that was incorporated in 1990 and which at that time was the holding company of the current Martifer Group. As of the Initial Oublic Offering in June 2007, the Martifer SGPS, S.A. shares have been listed on Euronext Lisbon. In September 2014, Martifer SGPS s Board of Directors decided, following the strategy to focus on the metallic constructions area, to sell its stake in Martifer Solar (composed by Martifer Solar S.A. and its subsidiaries, 55% held by the Group). As the sale was highly likely, and the requirements of IFRS 5 were fulfilled, Martifer Solar s assets and liabilities were classified as non-current assets held for sale and liabilities associated to non-current assets held for sale, respectively, being Martifer Solar s Net Profit presented as discontinued operations result (Note 28). In August 2016, Martifer Solar, SA and its subsidiaries were sold, except for Martifer Solar Inc. and Martifer Silverado Fund LLC, which have been subsidiaries of the company Duelobrigatório, SA since July 2016, and this company is 55% owned by the Group. But in relation to which there is a shareholders agreement that determines the shared control, therefore, it was included in the consolidation by the equity equivalence method. On 31 st December 2016, the Group develops its activity mainly in Western Europe (in Portugal, in Spain, in France and in the United Kingdom), in Eastern Europe (in Slovakia and in Romania), in the Middle East (in Saudi Arabia), in Latin America (in Brazil), in the Sub-Saharan Africa (in Angola and in Mozambique) and in Algeria. All the amounts presented in these notes are expressed in Euros (rounded to the unit), unless otherwise indicated. 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION These accompanying consolidated financial statements relate to the consolidated financial statements of Martifer Group and were prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union, in force at the beginning of the economic period started on 1 st January These are the International Financial Reporting Standards that were issued by the International Accounting Standards Board (IASB) and whose interpretations were issued by the IFRS Interpretations Committee (IFRIC) or by the previous Standing Interpretations Committee (SIC) that have been endorsed by the European Union. These consolidated financial statements have been prepared from the books and accounting records of the companies included in the consolidation (Note 2) on the assumption of continuity of operations, despite the fact that Equity is negative, since as mentioned in Note 1 xxvi, item d), the Group has sufficient funds to cover its liabilities, and based on the historical cost, except for the revaluation of certain non-current assets and certain financial instruments that are recorded at fair value. The accounting policies and mensuration criteria adopted by the Group in the 2016 financial period are consistent with those applied in the financial statements of the previous financial period, presented for comparative purposes, except in respect of the standards and interpretations entering into force on or after 1 st January 2016, the adoption of which has not had a significant impact on the Group s comprehensive income or financial position. 76 // ANUAL REPORT 2016 //

77 12 // Impact of adopting the amendments to the standards that became effective as of 1 st January 2016: EFFECTIVE DATE IAS 1 Presentation of the financial statements IAS 16 and IAS 38 Amortization / depreciation calculation methods IAS 16 and IAS 41 Agriculture: Plants that produce consumable biological assets IAS 19 - Defined benefit plans: employee contributions IAS 27 Separate financial statements Amendments to IFRS 10, 12 and IAS 28: Investment Entities - application of the consolidation exemption IFRS 11 Joint agreements Improvements in norms Improvements in norms The change in IAS 1 Presentation of Financial Statements includes guidelines related with the materiality and aggregation, the presentation of subtotals, the structure of the financial statements, the release of accounting policies and the presentation of the items for other comprehensive income generated by investments measured by the equity method. The amendment to IAS 16 and to IAS 38 allowed 'Amortization/depreciation calculation methods' clarifies that the use of depreciation/amortization calculation methods of assets based on the revenue obtained, are normally not considered adequate for the measurement of the consumption pattern of the economic benefits associated with the asset. It is of prospective application. The amendment to IAS 16 Tangible Fized Assets and to IAS 41 - 'Agriculture: Plants that produce consumable biological assets' defines the concept of a plant that produces consumable biological assets, and transfers such assets from the scope of IAS 41 - Agriculture to IAS 16 - Tangible Assets, with the consequent impact on the respective measurement. However, the biological assets produced by these plants remain within the scope of IAS 41 - Agriculture. The amendment in IAS 19 - 'Defined benefit plans: employee contributions' applies to the contributions of employees or of third parties to defined benefit plans and aims to simplify the accounting of contributions that are independent of the number of years of service. The amendment to IAS 27 - Separate Financial Statements, allows the use of the equity method in the accounting of participation in subsidiaries, joint ventures and associated companies, in the preparation of separate financial statements. This amendment applies retrospectively. Amendments to IFRS 10, 12 and IAS 28 - 'Investment Entities: Application of the Exemption to the Obligation to Consolidate' clarify that the exemption from the obligation to consolidate an 'Investment Entity' applies to an intermediate holding company which is a subsidiary of an investment entity. In addition, the option to apply the equity method, in accordance with IAS 28, can be extended to an entity that is not an investment entity but which holds a participation in an associate company or a joint venture that is an "Investment Entity ". The amendment to IFRS 11 - 'Joint Arrangements' introduces guidance on the accounting of the acquisition of interest in a joint transaction that qualifies as a business, and the principles of IFRS 3 concentration of business activities are applicable. The improvements in norms are the result of annual improvement projects implemented in the cycle, which affected the following standards: 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. The improvements in norms affect the following standards: IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting. The company estimates that the future adoption of these standards will not have a significant impact in its consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 77

78 // 12 Published standards, the application of which is mandatory for annual periods beginning on or after 1 January 2017, which the European Union has already endorsed: EFFECTIVE DATE IFRS 9 Financial instruments IFRS 15 Revenue from contracts with customers IFRS 9 (new) - Financial Instruments replaces the requirements of IAS 39, relating to: (i) the classification and measurement of financial assets and liabilities; (ii) the recognition of impairment on receivables (through the expected loss model); and, (iii) the requirements for recognition and classification of hedge accounting. IFRS 15 (new) Revenue from Contracts with Customers is applied only to contracts for the delivery of products or provision of services and demands that the entity registers the revenue when the contractual obligation of delivering assets or the rendering services is fulfilled, by the amount that reflects the consideration to which the entity is entitled, as provided in the five steps methodology. The company estimates that the future adoption of these standards will not have a significant impact in its consolidated financial statements. Norms (new and amended) and published interpretations, the application of which is mandatory for annual periods beginning on or after 1 st January 2017, but which the European Union has not yet endorsed EFFECTIVE DATE IAS 7 - Statement of Cash Flows IAS 12 - Income tax IAS 40 - Investment Property IFRS 2 - Share-based payments IFRS 4 - Insurance contracts (application of IFRS 4 with IFRS 9) Changes to IFRS 15 - Revenue from contracts with clients IFRS 16 - Leasings Improvements to norms / The amendment to IAS 7 - 'Statement of cash flows' - revision of the disclosures is still subject to the process of endorsement by the European Union. This amendment introduces an additional disclosure on the changes in the funding liabilities, disaggregated between transactions that gave rise to cash flows and those that did not, and how this information reconciles with the cash flows from the financing activities of the Statement of Cash Flows. The amendment to IAS 12 - 'Tax on income' - Recognition of active deferred taxes on potential losses, is still subject to the process of endorsement by the European Union. This amendment clarifies how to account active deferred taxes related to assets measured at fair value, how to estimate future taxable income when there are temporary deductible differences and how to assess the recoverability of active deferred taxes when there are restrictions in the tax law. The amendment to IAS 40 - 'transfer of investment property' is still subject to the process of endorsement by the European Union. This amendment clarifies that assets can only be transferred to and from the investment property category when there is evidence of change in use. The sole change of management intention is not enough to make the transfer. The amendment to IFRS 2 - Classification and measurement of 'share-based payments' transactions is still subject to the process of endorsement by the European Union. This amendment clarifies the measurement basis for cash-settled share-based payment transactions and the accounting for changes to a share-based payment plan that change its cash-settled classification to be settled with equity (equity-settled). In addition, it introduces an exception to the principles of IFRS 2, which requires that an action-based payment plan be treated as if it were fully equity-settled, when the employer is required to withhold an amount of tax from the employee and to pay that amount to the tax authorities. The amendment to IFRS 4 - 'Insurance contracts (application of IFRS 4 and IFRS 9)' is still subject to the process of endorsement by the European Union. This amendment gives the entities that negotiate insurance contracts the option to recognize in the Other Comprehensive Income instead of recognizing in the Profit and Loss Account, the volatility that may result from the application of IFRS 9 before the new standard on insurance contracts is published. In addition, a temporary exemption is granted to the 78 // ANUAL REPORT 2016 //

79 12 // application of IFRS 9 until 2021, to the entities whose predominant activity is insurance. This exemption is optional and does not apply to the Consolidated Financial Statements that include an insurance entity. The amendments to IFRS 15 - 'Revenue from customer contracts' are still subject to the process of endorsement by the European Union. These amendments refer to the additional indications to be followed in the determination of the performance obligations of a contract, at the moment of the recognition of the revenue from an intellectual property license, refer to the review of the indicators for the classification of the main relationship versus agent, and refer to the new foreseen regimes to simplify the transition. The (new) standard IFRS 16 - 'Leases' is still subject to the process of endorsement by the European Union. This new standard replaces IAS 17 with a significant impact on accounting by lessees who are now required to recognize a lease liability reflecting future lease payments and a "right of use" asset for all lease contracts, except certain short-term leases and low-value assets. The definition of a lease contract has also been modified, based on the "right to control the use of an identified asset." Improvements to the standards - this cycle of improvements is still subject to the process of endorsement by the European Union. This cycle of improvements affects the following standards: IFRS 1, IFRS 12 and IAS 28. Management is analyzing the impact, if any, on the consolidated financial statements. Interpretations: EFFECTIVE DATE IFRIC 22 Transactions in foreign currency and prepayment The interpretation of IFRIC 22 (new) - 'Transactions in foreign currency and prepayment' is still subject to the process of endorsement by the European Union. This is an interpretation of IAS 21 'The effects of changes in exchange rates' and refers to the determination of the 'transaction date' when an entity pays or receives in advance the prepayment of contracts denominated in foreign currency. The "transaction date" determines the exchange rate to be used to convert the transactions into foreign currency. The consolidated financial statements are presented in Euros since this is the main currency of the Group s operations. The financial statements of Group companies expressed in foreign currency were converted to Euros in accordance with the accounting policies described in Note 1 xiv). In the preparation of the consolidated financial statements, in accordance with IAS/IFRS, the Group s Board of Directors adopted certain assumptions and estimates that can affect the assets and liabilities reported, as well as the profits and losses incurred in the reporting periods (Note 1 xxvi). All the Board of Directors estimates and assumptions were made taking into consideration the best knowledge and information available at the financial statements approval date. The accompanying consolidated financial statements were prepared for appreciation and approval at the annual Shareholder s General Meeting. The Board of Directors approved them for issuance on 5 th April 2017 and believes that these will be approved without any changes. BASIS OF CONSOLIDATION The Group s consolidation methods are as follows: a) Group companies Investments in the companies which the Group owns and is able to establish the financial and operational policies (definition of control normally used by the Group) are included in the consolidated financial statements using the full consolidation method. The Equity and Net Profit attributable to minority shareholders are shown separately in the consolidated statement of financial position (in the equity caption non-controlling interests ) and in the consolidated income statement (included in the consolidated net profit attributable to non-controlling interests) respectively. Companies included in the consolidated financial statements using the full consolidation method are listed in Note 2. In business combinations occurring after 1 st January 2004 and until 31 st December 2010, the assets and liabilities of each subsidiary (including contingent liabilities) are measured at fair value on the date of acquisition as established in IFRS 3. Any excess/deficit of the cost of the business combination over the Group s interest in the fair value of the identifiable assets and NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 79

80 // 12 liabilities acquired is recognized as Goodwill or, when identified, added to the asset that originated such difference. Any excess of the Group s share in the fair value of the identifiable assets acquired over the cost of the business combination (Badwill) is recognized as income in the income statement for the year, after the reassessment of the estimated fair value. Non-controlling interests include their proportion of the fair value of net identifiable assets, liabilities and contingent liabilities determined at the date of acquisition of the Group companies. In business combinations occurring after 1 st January 2011 (IFRS 3R), any excess of the cost of the business combination, of the fair value of any investment held before the acquisition of control and of the value of non-controlling interests, over the fair value of assets, liabilities and identifiable contingent liabilities is recognized as Goodwill. If the cost of the business combination, the fair value of any investment held before the acquisition of control and the value of non-controlling interests, is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the income statement for the year. Transaction costs arising in business combinations occurring after this date are recognized as an expense when incurred. Transactions of disposal or acquisition of shares to/from non-controlling interests do not result in the recognition of gains, losses or Goodwill and in any difference between the value of the transaction and the carrying value of the investment traded is recognized in equity. The negative results generated in each period by subsidiaries with non-controlling interests are allocated, based on the percentage held, to non-controlling interests, even if these become negative. The results of the Group companies acquired or disposed of during the year are included in the consolidated income statement as of the date of their acquisition and up to the date of their disposal. Adjustments to the financial statements of Group companies are carried out, whenever necessary, in order to adapt their accounting policies to those used by the Group. All intra-group transactions, balances and distributed dividends are eliminated in the consolidation process. Whenever the Group has, in substance, control over other entities incorporated for a specific purpose, even if no share capital interests are directly held in those entities, they are consolidated using the full consolidation method. On 31 st December 2016, there are no entities in this situation. b) Associate and jointly controlled companies Investments in associate companies (companies in which the Group has significant influence but does not have control over the financial and operational decisions - mainly investments representing between 20% and 50% of the company s share capital) and in jointly controlled companies (companies in which the Group shares control with other partners) are included in the accompanying consolidated financial statements in accordance with the equity method in the caption Investments in associate companies and joint arrangements. Under the equity method, investments are recorded at cost, adjusted by the amount corresponding to the share of changes in equity and net profit of associate and jointly controlled companies and by the dividends received, net of impairment losses. The assets and liabilities of each associate and jointly controlled company (including contingent liabilities) are identified at their fair value on the acquisition date. Any excess of the cost of acquisition over the Group s share of the fair value of the identifiable assets and liabilities of the associate companies is recognized at the date of acquisition as Goodwill. This Goodwill is included in the carrying amount of the investment in associate companies and joint arrangements and analysed annually for recoverability as part of the financial asset. Any excess of the Group s share of the fair value of the identifiable assets and liabilities over the cost of the business combination (Badwill) after reassessment, is immediately recognized in the income statement. An assessment of the investments in associate and jointly controlled companies is carried out whenever there is evidence that the asset might be impaired. Any impairment loss detected is recorded in the income statement. When the Group s share of losses exceeds the carrying amount of the investment, such investment is reported at nil value for as long as the equity of the associate or jointly controlled company is negative, except when the Group has assumed commitments in respect of the said associate or jointly controlled company(ies). In this case, a provision is recorded for those commitments. The Group s share of unrealized gains arising from transactions with associate and jointly controlled companies is eliminated. Unrealized losses are eliminated, but only to the extent that there is no evidence of impairment of the assets transferred. Investments in associate and jointly controlled companies which are consolidated using the equity method are listed in Note // ANUAL REPORT 2016 //

81 12 // MAIN ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES The main accounting policies, judgements and estimates used in the preparation of the Group s consolidated financial statements for the periods presented are as follows: i) Goodwill The excess of the cost of acquisition over the Group s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of associate companies or jointly controlled companies at the date of acquisition, is recorded in the caption Goodwill (in the case of investments in subsidiaries) or in the caption Investments in associate companies and joint arrangements (in the case of investments in associate companies or jointly controlled companies). Goodwill arising from acquisitions prior to the date of transition to IFRS (1 st January 2004) or Goodwill arising from the constitution of the Group is recorded at its net carrying amount, calculated in accordance with generally accepted accounting principles in Portugal, and is subject, as of that date, to annual impairment tests. Goodwill is not amortized but it is subject to impairment tests on an annual basis when its carrying amount is compared to its recoverable amount. Impairment losses identified during the year are recorded in the income statement in the caption Provisions and impairment losses. The recoverable amount is the highest between the fair value minus the cost to sell and minus the value in use. The fair value minus the cost to sell is the amount that could be obtained in an arms-length transaction. The value in use is the present value of the estimated future cash flows from the continuous use of such asset and from its sale at the end of its life-cycle. The recoverable amount is estimated individually for each asset, or when this is not possible, for the cash-generating unit to which the asset belongs. Impairment losses relating to Goodwill can not be reversed. Goodwill resulting from investments in Group companies, jointly controlled entities and associate companies, with headquarters abroad and the fair value of the identifiable assets and liabilities of these companies at the date of their acquisition are recorded in the operating currency of those companies and they are converted to the Group s reporting currency, the Euro, at the exchange rate in force on the date of the statement of the financial position. The exchange rate differences generated in this translation are recorded in the caption "Shareholders' equity - 'Foreign exchange translation reserves'. ii) Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount is to be recovered through a sale transaction rather than through their continued use. Nevertheless, such classification requires that the sale be highly probable and that the asset (or disposal group) is available for immediate sale in its present condition. In addition, the Board of Directors must be committed to the sale, which should occur in the short-term (normally, but not exclusively, within one year from the date of that classification). Non-current assets (and disposal groups) classified as held for sale are measured at the lowest of their carrying amount and their fair value minus the cost to sell and are not amortised or depreciated during the period they are classified as held for sale. iii) Intangible assets Intangible assets are stated at their acquisition cost, net of depreciation and accumulated impairment losses. Intangible assets are only recognized if they are controlled by the Group and if their cost can be reliably measured. Intangible assets comprise mainly software and other rights, which are depreciated on a straight-line basis over a 3-year period, and costs incurred obtaining licences to explore wind farms, which are depreciated in line with the granted license period (currently 20 years). Costs incurred with the licensing of wind farms are recognized as intangible assets if, and only if, all of the following requirements have been fulfilled: - economic feasibility studies confirm that the wind farms will generate future economic benefits; - the Group has the technical and financial capacity to install and explore those wind farms; and - the expenditure attributable to the wind farms during the licencing phase can be reliably measured. Expenditure on research and installation activities related with wind farms is recognized as an expense in the year in which it is incurred. The remaining research expenses are recognized as costs in the year in which they are incurred. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 81

82 // 12 Intangible assets acquired in a business combination are identified and recognized separately from Goodwill if their fair value can be reliably measured. The cost of such intangible assets is the fair value on the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are recorded at cost minus accumulated amortization and minus impairment losses, on the same basis as intangible assets acquired separately. These assets are depreciated on a straight-line basis, usually during the period over which the economic benefits are expected to occur. iv) Tangible assets Tangible assets are recorded at their acquisition cost, net of depreciation and accumulated impairment losses. The Group did not register provision for the dismantling of wind farms or solar parks, since it does not currently have any legal or contractual obligation to dismantle these assets. Depreciation is calculated on a straight-line basis over the assets life-cycle, and land is not subject to depreciation. Tangible assets in progress are fixed assets still under construction/development and are recorded at their acquisition cost, net of impairment losses. Those assets are depreciated as of the moment they become available for use with the quality and technical conditions required to operate efficiently. Depreciation is calculated on a straight-line basis, over the expected useful life for each class of tangible assets. The useful life is estimated taking into consideration the expected use of each class of tangible assets, as well as their natural consumption and technical obsolescence. The depreciation rates used correspond to the following estimated life-cycles: Buildings Equipment: Basic equipment Transportation equipment Tools and dies Office equipment Other tangible assets: Equipment installed in wind farms and solar parks Other tangible assets 20 to 50 years 3 to 7 years 4 to 5 years 3 to 5 years 3 to 10 years 15 to 20 years 3 to 10 years Maintenance and repair costs that neither increase the life-cycle nor create significant improvement in tangible assets are recognized as costs in the year in which they occur. v) Leases Leases are classified as (i) finance leases whenever the terms of the lease substantially transfer all the risks and rewards of ownership to the lessee. All other leases are classified as (ii) operating leases. A lease is classified as finance or operating depending on the substance of the transaction rather than on the form of the contract. Fixed assets acquired under finance lease contracts and the related liabilities are recorded in accordance with the financial method. Under this method the tangible assets, the corresponding accumulated depreciation (as defined in iii) and iv) above) and the liabilities are recorded in accordance with the contracted financial plan. In addition, the interest included in lease payments and the depreciation of the tangible assets are both recognized as expenses in the income statement of the year to which they relate. Assets under long-term rental contracts are recorded in accordance with the operational lease method. In accordance with this method, the rents paid are recognized as expenses over the rental period. vi) Investment properties An investment property is a property held to earn rentals and/or for capital appreciation and not for use in the course of current operations. 82 // ANUAL REPORT 2016 //

83 12 // Investment property is initially measured at cost, including transaction costs. Subsequent to the initial recognition, investment property is measured at fair value, and gains or losses arising from changes in the fair value are included in the income statement of the period in which they arise. Costs incurred with investment property (maintenance, repair, insurance and property tax), as well as the related revenue and rental income are included in the income statement of the period in which they arise. vii) Financial assets and liabilities Financial assets and liabilities are recognized in the Group s statement of financial position when, and only when, the Group is a contractual party to the instrument. a) Financial instruments: The Group classifies financial instruments in the following categories: Financial investments at fair value through profit or loss, Borrowings and receivables, Held-to-maturity investments and Available-for-sale investments. The classification depends on the intention inherent to the investment s acquisition. The classification is made at the initial recognition and reappreciated on a quarterly basis. Financial assets at fair value through profit or loss: this category is divided into two: financial assets classified as held for trading and financial assets designated by the Group at fair value through profit or loss. A financial asset is classified under this category, namely if it is acquired for the purpose of selling it in the short-term. Derivatives are also classified as instruments held for trading, except if designated as effective hedging instruments. Financial instruments in this category are classified as current if they are held for trading or if it is expected that they are going to be realized within twelve months of the end of the reporting period; Held-to-maturity financial assets: this category includes financial assets, non-derivative, with fixed or variable reimbursements with a fixed maturity, and which the Board of Directors intends to hold to maturity. Available-for-sale financial assets: these include financial assets, non-derivative, that are designated as available-for-sale and those that are not classified as borrowings and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. This category is classified as non-current, unless the Board of Directors intends to sell them within 12 months from the end of the reporting period. Held-to-maturity financial assets are classified as non-current, unless their maturity is less than a year from the end of the reporting period. Financial assets designated by the Group at fair value through profit or loss are classified as current in the statement of financial position. All purchases and sales of financial instruments are recognized on the trade date, this means on the date when the Group assumes the risks and obligations inherent to the acquisition and disposal of the assets. These investments are initially measured at cost, which is the fair value of the consideration paid for it, including transaction costs, with the exception of Financial investments at fair value through profit or loss. In the latter, the financial assets are initially recognized at their fair value and the transaction costs are recognized in the income statement. Financial investments are derecognized when the right or obligation to receive or pay financial flows, respectively, has expired or has been transferred, and therefore, all the risks and benefits have been transferred. Available-for-sale financial assets and Financial assets at fair value through profit or loss are subsequently measured and recorded in the financial statements at fair value. Gains and losses, realized or not, resulting from a change in the fair value of the Financial investments at fair value through profit or loss are recognized in the income statement of the year. Gains and losses resulting from a change in the fair value of Available-for-sale assets are recognized directly in the statement of comprehensive income, under the caption Fair value reserves - Available-for-sale assets until the investment is sold, received or in any way alienated, at which moment the accumulated gain or loss is recognized in the income statement. The fair value of financial assets is based on current market prices. If the market on which the investments are traded is not active (no quoted price exists), the Group establishes the instrument s fair value using other valuation techniques such as recourse to similar transactions, discounted cash flow analysis or the use of option pricing models to reflect the specific circumstances. The fair value of listed investments is calculated using the closing price on Euronext Lisbon at the end of the reporting period. To determine the fair value of a financial asset or liability when there is an active market, the market price is applied. This constitutes level 1 of the hierarchy of fair value, as defined in IFRS 13 - Fair value: mensuration and disclosure. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 83

84 // 12 If the market on which the investments are traded is not active, which is the case of some financial assets and liabilities, valuation techniques generally accepted in the market, based on market assumptions, are used. This constitutes level 2 of the hierarchy of fair value, as defined in IFRS 13. The Group applies valuation techniques for unlisted financial instruments, such as derivatives, financial investments at fair value through profit or loss and available-for-sale investments. The most frequently used valuation models are discounted cash flow analysis and option valuation models which incorporate market information such as interest rate curves. For some complex financial instruments, complex valuation models with assumptions and information that is not directly observable in the market, and for which an entity applies internal estimates and assumptions, are used. This constitutes level 3 of the hierarchy of fair value, as defined in IFRS 13. Borrowings and receivables and Held-to-maturity investments are recorded at their amortized cost using the effective interest rate method. Financial assets are assessed, by the Group, for indicators of impairment at each reporting period. In the case of equity instruments classified as available-for-sale, a significant decline or a prolonged decline in their fair value to amounts lower than their acquisition cost, are indicators of impairment. For all other financial assets objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or main payments; or it becoming probable that the borrower will enter bankruptcy or financial restructuring. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset s original effective interest rate. The carrying amount of the financial assets is reduced directly by the impairment losses for all financial assets with the exception of trade and other receivables, for which the carrying amount is reduced through the use of an allowance account. When a trade or other receivable is considered uncollectable, it is written-off against the allowance account. Subsequent recoveries of amounts previously written-off are credited in the income statement for the period. Changes in the carrying amount of the allowance account are recognized in the income statement in the caption Accumulated impairment losses. With the exception of Available-for-sale investments, which correspond to capital instruments in another company, if in a subsequent period the amount of the impairment loss decreases and the decrease can be objectively related to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the income statement. b) Trade receivables and other receivables Trade and other debtors balances do not bear interest and are recorded at their nominal value minus any impairment losses, recognized in the allowance account Accumulated impairment losses, in order to reflect their net realizable value. c) Borrowings Borrowings are recorded as liabilities at their nominal value, net of up-front fees and commissions related with the issuance of these instruments. Financial expenses are calculated based on the effective interest rate and are recorded in the income statement on an accruals basis. d) Trade payables and other payables Accounts payable that do not bear interest are recorded at their nominal value, which is substantially equivalent to their fair value. e) Financial liabilities and equity instruments Financial liabilities and equity instruments are classified and accounted for based on their contractual substance. The Group classifies as equity instruments the contracts that evidence the Group s residual interest in a group of assets after deducting all of its liabilities. The Group classifies as financial liabilities all those that are expected to give rise to a disbursement of funds. f) Derivatives The Group uses derivative instruments to manage its exposure to financial risks. Derivative instruments are only used for hedge accounting purposes, with the appropriate approval of the Group s Board of Directors, and never for speculative purposes. 84 // ANUAL REPORT 2016 //

85 12 // The derivative instruments used by the Group, classified as cash flows hedges, are exclusively related to the hedging of interest rates and exchange rates on loans obtained. The loan s amount, the interest s maturity and the loan s reimbursement plans inherent to the hedging instrument are in all respects similar to the established conditions for the contractual loans, configuring totally effective correlations. The criteria used by the Group to classify the derivative instruments as cash flow hedges are as follows: The hedge is expected to be highly effective in offsetting changes in the cash flows attributable to the hedged risk; Hedge effectiveness can be reliably measured; There is adequate documentation on the transaction at the inception of the hedge; The transaction to be hedged is highly probable. Cash flow hedges are initially recorded at fair value, if any, and subsequently revaluated at their fair value. The effective portion of the changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred in the statement of comprehensive income in the caption Fair value reserves - Cash flow hedge derivatives, being transferred to results in the same periods the hedged instruments affect these. The gains or losses relating to the ineffective portion are immediately recognized in the income statement, when determined. Hedge accounting is discontinued when the hedging instrument expires or is sold. When a hedging instrument no longer qualifies for hedge accounting, the accumulated gain or loss deferred in the statement of comprehensive income remains in equity and subsequent revaluations of the derivative are recorded in the income statement. g) Green certificates Green certificates are instruments that approve the production of a certain volume of electricity from renewable energy sources. In Romania, green certificates of two types were attributed to Martifer Renewables: certificates available for transaction (valid for a 12-month period since their emission date) and suspended green certificates (that can be traded from 2018 on). At the date of the publication of the financial statements, there is no accounting standard or interpretation in the International Financial Reporting Standards (IFRS) that deals specifically with the accounting for emission permits or renewable energy certificates. Upon receipt of the green certificates, the company recognizes an asset under Available-for-sale investments or under Other current financial assets (depending on the type of certificate) as well as its corresponding Deferred income. The deferred income is recorded in the income statement when the green certificates are sold. At the end of each period, the green certificates are valued using their fair value, which corresponds to their market price on that date. The differences arising are recorded in the income statement as Other financial income or as Other financial expenses. The value of the reversed certificates, for lack of use before the expiration date, will be registered under Other financial expenses. h) Notes receivable and factoring The Group only derecognizes a financial asset when, and only when, the contractual rights to the cash flows from the financial asset expire; or it substantially transfers the contractual risks and rewards inherent to the possession of such financial asset to a third party. If the Group substantially retains the risks and benefits inherent to the possession of such assets, it continues to recognize these in its financial statements, recording a liability in the caption Borrowings as the monetary collateral for the assets transferred. Therefore, notes receivable and factored accounts receivable are recorded at each reporting period as liabilities in the statement of the financial position, with the exception of non-recourse factoring operations, until the underlying assets are fully collected by the Group. viii) Cash and cash equivalents Cash and cash equivalents include cash on hand, cash at banks, term deposits and other treasury applications with a maturity of less than three months, which are subject to an insignificant risk of change in value. ix) Inventories Merchandise, subsidiary and consumable raw-materials are stated at the lowest of their average acquisition cost or net realizable value (estimated sales price less cost to make the sale). Finished and intermediate goods are recorded at production cost (which includes the cost of incorporated raw-materials, direct labour and overheads), which is lower than their market value. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 85

86 // 12 Impairment losses are recognized in the income statement when it is estimated that the inventories net realizable value is lower than its carrying amount (Note 10). x) Accrual basis Expenses and income are recorded in the year to which they relate, regardless of their date of payment or receipt. The captions of Other non-current assets, Other current assets, Other non-current liabilities and Other current liabilities include expenses and income relating to the current period, whose payment and receipt will occur in future periods, as well as payments and receipts in the current period but which relate to future periods. xi) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is recorded net of returns, rebates and similar allowances. a) Construction contracts (metallic structure constructions and the construction of turnkey wind farms and solar parks) The Group recognizes income and costs associated with construction contracts, on an individual basis, using the stage of completion method. Under this method, at the end of each period, income and expenses are recognized with reference to the stage of completion of the contract activity. The stage of completion is determined based on the ratio between costs incurred to the balance sheet date and the total estimated contract costs. The difference between income determined applying this ratio and the total amount invoiced is recorded in Other current assets as Work in progress or in Other current liabilities as Advanced invoicing. Revenue arising on contract variations is recorded when these are agreed with the customer, or when negotiations are at an advanced stage and it is probable that these will be favourable to the Group, and it can be reliably measured. To cater for the costs that will be incurred during the guarantee period, the Group recognizes a provision, created on an annual basis, to cover for such legal obligation. This provision is estimated taking into consideration the annual production as well as the historical costs incurred in the past with this obligation. Claims for reimbursement of expenditure not covered in the contract price are included in the contract revenue when negotiations with the client are at an advanced stage and it is probable that these will be favourable to the Group and that they can be reliably measured. When it is likely that the total estimated costs of the construction contract will exceed the revenue negotiated, the expected loss is immediately recognized in the income statement. b) Short-term construction contracts In these types of contracts, the Group recognizes revenue and costs as they are billed or incurred, respectively. c) Recognition of revenue resulting from real estate activity Relevant costs incurred with real estate projects include the direct construction costs, the costs associated with the realization of the projects as well as their licensing costs. Borrowing costs attributable to real estate projects are capitalized until the project is completed. Borrowing costs are only capitalized if the project is in progress, i.e. if it is awaiting licenses from local authorities, or if it is under construction. In all other cases, it is considered to be suspended and no capitalization of borrowing costs occur. Revenue on these types of operations is generated and recognized when the contractual position held by the Group is transferred, which, generally, coincides with the signing of the transfer deed. d) Revenue recognition related with the sale of goods (merchandise and finished products) Revenue from the sale of goods is only recognized when all the following conditions are met: the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group neither retains continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be reliably measured; 86 // ANUAL REPORT 2016 //

87 12 // it is probable that the economic benefits associated with the transaction will be handed to the entity; and the costs incurred or to be incurred related to the transaction can be reliably measured. xii) Own worked capitalized The internal costs (materials, staff and production costs) incurred during the production of tangible fixed assets are capitalized only when the following requirements are fulfilled: the underlying assets are identifiable; there is strong probability that the assets will generate future economic benefits; and the production costs can be reliably measured. xiii) Costs incurred with proposal preparation Costs incurred with proposal preparation are recognized in the income statement as they are incurred due to the unpredictability of their outcome. xiv) Balances and transactions in foreign currency Individual financial statements: All the assets and liabilities expressed in foreign currencies are translated to the functional currency, using the official exchange rates at the reporting date. The exchange differences, favourable or unfavourable, originated by the differences between the exchange rates on the transaction dates and those used at the collection, payment or in the reporting period, are recognized in their gross amounts as profits and losses in the income statement of the period. Consolidated financial statements: Assets and liabilities of the Group s foreign operations are translated into Euros using the exchange rates prevailing at the reporting date in the preparation of the consolidated financial statements. Income and expense items, as well as cash flows, are translated at the average exchange rates of the year. In addition, some medium-, long-term or undefined maturity loans granted to subsidiaries, denominated in a currency other than the Euro are considered as part of the Group's net investment. Whenever exchange differences arise, they are recorded in equity and recognized in the Group s foreign currency translation reserve. Such exchange rate differences are recognized in the income statement in the year in which the foreign entity is disposed. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and therefore, are translated at the closing rate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 87

88 // 12 The following exchange rates have been used in the preparation of the financial statements: 1 EQUALS: CLOSING RATE AVERAGE RATE FY 2016 FY 2015 EVOLUTION IN % FY 2016 FY 2015 EVOLUTION IN % Australian Dollar % % Polish Zloty % % New Romanian Leu % % US Dollar % % South African Rand % % Brazilian Real % % Thai Baht % % Angolan Kwanza % % Moroccan Dirham % % Pound Sterling % % Canadian Dollar % % Mozambique Metical % % Mexican Peso % % Saudi Riyal (Saudi Arabia)/ SAR % % Chilean Peso % % (Ukraine) Hryvna % % Venezuelan Bolivar % % Jordanian Dinar % % Japan Yen % % Peru Nuevo Sol % % Turkish lira % % xv) Income tax Income tax for the period includes the current and deferred income tax, in accordance with IAS 12. Current income tax is calculated based on taxable profits and taking into consideration the local tax laws applicable to each Group company. Deferred tax is recognized on timing differences arising between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax base used in the calculation of taxable profit, as well as on certain tax credits attributed to the Group, and is accounted for using the balance sheet liability method. Deferred tax assets and liabilities are measured and annually revalued at the tax rates expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) enacted or substantially enacted. Deferred tax assets are generally recognized for all deductible timing differences to the extent that it is probable that taxable profits will be available against which those deductible timing differences can be used. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow for all or part of the asset to be recovered. The deferred tax amount resulting from transactions or events recognized directly in equity is also registered directly in equity, not affecting the income for the year. xvi) Borrowing costs Borrowing costs are recorded in the income statement on an accrual basis. Borrowing costs related to loans obtained to finance the construction of tangible fixed assets and some inventories (real estate projects) are capitalized, forming part of the asset s carrying amount. The capitalization begins when the preparation of the construction activity starts and ceases when the asset enters into use, at the end of its production or construction or when the project is suspended. 88 // ANUAL REPORT 2016 //

89 12 // xvii) Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. These provisions are reviewed at each reporting period and are adjusted to reflect the best estimate at the date, taking into consideration all the risks and uncertainties inherent to such estimates. When a provision is determined using the future cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. The provisions recognized by the Group result mainly from: a) Construction guarantees The Group recognizes a provision for the costs estimated to be incurred in the future with construction guarantees provided on metallic structures or farms (wind or solar) that were sold. This provision is recognized on the date of the sale or when the service is rendered, thus affecting the profit made on the deal. At the end of the guarantee period (a 5-year average) any remaining amount of provision is reversed in the income statement. b) Onerous contracts The Group recognizes a provision for onerous contracts when, for construction contracts in progress, it is established that the costs to be incurred to satisfy the obligation assumed exceed the future economic benefits. This analysis is made on an individual basis. c) Legal claims in progress Provisions for legal proceedings in progress are recognized when, due to actions filed by third parties, Martifer has a present obligation (legal or implicit) resulting from a past event, it is probable that for the resolution of this obligation there will be an outflow of resources and the amount of the obligation can be reasonably estimated. d) Financial assets accounted for under the equity method A provision is recognized whenever an associate or jointly controlled company has a negative equity and it is considered that the Group has assumed responsibilities over and above its share of the capital. xviii) Government grants Grants received for staff training programmes and new hiring actions are recognized as income in the same period the relevant expenses are incurred. Grants received to finance tangible fixed asset investments are recorded as deferred income and are recognized as income, in the caption Other operating income, on a straight-line basis over the expected life-cycle of the underlying assets. xix) Impairment of tangible and intangible assets excluding Goodwill At each reporting period and whenever an event or change in circumstance is identified, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that these assets are impaired. When the asset carrying amount is greater than its recoverable amount, an impairment loss is recognized and recorded in the caption Impairment losses. The recoverable amount is the higher of fair value less cost to sell and value in use. The fair value less cost to sell is the amount that could be obtained in an arms-length transaction. Value in use is calculated by assessing the estimated future cash flows generated by the asset discounted to the present value, taking into consideration its residual value. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The reversal of impairment losses recorded in previous years is recognized when the underlying reasons that caused that entry are no longer applicable and, consequently, the asset is no longer impaired. The reversal of impairment losses is recognized in the income statement as an operating result. However, the reversal of an impairment loss is performed just up to the limit of the amount that would be recorded through the historical cost, or through the revalued amount, net of amortization and depreciation, if the impairment loss had not been recorded in previous years. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 89

90 // 12 xx) Employee benefits Variable remuneration According to the statutes of some Group companies, the shareholders of those companies approved at the General Meeting or within a Remuneration Committee elected by the shareholders, the fixed and variable remuneration to be distributed to the members of governing bodies. Bonus payments are recorded in the period to which they relate. xxi) Classification in the Financial Position Statement Assets to be realized and liabilities to be settled twelve months after the reporting date are classified as non-current. Likewise, given their nature, Deferred taxes and Provisions are classified as non-current in the Financial Position Statement. xxii) Contingent assets and liabilities Contingent liabilities are not recorded in the consolidated financial statements. Instead, they are disclosed in the notes to the financial statements unless the probability of a cash outflow is remote, in which case no disclosure is made. Contingent assets are not recorded in the consolidated financial statements but are disclosed when future economic benefits are probable. xxiii) Consolidated cash flow statement The consolidated cash flow statement is prepared using the direct method, according to IAS 7. The Group classifies as Cash and cash equivalents applications which mature in less than three months and which are subject to an insignificant risk of change in value. The consolidated cash flow statement is classified into operating, investing and financing activities. Operating activities include cash receipts from clients, cash payments to suppliers, cash payments to and on behalf of employees and other operating activities payments and receipts. Investing activities cash flows include, essentially, payments and receipts related with acquisitions and sales of tangible and intangible assets and investments. Financing activities cash flows include, essentially, payments and receipts of loans and borrowings, financial lease contracts and dividend payments. xxiv) Subsequent events Events occurring after the reporting period that provide further evidence of conditions existing at the end of the reporting period ( adjusting events ), are recognized in the consolidated financial statements. Events occurring after the reporting period that are indicative of conditions occurring after the end of the reporting period ( non-adjusting events ), if material, are disclosed in the notes to the consolidated financial statements. xxv) Judgements and estimates In the process of preparing the Group s consolidated financial statements the Board of Directors used its best knowledge and accumulated experience in past and/or current events in making certain assumptions as to future events. The most significant accounting estimates reflected in the consolidated financial statements for the years ended on 31 st December 2016 and 2015 include: The life-cycle of the tangible assets; Fair value of the investment properties; Impairment analysis of goodwill; Recognition of provisions and impairment losses; Revenue recognition on construction contracts and guarantees; Recognition of deferred tax assets arising from tax losses; Fair value of derivatives. The estimates used were based on the best information available during the preparation of the consolidated financial statements and on the best knowledge of past and present events. Although future events are neither controlled by the Group nor foreseeable, some can occur and have an impact on the estimates. Changes to the estimates used by the Board, that occur after the date of these consolidated financial statements, will be recognized in net income, in accordance with IAS 8, using a prospective methodology. 90 // ANUAL REPORT 2016 //

91 12 // xxvi) Financial risk management Financial markets include a high degree of uncertainty, to which the Group is exposed. This uncertainty is translated into several risks, to which the Group is exposed, namely price risk, currency risk, interest rate risk, liquidity risk and credit risk. a) Price Risk The volatility of the price of raw materials constitutes a risk for the Group, in the area of Metallic Constructions. The antidumping measures/rates already implemented by the European Union in relation to Chinese steel and aluminum products caused a significant increase in the price that affected the operational activity of the Metallic Constructions business area. Thus, in 2016, there was a sharp increase in the price of this commodity as a consequence of the implementation of these measures, which was, however, followed by a strong stabilization of prices in the second half of the year. For the year 2017, price stabilization is expected to remain within the range registered in the last quarter of 2016, mainly at the upper limit of the range. Martifer has sought to mitigate this risk through strict procurement planning, which has allowed for economies of scale in the quantity of raw material purchased and consequent price fixing and a simultaneous control of flows through a phased delivery of materials. On the other hand, it has also controlled this risk through contracts with Clients that allow to pass on the changes in the price of the raw material in the amount paid by the Client, ensuring with its suppliers fixed prices for large projects. b) Currency Risk Exchange rate risk is highly interdependent with other types of risks, its relation to the country risk should needs to be stressed, through the evolution of economies and their impact on inflation and interest rates and with the credit risk, due to monetary fluctuations that may jeopardize future financial flows, translating into the possibility of recording losses or gains as a result of exchange rate variations between different currencies. The internationalization of the Group requires greater exposure to foreign exchange risk, namely at the operational level (where expenses, income, assets and liabilities are denominated in a currency other than the reporting currency), in transactions between those subsidiaries and other Group companies and the existence of transactions carried out by the operational companies in a currency other than the Group's reporting currency. The Group s currency risk management policy aims to reduce the sensitivity of its results in exchange rate variations. Within the scope of the operational activity of all the subsidiaries, it is sought that the transactions be carried out in their local currencies. For the same reason, loans contracted by foreign subsidiaries are preferably contracted in their respective local currencies, thus allowing the matching of local cash flows and consequent annulment of foreign exchange risk of an economic nature. Concerning exchange rates hedging, hedges are sporadic as their cost is sometimes considered excessive in relation to the risk level involved. However, whenever considered suitable, the Group contracts exchange rates hedging in order to cover the risk. During 2016, the worsening of the scarcity of tradable currencies in Angola occurred, as a result of the maintenance of oil prices at very low levels. This high scarcity of tradable currencies had serious consequences in the devaluation of the Angolan currency (Kwanza), which forced Martifer Group to liquidate local suppliers in a timely manner in order to obtain a natural exchange rate hedge through local commercial transactions. Martifer Group has mitigated this risk through financial instruments presented by clients (e.g. letters of credit) in order to maintain the normal financial flow. In 2016, Britain's announcement of Brexit and the US election triggered a climate of uncertainty that directly affected the appreciation of the British Pound and the US Dollar. The Group has managed to circumvent the risk of exposure to these currencies, taking advantage of the fact that many of the supplies are contracted in these currencies. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 91

92 // 12 The relevant amounts of the Group s assets and liabilities recorded in a currency other than the Euro are as follows: ASSETS LIABILITIES 1 EQUALS: FY 2016 FY 2015 FY 2016 FY 2015 New leu (Romania) 143,298, ,612,233 73,165,152 80,752,203 Zloty (Poland) 38,298,189 45,098,567 55,186,422 55,248,476 US Dollar (U.S.A.) 6,503 68,136, , ,758,256 Kwanza (Angola) 53,496,510 51,758,761 44,068,256 40,866,935 Real (Brazil) 14,350,469 11,362,507 5,588,950 3,083,794 Moroccan Dirham (Morocco) 1,686,668 1,498,646 2,262,760 1,386,124 Pound Sterling (United Kingdom) 12,080,900 34,628,343 13,382,325 29,992,917 Mexican Peso (Mexico) 0 4,307, ,626,470 Saudi Riyal (Saudi Arabia) 16,952,702 21,815,654 14,880,182 19,995,294 If a negative change of 1 p.p. in the foreign exchange rates of the currencies just identified was to occur, the probable impact on the Group s financial statements might be as follows (amounts in Euro): 1 EQUALS: LOCAL CURRENCY CHANGE AGAINST EURO IMPACT ON PROFITS FY 2016 FY 2015 IMPACT ON EQUITY IMPACT ON PROFITS IMPACT ON EQUITY New Leu (Romania) 1% 69,224 (694,392) 26,864 (800,594) Zloty (Poland) 1% 64, ,210 2, ,494 US Dollar (U.S.A.) 1% 3 1,760 (2,090) 322,992 Pound sterling (United Kingdom) 1% 24,481 12,885 42,967 (45,895) Moroccan Dirham (Morocco) 1% 6,722 5,704 (6,801) (1,114) Kwanza (Angola) 1% (2,517) (93,349) (13,494) (107,840) Real (Brazil) 1% (2,262) (86,748) 39,299 (81,967) Mexican Peso (Mexico) 1% - - (9,269) (16,646) Saudi Riyal (Saudi Arabia) 1% (2,028) (20,520) (12,560) (18,023) Total 158,404 (707,449) 67,458 (648,594) c) Interest Rate Risk Interest rate risk reflects the possibility of changes in future interest charges on loans contracted due to the evolution of the market interest rate levels. The cost of financial debt contracted by the Group is indexed to short term base rates, reviewed with a year or less frequency, plus a negotiated risk premium. Therefore, variations in interest rates may affect the Group s results. The Group's exposure to interest rate risk arises from financial liabilities contracted at the fixed and/or floating rate. In the first case, the Group faces a risk of change in the fair value of these assets or liabilities, since any change in market rates involves an opportunity cost. In the second case, such a change has a direct impact on the amount of interest, thus causing cash variations. During the year 2016, benchmark interest rates in the Euro Zone remained at very low levels in line with what has been seen in recent years. Thus, according to the European Central Bank projections published in March 2017 ("March 2017 ECB staff macroeconomic projections for the euro area"), short-term interest rates are expected to remain negative until 2019; however, growth forecasts for medium and long-term rates are already expected. Martifer Group's exposure to interest rate risk is currently very low, not only due to the expected maintenance of very low indexes, but also as a consequence of the restructuring agreements signed with the banks in 2015, which made it possible to temporarily stabilize the spreads at fairly competitive levels. The analysis of the sensitivity to variation for more or less 1 p.p. in interest rate is presented in Note 30 - Borrowings. d) Liquidity Risk Liquidity risk reflects the Group s ability to satisfy its financial responsibilities with the financial resources available. 92 // ANUAL REPORT 2016 //

93 12 // The main goal of the liquidity risk management program is to ensure that the Group has available, whenever needed, the financial resources to satisfy its responsibilities and pursue the outlined strategies, honouring all its obligations towards third parties, through an adequate management of the financing cost/maturity ratio. As mentioned in the previous point, at the end of 2015, the Group restructured its debt with financial institutions by rescheduling the maturity of bank financing over time, extending the average maturity of the debt in order to coincide it with the degree of permanence of their long-term assets and, at the same time, to allow the cash surpluses to be sufficient to fulfill their responsibilities. Thus, given the medium/long term nature of the investments made, the debt service will start to keep up with the maturity of the associated assets, not mortgaging the commitment derived from its short-term operational activity in pursuit of the Group's objective of adjusting the maturity of the inflows from operating activity and (from) the investment/divestment to the outflows of the financing activity. The financial department accompanies the implementation of the risk management policies defined by the Board, in order to ensure that the economic and financial risks are identified, measured and managed according to those policies. As a result of the aforementioned measures, as of 31 st December 2016, current assets exceed by far current liabilities. Thus, liquidity risk is therefore very small given Martifer's ability to transform its short-term assets into liquidity, which can be demonstrated as follows: FY 2016 FY 2015 Current Assets 205,792, ,624,683 Current Liabilities (150,435,586) (276,347,414) Operational cash-flows 9,223,404 10,759,752 Estimated Net Interest (4,894,585) (7,831,980) Total 59,685,400 94,205,041 e) Credit Risk The worsening of the worldwide economic conditions or the adversities affecting local, national and international economies can influence Martifer Group s Clients default rate, with possible negative impacts on the Group s results. The Group undergoes credit risk in its operational activity Trade Receivables and Other Receivables. Aware of this reality, the Group tries to assess all its clients credit risk in order to establish credit limits, with the ultimate purpose of ensuring the collection of the amounts due within the negotiated periods. With this objective in mind, the Group uses credit rating agencies, regular risk analysis and credit control and collects from and manages cases in litigation, procedures which are all considered essential to manage the credit conceded and to minimize the risk of credit default. Assets subject to credit risk are presented as follows: FY 2016 FY 2015 Clients (Note 24) 85,039,663 86,652,044 Other debtors (Note 24) 101,637,819 96,953,996 Other current assets (Note 26) 23,017,810 34,091,142 Cash and cash equivalents and derivatives 53,090,915 40,580,663 Total 262,786, ,277,845 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 93

94 // 12 The rating of the financial institution of the Group s cash is as follows: MOODY'S RATING CASH AND CASH EQUIVALENTS VALUES Not assigned* 18,620,829 A2 3,418,208 A3 52,892 AA2 6,503 B1 5,116,172 B2 789,801 BA1 3,517,132 BA2 5,119 BA3 7,820,175 BAA1 1,335,505 BAA2 15,480 BAA3 1,411,066 CAA1 10,982,034 Total Geral 53,090,915 * In Not Rated are considered 12 million Euros of Angolan financial institutions xxvii) Operational Risk Management a) Metallic Constructions Operational risks in the Metallic Constructions area, which also incorporated the energy equipment area as of 2011 and from 2014 the naval area as well are currently divided into three risk sources client, supplier and external risks, which in turn are subdivided into specific problems. Under the client risk one can identify, for example, issues at the contractual level, such as the lack of convergence in the interpretation and application of the contractual dispositions, the distaste or dissatisfaction with the service/product and also the risk of non-payment of the price stipulated following the delivery of the projects. In terms of demand volatility, it is important to note that the business area partly depends on the launch of public tenders for public infrastructures (e.g. bridges, airports, train stations). Within the scope of public tenders, Martifer is subject to complex regulatory demands, specific to each country, namely in matters concerning the presentation of the proposals and the preparation of complex administrative documentation files to satisfy the project s specifications defined by the contracting entity. This may represent additional costs for Martifer Group. It must be highlighted that, despite the dependence on public tenders, Martifer has been able to win deals with private entities, thereby reducing its exposure to this risk. Under the supplier risk, Martifer Construções, as a specialist in engineering projects, relies very often on subcontractors. If these fail in the execution of their work, the project s delivery deadline cannot be met, in a domino effect. In other words, there is also a risk of delays in delivering the projects, with the inherent contractual penalties. Finally, in terms of external risks and considering that the area of Metallic Constructions is strongly correlated with economic growth and with gross fixed capital formation, it is therefore sensitive to the current economic environment. Accordingly, the worsening of the sovereign debt crisis in Europe and the negative evolution of commodity prices also raises other problems, namely the austerity plans that imply severe transversal cuts in public investment and the significant decrease in liquidity throughout the financial system, which often causes highly attractive projects to be shelved due to lack of capital. In order to mitigate these risks, the Metallic Constructions area diversified its projects in different geographies, namely by entering markets that register stronger growth in the construction sector. b) Renewables The productivity indices associated with the renewable energy business depend not only on the operational costs, but also on its revenues (price and volume of energy produced by the assets). The equipment use and other exogenous factors, such as the wind that in turn depends on the farm location, influence energy production and consequently its results. Whenever the wind speed is 94 // ANUAL REPORT 2016 //

95 12 // below or above the equipment s limits, no energy is produced. These limits vary according to the manufacturer and type of turbine. Additionally, each turbine has a power curve that determines the generated power at each wind speed. The readiness and power curve of each turbine is contractually guaranteed, with indemnities being payable by the suppliers for situations where their readiness is not satisfied or the power curve is not attained. This risk is also mitigated through the geographical distribution of the wind turbines in the wind farms, allowing the set-off of wind velocity variations at each farm and ensuring the relative stability of the volume of the total energy produced. Regarding solar photovoltaic energy, the exogenous factors are more easily forecasted and therefore the revenue variation is minimized. LICENCING: Wind farms and solar parks are subject to rigorous regulations in matters such as their development, construction, licensing and operation. If the relevant authorities in the jurisdictions in which the Group operates stop or reduce their support in the development of wind farms and solar parks, such actions may have a significant impact on the activity. xxviii) Legal Risk Management Martifer is subject to the national and local laws and regulations in the various geographies and markets where it operates. These aim to ensure, among other, labour rights, environmental protection, spatial planning and the maintenance of an open and competitive market. Thus, the legal and regulatory changes that affect the conditions conducive to the development of the Groups activities and that consequently harm or impede the attainment of the strategic objectives, require the Company to adapt to the new regulatory realities. The management of legal risk is carried out by the legal department of the holding company and of each of the Group s Business Areas and is monitored within the scope of reviews performed by internal legal and fiscal service providers dedicated to the respective activities, which operate in the dependence of the Board of Directors and management, conducting their work in articulation with the other fiscal and financial departments, so as to ensure the protection of the Company s interests and ultimately of the stakeholders interests, in strict compliance with their legal duties. The members of the legal departments and the internal advisory service providers referred to above have formal specialized qualifications and undergo regular formal training and updating. Legal and fiscal advisory services are also ensured, nationally and internationally, by external professionals, selected amongst reputable firms and in accordance with the highest standards of competence, ethics and experience. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 95

96 // GROUP COMPANIES INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS The Group companies included in the consolidated financial statements, their consolidation methods, registered offices and percentage of share capital held by the Group on 31 st December 2016 and 2015 are the following: COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD SHARE CAPITAL HELD PERCENTAGE FY 2015 COMPANY HEAD OFFICE COUNTRY DESIGNATION DIRECTLY INDIRECTLY TOTAL TOTAL Martifer SGPS, S.A. Oliveira de Frades Portugal Martifer SGPS Holding Martifer Metallic Constructions SGPS, S.A. Martifer - Construções Metalomecânicas, S.A. Martifer Mota-Engil Coffey Construction Joint Venture Limited Oliveira de Frades Martifer Metallic 3) 75.00% % 75.00% Constructions Oliveira de Frades Portugal Martifer Construções % 75.00% 75.00% Dublin Ireland MMECC 1) % 45.00% 45.00% Martifer Alumínios Angola, S.A. Luanda Angola Martifer Alumínios Angola % 75.00% 75.00% Martifer Aluminium Limited Dublin Ireland Martifer Aluminium Irlanda % 75.00% 75.00% Martifer Aluminium UK Limited London United Kingdom Martifer Aluminium Reino Unido % 75.00% 75.00% Martifer Aluminium SAS Rungis France Martifer Aluminium França % 75.00% 75.00% Martifer Construcciones Metálicas España, S.A. Martifer Construções Metálicas Angola, S.A. Madrid Spain Martifer Espanha % 75.00% 75.00% Luanda Angola Martifer Angola % 59.06% 59.06% Martifer Construction Limited Dublin Ireland Martifer Irlanda % 75.00% 75.00% Martifer Polska Sp. Zo.o. Gliwice Poland Martifer Polska % 75.00% 75.00% Martifer Constructions, SAS Rungis France Martifer França % 75.00% 75.00% Martifer Inovação e Gestão, S.A. Oliveira de Frades Portugal Martifer Inovação 2) % Martifer Romania SRL Bucharest Romania Martifer Roménia 2% 73.50% 75.50% 75.50% Park Logistyczny Biskupice Gliwice Poland Biskupice % 75.00% 75.00% Martifer Konstrukcje Sp. Z o.o. Gliwice Poland Martifer Konstrukcje % 75.00% 75.00% Martifer Slovakia S.R.O. Bratislava Slovakia Martifer Slovakia % 75.00% 75.00% Sociedade de Madeiras do Vouga, S.A. Martifer - Gestão de Investimentos, S.A. Nagatel Viseu, Promoção Imobiliária, S.A. Martifer Retail & Warehousing Angola, S.A. Albergaria-a-Velha Portugal Madeiras do Vouga % 75.00% 75.00% Oliveira de Frades Portugal MGI 2) % Oliveira de Frades Portugal Nagatel Viseu 2) % Luanda Angola Martifer Retail Angola % 75.00% 75.00% Martifer Aluminium Pty, Ltd Sydney Australia Sassall % Martifer UK Limited London United Kingdom Martifer UK % 75.00% 75.00% MT Construction Maroc, S.A.R.L. Tangier Marocco Martifer Marrocos % 75.00% 75.00% Saudi Martifer Constructions LLC Riyadh Saudi Arabia Martifer Arábia Saudita % 75.00% 75.00% Martifer Beteiligungsverwaltungs GmbH Vienna Austria Martifer GmbH % % % M City Gliwice Sp. Zo.o Gliwice Poland M City Gliwice % 75.00% 75.00% Martifer Energy Systems II, SGPS, S.A. Oliveira de Frades Portugal Martifer Energy Systems II 3) % Martifer Energia S.R.L. Bucharest Romania Martifer Energia Roménia % 75.00% 75.00% Martifer Energia LLC Kiev Ukraine Martifer Energia Ucrânia % 75.00% 75.00% Martifer Wind Energy Systems LLC San Angelo, TX USA Martifer Wind USA % 75.00% 75.00% Martifer Energy Systems PTY Cape Town South Africa Navalria Docas, Construções e Reparações Navais, S.A. Martifer Energia África do Sul % 63.75% 63.75% Aveiro Portugal Navalria % 75.00% 75.00% Gebox, S.A. Ílhavo Portugal Gebox 2) % West Sea - Estaleiros Navais, Lda. Oliveira de Frades Portugal West Sea % 75.00% 75.00% Martifer Global SGPS, S.A. Oliveira de Frades Portugal Martifer Global 3) % 96 // ANUAL REPORT 2016 //

97 12 // SHARE CAPITAL HELD PERCENTAGE FY 2015 COMPANY HEAD OFFICE COUNTRY DESIGNATION DIRECTLY INDIRECTLY TOTAL TOTAL Martifer Construcciones Peru, S.A. Lima Peru Martifer Peru % 75.00% 75.00% Martifer Amal, S.A. Oliveira de Frades Portugal Martifer Amal 1) % 45.00% 45.00% Global Holding Limited Zebbug Malta Global Holding Limited % 75.00% 75.00% Global Engineering & Construction Limited Zebbug Malta Global Engineering % 75.00% 75.00% Martifer Solar SGPS, S.A. Oliveira de Frades Portugual Martifer Solar SGPS % % % Martifer Solar, S.A. Oliveira de Frades Portugal Martifer Solar 4) % Martifer Solar Sistemas Solares, S.A. Madrid Spain Solar Parks Construccion Parques Solares ETVE, S.A. Martifer Solar Sistemas 4) Solares % Madrid Spain Solar Parks 4) % MTS Solar Sistemas Solares, S.A. Mexico City Mexico Martifer Solar Mexico 4) % Martifer Solar Chile Holding, Lda Santiago Chile Martifer Solar Chile 4) % Mencey Solar SpA Santiago Chile Mencey Solar 4) % Dehesa Solar SpA Santiago Chile Dehesa Solar 4) % Martifer Solar Servicios México Mexico City Mexico Martifer Solar Servicios 4) Mexico % Martifer Solar S.R.L. Milan Italy Martifer Solar Itália 4) % MTS1 S.R.L. Siracusa Italy MTS1 4) % MTS2 S.R.L. Siracusa Italy MTS2 4) % Martifer Solar RO S.R.L. Bucharest Romania Martifer Solar Roménia 4) % Martifer Solar Inc. San Francisco, CA USA Martifer Inc. 5) % MT Silverado Fund I LLC San Francisco, CA USA Silverado 1) 5) % Martifer Solar Hellas, A.T.E. Athens Greece PVI 1) 4) % Martifer Solar Angola Luanda Angola Martifer Solar Angola 1) 4) % Martifer Solar N.V. Deerlijk Belgium Martifer Solar Bélgica 4) % Martifer Solar UK Limited London United Kingdom Martifer Solar UK 4) % MTS Exbury Solar Limited London United Kingdom MTS Manton Manor Solar Limited London United Kingdom MTS Stud Farm Solar Limited London United Kingdom MTS Penderi Solar Limited London United Kingdom MTS Exbury Solar 4) Limited % MTS Manton Manor Solar 4) Limited % MTS Stud Farm Solar 4) Limited % MTS Penderi Solar 4) Limited % Martifer Solar S.A.S. Lyon France Martifer Solar França 4) % Home Energy France SAS Lyon France Home Energy França 4) % PVGlass S.r.l Milan Italy PVGlass Itália 4) % MPrime Solar Solutions, S.A. Oliveira de Frades Portugal Mprime 4) % Sol Cativante, Lda. Sever do Vouga Portugal Sol Cativante 4) % Martifer Solar Investments, B.V. Amsterdam Netherlands Martifer Solar Holanda 4) % MTS6 S.R.L. Siracusa Italy MTS6 4) % Martifer Solar SK s.r.o. Dolny Kubin Slovakia Martifer Solar Eslováquia 4) % Ginosa Solar Farm, S.R.L. Rome Italy Ginosa Solar Farm 4) % Solar Spritehood S.R.L Rome Italy Solar Spritehood 4) % Steadfast Fairview Solar, Ltd Andover United Kingdom Steadfast Fairview Solar 4) % Martifer Solar UA, LLC Kiev Ukraine Martifer Solar Ucrânia 4) % Inspira Martifer Solar Limited Mumbai India Inspira Martifer Solar 1) 4) % Societé Developpement Local SA Dakar Senegal Martifer Solar Senegal 1) 4) % Martimak Solar Besiktas Turkey Martimak 1) 4) % Martiper Solar Besiktas Turkey Martiper 1) 4) % Martifer Solar Lasout Lyon France MTSFR-Lasout 4) % Martifer Solar Parrou Lyon France MTSFR-Parrou 4) % NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 97

98 // 12 SHARE CAPITAL HELD PERCENTAGE FY 2015 COMPANY HEAD OFFICE COUNTRY DESIGNATION DIRECTLY INDIRECTLY TOTAL TOTAL Martifer Solar Parroc Lyon France MTSFR-Parroc 4) % Martifer Solar Singapura PTE. LTD. Singapore Singapore Martifer Solar Singapura 4) % Martifer Solar Japan KK Tokyo Japan Martifer Solar Japan 4) % Solariant Portfolio GK One Tokyo Japan Solariant Portfolio GK 4) One % EVIVA SOLAR 1 LTD Athens Greece Eviva Solar 1 4) % EVIVA SOLAR 2 LTD Athens Greece Eviva Solar 2 4) % Khepri Solar B.V._NL Amsterdam Netherlands Khepri Solar 4) % RA Solar S.A.E Cairo Egypt RA Solar 4) Martifer Solar MZ, S.A. Maputo Mozambique Martifer Solar Moçambique 1) 4) % Greencoverage Unipessoal, Lda. Oliveira de Frades Portugal Greencoverage 4) % Martifer Solar, Ltda Pindamonhangaba Brazil Martifer Solar Brasil 4) % Visiontera Unipessoal, Lda Oliveira de Frades Portugal Visiontera 4) % Martifer Solar Middle East Dubai United Arab Emirates Martifer Solar Middle East 4) % Belive in Bright Unipessoal, LDA. Oliveira de Frades Portugal Belive in Bright 4) % Martifer Renewables SGPS, S.A. Oliveira de Frades Portugal Martifer Renewables SGPS % % % Martifer Renewables, S.A. Oliveira de Frades Portugal Martifer Renewables SA % % % Martifer Renewables ETVE, S.A.U. Madrid Spain Martifer Renovables % % % Eurocab FV 1 S.L. Madrid Spain Eurocab % % % Eurocab FV 2 S.L. Madrid Spain Eurocab % % % Eurocab FV 3 S.L. Madrid Spain Eurocab % % % Eurocab FV 4 S.L. Madrid Spain Eurocab % % % Eurocab FV 5 S.L. Madrid Spain Eurocab % % % Eurocab FV 6 S.L. Madrid Spain Eurocab % % % Eurocab FV 7 S.L. Madrid Spain Eurocab % % % Eurocab FV 8 S.L. Madrid Spain Eurocab % % % Eurocab FV 9 S.L. Madrid Spain Eurocab % % % Eurocab FV 10 S.L. Madrid Spain Eurocab % % % Eurocab FV 11 S.L. Madrid Spain Eurocab % % % Eurocab FV 12 S.L. Madrid Spain Eurocab % % % Eurocab FV 13 S.L. Madrid Spain Eurocab % % % Eurocab FV 14 S.L. Madrid Spain Eurocab % % % Eurocab FV 15 S.L. Madrid Spain Eurocab % % % Eurocab FV 16 S.L. Madrid Spain Eurocab % % % Eurocab FV 17 S.L. Madrid Spain Eurocab % % % Eurocab FV 18 S.L. Madrid Spain Eurocab % % % Eurocab FV 19 S.L. Madrid Spain Eurocab % % % Eviva Energy S.R.L. Bucharest Romania Eviva Roménia % % % Eviva Nalbant S.R.L. Bucharest Romania Eviva Nalbant % % % Eviva Agighiol S.R.L. Bucharest Romania Eviva Agighiol % % % Eviva Casimcea S.R.L. Bucharest Romania Eviva Casimcea % % % Premium Management Consulting, S.R.L. Bucharest Romania Premium Management % 85.00% 85.00% Martifer Renewables, S.A. Gliwice Poland Eviva Polónia % % % PV Sol 1 Sp. Zo.o Krakow Poland PV Sol % % - PV Sol 2 Sp. Z o.o Krakow Poland PV Sol % % - PV Sol 3 Sp. Z o.o Krakow Poland PV Sol % % - Martifer Renewables Pty, Ltd. Sydney Australia Eviva Austrália % 98 // ANUAL REPORT 2016 //

99 12 // SHARE CAPITAL HELD PERCENTAGE FY 2015 COMPANY HEAD OFFICE COUNTRY DESIGNATION DIRECTLY INDIRECTLY TOTAL TOTAL Eviva Beteiligungsverwaltungs GmbH Vienna Austria Eviva GmbH % % % Eviva Hidro S.R.L. Bucharest Romania Eviva Hidro 1.00% 99.00% % % Martifer Deutschland GmbH Berlin Germany Martifer Deutschland % % % Wind Farm Odrzechowa Sp. Zo.o Gliwice Poland Wind Odrzechowa % % % Wind Farm Bukowsko Sp. Zo.o Gliwice Poland Wind Farm Bukowsko % % % Wind Farm Markowa Sp. Zo.o Gliwice Poland Wind Farm Markowa % % % Wind Farm Lada Sp. Zo.o Gliwice Poland Wind Farm Lada % % % Wind Farm Jawornik Sp. Zo.o Gliwice Poland Wind Farm Jawornik % % % Wind Farm Piersno Sp. Zo.o Gliwice Poland Wind Farm Piersno % % % Wind Farm Oborniki Sp. Zo.o Gliwice Poland Wind Farm Oborniki % % % Martifer Renewables Brazil B.V. Amsterdam Netherlands Renewables Holanda % Martifer Renewables Investments ETVE, S.A. Madrid Spain Eurocab % Martifer Renewables Italy BV Amsterdam Netherlands Renewables Italy Holanda % % % Cedilhas ao Vento S.A. Oliveira de Frades Portugal Cedilhas ao Vento % % - Martifer Renewables Brasil LTDA Fortaleza Brazil Martifer Renewables Brasil % % % Martifer Renováveis - Geração de Energia e Participações S.A. Fortaleza Brazil Ventania % 55.00% 55.00% Eólica Cajueiro da Praia, Ltda. Fortaleza Brazil Cajueiro % 55.00% 55.00% SBER Sociedade Brasileira de Energias Renováveis, Ltda. Fortaleza Brazil SBER 1) % 46.88% 46.88% MSPAR Energia e Participações, SA Barueri Brazil MSPAR % % % Floresta I, Geração de Energia S.A. Areia Branca Brazil Floresta I % 99.00% 99.00% Floresta II, Geração de Energia S.A. Areia Branca Brazil Floresta II % 99.00% 99.00% Floresta III, Geração de Energia S.A. Floresta IV, Geração de Energia S.A. Areia Branca Brazil Floresta III % 99.00% 99.00% Areia Branca Brazil Floresta IV % 99.00% 99.00% Martifer Renewables O&M Sp. z o.o. Gliwice Poland Martifer Renewables O&M % 52.00% 52.00% 1) The consolidation of these companies using the full consolidation method is a consequence of the Group having stepped shareholdings, but exercising control at each level. 2) The companies Martifer Inovação e Gestão, S.A., Martifer Gestão de Investimentos, S.A., Nagatel Viseu Promoção Imobiliária, S.A. and Gebox, S.A were merged into Martifer Construções Metalomecânicas, S.A., leading to the extinction of these companies. 3) The companies Martifer Energy Systems SGPS and Martifer Global SGPS were merged into Martifer Metallic Constructions, leading to the extinction of the two companies. 4) This company was classified on 31 st December 2015 as a non-current asset held for sale (Note 28) and it was sold in August ) In July 2016, these companies were no longer part of the Martifer Solar Group and were acquired by Duelobrigatório, SA, which is 55% owned by Martifer SGPS. However, there is a loss of control caused by this operation so, they are no longer consolidated by the full method. Now these companies are consolidated by the equity method. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 99

100 // 12 COMPANIES CONSOLIDATED USING THE EQUITY METHOD The companies consolidated using the equity method; their registered offices and the percentage of share capital held by the Group are as follows: SHARE CAPITAL HELD PERCENTAGE COMPANY HEAD OFFICE COUNTRY DESIGNATION DIRECTLY INDIRECTLY TOTAL TOTAL Metallic Construction Associate companies: Liszki Green Park, Sp. Zo.o Gliwice Poland Liszki Green Park % 33.75% 33.75% Martifer Amal, S.A. Nacala Mozambique Martifer Amal % 26.25% 26.25% Martimetal Spa Algiers Algeria Martimetal % 36.75% 36.75% Joint control companies: Promoquatro Investimentos Imobiliários, Lda. Solar FY 2015 Oliveira de Frades Portugal Promoquatro % 37.50% 37.50% M City Bialystok Sp. Zo.o Gliwice Poland M City Bialystok % 37.50% 37.50% M City Radom Sp. Zo.o Gliwice Poland M City Radom % 37.50% 37.50% M. City Szczecin Sp. Z o.o. Gliwice Poland M City Szczecin % 37.50% 37.50% CNA Chantier Naval d'arzew, SPA Arzew Algeria Associate companies: CNA Chantier Naval d'arzew % 36.75% - Parque Solar Seseña I, S.L. Madrid Spain Seseña I 1) % Empresa de Energia Renovable Maria del Sol Norte S.A. Santiago Chile Maria del Sol 1) % MSN Solar Uno SpA Santiago Chile MSN Solar Uno 1) % MSN Solar Dos SpA Santiago Chile MSN Solar Dos 1) % MSN Solar Tres SpA Santiago Chile MSN Solar Tres 1) % MSN Solar Cuatro SpA Santiago Chile MSN Solar Cuatro 1) % MSN Solar Cinco SpA Santiago Chile MSN Solar Cinco 1) % Martifer Solar Canadá, Ltd. Toronto Canada Martifer Solar Canadá 1) % Mire Solar SA de CV Mexico City Mexico Mire Solar 1) Renewables Joint control companies: Ventinveste, S.A. Lisbon Portugal Ventinveste SA 6% 42.5% 48.50% 48.50% Âncora Wind Energia Eólica, S.A Parque Eólico do Douro Sul, S.A. Parque Eólico de Vale do Chão, S.A. Lisbon Portugal Âncora % 24.25% 24.25% Lisbon Portugal PE Douro Sul % 24.25% 24.25% Lisbon Portugal PE Vale do Chão % 24.25% 24.25% Parque Eólico de Torrinheiras, S.A. Lisbon Portugal PE Torrinheiras % Parque Eólico do Pinhal do Oeste, S.A. Lisbon Portugal PE Pinhal do Oeste % Parque Eólico de Vale Grande. S.A. Lisbon Portugal PE Vale Grande % 48.50% 48.50% Parque Eólico do Cabeço Norte, S.A. Parque Eólico da Serra do Oeste, S.A. Lisbon Portugal PE Cabeço Norte % Lisbon Portugal PE Serra do Oeste % Parque Eólico do Planalto, S.A. Lisbon Portugal PE Planalto % SPEE 3 Parque Eólico do Baião, S.A. SPEE 2 Parque Eólico de Vila Franca de Xira, S.A. Parque Eólico da Penha da Gardunha, Lda. Others Lisbon Portugal SPEE % 50.00% 50.00% Oliveira de Frades Portugal SPEE % 50.00% 50.00% Oliveira de Frades Portugal PE Penha da Gardunha % 50.00% 50.00% FW Warta Sp. z.o.o Krakow Poland Warta % 50.00% - Duelobrigatório, S.A. Oliveira de Frades Portugal Duelobrigatório 55.00% % // ANUAL REPORT 2016 //

101 12 // SHARE CAPITAL HELD PERCENTAGE COMPANY HEAD OFFICE COUNTRY DESIGNATION DIRECTLY INDIRECTLY TOTAL TOTAL Martifer Solar Inc. San Francisco, CA USA Martifer Inc. 2) % 55.00% - MT Silverado Fund I LLC San Francisco, CA USA Silverado 2) % 31.42% - FY ) This company was classified on 31 st December 2015 as a non-current asset held for sale (Note 28) and it was sold in August ) In July 2016, these companies were no longer part of Martifer Solar Group and were acquired by Duelobrigatório, SA, which is 55 % owned by Martifer SGPS. However, there is a loss of control caused by this operation so they are no longer consolidated by the full method. Now these companies are consolidated by the equity method. During the periods ended on 31 st December 2016 and 2015, the changes occurred in the consolidation perimeter were as follows: COMPANIES INCORPORATED FY 2016 HEAD OFFICE COUNTRY Solar Subsidiary companies RA Solar S.A.E. Cairo Egypt Mire Solar SA de CV Mexico City Mexico Renewables Subsidiary companies Cedilhas ao Vento S.A. Oliveira de Frades Portugal PV Sol 1 Sp. Zo.o Krakow Poland PV Sol 2 Sp. Z o.o Krakow Poland PV Sol 3 Sp. Z o.o Krakow Poland Subsidiary companies Duelobrigatório, S.A. Oliveira de Frades Portugal FY 2015 HEAD OFFICE COUNTRY Renewables Subsidiary companies Floresta I, Geração de Energia S.A. Areia Branca Brazil Floresta II, Geração de Energia S.A. Areia Branca Brazil Floresta III, Geração de Energia S.A. Areia Branca Brazil Floresta IV, Geração de Energia S.A. Areia Branca Brazil Solar Subsidiary companies Martifer Solar Lasout Lyon France Martifer Solar Parrou Lyon France Martifer Solar Parroc Lyon France Martifer Solar S.A (Sucursal Jordânia) Amman Jordan Khepri Solar B.V._NL Amsterdam Netherlands Mencey Solar SpA Santiago Chile Dehesa Solar SpA Santiago Chile NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 101

102 // 12 COMPANIES ACQUIRED FY 2016 HEAD OFFICE COUNTRY Renewables Associate Companies FW Warta Sp. Z.o.o Krakow Poland COMPANIES SOLD/LIQUIDATED FY 2016 HEAD OFFICE COUNTRY Metallic Constructions Subsidiary companies: Martifer Aluminium Pty, Ltd Sydney Australia Solar Subsidiary companies: Martifer Solar Canadá, Ltd. Toronto Canada Martifer Solar, S.A. Oliveira de Frades Portugal Martifer Solar Sistemas Solares, S.A. Madrid Spain Solar Parks Construccion Parques Solares ETVE, S.A. Madrid Spain MTS Solar Sistemas Solares, S.A. Mexico City Mexico Martifer Solar Chile Holding, Lda Santiago Chile Mencey Solar SpA Santiago Chile Dehesa Solar SpA Santiago Chile Martifer Solar Servicios México Mexico City Mexico Martifer Solar S.R.L. Milan Italy MTS1 S.R.L. Siracusa Italy MTS2 S.R.L. Siracusa Italy Martifer Solar RO S.R.L. Bucharest Romania Martifer Solar Inc. San Francisco, CA USA MT Silverado Fund I LLC San Francisco, CA USA Martifer Solar Hellas, A.T.E. Athens Greece Martifer Solar Angola Luanda Angola Martifer Solar N.V. Deerlijk Belgium Martifer Solar UK Limited London United Kingdom MTS Exbury Solar Limited London United Kingdom MTS Manton Manor Solar Limited London United Kingdom MTS Stud Farm Solar Limited London United Kingdom MTS Penderi Solar Limited London United Kingdom Martifer Solar S.A.S. Lyon France Home Energy France SAS Lyon France PVGlass S.r.l Milan Italy MPrime Solar Solutions, S.A. Oliveira de Frades Portugal Sol Cativante, Lda. Sever do Vouga Portugal Martifer Solar Investments, B.V. Amsterdam Holanda MTS6 S.R.L. Siracusa Italy Martifer Solar SK s.r.o. Dolny Kubin Slovakia Ginosa Solar Farm, S.R.L. Rome Italy Solar Spritehood S.R.L Rome Italy Steadfast Fairview Solar, Ltd Andover United Kingdom Martifer Solar UA, LLC Kiev Ukraine 102 // ANUAL REPORT 2016 //

103 12 // FY 2016 HEAD OFFICE COUNTRY Inspira Martifer Solar Limited Mumbai India Societé Developpement Local SA Dakar Senegal Martimak Solar Besiktas Turkey Martiper Solar Besiktas Turkey Martifer Solar Lasout Lyon France Martifer Solar Parrou Lyon France Martifer Solar Parroc Lyon France Martifer Solar Singapura PTE. LTD. Singapore Singapore Martifer Solar Japan KK Tokyo Japan Solariant Portfolio GK One Tokyo Japan EVIVA SOLAR 1 LTD Athens Greece EVIVA SOLAR 2 LTD Athens Greece Khepri Solar B.V._NL Amsterdam Netherlands RA Solar S.A.E Cairo Egypt Martifer Solar MZ, S.A. Maputo Mozambique Greencoverage Unipessoal, Lda. Oliveira de Frades Portugal Martifer Solar, Ltda Pindamonhangaba Brazil Visiontera Unipessoal, Lda Oliveira de Frades Portugal Martifer Solar Middle East Dubai United Arab Emirates Belive in Bright Unipessoal, LDA. Oliveira de Frades Portugal Associate Companies Parque Solar Seseña I, S.L. Madrid Spain Empresa de Energia Renovable Maria del Sol Norte S.A. Santiago Chile MSN Solar Uno SpA Santiago Chile MSN Solar Dos SpA Santiago Chile MSN Solar Tres SpA Santiago Chile MSN Solar Cuatro SpA Santiago Chile MSN Solar Cinco SpA Santiago Chile Martifer Solar Canadá, Ltd. Toronto Canada Mire Solar SA de CV Mexico City Mexico Renewables Subsidiary companies Martifer Renewables Pty, Ltd. Sydney Australia Martifer Renewables Investments ETVE, S.A. Madrid Spain Martifer Renewables Brazil B.V. Amsterdam Netherlands Associate Companies Parque Eólico do Cabeço Norte, S.A. Lisbon Portugal Parque Eólico do Pinhal do Oeste, S.A. Lisbon Portugal Parque Eólico do Planalto, S.A. Lisbon Portugal Parque Eólico da Serra do Oeste, S.A. Lisbon Portugal Parque Eólico de Torrinheiras, S.A. Lisbon Portugal NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 103

104 // 12 FY 2015 HEAD OFFICE COUNTRY Metallic Constructions Subsidiary companies: Martifer - Construções Metálicas, Ltda. Fortaleza Brazil Martifer Alumínios Ltda São Paulo Brazil Solar Subsidiary companies: Canopy Naos Paris France Martifer Solar Finance LLC San Francisco, CA USA MTS7, S.R.L. Rome Italy MTS3 S.R.L. Siracusa Italy Martifer Solar CZ Prague Czech Republic Parque Solar Seseña III, S.L. Madrid Spain MPrime GMBH Munich Germany MTS Tonge Solar Limited London United Kingdom Associate Companies Cañaverosa Renovables Madrid Spain Renewables Melosa- Geração de Energia e Participações, Ltda. Fortaleza Brazil MW Topolog, S.R.L. Bucharest Romania Joint control companies: Eviva Dunowo, Sp. Z o.o. Gliwice Poland Associate Companies Eviva Gizalki Sp. Zo.o Miastko Poland CHANGES IN THE CONSOLIDATION METHOD In 2016: Martifer Solar Inc. and MT Silverado Fund LLC - from integral method to equity method. In July 2016 these companies stopped being part of the Martifer Solar Group and were acquired by Duelobrigatório, S.A., 55 % owned by Martifer SGPS, but there was a loss of control in the scope of this operation. In 2015: Martifer Amal, S.A. (Portugal) from equitymethod to full consolidation method due to the increase in participation by Martifer Global to 60 %, with the Group owning only 45 % (due to the sale of Martifer SGPS, S.A. s share in Martifer Global SGPS, S.A. to Martifer Metallic Constructions SGPS, S.A., but with control over it). Cañaverosa Renovables, SL from equity method to full consolidation method due to the increase in participation by the Group to %. This participation was meanwhile sold during the second quarter of Prio Group in 2015 it stopped being consolidated through the equity method, since the Group does not have any significant influence, due to the residual value of the Group s share and with the share reduction prospect confirmed. OTHER CHANGES IN THE CONSOLIDATION PERIMETER In 2016: Martifer Energy Systems SGPS, S.A. and Martifer Global SGPS, S.A. were merged into Martifer Metallic Constructions SGPS, S.A. and as a consequence the first two were extinguished. FW Warta Sp. Z.o.o - increase in shareholding from 25 % to 50 %. 104 // ANUAL REPORT 2016 //

105 12 // The companies Martifer Inovação e Gestão, S.A., Martifer Gestão de Investimentos, S.A., Nagatel Viseu - Promoção Imobiliária, S.A. and Gebox, S.A. were merged into Martifer Construções Metalomecânicas, S.A., and as a consequence the first four were extinguished. Duelobrigatório, S.A. - was 100 % owned by Martifer SGPS and subsequently sold 45 %, with 55 % of the latter being held. Despite the sale of the 55 % stake held in Martifer Solar, S.A., its entities in the US will continue to be owned by the Martifer Group (owned by the company Duelobrigatório). In 2015: Eviva Nalbant, srl increase in the shareholding held from % to 100 %. Eviva Casimcea, srl increase in the shareholding held from 99 % to 100 %. Eviva Agighiol, srl increase in the shareholding held from 99 % to 100 %. SBER- Sociedade Brasileira de Energias Renováveis increase in the shareholding held from % to %. Martifer Construções Metalomecânicas, S.A. decrease in the shareholding held from % para 75 % due to the Group s corporate reorganization. Martifer Inovação e Gestão, S.A. decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Martifer Mota-Engil Coffey Construction Joint Venture Limited decrease in the shareholding held from % to 45 % due to the Group s corporate reorganization. Martifer Energy Systems II, SGPS, S.A. decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Martifer Energia S.R.L. decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Martifer Energia LLC decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Martifer Wind Energy Systems LLC decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Martifer Energy Systems PTY decrease in the shareholding held from 85 % to % due to the Group s corporate reorganization. Navalria Docas, Construções e Reparações Navais, S.A. decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Gebox, S.A. decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. West Sea - Estaleiros Navais, Lda. - decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Martifer Global SGPS, S.A. decreese in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Martifer Construcciones Peru, S.A. decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Global Holding Limited decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization. Global Engineering & Construction Limited decrease in the shareholding held from 100 % to 75 % due to the Group s corporate reorganization Martifer Amal, S.A. (Moçambique) decrease in the shareholding held from 35 % to % due to the Group s corporate reorganization. In the third quarter, the Group carried out a corporate reorganization, having Martifer Metallic Constructions SGPS, S.A. acquired several shareholdings from Martifer SGPS, S.A., included in the Metallic Constructions sector, as reported above. Martifer Gestiune Si Servicii, S.R.L. merged with Martifer Constructii S.R.L., creating Martifer Romania S.R.L., which is participated 2 % directly and a 73.5 % indirectly by the Holding. Martifer Solar Chile Operaciones Limitada merged with Martifer Solar Chile Holding, Lda, and the later was maintained. MTS Solar Sistemas Solares, S.A. increase in the indirect participation from % to 55 %. Martifer Alumínios, S.A. merged with Martifer Construções Metalomecânicas, S.A.. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 105

106 // OPERATIONAL SEGMENTS The Group bases its disclosure of information on the main segments of its internal organisation for management purposes. The Group is organised in two business areas: Metallic Constructions and Renewables and both are coordinated and supported by Martifer SGPS. The Metallic Constructions business area includes all the construction activities involving metal mechanical constructions, aluminium and glass façades, infrastructures for oil & gas and the naval industry. The Renewables segment includes the promotion and development of renewable energy projects, with special emphasis on the wind sector. The amounts presented in Other are related to the services rendered by Martifer SGPS, S.A.. In September 2014, the Group started to classify the solar business unit (composed by Martifer Solar, SA and its subsidiaries) as a non-current asset held for sale. Since the requirements of IFRS 5 were fulfilled, the contribution to Martifer s consolidated results, coming from this segment, is presented in an autonomous line in the Consolidated P&L. The breakdown of these contributions is in the Notes to the Consolidated Financial Statements (Note 28). However, in August 2016, Martifer Solar S.A. and its subsidiaries (except the US entities) were sold to the Voltalia Group (a French Renewable Energy Group). As of 31 st December 2016, the Group does not hold non-current assets held for sale. The accounting policies used in the preparation of the information by each business segment are the same as the ones used in the preparation of the attached financial statements (Note 1). On 31 st December 2016 and 2015, the breakdown of sales and services rendered by operational segments is as follows: SALES TO EXTERNAL CUSTOMERS INTERSEGMENT SALES TOTAL FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 Metallic Constructions 191,873, ,403,265 21,258,435 29,701, ,131, ,104,411 Renewables 13,926,306 13,066, , ,500 14,718,201 13,888,860 Others 71,236 2,415, , , ,305 2,945, ,871, ,885,349 22,692,399 31,053, ,563, ,939,050 Intersegment eliminations (22,682,944) (29,496,741) Own work capitalized (Note 5) (9,455) (1,556,960) 205,871, ,885,349 Sales and services rendered to non-group clients by geographical origin and by segment are as follows: FY 2016 FY 2015 Iberian Peninsula Metallic Constructions 109,682,340 73,745,258 Renewables 2,358,723 5,109,917 Others 71,236 2,415,722 European Union (Other) Metallic Constructions 35,719,556 55,421,556 Renewables 7,604,056 7,879,525 Other markets Metallic Constructions 46,471,651 76,236,451 Renewables 3,963,527 76, ,871, ,885,349 In the year 2016, the sales and services rendered decreased by approximately 15 million Euros compared to the same period last year. This reduction is mainly due to the sale of Brazilian companies in the Metallic Constructions segment, which in 2015 contributed with approximately 21 million Euros. There was also a reduction in the turnover in the United Kingdom and in France, which is offset by the large growth of the shipbuilding industry in Portugal, and due to new wind tower supply projects and Faro Airport, which were being executed in // ANUAL REPORT 2016 //

107 12 // On 31 st December 2016 and 2015, the earnings before interest, taxes, amortization, provisions and impairment losses (EBITDA), the earnings before interest and taxes (EBIT) and the net profit by primary segment are as follows: EBITDA EBIT PROFIT AFTER TAX FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 Metallic Constructions 180,418 9,214,427 (13,627,025) 6,584,892 (25,425,546) 6,381,448 Renewables 4,218,759 2,650,403 (4,554,497) (4,580,960) 316,323 3,397,081 Others 4,263 (475,675) 598,520 (2,522,950) (25,054,689) (7,805,461) 4,403,440 11,389,156 (17,583,001) (519,017) (50,163,912) 1,973,068 Non-Current operation held for sale n.a. n.a. n.a. n.a. (9,688,570) (800,771) 4,403,440 11,389,156 (17,583,001) (519,017) (59,852,482) 1,172,297 In 2016, the consolidated EBITDA recorded a positive value of 4.4 million Euros, for which the Renewables segment contributed with 4.2 million Euros and the Metallic Constructions segment contributed with 0.2 million Euros. The decrease in EBTIDA in the Metallic Constructions is due to the delay in the beginning of some projects in several geographies, due to impairments for customer credits, due to unfavorable exchange differences and due to some non-recurring events. The increase in Renewables results from the activity of wind farms and solar parks in exploration and the sale of projects The gains and losses in associate companies, the carrying amount of the investments in associate companies, as well as the increases and reversals of provisions and impairment losses by operational segment are as follows: LOSSES IN ASSOCIATE COMPANIES GAINS IN ASSOCIATE COMPANIES CARRYING AMOUNT OF THE FINANCIAL ASSETS RECORDED UNDER EQUITY METHOD FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 Metallic Constructions 3,944, ,112 1,466-1,737,099 1,352,192 Renewables 573,080 73,516 4,666, ,860 3,111,810 1,798,452 Others (Note 13) 24,666, , ,184, ,628 5,274, ,860 4,848,908 3,150,644 PROVISIONS AND IMPAIRMENT LOSSES RECORDED IN THE YEAR REVERSALS OF PROVISIONS AND IMPAIRMENT LOSSES RECORDED IN THE YEAR FY 2016 FY 2015 FY 2016 FY 2015 Metallic Constructions 11,180,288 1,237,867 2,252,022 4,530,161 Renewables 3,316,025 1,481, ,044 31,620 Others 557,377 1,770, ,212-15,053,690 4,490,277 3,808,278 4,561,781 The Group s net assets and liabilities by operating segments on 31 st December 2016 and 2015 are as follows: ASSETS LIABILITIES FY 2016 FY 2015 FY 2016 FY 2015 Metallic Constructions 256,926, ,696, ,512, ,515,809 Solar (*) - 146,991, ,930,364 Renewables 155,665, ,495,991 60,624,647 60,704,009 Holding 422,917, ,517, ,407, ,916,271 Intragroup eliminations (418,049,952) (456,070,303) (39,172,758) (50,107,938) 417,458, ,631, ,372, ,958,514 (*) Martifer Solar Consolidated. The difference regarding Note 28 arises from inter-area eliminations and consolidation adjustments. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107

108 // 12 The Group s capital expenditure (acquisition of tangible and intangible assets) and depreciation/amortization, by operating segments up until 31 st December 2016 and 2015 were as follows: CAPITAL EXPENDITURES AMORTIZATIONS FY 2016 FY 2015 FY 2016 FY 2015 Metallic Constructions 984,452 2,347,221 4,879,177 5,921,829 Renewables 2,066,880 2,008,856 5,859,898 5,521,590 Others , ,258 3,051,332 4,356,827 10,741,029 11,979,677 Assets and capital expenditure by geographical areas were as follows: ASSETS CAPITAL EXPENDITURES FY 2016 FY 2015 FY 2016 FY 2015 Iberian Peninsula 220,947, ,851,853 1,362,117 1,881,587 European Union 129,186, ,407, , ,381 Other markets 67,325, ,371,315 1,284,874 1,979, ,458, ,631,099 3,051,332 4,356,827 The amount of assets and liabilities on 31 st December 2015 include amounts relating to Assets held for sale (Note 28). 4. SALES AND SERVICES RENDERED On 31 st December 2016 and 2015, the breakdown of the sales and services rendered was as follows: FY 2016 FY 2015 Revenue from the sale of merchandise 100,927 1,713,444 Revenue from the sale of goods 109,882,348 84,775,055 Services rendered 95,887, ,396, ,871, ,885,349 In 2016, the sales and services decreased by 7% compared to 2015 to 206 million Euros. This variation results from the decrease mainly in the Metallic Constructions segment in the United Kingdom and in France and from the sale of Brazilian companies in this segment. This item includes 186,767, Euros relating to construction contracts. 108 // ANUAL REPORT 2016 //

109 12 // 5. OTHER INCOME On 31 st December 2016 and 2015, the breakdown of the caption Other income was as follows: FY 2016 FY 2015 Change in production (219,258) (1,991,230) Own work capitalised 9,455 1,557,460 Taxes 95,118 33,739 Reversals of impairment losses: Trade debtors (Note 24) 245,537 2,560,800 Other impairment losses 30,104 5,024,277 Supplementary income 1,921, ,581 Gains in inventories - 2,021 Capital gains on non-financial assets 412,585 12,510,304 Operating subsidies 343, ,676 Investments subsidies 248,769 50,332 Foreign exchange gains 4,593,497 6,077,593 Other operational gains 3,509,886 4,869,810 Total 11,190,128 31,700,364 The amount included in the caption 'Change in production' in 2015 refers essentially to Martifer Construções Metálicas, Ltda. (A Brazilian company sold in September 2015) belonging to the Metallic Constructions segment. The amount included in the item 'Works for own company' in 2015 is essentially related to the construction of infrastructures in the Metallic Constructions segment. On 31 st December 2015, 'capital gains on non-financial assets' includes 9.5 million Euros arising from the gain of the fair value recognized by the change of a property from inventories to investment property and its revaluation to fair value and 1.6 million Euros related to capital gains from the sale of fixed assets. On 31 st December 2015, impairment losses on 'Clients' had a strong contribution from the companies in the Polish Metallic Constructions segment (2.1 million Euros) and to the reversals in 'Other impairment losses', the impairment reversal related to works in progress in Portugal (2,8 million Euros) and in Romania (2,15 million Euros). The caption foreign exchange gains is related with exchange variations in non-financial transactions, mainly in non-euro Zone Group companies (note 1). The item 'Other operating income' in 2016 mainly includes income from the Metallic Constructions area (1.2 million Euros), of which the contributions from Saudi Arabia and from Portugal can be highlighted and from the Renewables area (0.8 million Euros). In 2015, the amount of 2 million Euros can be pointed out in relation to the recognition in that year of deferred income related to the adjustment to the sale price of the stake in Repower Portugal. 6. COST OF GOODS SOLD On 31 st December 2016 and 2015 the cost of goods sold was as follows: FY 2016 MERCHANDISE RAW-MATERIALS, SUBSIDIARIES AND OTHER CONSUMABLES Opening balance 3,114,973 2,597,933 5,712,906 Purchases 243,851 70,088,486 70,332,337 Changes in the consolidation perimeter, currency exchange differences, transfers and others (318,417) (6,964,000) (7,282,417) Closing balance 3,040,407 2,535,170 5,575,577 TOTAL - 63,187,251 63,187,251 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 109

110 // 12 FY 2015 MERCHANDISE RAW-MATERIALS, SUBSIDIARIES AND OTHER CONSUMABLES Opening balance 3,276,957 6,843,327 10,120,284 Purchases 378,657 62,438,559 62,817,216 Changes in the consolidation perimeter, currency exchange differences, transfers and others (190,729) 769, ,841 Closing balance 3,114,973 2,597,933 5,712,906 TOTAL 349,912 67,453,523 67,803,434 The decrease in the caption in the year 2016 is a consequence of the decrease in production and consequent sales. 7. SUBCONTRACTS On 31 st December 2016 and 2015, costs with subcontracts were as follows: FY 2016 FY 2015 Subcontracts 62,806,422 53,741,731 62,806,422 53,741,731 The subcontracts are related with construction works carried out mainly in the Metallic Constructions segment. 8. EXTERNAL SUPPLIES AND SERVICES The breakdown in external supplies and services on 31 st December 2016 and 2015 was as follows: FY 2016 FY 2015 Transportation of goods 4,304,257 6,330,156 Specialized works 8,675,910 12,471,454 Leases and rents 7,414,693 18,359,871 Service Fees 2,047, ,950 Travelling expenses 1,555,340 2,604,158 Electricity and Fuel 2,680,524 3,021,670 Insurance 1,804,236 2,051,345 Maintenance and repairs 1,663,881 1,829,861 Communications 482, ,926 Security 856, ,490 Legal and notarial fees 194, ,973 Commissions 216, ,920 Advertising 215, ,906 Cleaning, health and safety 394, ,766 Tools and devices 371, ,058 Others 1,216,048 2,203,310 34,093,318 53,677,811 In general, there was a decrease in external supplies and services as a result of the decrease in activity in 2016, especially relating to rents and leases and specialized work. Specialized works include costs with auditing, consulting, information systems, studies and reports. The item Leases and rents ' in 2015 is mainly due to the rental of equipment in Brazil and the rental of lifting equipment for the works of Lyon, ITER and Paintshop in France. The total impact of the Brazilian companies of the Metallic Constructions area in Supplies and External Services in 2015 was approximately 14.7 million Euros. 110 // ANUAL REPORT 2016 //

111 12 // 9. STAFF COSTS On 31 st December 2016 and 2015, staff costs were as follows: FY 2016 FY 2015 Salaries 29,703,415 39,951,103 Social contributions and others 7,736,091 11,076,227 37,439,505 51,027,329 The social charges relate primarily to social security contributions, to the food and health subsidies, insurance costs and indemnities. AVERAGE STAFF NUMBERS During 2016 and 2015, the Group s average staff numbers were as follows: FY 2016 FY 2015 Directors Other employees 1,514 1,702 1,528 1,717 Portuguese 988 1,112 Portuguese in foreign countries and foreigners ,528 1, OTHER EXPENSES On 31 st December 2016 and 2015, other expenses were as follows: FY 2016 FY 2015 Taxes 2,070,161 2,612,443 Impairment losses: Trade debtors (Note 24) 1,953,377 3,877,669 Other impairment losses 104,809 - Losses in inventories Losses in non-financial assets 243, ,992 Foreign exchange losses 7,001,281 4,678,291 Trade debtors write-off - (1,827) Fines and penalties 46, ,776 Other operational losses 3,711,372 2,978,916 Total 15,131,280 14,946,252 The caption Impairment losses in Clients in 2015 includes an impairment recognized by Martifer Renewables Brasil Participações Ltda. of 3,137, Euros related to the balance held with Martifer Construções Metálicas, Ltda. with the sale of Martifer Construções Metálicas, Ltda. and the economic recession in Brazil it was considered that this balance will be difficult to recover in its entirety and, therefore, the impairment was recognized. In 2016, impairments were recorded in Angola in the amount of 1.3 million Euros. The caption Unfavourable exchange differences is related with the occurrence of foreign exchange variations in non-financial transactions, primarily in the non-euro Zone Group affiliates (Note 1). In 2016 the geographies that most contributed to the increase of exchange rate costs were Angola and Saudi Arabia. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 111

112 // 12 The value of 'Other operating expenses' in 2016 mainly includes the costs associated with a project sold in Latin America in the Renewables segment and other costs in Saudi Arabia and in the United Kingdom in the Metallic Constructions segment. In 2015, the amount of 1.6 million Euros related to the process Budimex that was lost, in Poland, stands out. 11. PROVISIONS AND IMPAIRMENT LOSSES The provisions and impairment losses for the periods ended on 31 st December 2016 and 2015 were as follows: Impairment losses FY 2016 FY 2015 in financial assets (Note 21) 437,500 1,515,437 in intangible assets (Note 18) - 1,295 in tangible assets (Note 19) and investment properties (Note 20) 12,110, ,981 Provisions (Note 33) 12,548,076 2,438,713 Arising from the use of the equity method - 215,000 Quality guarantees (35,588) 107,620 Onerous contracts 891,507 (4,038,972) Legal claims in progress 117,050 (35,569) Contractual Obligations (2,275,633) 1,241,704 (1,302,664) (2,510,217) Impairment losses on fixed assets and investment properties recorded in 2016 relate to one of the plants in Portugal and to wind farms in Poland and in Romania and to the Szczecin real estate project in Poland (surface rights due to expire in 2017 as a result of the non-development of the real estate project foreseen in the agreement with the local Municipality). 'Provisions for onerous contracts' refer to ongoing construction contracts where it is estimated that the cost to be incurred to meet the obligation assumed exceeds the anticipated economic benefits. These provisions mainly concern the Metallic Constructions segment. In 2015, the amount of provisions related to onerous contracts has a negative value because they have either been used or have been reversed. The reversal of 'Provisions for contractual obligations' essentially refers to the expiry of tax risks in the amount of 1.8 million Euros in the area of Metallic Constructions in Portugal. 12. NET FINANCIAL RESULTS The net financial results for the years ended on 31 st December 2016 and 2015 may be analysed as follows: FINANCIAL INCOME FY 2016 FY 2015 Loans and accounts receivable (including bank deposits) - Interest income 1,681,616 1,735,855 Other financial income related to other financial assets - Foreign exchange gains 1,085,367 3,671,489 - Gains on the sale of financial assets 1,838,842 6,959,341 - Other financial income 48,882 6,958,023 4,654,707 19,324, // ANUAL REPORT 2016 //

113 12 // FINANCIAL EXPENSES FY 2016 FY 2015 Loans and accounts payable - Interest expenses in bank loans and in finance leases 6,187,107 8,352,517 Other financial income related to other financial liabilities - Foreign exchange losses 3,392,843 4,695,819 - Other financial expenses 2,508,086 3,202,822 12,088,037 16,251,158 The captions Foreign exchange gains/(losses) are essentially related with exchange variations registered in non-euro Zone Group companies (Note 1). The note 'Gains on disposal of financial assets' in 2016 is essentially related to the sale of the stake in the company Greenvouga (Note 42). In 2015, Other income and financial gains include, essentially, the gain arising from the process of renegotiation of the debt contracted with the Bank BBVA (Banco Bilbao Vizcaya Argentaria), in which the financing was repaid with a discount on the outstanding capital and there a partial pardon of the interest was granted. The item 'Interest paid' fell sharply as a result of the Group's financial restructuring carried out at the end of GAINS/(LOSSES) IN ASSOCIATE COMPANIES AND JOINT ARRANGEMENTS On 31 st December 2016 and 2015, the gains and losses in associate companies and joint-ventures were as follows: FY 2016 FY 2015 Equity method Parque Eólico da Penha da Gardunha, Lda. (27,720) - Ventinveste, S.A. (536,074) - SPEE 2 Parque Eólico de Vila Franca de Xira, S.A. 513, ,172 SPEE 3 Parque Eólico do Baião, S.A. 183, ,689 Liszki Green Park, Sp. Zo.o (14,477) - M-City Szczecin (196,595) - M City Bialystok Sp. Zo.o (1,934,885) - M City Radom Sp. Zo.o (61,312) - Eviva Gizalki Sp. Zo.o - (73,516) Promoquatro 1,466 - Martifer Amal (466,270) (141,404) Martimetal (1,236,358) (446,708) Warta (9,285) - CNA Chantier Naval d'arzew, SPA (34,339) - Duelobrigatório, SA. 607,154 - (3,211,749) (35,768) Others Duelobrigatório impairment (Note 21 e Note 24) (9,966,891) - Loss arising from the sale of Nutre (14,700,000) - Loss arising from the sale of Eviva Gizalki 2,988,795 - Gain from the sale of 5 Wind Farms 980,566 - (20,697,530) - (23,909,279) (35,768) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 113

114 // 12 The Impairment of the company Duelobrigatório recorded in 2016 relates to the financial investment and supplemtary capital in the company Duelobrigatório, SA (the company that owns the assets of the Solar segment in the United States that were not sold in the process of selling Martifer Solar, SA), since no return is expected because of the uncertainty on the recovery of its US investment. The 'Loss arising from the sale of Nutre' in 2016 is due to the recognition of an impairment loss amounting to 14.7 million Euros for the receivable for the sale of Nutre following the decision of the court in the case with Bunge. The 'Gain arising from the sale of Eviva Gizalki' in 2016 is related to the additional receipt resulting from the sale of Eviva Gizalki Sp. Zo.o., which was sold in 2015 (Note 42). The information on associate companies and joint ventures is included in Notes 21 and INCOME TAX The detail of the assets and liabilities that originated deferred taxes on 31 st December 2016 and 2015 was as follows: FY 2016 FY 2015 DEDUCTIBLE TEMPORARY DIFFERENCES BASIS DEFERRED TAX BASIS DEFERRED TAX With impact in Net Profit Provisions not accepted for tax purposes 6,251,685 1,562,921 7,410,159 1,852,540 Tax losses 20,620,675 4,652,598 21,349,590 4,770,794 Others 2,842, ,353 5,437,444 1,233,943 Deferred Tax Assets Compensation (9,300,000) (1,953,000) (9,300,000) (1,953,000) 20,415,254 4,816,872 24,897,193 5,904,277 With impact in Equity Others 252,863 37, ,863 37, ,863 37, ,863 37,929 20,668,117 4,854,801 25,150,056 5,942,206 FY 2016 FY 2015 TAXABLE TEMPORARY DIFFERENCES BASIS DEFERRED TAX BASIS DEFERRED TAX With impact in Net Profit Differences between cost and fair value 1,197, ,448 1,197, ,448 Deferral of capital gains taxation - - (450,750) (119,449) Accruals not accepted for tax purposes ,452 78,030 Investment properties revaluation 9,300,000 1,953,000 9,300,000 1,953,000 Others 17,091 3,247 17,677 3,359 Deferred tax liabilities compensation (9,300,000) (1,953,000) (9,300,000) (1,953,000) 1,215, ,695 1,059, ,388 With impact in Equity Fair value on the acquisition of subsidiaries 2,295, ,354 2,334, ,354 Others 140,510 31, ,510 31,557 2,435, ,912 2,475, ,911 3,650, ,607 3,534, ,299 In 2015, deferred tax assets and deferred tax liabilities relating to tax losses and to the revaluation of investment property included an amount of 9,300, Euros of basic tax and 1,953, Euros of tax charges, which were offset, since the Board estimated that the abovementioned Investment Property will be sold within the recovery period of active Deferred Taxes, so that at the time of the sale, these assets for active deferred taxes and deferred tax liabilities would be used simultaneously. 114 // ANUAL REPORT 2016 //

115 12 // Deferred tax assets and liabilities, by geography, are as follows: DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES FY 2016 FY 2015 FY 2016 FY 2015 Portugal 2,102,431 2,102, , ,940 Spain 2,242,461 3,330, Poland - - 3,247 3,359 Romania 438, , Other 70,925 68, ,854,801 5,942, , ,299 According to tax returns and tax estimates of the companies that recognize deferred tax assets in respect of tax losses carried forward, on 31 st December 2016 and 2015, using tax rates applicable on those dates, the details are as follows: FY 2016 FY 2015 TIME LIMIT BASIS DEFERRED TAX BASIS DEFERRED TAX ,492 28, ,635 28, ,743, ,985 2,752, , ,659,937 2,029,728 8,562,058 2,255, ,300,000 1,953,000 9,300,000 1,953,000 19,811,228 4,450,236 20,975,303 4,677,222 Without time limit 809, , ,286 93,572 20,620,675 4,652,598 21,349,590 4,770,794 On 31 st December 2016, deferred tax assets and liabilities amounted to 4,854, Euros and to 957, Euros, respectively (in 2015: 5,942, Euros and 916, Euros, respectively). The effect on the income statement of -1,129, Euros (in 2015 a positive effect of 1,329, Euros). On 31 st December 2016 and 2015, in light of the tax legislation in force in Portugal regarding dividend taxation, temporary differences related to the appropriated results of subsidiaries, associate companies and subsidiaries for which no deferred tax liabilities were recorded, are not materially relevant to the accompanying financial statements. On 31 st December 2016, there are tax losses to be reported in companies taxed under the Special Regime for the Taxation of Groups of Companies (RETGS) of which Martifer SGPS is the parent company, before and during the application of RETGS, in the amount of 122,151, Euros (149,084, Euros on 31 st December 2015), whose potential deferred tax assets amounted to 27,484, Euros (33,543, Euros on 31 st December 2015). In a prudent perspective, deferred tax assets related to tax losses in Portugal to be used in the future were recorded only in the amount of 3,980, Euros. The breakdown of the total tax losses carried forward and tax credit potential may be analysed as follows: FY 2016 FY 2015 TAX LOSS TAX CREDIT TIME LIMIT TAX LOSS TAX CREDIT TIME LIMIT Generated in ,817,774 2,658, /2016 Generated in ,063,092 2,939, ,722,095 2,862, Generated in ,942,511 5,612, Generated in ,429,357 5,496, ,924,811 5,608, Generated in ,128,239 8,353, ,128,240 8,353, Generated in ,968,459 8,542, ,138,106 7,006, Generated in ,489,330 1,235, ,410,603 1,442, Generated in ,073, , ,151,708 27,484, ,084,140 33,543,931 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 115

116 // 12 Regarding the forementioned tax losses, the following should be mentioned: i. The tax losses generated in 2012 were altered as a result of the correction made by the Tax Authority, to the tax losses assessed individually by Martifer Alumínios in the amount of 332,846 Euros and by Martifer Construções Metalomecânicas in the amount of Euros, which will not be subject to a complaint. ii. Additionally, the value of the tax losses generated in 2014 was altered as a result of the inclusion of the tax loss of West Sea in the calculation of the tax losses generated in 2014 by the Group and the change in the tax results initially determined by certain companies on the replacement delivery of tax form Model 22. The reconciliation between current tax and income tax is summarized as follows: FY 2016 FY 2015 Current tax 108,624 1,874,812 Deferred tax - generated by temporary differences - (1,007,392) Deferred tax - reversal of temporary differences 1,012,938 67,888 Deferred tax assets - tax loss recognition 118,196 (214,624) Other (1,456) (174,988) Deferred tax 1,129,678 (1,329,116) Income tax 1,238, ,697 On 31 st December 2016 and 2015, the reconciliation between the current and effective tax rate is as follows: FY 2016 FY 2015 Profit before tax (48,925,611) 2,518,765 Income tax rate (nominal rate of 21%) (10,274,378) 528,941 Non-taxable gains and losses: Gains/Losses of financial assets 4,438,356 (1,461,462) Investment properties revalutaion - (1,953,000) Registration of deferred tax on tax losses - 1,953,000 Reversions/Amortizations on revalued fixed assets (273,559) 325,109 Impairment losses 2,659, ,181 Others 592,929 (932,789) Results of associates using equity method 674,467 (7,511) Tax benefits (8,747) (409,424) Not recognized deferred tax assets arising from losses of current year 2,457,246 2,902,994 Creation/Reversion of deferred tax assets in the year 1,129,678 (1,400,000) Different tax rates 360, ,796 Municipaly surchage and autonomous taxes 357, ,023 Excess/Insufficiency of income tax estimate (875,151) 121,839 Effective income tax 1,238, ,697 In 2016, Martifer SGPS and its companies located in Portugal are individually taxed and are subject to a tax rate of 21 % in terms of corporate income tax ( Imposto sobre o Rendimento das Pessoas Coletivas or IRC), increased by a municipal surcharge that can reach 1.5 % of the taxable profit. Additionally, on the portion of taxable profits above 1,500,000 Euros and not exempt from corporate income tax (IRC), the following additional state surcharges are applied: 3 % on the amount above 1,500,000 Euros and up to 7,500,000 Euros; 5 % on the amount above 7,500,000 Euros and up to 35,000,000 Euros; and 7 % on the amount of taxable profits which exceed 35,000,000 Euros. According to Article 88 of the Tax Code Imposto sobre o Rendimento das Pessoas Coletivas, Portuguese companies are also subject to autonomous taxes on some expenses, at tax rates defined in the said code. During 2011, Martifer SGPS, SA opted for the special taxation of groups of companies mechanism (Regime Especial de Tributação de Grupos de Sociedades RETGS ), which contemplates the companies in which it holds, directly or indirectly, at least 75 % of their capital and that simultaneously meet the other conditions set by that mechanism. 116 // ANUAL REPORT 2016 //

117 12 // The remaining affiliated companies of the Group, not contemplated by this mechanism, are taxed individually, based on their taxable profits and the tax rates applicable. The net income generated by foreign subsidiaries is taxed at local tax rates, namely, those generated in Spain, in Poland, in Romania, in France, in Italy, in Belgium, in the United States of America, in Brazil and in the United Kingdom are taxed at 25 %, 19 %, 16 %, %, 27.5 %, %, 35%, 34 % and 20 % respectively. According to the current tax legislation in Portugal, tax returns of Portuguese companies can be reviewed by the tax authorities for a period of four years (and five years for Social Security), except when tax losses have been generated, tax benefits have been granted or when any review, claim or impugnation is in course, under which circumstances the periods can be extended or suspended. Therefore, all annual tax returns for the year 2013 through 2016 are still open to such review. On 31 st December 2016 and 2015, income tax receivable and payable is as follows: FY 2016 FY 2015 Income tax - Assets 551,394 1,029,684 Income Tax - Liabilities (861,330) (2,257,208) Net income tax (309,936) (1,227,524) 15. DIVIDENDS In 2016 and 2015, the Group did not distribute dividends. 16. EARNINGS PER SHARE Martifer SGPS, SA has only issued ordinary shares and, as such, no shares have special voting or dividend rights. Martifer has just one type of potential ordinary dilutive shares: stock options. In order to calculate diluted earnings per share it is necessary to determine whether these stock options, irrespective of whether they are exercised or not, have a diluting effect, which happens when the option exercise price is lower than the average market price of the shares. Since the average market price of Martifer s shares, during the period between 1 st January 2016 and 31 st December 2016, was 0.20 Euros, below that of the exercise price of the stock options (3.84 Euro), these stock options are non-diluting because, if the options were to be exercised, the number of outstanding shares would be reduced. Therefore, on 31 st December 2016 there are no differences between the basic earnings per share and the diluted earnings per share calculation. The share capital of Martifer SGPS, SA is represented by 100,000,000 ordinary shares, fully paid up, representing a share capital of 50,000,000 Euros. The average number of shares outstanding is net of 2,215,910 shares corresponding to the volume of own shares acquired by Martifer SGPS, SA. On 31 st December 2016 and 2015, the basic and diluted earnings per share may be summarised as follows: FY 2016 FY 2015 Profit for the year (I) (43,585,139) (482,490) Weighted average number of shares outstanding (II) 97,784,090 97,784,090 Basic and diluted earnings per share (I) / (II) (0.4457) (0.0049) from continuing operations (0.4447) from Assets as held for sale (0.0010) (0.0102) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 117

118 // GOODWILL The movements occurring during the years ended on 31 st December 2016 and 2015 may be summarised as follows: FY 2016 FY 2015 Gross amount Opening balance 15,639,252 15,639,252 Sale of subsidiaries (4,658,577) Closing balance 10,980,675 15,639,252 Accumulated impairment losses Opening balance 4,658,577 4,658,577 Sale of subsidiaries (4,658,577) - Closing balance - 4,658,577 Carrying amount at the beginning of the period 10,980,675 10,980,675 Carrying amount at the end of the period 10,980,675 10,980,675 The breakdown of Goodwill, on 31 st December 2016 and on 31 st December 2015, was as follows: FY 2016 FY 2015 COST IMPAIRMENT LOSSES CARRYING AMOUNT CARRYING AMOUNT Martifer Construções 5,457,165-5,457,165 5,448,792 Martifer Metallic Constructions 3,898,809-3,898,809 3,898,809 Navalria 1,618,675-1,618,675 1,618,675 MGI(*) ,373 Martifer GmbH 6,026-6,026 6,026 10,980,675-10,980,675 10,980,675 (*) As consequence of the merger of this company into Martifer Construções, the value of Goodwill was included in the line 'Martifer Construções' The Group performs annual impairment tests on Goodwill, at the end of each year, as disclosed in the section Main accounting policies, judgements and estimates. In 2016, the company Martifer Aluminum Pty, Ltd (Sassall Aluminum) was dissolved and its Goodwill was derecognised as well as its impairment. For impairment assessment purposes, Goodwill was allocated to the cash generating units that are expected to benefit from the business combination within each operational segment. The recoverable amount for each cash generating unit was determined based on its value in use, using the discounted cash flow method, supported by the business plans drawn up by those in charge of each unit and approved by the Board of Directors of the Group. Different discount rates were used according to the risks inherent to each company. On 31 st December 2016, the methods and assumptions used in the identification, or not, of any impairment loss in the more significant amounts of Goodwill recorded by each of the segments in the accompanying financial statements, were as follows: METALLIC CONSTRUCTIONS MARTIFER CONSTRUÇÕES MARTIFER METALLIC CONSTRUCTIONS NAVALRIA Goodwill (1) 5,457 3,899 1,619 Period used 5 years cash flow projection 5 years cash flow projection 5 years cash flow projection Growth rate (g) (2) 2% 2% 1% Average growth rate of turnover for 5 years (3) -0.04% 3.03% 9.17% Discount rate (4) 6.48% 6.48% 6.48% 118 // ANUAL REPORT 2016 //

119 12 // (1) (2) (3) (4) Values in thousand Euros Growth rate used to extrapolate cash flows beyond the business plan period Average growth rate estimated based on the company s 5-year business plan, carried out according to the Board of Directors estimates and assumptions, based on their best knowledge at the date of the approval of financial statements Discount rate applied to the projected cash flows The average growth rate of turnover in each segment is based on the following estimates and expectations: (i) in Martifer Construções a significant reduction in 2017 and from 2018 onwards an annual growth in activity as a result of a portfolio whose development will be done mostly at the end of 2017 and in 2018, several proposals in the advanced stage of negotiation that are expected to be closed in 2017 and in 2018, partnerships with large economic groups and the consolidation of the announced economic recovery with a more pronounced growth of the Portuguese economy and of the major world economies; (ii) in Martifer Metallic Constructions a reduction in 2017 and an annual growth of 5% as a result of the estimated growth for the Metallic Constructions area, either by the works already in portfolio or in the award perspective, by entering new geographies or by growth in geographies where Martifer already has a strong presence and whose economies are estimated to grow more than in recent years, and by consolidating growth in shipbuilding where the pace of awards has been quite significant; (iii) at Navalria, the high growth rate that the naval area has had, both in construction and repair, and the synergies with West Sea. The Board of Directors, based on the discounted value of the provisional cash flows of the cash generating units of this business segment, discounted at the applicable rate, concluded that, on 31 st December 2016, the carrying amount of the net assets, including Goodwill, did not exceed its recoverable amount. The projected cash flows are based on the historic performance and on the expectations of efficiency improvements. Those in charge of this segment believe that (in a scenario of normality) a change in the main assumptions used in the calculation of the recoverable amount would have the impact shown on the following table: MARTIFER CONSTRUÇÕES: MARTIFER CONSTRUÇÕES WACC INCREASE IN 1.0 P.P. WACC DECREASE IN 1.0 P.P.. VAR. TURNOVER +5.0 P.P. (1) VAR. TURNOVER -5,0 P.P. (1) INCREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) DECREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) Weighted Average Cost of Capital (WACC) 6.48% 7.48% 5.48% 6.48% 6.48% 6.48% 6.48% CAGR turnover [2016; 2022] (3) -0.04% -0.04% -0.04% 4.96% -5.04% -0.04% -0.04% EBITDA/Turnover average margin [2016 ; 2021] 4.97% 4.97% 4.97% 4.97% 4.97% 5.47% 4.47% Net Book Value (4) 5,457 5,457 5,457 5,457 5,457 5,457 5,457 Total recoverable amount (4) 43,421 18,926 82,121 68,238 25,774 38,039 23,239 Estimated impact (4) 37,964 13,469 76,664 62,780 20,316 32,582 17,782 Conclusions of the sensitivity analysis (1) (2) (3) (4) No impairment No impairment No impairment No impairment No impairment No impairment Yearly variation of turnover in 5 p.p. (2016 = 100 %), maintaining a constant EBITDA/Turnover margin Variation in EBITDA/Turnover margin, maintaining a constant turnover Estimated Average growth rate based on the company s 5-year business plan, carried out according to the Board of Directors estimates and assumptions Amounts in thousand Euros No impairment NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 119

120 // 12 MARTIFER METALLIC CONSTRUCTIONS: MMC WACC INCREASE IN 1,0 P.P. WACC DECREASE IN 1,0 P.P. VAR. TURNOVER +5,0 P.P. (1) VAR. TURNOVER -5,0 P.P. (1) INCREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) DECREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) Weighted Average Cost of Capital (WACC) 6.48% 7.48% 5.48% 6.48% 6.48% 6.48% 6.48% CAGR turnover [2016 ; 2020] (3) 3.03% 3.03% 3.03% 8.03% -1.97% 3.03% 3.03% EBITDA/Turnover average margin [2016 ; 2020] 5.03% 5.03% 5.03% 5.03% 5.03% 5.53% 4.53% Net Book Value (4) 3,899 3,899 3,899 3,899 3,899 3,899 3,899 Total recoverable amount (4) 76,463 52, , ,302 46,946 80,568 53,409 Estimated impact (4) 72,564 48, , ,403 43,047 76,669 49,510 Conclusions of the sensitivity analysis No impairment No impairment No impairment No impairment No impairment No impairment No impairment (1) (2) (3) (4) Yearly variation of turnover in 5 p.p. (2016 = 100 %), maintaining a constant EBITDA/Turnover margin Variation in EBITDA/Turnover margin, maintaining a constant turnover Estimated Average growth rate based on the company s 5-year business plan, carried out according to the Board of Directors estimates and assumptions Amounts in thousand Euros NAVAL: NAVALRIA WACC INCREASE IN 1,0 P.P. WACC DECREASE IN 1,0 P.P. VAR. TURNOVER +5,0 P.P. (1) VAR. TURNOVER -5,0 P.P. (1) INCREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) DECREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) Weighted Average Cost of Capital (WACC) 6.48% 7.48% 5.48% 6.48% 6.48% 6.48% 6.48% CAGR turnover [2016; 2021] (3) 9.17% 9.17% 9.17% 14.17% 4.17% 9.17% 9.17% EBITDA/Turnover average margin [2016; 2021] 8.61% 8.61% 8.61% 8.61% 8.61% 9.11% 8.11% Net Book Value (4) 1,619 1,619 1,619 1,619 1,619 1,619 1,619 Total recoverable amount (4) 63,310 50,066 82,756 82,266 45,011 67,160 56,951 Estimated impact (4) 61,692 48,447 81,137 80,648 43,392 65,541 55,332 Conclusions of the sensitivity analysis No impairment No impairment No impairment No impairment No impairment No impairment No impairment (1) (2) (3) (4) Yearly variation of turnover in 5 p.p. (2016 = 100 %), maintaining a constant EBITDA/Turnover margin Variation in EBITDA/Turnover margin, maintaining a constant turnover Estimated Average growth rate based on the company s 5-year business plan, carried out according to the Board of Directors estimates and assumptions Amounts in thousand Euros 18. INTANGIBLE ASSETS This caption is analysed as follows: FY 2016 FY 2015 Gross amount, reduced by impairment losses: Software and other rights 18,214,335 18,213,095 18,214,335 18,213,095 Accumulated depreciation: Software and other rights 15,807,183 15,308,505 15,807,183 15,308,505 Carrying amount 2,407,152 2,904,590 The value registered in Software and other rights is mainly related with computer software acquired by Group companies. 120 // ANUAL REPORT 2016 //

121 12 // The gross amount of Intangible assets, net of impairment losses, for the periods ended on 31 st December 2016 and 2015, may be analysed as follows: FY 2016 SOFTWARE AND OTHER RIGHTS INTANGIBLE ASSETS IN PROGRESS ADVANCES FOR THE ACQUISITION OF INTANGIBLE ASSETS Opening balance 1 January ,213, ,213,095 Additions 95, ,549 Effect of foreign currency exchange differences (90,751) - - (90,751) Changes in the consolidation perimeter (18,801) - - (18,801) Transfers and other movements 15, ,241 Closing balance 31 December ,214, ,214,335 TOTAL FY 2015 SOFTWARE AND OTHER RIGHTS INTANGIBLE ASSETS IN PROGRESS ADVANCES FOR THE ACQUISITION OF INTANGIBLE ASSETS Opening balance 1 January ,687, ,116-18,815,038 Additions 348, ,219 Sales, disposals and write-offs (1,082) - - (1,082) Effect of foreign currency exchange differences (104,933) - - (104,933) Changes in the consolidation perimeter (699,624) (127,116) - (826,740) Impairment losses (Note 11) (1,295) - - (1,295) Transfers and other movements (16,111) - - (16,111) Closing balance 31 December ,213, ,213,095 The amounts of the accumulated depreciation of Intangible assets, for the periods ended on 31 st December 2016 and 2015, may be analysed as follows: TOTAL FY 2016 SOFTWARE AND OTHER RIGHTS INTANGIBLE ASSETS IN PROGRESS ADVANCES FOR THE ACQUISITION OF INTANGIBLE ASSETS Opening balance 1 January ,308, ,308,505 Additions 522, ,984 Sales, disposals and write-offs Effect of foreign currency exchange differences (20,749) - - (20,749) Changes in the consolidation perimeter (18,800) - - (18,800) Transfers and other movements 15, ,242 Closing balance 31 December ,807, ,807,183 TOTAL FY 2015 SOFTWARE AND OTHER RIGHTS INTANGIBLE ASSETS IN PROGRESS ADVANCES FOR THE ACQUISITION OF INTANGIBLE ASSETS Opening balance 1 January ,487, ,487,565 Transfers to assets held for sale 967, ,708 Additions (814) - - (814) Sales, disposals and write-offs (24,591) - - (24,591) Effect of foreign currency exchange differences (156,596) - - (156,596) Transfers and other movements 35, ,234 Closing balance 31 December ,308, ,308,505 Carrying Amount: 31 December ,904, ,904,590 TOTAL 31 December ,407, ,407,152 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 121

122 // TANGIBLE FIXED ASSETS This caption is analysed as follows: FY 2016 FY 2015 Gross amount, reduced by impairment losses: Land and buildings 72,525,474 82,087,659 Equipments 87,227,762 89,510,588 Tangible assets in progress 11,788,224 14,628,512 Other tangible assets 50,260,749 49,240,030 Accumulated depreciation: 221,802, ,466,789 Land and buildings 21,436,024 21,024,326 Equipments 50,425,570 46,558,542 Other tangible assets 20,962,919 18,736,495 92,824,513 86,319,363 Carrying amount 128,977, ,147,425 The accumulated impairment losses on 31 st December 2016 amounted to 29.9 million Euros. The gross amounts of land and buildings, equipment, tangible assets in progress and other fixed assets, net of impairment losses, for the periods ended on 31 st December 2016 and 2015, may be analysed as follows: FY 2016 LAND AND BUILDINGS EQUIPMENT TANGIBLE ASSETS IN PROGRESS OTHER TANGIBLE ASSETS TOTAL Opening balance 1 January ,087,659 89,510,587 14,628,512 49,240, ,466,789 Additions 179, ,146 2,122, ,238 2,955,783 Sales, disposals and write-offs (5,001,205) (1,049,506) (1,512,352) (8,852) (7,571,915) Effect of foreign currency exchange differences (992,233) (716,609) 226,965 (10,667) (1,492,544) Changes in the consolidation perimeter - (1,630) (26,521) - (28,151) Impairment losses (Note 11) (3,750,000) (1,086,136) (3,256,972) 850,000 (7,243,108) Transfers and other movements 1, ,910 (393,942) - (284,646) Closing balance 31 December ,525,474 87,227,762 11,788,222 50,260, ,802,209 FY 2015 LAND AND BUILDINGS EQUIPMENT TANGIBLE ASSETS IN PROGRESS OTHER TANGIBLE ASSETS TOTAL Opening balance 1 January ,294, ,487,147 15,049,013 49,280, ,110,583 Additions 576,798 2,202,992 1,222,958 5,860 4,008,608 Sales, disposals and write-offs (82,744) (4,293,982) (4,887) - (4,381,613) Effect of foreign currency exchange differences (1,090,510) (1,183,896) (361,485) (14,393) (2,650,284) Changes in the consolidation perimeter - (7,410,227) 197,811 (106,336) (7,318,752) Impairment losses (Note 11) (174,087) (420,661) (327,357) - (922,105) Transfers and other movements (2,435,930) 129,214 (1,147,541) 74,609 (3,379,648) Closing balance 31 December ,087,659 89,510,588 14,628,512 49,240, ,466,789 The investment in tangible fixed assets in 2016 occurred mainly in the Renewables segment, with a strong investment in Latin America, with the acquisition of equipment and the capitalization of costs in the projects in development, and in the segment of Metallic Constructions with special emphasis in the naval area, with the reinforcement of the operational capacity of West Sea (Naval Shipyard of Viana do Castelo). The amounts of the accumulated depreciation of land and buildings, equipment, tangible assets in progress and other fixed assets, for the periods ended on 31 st December 2016 and 2015, may be analysed as follows: 122 // ANUAL REPORT 2016 //

123 12 // FY 2016 LAND AND BUILDINGS EQUIPMENT TANGIBLE ASSETS IN PROGRESS OTHER TANGIBLE ASSETS TOTAL Opening balance 1 January ,024,326 46,558,543-18,736,495 86,319,364 Additions 2,766,138 5,166,980-2,241,463 10,174,581 Sales, disposals and write-offs (2,104,568) (835,089) - (6,211) (2,945,868) Effect of foreign currency exchange differences (250,097) (503,459) - (7,383) (760,939) Changes in the consolidation perimeter - 37, ,182 Transfers and other movements 224 1,413 - (1,446) 191 Closing balance 31 December ,436,023 50,425,570-20,962,918 92,824,513 FY 2015 LAND AND BUILDINGS EQUIPMENT TANGIBLE ASSETS IN PROGRESS OTHER TANGIBLE ASSETS TOTAL Opening balance 1 January ,957,151 46,238,961-16,499,311 83,695,423 Additions 2,845,912 4,822,928-2,258,567 9,927,407 Sales, disposals and write-offs (26,774) (3,340,737) - - (3,367,511) Effect of foreign currency exchange differences (221,984) (625,911) - (8,292) (856,187) Changes in the consolidation perimeter 75,149 (839,602) - (16,380) (780,833) Transfers and other movements (2,605,128) 302,904-3,289 (2,298,935) Closing balance 31 December ,024,326 46,558,543-18,736,495 86,319,364 Carrying Amount: 31 December ,063,333 42,952,044 14,628,512 30,503, ,147, December ,089,451 36,802,192 11,788,222 29,297, ,977,697 The valuation criteria and depreciation rates used for tangible fixed assets are disclosed in captions iv) and v) of the section Main accounting policies, judgements and estimates in Note 1 Accounting Policies. The cost of acquisition of tangible fixed assets held by the Group under financial leasing contracts on 31 st December 2016 amounted to 23,160, Euros and its net book value at that date was 16,643, Euros. The amount of the debts related to financial leasing contracts is presented in Note 31. On 31 st December 2016 and 2015, except for assets acquired under a finance lease under Project Finance and for the assets mentioned in Note 38, there were no other tangible fixed assets that were pledged or mortgaged to financial institutions as collateral for loans obtained by the Group. During the year, the Group assessed the estimated recoverable amount of some tangible fixed assets, taking into account internal and external factors which indicated that some assets might be recorded at a value higher than their recoverable amount. The assessment of impairment losses in tangible and intangible fixed assets of the Group was based on the business plans of the companies, using the assumptions described below. RENEWABLES SPAIN ROMANIA Tangible Fixed Assets (1) 28,191 42,968 Period 12 years 19 years Growth rate (g) (2) n.a. n.a. Average growth rate of Turnover [2016 ; 2029]; [2016 ; 2036] (3) -0.13% 1.76% Weighted Average Cost of Capital (WACC) (4) 7.46% 6.40% (1) Values in thousand Euros (2) Growth rate used to extrapolate cash flows beyond the business plan period (3) Average growth rate estimated based on the company s business plan, carried out according to the Board of Directors estimates and assumptions (4) Discount rate applied to the projected cash flows NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 123

124 // 12 The projected cash flows are based on the historic performance and on the expectations of improvements in efficiency. Those in charge of this segment believe that (in a scenario of normality) a change in the main assumptions used in the calculation of the recoverable amount would be impacted as follows: SPAIN: CASH GENERATING UNIT WACC INCREASE IN 1,0 P.P. WACC DECREASE IN 1,0 P.P. VAR. TURNOVER +1,0 P.P. (1) VAR. TURNOVER- 1,0 P.P. (1) INCREASE IN EBITDA / TURNOVER MARGIN IN 0,5 P.P. (2) DECREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) Weighted Average Cost of Capital (WACC) 7.46% 8.46% 6.46% 7.46% 7.46% 7.46% 7.46% CAGR Turnover [2016; 2029] (3) -0.13% -0.13% -0.13% 0.87% -1.13% -0.13% -0.13% EBITDA/Turnover average margin [2016 ; 2028] 76.50% 76.50% 76.50% 76.50% 76.50% 76.04% 76.96% Net book value (4) 28,191 28,191 28,191 28,191 28,191 28,191 28,191 Total recoverable amount (4) 28,084 26,728 29,556 29,332 26,914 27,938 28,229 Impact on recoverable amount (4) (108) (1,463) 1,365 1,141 (1,277) (253) 38 Conclusions of sensitivity analysis Impairment Impairment No impairment No impairment Impairment Impairment Impairment (1) Yearly variation of turnover in 1 p.p. (2016 = 100%), maintaining a constant EBITDA/Turnover margin (2) Variation in EBITDA/Turnover margin, maintaining a constant turnover (3) Estimated average growth rate based on the company s business plan, carried out according to the Board of Directors estimates and assumptions (4) Values in thousand euros ROMANIA: CASH GENERATING UNIT WACC INCREASE IN 1,0 P.P. WACC DECREASE IN 1,0 P.P. VAR. TURNOVER +1,0 P.P. (1) VAR. TURNOVER- 1,0 P.P. (1) INCREASE IN EBITDA / TURNOVER MARGIN IN 0,5 P.P. (2) DECREASE IN EBITDA/TURNOVE R MARGIN IN 0,5 P.P. (2) Weighted Average Cost of Capital (WACC) 6.40% 7.40% 5.40% 6.40% 6.40% 6.40% 6.40% CAGR Turnover [2016 ; 2036] (3) 1.76% 1.76% 1.76% 2.78% 0.75% 1.76% 1.76% EBITDA/Turnover average margin [2016; 2038] 65.69% 65.69% 65.69% 65.69% 65.69% 65.21% 66.16% Net book value (4) 42,968 42,968 42,968 42,968 42,968 42,968 42,968 Total recoverable amount (4) 44,344 41,130 47,961 47,886 41,161 44,049 44,639 Estimated impact (4) 1,376 (1,838) 4,993 4,918 (1,807) 1,080 1,671 Conclusions of sensitivity analysis No impairment Impairment No impairment No impairment Impairment No impairment No impairment (1) Yearly variation of turnover in 1 p.p. (2016 = 100 %), maintaining a constant EBITDA/Turnover margin (2) Variation in EBITDA/Turnover margin, maintaining a constant turnover (3) Estimated average growth rate based on the company s business plan, carried out according to the Board of Directors estimates and assumptions (4) Values in thousand Euros In 2016 the impairment of the assets held in Spain (in the amount of 0.9 million Euros) was reversed and impairments were recognized in Poland for the totality of the assets Piersno and Bukowsko (1.2 million Euros), as there is a risk of non-development in view of the current economic constraints surrounding these projects. METALLIC CONSTRUCTIONS MARTIFER CONSTRUÇÕES Fixed assets (1) 25,758 Period Growth rate (g) (2) 2% Average growth rate of Turnover for 5 years (3) -0.04% Discount rate (4) 6.48% (1) Values in thousand Euros (2) Growth rate used to extrapolate cash flows beyond the business plan period (3) Average growth rate estimated based on the company s 5-year business plan, carried out according to the Board of Directors estimates and assumptions (4) Discount rate applied to the projected cash flows 5 years 124 // ANUAL REPORT 2016 //

125 12 // The average rate of growth in turnover ascertained underpins a significant reduction in 2017 and from 2018 onwards, an increase in activity as a result of portfolio works whose development will be mainly at the end of 2017 and in 2018, several proposals at an advanced stage of negotiations that are expected to take place in 2017 and in 2018, partnerships with large economic groups and the consolidation of the announced economic recovery with a stronger growth of the Portuguese economy and the main world economies. The projected cash flows are based on the historic performance and on the expectations of efficiency improvements. Those in charge of this segment believe that (in a scenario of normality) a change in the main assumptions used in the calculation of the recoverable amount will not result in further impairment losses, as shown below: MARTIFER CONSTRUÇÕES WACC INCREASE IN 1,0 P.P. WACC DECREASE IN 1,0 P.P. VAR. TURNOVER +5,0 P.P. (1) VAR. TURNOVER -5,0 P.P. (1) INCREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) DECREASE IN EBITDA/TURNOVER MARGIN IN 0,5 P.P. (2) Weighted Average Cost of Capital (WACC) 6.48% 7.48% 5.48% 6.48% 6.48% 6.48% 6.48% CAGR turnover [2016 ; 2021] (3) -0.04% -0.04% -0.04% 4.96% -5.04% -0.04% -0.04% EBITDA/Turnover average margin [2016 ; 2021] 4.97% 4.97% 4.97% 4.97% 4.97% 5.47% 4.47% Net book value (4) 25,758 25,758 25,758 25,758 25,758 25,758 25,758 Total recoverable amount (4) 84,415 59, , ,231 66,767 79,032 64,233 Estimated impact (4) 58,656 34,161 97,356 83,472 41,008 53,274 38,474 Conclusions of sensitivity analysis No impairment No impairment No impairment No impairment No impairment No impairment (1) Yearly variation of turnover in 5 p.p. (2016 = 100 %), maintaining a constant EBITDA/Turnover margin (2) Variation in EBITDA/Turnover margin, maintaining a constant turnover (3) Average growth rate estimated based on the company s 5-year business plan, carried out according to the Board of Directors estimates and assumptions (4) Values in thousand Euros No impairment 20. INVESTMENT PROPERTIES The caption Investment properties relates to the following investment properties held by the Martifer Group: Benavente Business Centre, Warehouses in Albergaria-a-Velha and Martifer Construções property, all located in Portugal, and the Szczecin real estate project in Poland (this one with an impairment that gives it a zero book value since in 2017 it should revert to the Municipality of Szczecin), all intended for lease or long term appreciation. These assets are carried at their fair market value, based on independent appraisals made by specialized entities, applying the RICS Valuation Standards (RICS Red Book). Martifer Group performs regular revaluations of these properties and the eventual changes in fair value are registered in the results. In 2015 there was an exception with the real estate project of Szczecin in Poland and in 2016 an impairment was registered with respect to it, as mentioned below. In 2016 and in 2015, the movements occurring in the caption Investment properties were as follows: FY 2016 FY 2015 Opening balance 25,951,708 14,367,300 Sales and disposals (139,776) (3,588,000) Transfers - Martifer Construções Property - 10,047,000 Transfers - Szczecin - 5,114,528 Impairment - Szczecin (Note 11) (4,867,469) - Effect of foreign currency exchange differences (118,164) 10,881 Total 20,826,300 25,951,708 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 125

126 // 12 The table below presents the global value of the assessments performed in the period, as well as the values at which the assets are registered in the Group s financial statements: FY 2016 FAIR VALUE INDEPENDENT APPRAISAL Wharehouse in Albergaria-a-Velha 1,415,300 1,421,000 Benavente Business Centre 9,364,000 9,325,000 Martifer Construções porperty 10,047,000 10,094,000 20,826,300 20,840,000 Earnings obtained from investment properties in 2016 amounted to 406,659 Euros (361,530 Euros in 2015) and are recorded in the caption Sales and Services Rendered. 21. FINANCIAL ASSETS UNDER THE EQUITY METHOD On 31 st December 2016 and 2015, financial assets under the equity method were as follows % SHARES HELD FY 2016 EQUITY FY 2016 NET INCOME FY 2016 FY 2016 Martimetal, SPA 49.00% 1,468,549 (2,523,179) 719,589 SPEE 3 - Parque Eólico de Baião, S.A % 1,458, , ,281 SPEE 2 - Parque Eólico de Vila Franca de Xira, S.A % 3,532,237 1,026,575 1,766,118 FW Warta Sp. Z.o.o. 1) 50.00% 25,359 (18,570) 616,411 CNA Chantier Naval d'arzew, SPA 49.00% 2,076,549 (70,079) 1,017,509 Duelobrigatório, S.A. 2) 55.00% 9,121,619 1,103, ) The amount of the financial investment includes Goodwill of 639,342 Euros. 2) At the end of 2016, the Group's holding in Duelobrigatório SA was considered totally impaired by prudence, since no return is expected due to the uncertainty on the recovery of its US investment. % SHARES HELD FY 2015 EQUITY FY 2015 NET INCOME FY 2015 FY 2015 Prio Energy 5.00% 35,503,367 5,181,266 - Martimetal 49.00% 2,741,905 (911,649) 1,343,533 SPEE 3 - Parque eólico de Baião, SA 50.00% 1,091, , ,621 SPEE 2 - Parque eólico de Vila Franca de Xira, SA 50.00% 2,505, ,343 1,252,831 Martifer Amal, S.A. (Mozambique) 35.00% (39,833) (416,645) - Other participations - 8,659 The remaining financial participations that, due to the fact that negative equity was constituted, are disclosed in note 33. The presented equity values are net of supplementary payments. In 2016, the acquisition of FW Warta, the formation of the CNA Chantier Naval d'arzew and the constitution of the company Duelobrigatório (that holds US companies in the Solar segment that were not sold to the Voltalia group) stand out. In the case of Duelobrigatório, although Martifer SGPS, SA owns 55% of its share capital, the control is shared with the other shareholder as a result of a shareholder agreement. The sale of Eviva Gizalki (Note 12) and the impairment of the investment of Prio Energy, SGPS, SA, identified in the table below, stand out in The remaining variations in the amounts of the investments are the result of the activity of these companies companies in ,150, // ANUAL REPORT 2016 //

127 12 // On 31 st December 2016 and 2015, the movements occurring in this caption were as follows: FY 2016 FY 2015 Opening balance 3,150,644 7,798,516 Increase on Martimetal Share Capital - 1,267,975 Acquisition of Warta 607,200 - Constitution of CNA Chantier Naval d'arzew 1,017,509 - Constitution of Duelobrigatório, S.A. 27,500 - Change in consolidation method of Duelobrigatório, S.A. 4,382,237 - Application of the equity method - From performance in results 24,120 (35,768) - Other equity changes 622,443 (489,442) Sales - (4,010,167) Effect of foreign currency exchange differences - 133,607 Other changes 34,146 1,360 Impairments movements (5,016,891) (1,515,437) Closing balance 4,848,908 3,150, AVAILABLE FOR SALE INVESTMENTS On 31 st December 2016 and 2015, available for sale investments were the following FY 2016 FY 2015 Non-current financial investment 5,811,911 4,040,920 Others 197, ,314 6,009,794 4,266,234 The movements occurring in the caption Available-for-sale investments in 2016 and 2015 were as follows: FY 2016 FY 2015 Opening balance 4,266,234 2,191,512 Additions 2,182,640 2,084,175 Reductions (32,127) (1,003) Impairments (Note 11) (437,500) - Transfers Other 30,162 (8,451) Closing balance 6,009,794 4,266,234 The item 'Imparities' refers to an investment in Muki Solar. The increase in this item in 2016, as already occurred in 2015, is essentially due to the allocation of 58,874 green certificates to Eviva Nalbant, SRL, and the unit price considered in 2016 was RON, which was the minimum value defined by law for this year. The available for sale investments do not have a defined maturity. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 127

128 // INVENTORIES On 31 st December 2016 and 2015, inventories were as follows: FY 2016 FY 2015 Gross Value Raw-materials, subsidiaries and other consumables 2,535,170 3,308,417 Work in progress 5,005,284 4,994,164 Merchandise 3,040,407 3,206,675 Finished goods 206, ,360 10,787,155 11,957,616 Acumulated impairment losses: Raw-materials, subsidiaries and other consumables 268, ,700 Work in progress 1,369,979 1,377,831 Merchandise 760, ,910 Finished goods 165, ,734 2,564,286 3,300,174 Net value - Inventories 8,222,869 8,657,442 In 2016, there was a slight reduction in inventories when compared to the same period in 2015, as a result of the optimization of inventory management and of the reduction of activity. The item 'Products and work in progress' relates essentially to land located in Taveiro and in Amarante. In relation to these, evaluations were carried out in 2016, which did not result in any additional impairment. 24. TRADE RECEIVABLES AND OTHER RECEIVABLES On 31 st December 2016 and 2015, trade receivables and other receivables, other than those previously described in Notes 21 and 22, are detailed below. The detail of the captions Trade receivables and Other receivables, for the periods ended on 31 st December 2016 and 2015, is as follows: Cost: Trade receivables: NON-CURRENT CURRENT FY 2016 FY 2015 FY 2016 FY 2015 Trade receivables 986, ,432 69,433,660 75,714,449 Notes receivables - - 2,592,288 - Doubtful trade receivables ,027,004 10,027,163 Other receivables: 986, ,432 84,052,952 85,741,612 Related companies 37,161,933 35,765,018 12,885,499 12,472,065 Advances to suppliers - - 7,143,788 6,898,890 Others 4,057,587 3,255,257 40,389,012 38,562,766 41,219,520 39,020,275 60,418,299 57,933,721 42,206,231 39,930, ,471, ,675,333 The item 'Customers, checking account' includes 16,768, Euros (in 2015: 14,565, Euros) related to withholdings on construction contracts. 128 // ANUAL REPORT 2016 //

129 12 // On 31 st December 2016 and 2015, non-current balances with associates, subsidiaries and participants relate essentially to capital supplementary payments granted, which do not bear interest nor have repayment terms; The current balances with 'associated companies and other shareholders' essentially relate to loans granted to joint ventures and associates, which bear interest at Euribor at 3 months plus a 6.75 % spread. The item 'Other' in 'Other debtors' refers essentially to the geographies Portugal, Angola and Romania. Accumulated impairment losses in accounts receivable are as follows: Accumulated impairment losses: NON CURRENT CURRENT FY 2016 FY 2015 FY 2016 FY 2015 Doubtful trade receivables ,960,676 10,755,481 Other receivables 9,444,838 3,267,774 19,759,566 5,172,610 9,444,838 3,267,774 32,720,242 15,928,091 Carrying amount trade receivables 986, ,432 71,092,276 74,986,130 Carrying amount - other receivables 31,774,682 35,752,501 40,658,733 52,761,111 Total 32,761,393 36,662, ,751, ,747,242 The changes in accumulated impairment losses relating to accounts receivable are as follows: TRADE RECEIVABLES OTHER RECEIVABLES FY 2016 FY 2015 FY 2016 FY 2015 Opening balance 10,755,481 12,449,720 8,440,384 5,374,243 Additions (Note 10) 1,936, ,302 16,794 3,138,367 Reductions (Note 5) (231,617) (2,520,687) (13,920) (40,113) Applications (600) - - (2,047,201) Changes of consolidation perimeter, foreign currency exchange rate differences and transfers 500,829 87,147 1,111,145 2,015,089 Others (Note 13) ,650,000 - Total 12,960,676 10,755,481 29,204,404 8,440,384 In the item 'Others', there is an increase in impairment of approximately 20 million Euros, which results from the recognition of an impairment of 14.7 million Euros on the credit that Martifer SGPS holds on the sale of Nutre as result of the decision of the arbitration court relating to the Bunge process which will imply a reduction of the amount to be received. The impairment register on Martifer SGPS's supplementary payments in Duelobrigatório, S.A. also contributes to this amount (in the amount of approximately 5 million Euros), since it is considered of difficult return. On 31 st December 2016 and 2015, the ageing s of accounts receivable, before accumulated impairment losses, were as follows: FY 2016 PAST DUE TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Trade receivables 70,420,371 41,559,713 8,302,779 3,905,225 1,784,326 14,868,328 Notes receivables 2,592,288 2,592, Doubtful trade receivables 12,027,004 (762) 611, ,618-11,101,632 Other receivables 101,637,819 62,419,688 3,363,320 2,692, ,382 32,438,248 Total 186,677, ,570,927 12,277,614 6,912,024 2,508,708 58,408,208 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 129

130 // 12 FY 2015 PAST DUE TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Trade receivables 76,624,881 31,850,966 13,955,663 3,220,339 5,662,220 21,935,691 Doubtful trade receivables 10,027,163-48, ,808 9,751,537 Other receivables 96,953,996 70,136,478 2,244,273 1,114,281 1,017,287 22,441,677 Total 183,606, ,987,444 16,248,753 4,334,620 6,906,315 54,128,905 In fiscal year 2016, there was an 8 % reduction in the number of current account clients as a result of the measures implemented in the collection processes, which had a strong impact on reducing the balance of clients with debt over 360 days, in which a reduction of 32 % was registered and the balance of clients with debt between 180 and 360 days, with a reduction of 68 %. The average receivables from the Group's accounts receivable stood at 220 days in 2016, decreasing in relation to the previous year (235 days in 2015). Nonetheless, at the level of non-group clients, the reduction was even more significant, with the average maturity of non-group receivables reaching approximately 180 days on 31 st December It is the belief of the Group's Board of Directors that the amount by which the balances of Clients and Other Debtors are recorded in the balance sheet approximates their fair value considering, in particular, that in the case of debt overdue for more than 180 days no important losses are expected appart from the impairment losses recorded. Some of the higher and more senior balances are due to clients who, given the current economic situation, are experiencing temporary liquidity difficulties, namely in Angola, where a significant part of the loans are concentrated. However, the Group has taken several steps and established agreements to define payment plans and obtain guarantees regarding the receipt. In 2016, Management was able to negotiate alternative forms of collection, such as Confirming and Reverse Factoring, with some of its main clients, which allowed it to finance its operating activity through the anticipation of credits, with a very low associated financial cost. On 31 st December 2016 and 2015, the Group has no held-to-maturity financial assets or investments recorded at fair value through profit or loss. 25. CURRENT TAX ASSETS On 31 st December 2016 and 2015, current tax assets are as follows: FY 2016 FY 2015 Income tax 551,394 1,029,684 Value added tax 3,210,427 3,590,493 VAT requested refunds 2,355,508 1,545,544 Other taxes 789, ,934 Current tax assets 6,355,573 5,872,971 Part of the value added tax to be recovered relates to the acquisition of turbines in the 'Renewables' segment (about 2.3 million Euros), for which a refund will be requested in The remaining value corresponds to tax to be recovered In Portugal and derives from the fact that the activity in the Metallic Constructions segment is essentially for export. 130 // ANUAL REPORT 2016 //

131 12 // 26. OTHER CURRENT ASSETS On 31 st December 2016 and 2015, the breakdown of the caption Other current assets is as follows: Accrued income: Construction contracts FY 2016 FY 2015 Cost 19,043,532 29,389,956 Impairment losses (2,296,136) (2,374,973) Carrying amount 16,747,396 27,014,983 Interest to be received 263,615 1,474,328 Other accrued income 6,006,799 5,601,831 Prepayments: 23,017,810 34,091,142 Insurances 557, ,128 Financial expenses 201,159 - Rents 176, ,708 Other prepayments 1,188, ,789 2,123,788 1,505,625 Other (current) financial assets 678, ,574 25,820,407 36,029,340 The gross value of the revenue additions in 2016 had a very significant reduction especially in the United Kingdom due to the completion of the Holland Green project and the closure of the client dispute in Scotland's National Arena. The item 'Other revenue accruals' is closely related to the billing to be issued by the Metallic Constructions segment, in Portugal and in the United Kingdom, both in 2016 and in In Portugal, this effect is due in particular to the invoicing to companies that consolidate using the equity method (approximately 2.2 million Euros to Martifer Amal SA (Mozambique) and 0.5 million Euros to Martimetal (Algeria)). On 31 st December 2016, the item "Other prepaid annual expenses" includes, essentially, the disbursements made by the Group associated with specialized work, which will be rendered/used during the 2017 financial year. On 31 st December 2016 and 2015, the information regarding construction contracts in progress was as follows: FY 2016 FY 2015 Total costs incurred with construction contracts in progress 369,126, ,874,971 Costs incurred with construction contracts in progress in the year 146,075, ,687,816 Total revenue incurred with construction contracts in progress 395,945, ,788,023 Revenue incurred with construction contracts in progress in the year 155,928, ,559,583 Advanced payments received from customers of construction contracts in progress (Note 32) 4,976,786 6,363,463 Retentions performed by customers in construction contracts in progress (Note 24) 11,219,302 9,483,652 Guarantees provided to customers in relation to construction contracts in progress (Note 38) 21,243,847 32,812,394 Accrued income and accounts receivables related with construction contracts in progress 19,043,532 29,389,956 Deferred income and accounts payable related with construction contracts in progress (Note 36) 46,032,883 25,902,289 The guarantees provided to customers, in the Metallic Constructions segment, disclosed in Note 38, include both construction contracts in progress and finished construction contracts under the warranty period. The average period of the warranty is five years. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 131

132 // 12 On 31 st December 2016 and 2015, the Group s main construction contracts in progress justifying the outstanding balance of the caption Production not invoiced - construction contracts are as follows: FY 2016 FY 2015 Djelfa project (Martifer Construções e Martifer RO) 3,437,617 1,754,608 Future Beer Factory (Martifer Angola) 2,388,330 - Baltic Arena Gdansk (Martifer Polska) 2,022,837 2,092,291 MMH - Unitized Curtain Wall (Martifer UK) 1,474,105 - Expansion and remodeling of a Terminal of Faro Airport (Martifer Construções) 1,462,425 - Railway Arc Bridge (Martifer RO) 892, ,186 SENVION - Scaer le Merdy (Martifer Construções) 609,514 - SENVION - Quinssaines II (Martifer Construções) 345,532 - Viaduc Hachef (Martifer Construções and Martifer Marocco) 189,896 1,179,362 Park Lake Plaza (Martifer RO) 139, ,051 Iter TB 03 (Martifer Construções and Martifer RO) 106,240 1,593,819 Scotland's National Arena (Martifer Construções and Martifer UK) - 4,244,110 Abi Bakr Bridge (Martifer Saudi Arabia) - 1,579,521 Holland Green (Martifer Aluminium UK) - 1,520,816 New Corporate Headquarters of EDP_Lisbon (Martifer Construções and Martifer Alumínios) - 1,485,864 C39 Hall de Pintura (Martifer Construções) - 771,971 Stade de Lyon (Martifer Construções) - 749,704 Kilamba Building (Martifer Angola) - 442,019 Others 5,974,978 10,519,634 19,043,532 29,389, CASH AND CASH EQUIVALENTS The Cash and cash equivalents caption may be analysed as follows: Cash and cash equivalents: FY 2016 FY 2015 Bank deposits 53,043,411 40,512,347 Cash 44,283 37,201 53,087,694 40,549,549 Cash and cash equivalents includes cash on hand and in banks, maturing in no more than 3 months, which is subject to an insignificant risk of change in value. On 31 st December 2016 and 2015, no restrictions exist as to the usage of the amounts recorded in the caption Cash and cash equivalents, considering the text below about Angola. In the caption Bank deposits 12.8 million Euros of companies headquartered in Angola are included which, due to the financial crisis in the country, are subject to restrictions on transfers ou of Angola. However, there are no restrictions on its usage. 132 // ANUAL REPORT 2016 //

133 12 // 28. NON-CURRENT ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH THE ASSETS Martifer SGPS, SA decided in September 2014, to focus the Group s activity in Metallic Constructions (steel structures, aluminium and glass façades, oil & gas infrastructures and naval industry) and fulfil the active sale plan of its 55% share of Martifer Solar. As the sale was highly likely, Martifer Solar s assets and liabilities were classified as non-current assets held for sale and liabilities associated to non-current assets held for sale respectively, being Martifer Solar s Net Profit presented as result of discontinued operations. In August 2016, Martifer Solar, SA and its subsidiaries were sold to the Voltalia Group, except for Martifer Solar Inc. and Martifer Silverado Fund LLC. These two companies became part of the company by Duelobrigatório, SA in July Duelobrigatório is 55 % owned by Martifer SGPS, and for which there is shared control with the shareholder holding the remaining 45 %. Thus, in December 2016 there were no non-current assets held for sale. The breakdown of the assets and the liabilities associated with the assets held for sale on 31 st December 2016 and 2015 is as follows: FY 2016 FY 2015 Non-Current Assets - 63,432,611 Goodwill - 1,937,729 Intangible Assets - 986,905 Tangible Assets - 12,157,142 Equity investments in associates - 164,419 Available for sale investments - 27,008,189 Trade receivables and other receivables - 20,066,270 Deferred tax assets - 1,111,957 Current Assets - 84,274,731 Inventories - 5,406,698 Trade receivables - 13,331,291 Other receivables - 16,776,236 Current tax assets - 4,370,790 Other current assets - 32,298,836 Cash and cash equivalents - 12,090,603 Derivatives Total assets held for sale - 147,707,342 Non-controlling interests attributable to Assets held for sale - (1,877,184) Non-current liabilities - 27,325,377 Borrowings - 20,244,415 Leasing Creditors - 444,931 Other creditors - 1,384,069 Provisions - 4,980,395 Deferred tax liabilities - 271,567 Current liabilities - 109,653,974 Borrowings - 40,300,209 Leasing Creditors - 162,463 Trade payables - 40,540,357 Other payables - 18,047,134 Current tax liabilities - 2,638,853 Other current liabilities - 7,964,958 Derivatives - - Liabilities related to Assets held for sale - 136,979,351 Assets net of liabilities and Non-controlling interests related to Assets held for sale - 12,605,175 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 133

134 // 12 The detail of the result attributable to discontinued activities on 31 st December 2016 and 2015 is as follows: FY 2016 FY 2015 Sales and services rendered 50,725, ,480,781 Other income 11,136,658 14,702,994 Cost of goods sold (29,390,791) (60,945,309) Subcontractors (5,266,575) (18,271,340) External supplies and services (14,526,505) (43,008,541) Staff costs (6,432,716) (12,585,469) Other operational gains and losses (10,398,083) (2,525,815) (4,152,267) 4,847,301 Amortizations (1,245,755) (2,452,495) Provisions and impairment losses (3,039,452) 2,178,213 Operating income (8,437,474) 4,573,019 Financial income 1,244,437 2,587,176 Financial expenses (2,850,688) (8,926,844) Gains/(losses) on associate companies and joint arrangements 38,249 (71,111) Profit before tax (10,005,476) (1,837,760) Income tax 316,906 1,036,988 Profit for the year (9,688,570) (800,772) Attributable to: non-controlling interests (9,587,743) 192,574 owners of Martifer (100,827) (993,345) The amounts related to 2016 refer to the consolidation of results up to the month prior to the sale to the Voltalia group (July 2016), as well as the impact of the exit of the US companies to Duelobrigatorio, SA and also the impact resulting from the sale of the Solar Group. As a result, the appropriated income until July attributable to equity holders of the parent company is offset by the gain from the sale. Detailed cash flows of discontinued activities on 31 st December 2016 and 2015 is as follows: FY 2016 FY 2015 Net cash generated by operating activities (14,010,816) 11,175,384 Net cash generated by investing activities 5,150,739 1,222,829 Net cash generated by financing activities 3,220,911 (5,082,561) Net increase in cash and cash equivalents (4) = (1) + (2) + (3) (10,589,166) 7,315,652 Changes in the consolidation perimeter and others (1,215,500) (662,909) Effect of foreign exchange currencies (285,937) (37,063) Cash and cash equivalents at the beginning of the period 12,090,603 5,474,923 Cash and cash equivalents at the end of the period - 12,090,603 As with the results, the cash flows related to these assets were also consolidated until July 2016, and include the impact on the receipt from the sale of the Solar Group. 29. EQUITY Share capital Martifer SGPS share capital, fully subscribed and paid up on 31 st December 2016 and 2015 amounts to 50,000, Euros and is represented by 100,000,000 bearer shares with a nominal value of Euro 50 cents each. All shares have the same rights, corresponding to one vote per share. During 2016 and 2015, no changes occurred in the number of shares of the Group. 134 // ANUAL REPORT 2016 //

135 12 // During 2016, Martifer SGPS did not acquire treasury shares on the stock exchange. Martifer holds 2,215,910 own treasury shares, corresponding to 2.22 % of its share capital. On 31 st December 2016, the share capital of the company was held as follows: 42.41% by I M SGPS, S.A., 0.65 % by two board members related to I M SGPS, S.A., 37.5 % by Mota-Engil SGPS, S.A., 2.22 % are treasury shares, and the remaining % represent free-float listed on Euronext Lisbon. Share premium The share premium corresponds to additional amounts obtained with the issuance of share capital increases. In accordance with the Portuguese commercial legislation, the amounts included in this caption follow the regime established for the Legal reserve, and consequently, they are non-distributable, except in the event of the liquidation of the company. However, they may be used to absorb losses, after all the other reserves are exhausted, or to increase share capital. Reserves Legal reserve Portuguese commercial legislation requires that at least 5% of the annual net profit be appropriated to a legal reserve, until such reserve attains at least 20 % of the share capital. This reserve is non-distributable, except in the event of the liquidation of the company. However, it may be used to absorb losses, after all the other reserves are exhausted, or to increase share capital. This reserve is included in the caption Other reserves and amounts to 7,766, Euros. Own treasury shares The Group holds 2,215,910 own treasury shares, corresponding to 2.22 % of its share capital. In accordance with the Portuguese legislation, it is mandatory to keep non-distributable reserves in the amount of own treasury shares, included in Other Reserves. Fair value reserves Cash flow hedge derivatives Fair value reserves Cash flow hedge derivatives reflect the fair value changes in the cash flow hedges considered effective and cannot be distributed to shareholders nor used to absorb losses. Foreign currency translation reserves Foreign currency translation reserves reflect the foreign currency exchange differences arising from: (i) translation of foreign operations; (ii) net investment in subsidiaries and (iii) goodwill. These reserves cannot be distributed to shareholders nor used to absorb losses, being transferred to the income statement when the affiliates are sold or liquidated. Other reserves In addition to the legal reserve, totalling 7,766, Euros, this caption includes the results of prior years and a non-distributable reserve in the amount of 2,868, Euros relating to the value of the treasury shares. In accordance with the Portuguese legislation, the amount of the distributable reserves is determined taking into consideration the individual financial statements of Martifer, SGPS, SA, which has been prepared in accordance with IFRS. On 31 st December 2016 Martifer, SGPS, SA does not have distributable reserves. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 135

136 // 12 Non-controlling interests The detail in the main non-controlling interests is as follows: FY 2016 FY 2015 Opening balance (28,377,206) (24,942,297) Profit for the year (16,267,343) 1,654,786 Other changes in equity of subsidiaries (481,923) (1,510,281) Changes in the consolidation perimeter 15,044,551 (4,072,288) Transactions with non-controlling interests - (2) Others (87,594) 492,877 (30,169,515) (28,377,206) From continued operations (30,169,515) (26,500,022) From discontinued operations - (1,877,184) Transactions with interests that do not control on 31 st December 2016 mainly reflect, in addition to the defined result, the impact of the disposal of the Solar Group in August 2016 (with the exception of the US companies that remained in the sphere of Martifer Group) and the impact of the change in the consolidation method of Martifer Solar, Inc. and Martifer Silverado Fund, LLC, following the loss of control (Note 2). In 2015, the main impacts that justify the reduction of interests that do not control, despite the positive net result of the exercise, are mainly due to changes in the scope of the corporate restructuring occurred in the Group in 2015 (Note 2), in which the companies in the Metallic Constructions segment are now all hierarchically below Martifer Metallic Constructions SGPS, SA (75 % held by the Group) as well as Martifer Inovação e Gestão, SA'. The Other changes in shareholder equity' also have a negative impact, mainly as a result of the devaluation of foreign exchange rates of some geographies. '% NON-CONTROLLING INTERESTS FY 2016 FY 2015 FY 2016 FY 2015 Metallic Contructions Martifer Construções Metálicas Angola, S.A % 40.94% 2,139,684 1,896,945 Martifer Alumínios Angola, S.A % 25.00% 576, ,350 Martifer Aluminium Pty, Ltd 0.00% 25.00% - (2,377,785) Martifer Constructions, SAS 25.00% 25.00% (1,196,621) (740,897) Martifer UK Limited 25.00% 25.00% (1,711,642) (1,129,597) Martifer Polska Sp. Zo.o % 25.00% (2,361,131) (2,425,379) Martifer Konstrukcje Sp. z o.o % 25.00% (2,080,475) (703,071) Martifer - Construções Metalomecânicas, S.A % 25.00% (19,270,633) (13,511,006) Martifer - Gestão de Investimentos, S.A. 0.00% 25.00% - (2,246,586) Gebox, S.A. 0.00% 25.00% - (631,599) Navalria Docas, Construções e Reparações Navais, S.A % 25.00% (2,012,155) (1,986,184) Martifer Metallic Constructions SGPS, S.A % 25.00% 3,319,650 (6,066,752) Martifer Energy Systems SGPS, S.A. 0.00% 25.00% - 9,105,814 Martifer Constructii S.R.L % 24.50% (4,046,921) (3,330,460) Martifer Energia S.R.L % 25.00% (767,491) (765,987) Martifer Wind Energy Systems LLC 25.00% 25.00% (2,812,661) (2,812,541) West Sea-Estaleiros Navais,Lda 25.00% 25.00% 1,029, ,080 Saudi Martifer Constructions LLC 25.00% 25.00% 504,424 - Renewables Martifer Renováveis - Geração de Energia e Participações S.A % 45.00% 457, ,801 Others Non-controlling interests attributable to non current assets held for sale - (1,877,184) Other non-controlling interests (1,936,806) (284,169) (30,169,515) (28,377,206) 136 // ANUAL REPORT 2016 //

137 12 // 30. BORROWINGS On 31 st December 2016 and 2015, borrowings may be analysed as follows: FY 2016 UNTIL 1 YEAR BETWEEN 1 AND 3 YEARS BETWEEN 3 AND 5 YEARS MORE THAN 5 YEARS TOTAL Financial institutions borrowings: Bank loans 10,408,309 17,949, ,640,348 79,034, ,033,142 Bank overdrafts 667, ,028 Authorized overdrafts 3,576, ,576,824 Other borrowings: Other borrowings 850,127 75, , ,188 1,771,318 15,502,287 18,024, ,176,340 79,345, ,048,311 FY 2015 UNTIL 1 YEAR BETWEEN 1 AND 3 YEARS BETWEEN 3 AND 5 YEARS MORE THAN 5 YEARS TOTAL Financial institutions borrowings: Bank loans 7,451,983 9,356, ,303,524 93,389, ,502,196 Bank overdrafts 1,036, ,036,155 Authorized overdrafts 4,763, ,763,520 Other borrowings: Other borrowings 576, , ,394 3,400,124 5,345,504 13,828,525 10,156, ,871,918 96,790, ,647,376 During 2016, the Group maintained its debt reduction strategy, which resulted in a 5 % reduction in the total value of the loans compared to the year Thus, the total value of loans recorded on 31 st December 2016 was 276,048,311 Euros. For this reduction, in addition to the measures adopted by the Group in terms of cost reduction, the asset disposal plan defined by the Group also contributed significantly. Short-term debt on 31 st December 2016 represents only 6% of the total loans obtained, as a result of the compliance with the restructuring plan signed with the banks in 2015, which made it possible to adjust the maturity of the debt to the degree of permanence of its long-term assets, allowing cash surpluses to be sufficient to meet their liabilities. Other borrowings The amount 1.7 million Euros of 'Other loans' correspond to development support operations obtained from the Portuguese Agency for Investment and Foreign Trade (AICEP) and the Institute for Support to Small and Medium-Sized Companies and to Investment (IAPMEI). On 31 st December 2016 and 2015, the outstanding borrowings are denominated in the following currencies: FY 2016 FINANCIAL INSTITUTIONS OTHER BORROWINGS TOTAL Euro 258,815,893 1,771, ,587,211 New Leu 11,884,277-11,884,277 US Dollar 3,576,824-3,576, ,276,993 1,771, ,048,311 FY 2015 FINANCIAL INSTITUTIONS OTHER BORROWINGS TOTAL Kuanza 1,310,567-1,310,567 Euro 265,923,649 5,345, ,269,154 New Leu 13,604,901-13,604,901 US Dollar 3,462,757-3,462, ,301,874 5,345, ,647,376 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 137

138 // 12 The average interest rates of the bank overdrafts and the borrowings are as follows: FY 2016 AVERAGE RATES RANGE OF INTEREST RATES (%) Financial institutions borrowings: Bank loans 1.52% [0.78% a 4.48%] Bank overdrafts 3.30% [ 3.30% ] Authorized overdrafts 4.65% [4.56% a 5.35%] Other borrowings: Other borrowings 2.09% [0.00% a 4.00%] FY 2015 AVERAGE RATES RANGE OF INTEREST RATES (%) Financial institutions borrowings: Bank loans 1.82% [0.96% a 6.77%] Bank overdrafts 3.13% [3.00% a 3.21%] Authorized overdrafts 6.45% [4.07% a 12.50%] Other borrowings: Other borrowings 1.71% [0.00% a 4.00%] The average interest rates on borrowings, by geography, are as follows: COUNTRY INDEX SPREAD Spain Euribor [ 3.50 ] Libor Portugal [ 1.00 a 4.50 ] Euribor Romania Robor [ 2.50 a 3.75 ] Currently, 99.3 % of the debt is subject to a variable rate. In 2016, there was a continuation of the downward trend of interest rates that remained negative in the Euro Zone, leading to a reduction in the Group's average exposure rates compared to At the level of the financing spread applied by financial institutions (spread), it remained at low levels in line with the debt restructuring agreements in force that completed their second year of implementation. On 31 st December 2016, the main bank borrowings of the Group are as follows: COMPANY CONTRACT CURRENCY VALUE (EUROS) DUE DATE GRACE PERIOD OF CAPITAL INSTALLMENT PAYMENTS FIRST INSTALLMENT AMOUNT LAST INSTALLMENT AMOUNT Martifer SGPS, S.A. [PT] EUR 26,250, Quarterly 1,640,625 6,870,952 Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer Metallic Constructions SGPS, S.A. [PT] Martifer Metallic Constructions SGPS, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Navalria Docas, Construções e Reparações Navais, S.A. [PT] EUR 2,150, EUR 1,500, Months + 4 Years 4 Months + 4 Years Quarterly 32, ,887 Quarterly 410,139 EUR 6,500, Years Quarterly 325, ,510 EUR 20,000, Years Quarterly 1,250,000 7,584,363 EUR 5,250, EUR 1,368, Years 3 Years + 5 Years Quarterly 76,924 1,016,312 Quarterly 206, ,351 EUR 1,200, Years Quarterly 25,004 75,011 Martifer SGPS, S.A. [PT] EUR 15,000, Quarterly 10,250,000 5,035,996 Martifer SGPS, S.A. [PT] EUR 1,900, Quarterly 1,938,676 Martifer - Construções Metalomecânicas, S.A. [PT] EUR 5,000, Quarterly + 4 Years Quarterly 2,329,169 Martifer SGPS, S.A. [PT] EUR 7,500, Quarterly 8,085,947 Martifer - Construções Metalomecânicas, S.A. [PT] EUR 2,500, Years + 3 Years Quarterly 1,056, // ANUAL REPORT 2016 //

139 12 // COMPANY Martifer - Construções Metalomecânicas, S.A. [PT] CONTRACT CURRENCY VALUE (EUROS) DUE DATE GRACE PERIOD OF CAPITAL INSTALLMENT PAYMENTS FIRST INSTALLMENT AMOUNT LAST INSTALLMENT AMOUNT EUR 851, Years Quarterly 395,739 Martifer SGPS, S.A. [PT] EUR 5,000, Quarterly 5,130,262 Martifer SGPS, S.A. [PT] EUR 50,000, Quarterly 51,302,624 Martifer SGPS, S.A. [PT] EUR 20,000, Quarterly 20,521,050 Martifer SGPS, S.A. [PT] EUR 8,000, Quarterly 8,208,420 Martifer Metallic Constructions SGPS, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] EUR 14,000, Years Quarterly 6,592,042 EUR 2,500, Years Quarterly 1,167,433 Martifer SGPS, S.A. [PT] EUR 2,500, Quarterly 2,555,266 Martifer - Construções Metalomecânicas, S.A. [PT] Martifer Metallic Constructions SGPS, S.A. [PT] Martifer Metallic Constructions SGPS, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Navalria Docas, Construções e Reparações Navais, S.A. [PT] EUR 2,600, Years Quarterly 1,209,710 EUR 29,347, Quarterly 2,274,427 EUR 59, Years Quarterly 27,864 EUR 3,244, Years Quarterly 1,508,562 EUR 113, Years Quarterly 52,625 EUR 513, Years Quarterly 238,653 Martifer SGPS, S.A. [PT] EUR 5,101, Quarterly 5,148,320 Martifer SGPS, S.A. [PT] EUR 16,254, Quarterly 14,156,170 Promoquatro Investimentos Imobiliários, Lda. [PT] Martifer Metallic Constructions SGPS, S.A. [PT] Navalria Docas, Construções e Reparações Navais, S.A. [PT] Navalria Docas, Construções e Reparações Navais, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer - Construções Metalomecânicas, S.A. [PT] Martifer Metallic Constructions SGPS, S.A. [PT] EUR 2,035, Years Quarterly 946,370 EUR 3,048, Years Quarterly 1,417,496 EUR 254, Years Quarterly 118,125 EUR 1,624, Years Quarterly 755,274 EUR 310, Years Quarterly 144,222 EUR 1,016, Years Quarterly 472,636 EUR 1,016, Years Quarterly 472,499 EUR 3,299, Years Quarterly 1,534,282 EUR 4,318, Years Quarterly 2,008,120 EUR 3,299, Years Quarterly 1,534,253 EUR 3,048, Years Quarterly 1,417,620 EUR 351, Years Quarterly 163,549 Duelobrigatório, SA [PT] EUR 9,430, Years Quarterly - 9,430,000 Martifer Renewables ETVE, S.A.U. [ES] EUR 28,675, Years Quarterly 685, ,205 As regards the financing of Martifer SGPS, S.A. and in line with the Restructuring Agreement signed in 2015, the financing is settled at maturity, together with the interest capitalized over the period of validity. This agreement also foresees the amortization of debt throughout the contract against the disposal of non-core assets as foreseen in the company's strategic plan. On 31 st December 2016, the main Project Finance obtained by the Group is as follows: COMPANY CONTRACT CURRENCY VALUE (EUROS) CONTRACT DATE Eviva Nalbant, srl_ro RON 17,848, Years GRACE PERIOD OF CAPITAL 2 Years + 1 Semester INSTALMENT PAYMENTS FIRST INSTALLMENT AMOUNT LAST INSTALLMENT AMOUNT Half-yearly 1,486,750 1,089,851 This amount is presented in the caption Bank loans. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 139

140 // 12 On 31 st December 2016, the Group s interest rate sensitivity analysis may be summarized as follows: ESTIMATED IMPACT 2016 Change in financial results due to a 1 p.p. alteration of the interest rate applied to the entire debt 2,760,483 Fixed-rate hedging 17,713 Interest rate derivatives instruments hedging - Sensitivity of the financial results due to interest rate changes 2,742,770 For this financing, the guarantees indicated in Note 38 were provided. 31. OBLIGATION UNDER FINANCIAL LEASES On 31 st December 2016, the major finance lease contracts were as follows: ASSET DESCRIPTION PERIOD CONTRACT AMOUNT PURCHASE PERIOD PURCHASE OPTION AMOUNT GUARANTEES Mobile metallic structure 210 months 8,850,000 End of contract 177,000 Blank promissory note Autonomous Fractions A, B, C, D, E, F, G, H, I, J, L, M e N of the Benavente Business Centre 164 months 6,366,458 End of contract 2,234,287 Blank promissory note, and guarantee of MMC SGPS Martifer equipment 210 months 6,000,000 End of contract 120,000 Blank promissory note Mobile metallic structure 202 months 5,185,415 End of contract 323,786 Blank promissory note Urban building 217 months 2,656,515 End of contract 53,130 Blank promissory note Various pieces of equipment (stripping camera, cutting table, Calandra) 190 months 2,192,058 End of contract 43,841 Blank promissory note Martifer equipment 210 months 1,250,000 End of contract 22,500 Blank promissory note Rural building 159 months 955,000 End of contract 21,100 Blank promissory note Gebox Land - Vagos 2 parcels (articles n e 2896) 159 months 47,284 End of contract 1,946 Promissory note guaranteed by Motofil and Martifer SGPS Ford Mondeo Station Diesel 159 months 24,975 End of contract 500 Blank promissory note Ventilation System 60 months 47,284 End of contract - Blank promissory note Ventilator 60 months 24,592 End of contract 573 Blank promissory note Car 1 - MB contract no months 62,935 End of contract 121 Car 2 - PMD3-MARTIFER/KR179573/ months 107,874 End of contract 245 Blank promissory note Car 3 - FD- contract no months 112,317 End of contract - Blank promissory note Car 4 - PMD1- contract no months 84,667 End of contract 465 Blank promissory note On 31 st December 2016 and 2015, obligations under finance leases contracts were as follows: MINIMUM LEASE PAYMENTS PRESENT VALUE OF MINIMUM LEASE PAYMENTS FY 2016 FY 2015 FY 2016 FY 2015 No later than 1 year 191,621 1,154,414 25, ,858 Later than 1 year and not later than 5 years 3,340,065 1,735,462 2,501,743 1,098,476 Later than 5 years 11,089,760 9,805,627 10,374,710 9,136,820 Future finance charges (1,719,704) (1,471,349) 14,621,446 12,695,503 12,901,742 11,224,154 Present value of minimum lease payments 12,901,742 11,224,154 12,901,742 11,224,154 Included in the financial statements as: Current borrowings 191,621 1,154,414 25, ,858 Non-current borrowings 12,710,121 10,069,740 12,876,453 10,235,296 12,901,742 11,224,154 12,901,742 11,224,154 The value of assets under financial leases is presented in Note 19 Tangible Fixed Assets. 140 // ANUAL REPORT 2016 //

141 12 // Additionally, on 31 st December 2016 and 2015, rentals associated with operational lease contracts are as follows: FY 2016 FY 2015 No later than 1 year 323, ,343 Later than 1 year and not later than 5 years 266, , , ,502 On 31 st December 2016 the caption External supplies and services includes the amount of 1,730,978 Euros, relating to operational lease rentals. 32. TRADE PAYABLES AND OTHER PAYABLES On 31 st December 2016 and 2015, trade payables and other payables may be analysed as follows: NON-CURRENT CURRENT FY 2016 FY 2015 FY 2016 FY 2015 Trade payables 11,222,036 11,578,310 59,908,138 61,211,154 Other Creditors: Fixed assets suppliers ,506 1,284,903 Related companies and other shareholders (Note 40) 7,021 7, , ,946 Advanced payments received from clients - 81,490 8,024,226 7,495,466 Other creditors 1,500-2,370,390 6,779,928 Other payables 8,521 88,753 11,662,550 16,550,243 Total 11,230,557 11,667,063 71,570,687 77,761,397 The value of non-current suppliers is mainly related to a partnership celebrated in the past for the development of real estate projects in Poland and the settlement of the balance will be done in accordance with the disposal of the said projects, thus not having a specific maturity date. These values do not bear interest. The item 'Advances from clients and on sales' includes 4,576,786 Euros (in ,363,463 Euros) relating to construction contracts (Note 26). On 31 st December 2016 and 2015, this caption includes balances payable to suppliers resulting from the Group s operating activities, as well as from tangible and intangible asset acquisitions. The Board of Directors believes that the carrying amount of these balances is very similar to their fair value and that the effect of the financial discounting of these amounts is not material.the reduction in the caption 'Other creditors' justifies a significant reduction in 2016 due to the reduction in the operational activity. On 31 st December 2016 and 2015, the ageing of accounts payable in the captions Trade payables and Other payables was as follows: FY 2016 PAST DUE TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Trade payables 71,130,174 28,982,828 17,962,204 5,933,617 7,881,317 10,370,212 Other payables 11,671,071 2,139,333 1,451,310 1,801,344 92,569 6,186,516 Total 82,801,244 31,122,161 19,413,514 7,734,961 7,973,886 16,556,728 FY 2015 PAST DUE TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Trade payables 72,789,464 37,690,824 16,168,175 5,373,877 5,181,525 8,375,063 Other payables 16,638,997 4,158,328 1,123, ,803 1,233,791 9,631,668 Total 89,428,459 41,849,152 17,291,582 5,865,680 6,415,316 18,006,731 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 141

142 // 12 The average payment period of purchases and services acquired by the Group is around 255 days. As with the case of Clients (Note 24), deductions made to suppliers (4,894,271 Euros) are included in the item 'Suppliers', with the exception of those where the bank guarantee is issued by the supplier and not by Martifer. These are considered as 'not expired'. Accounts payable more than 180 days overdue relate to amounts payable to trade creditors with which the Group maintains regular commercial relations, namely with companies part of Mota-Engil group. On 31 st December 2016 and 2015, the balances due to associate companies and to other shareholders relate, primarily, to loans obtained from jointly controlled entities and associate companies, that bear interest at Euribor 3M increased by a 6.75 % spread. Besides the financial liabilities previously disclosed and in Notes 30 and 31 abovementioned, the Group does not have any other financial liabilities. 33. PROVISIONS The information relating to Provisions on 31 st December 2016 and 2015 may be detailed as follows: FY 2016 FY 2015 Quality guarantees Legal claims in progress Onerous Contracts Contractual obligations Provisions arising from the use of the equity method The movements occurred in the caption Provisions during the period ended on 31 st December 2016 are as follows: OPENING BALANCE ADDITIONS DEDUCTIONS APPLICATIONS CHANGE OF CONSOLIDATION PERIMETER, EXCHANGE RATE DIFFERENCES, TRANSFERS CLOSING BALANCE Quality guarantees (Note 11) 2,452, ,732 (400,320) - (305,281) 2,112,104 Legal claims in progress (Note 11) 803, ,785 (60,735) - 2, ,314 Onerous contracts (Note 11) 436, , ,203 1,624,246 Contractual obligations (Note 11) 9,230, ,898 (2,460,532) (48,667) (1,491,768) 5,414,580 Provisions arising from the use of the equity method 7,049, ,201,905 9,251,631 19,973,592 1,618,922 (2,921,586) (48,667) 703,615 19,325,876 The financial investments that are accounted under the equity method and for which provisions were recorded on 31 st December 2016 and 2015 are as follows: % CAPITAL HELD EQUITY NET PROFIT FY 2016 FY 2016 FY 2016 FY 2016 Liszki Green Park, Sp. Zo.o 45.00% (3,195,366) (32,172) (1,437,915) M-City Szczecin 50.00% (611,008) (393,191) (305,504) M City Radom Sp. Zo.o 50.00% (1,838,633) (122,625) (919,317) M City Bialystok Sp. Zo.o 50.00% (5,488,970) (3,869,770) (2,744,485) Promoquatro Investimentos Imobiliários, Lda 50.00% (584,152) 2,931 (292,076) Ventinveste, S.A % (6,576,513) (1,105,308) (3,166,757) Parque Eólico da Penha da Gardunha, Lda 50.00% (771,155) (55,440) (385,578) (9,251,631) 142 // ANUAL REPORT 2016 //

143 12 // % CAPITAL HELD EQUITY NET PROFIT FY 2015 FY 2015 FY 2015 FY 2015 Liszki Green Park, Sp. Zo.o 45.00% (2,943,707) (20,694) (1,324,668) M-City Szczecin 50.00% (211,062) (21,152) (105,531) M City Radom Sp. Zo.o 50.00% (1,715,889) 10,914 (857,945) M City Bialystok Sp. Zo.o 50.00% (1,501,824) (19,987) (750,912) Promoquatro Investimentos Imobiliários, Lda 50.00% (587,083) (49,138) (293,542) Ventinveste, S.A % (6,879,212) (466,961) (3,359,270) Parque Eólico da Penha da Gardunha, Lda 50.00% (715,715) (53,424) (357,857) (7,049,726) Provisions for quality assurance are intended to address possible quality problems in the works carried out by the Group, provide which on average a guarantee period of 5 years. The provisions are constituted by a percentage of about 0.13 % of the value of the construction, which corresponds to the historic amount of the costs incurred. In 2015, part of the value recorded in the item 'Onerous Contracts' was reclassified/transferred to the item 'Quality Assurance' because it is the most adequate framework in relation to the recognized obligation. In 2016, provisions for onerous contracts mainly concern works in the Metallic Constructions Segment in Portugal. The reduction in the item 'Contractual obligations' is essentially related to the reversal of a provision related to the lapse of fiscal risks in the 'Metallic Constructions' segment in Portugal. The amount of other provisions on 31 st December 2016 includes approximately 3.6 million Euros related to a provision constituted in the companies Eurocab 12 to 19 because of a litigation related to the fulfillment of the requirements for the application of the tariff regime that regulates the activity of energy production under a special regime. As mentioned in Note 1, a provision for investments in associates whose capital is negative (based on the percentage of capital held) is recorded against Gains/Losses in associated companies and joint ventures (Note 21). Considering the uncertainties surrounding these provisions, as well as their nature, the Group did not financially discount these amounts. 34. CONTINGENT LIABILITIES On 31 st December 2016, the contingent liabilities are as follows: a) 1. On 29 th October 2009, Martifer Polska, in consortium with Ocekon Engenharia sro (Slovakia), entered into an agreement with Energomontaz-Poludnie SA for the works, whose purpose was to manufacture, execute, deliver and mount the steel roof of the Baltic Arena stadium in Gdanrisk, Poland, worth approximately 11.3 million Euros. On 2 nd September 2010, Martifer received from Energomontaz a notice of immediate termination of the agreement, without prior notice. The reason for the breach of contract was the delay in the execution of the work, which in Martifer's opinion is totally unfounded and ineffective. On 17 th December 2010, Martifer filed a lawsuit against Energomontaz, requiring a value of approximately 12.6 million Euros, including interest, cost of capital involved and total damage caused to Martifer due to lack of cooperation. This lawsuit was suspended due to the Energomontaz- Poludnie S.A s insolvency proceedings. 2. On 17 th January 2012, Energomontaz filed a lawsuit against Martifer and Ocekon Engenharia sro for a total amount of 5.7 million Euros. The hearings are in progress and witnesses were examined in In March 2017, the court dismissed the case against Ocekon Engenharia sro, as it was removed from the commercial register. More audiences are scheduled for NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 143

144 // Meanwhile, Energomontaz has entered into bankruptcy proceedings. In April 2013, the list of claims by Martifer in the amount of 16.9 million Euros was submitted to the insolvency administrator. At the present date, there is no information on the list of claims on insolvent estate. Martifer Group has recognized in its financial statements the risk of losses related to accounts receivable, increase in income from work in progress and from the bank guarantee executed. Therefore, it considers that the framework of this process is duly reflected in the financial statements b) The Romanian subsidiary, Martifer Constructii, acquired on 9 th March 2007 a plot of land in Aricesti, Prahova province, in Romania, for approximately 8.2 million RON. The referred acquisition is under a judicial dispute, currently pending judicial action, with its terms running under appeal, being expected one of two outcomes: 1. The Court rules a decision under which the land is maintained in property of the Romanian State, initial owner, in which Martifer Constructii shall have the right to an indemnity, at least, at an equivalent amount to the price paid for the land when it was acquired; 2. The Court rules a decision under which the land transits to Martifer Constructii assets, with Martifer Constructii acquitting the totality of the rights of the land. According to the developments on the current judicial action, Martifer considers as most probable the happening of the scenario presented in 1), with a high probability of recovery of the amount paid when the land was acquired. The Group's expectation is that no losses will occur with these processes over and above the ones already recognized in its financial statements. 35. CURRENT TAX LIABILITIES On 31 st December 2016 and 2015 Current tax liabilities are as follows: FY 2016 FY 2015 Income Tax 861,330 2,257,208 Value added tax 1,725,230 1,439,583 Social security contributions 689, ,971 Withholding tax 204, ,385 Other taxes 646, ,138 Current tax liabilities 3,266,242 2,972, OTHER CURRENT LIABILITIES On 31 st December 2016 and 2015, other current liabilities are as follows: FY 2016 FY 2015 Accrued expenses Holiday pay and bonuses 3,357,129 4,128,940 Interest borne but not yet overdue 874,408 2,998,531 Production performed by third parties not yet invoiced 68,797 11,359 Other accrued expenses 2,124,402 3,266,105 6,424,736 10,404,935 Deferred income Production invoiced and not yet performed (related to construction contracts) Note 26 46,032,883 25,902,289 Subsidies/Government grants 387, ,062 Other deferred income 6,364,838 4,616,714 52,785,014 31,155,065 59,209,750 41,559, // ANUAL REPORT 2016 //

145 12 // The 'Other accrued expenses', on 31 st December 2016, correspond to external supplies and services rendered in 2016 and not yet invoiced. 'Interest payable' has been significantly reduced as a result of the debt restructuring process. The increase in the item 'Pre-invoice' is essentially associated with the 'Metallic Constructions' segment in Saudi Arabia and in the shipbuilding area in Portugal. The caption 'Other deferred income' in 2016, as well as in 2015, is essentially the result of the recognition of deferred income attributed to green certificates in Eviva Nalbant S.R.L.. On 31 st December 2016 and 2015, the Group s main construction contracts in progress justifying the outstanding balance of the caption Production invoiced and not yet performed (related to construction contracts) are as follows: FY 2016 FY 2015 NPOs (West Sea) 23,912,498 3,018,986 Dammam University Multipurpose Hall (Martifer Saudi Arabia) 3,750,311 1,920,587 Priority Serenity (West Sea) 1,586,979 - IMOB (Martifer Angola) 1,481,986 - Kafd Parcel (Martifer Alumínios) 1,233,015 1,330,989 Polar Express (West Sea) 1,198,435 - Emerald Radiance (West Sea) 1,162,000 - Sodiba - Supply (Martifer Construções) 946,180 1,706,526 BATTERSEA 3320 (Martifer UK) 923,877 - Royal Wharf (Martifer UK) 775,778 - Estúdios Zap metallic structures (Martifer Angola) 758,039 - Âncora Project (Martifer Construções) 735, ,688 Riyadh Metro - Bridge Fahd Road Project (Martifer Saudi Arabia) 656,298 - Banco Popular (Martifer Espanha) 579,669 - Priority Elegance (West Sea) 569,284 - Hotel Tivoli Estoril Residence (Martifer Alumínios) 528, ,901 GMA - Grandes Moagens de Angola (Martifer Angola) 500,567 - Bridges 1-6 Trinidad (Martifer RO) 314, ,722 Scenic River Cruiser (West Sea) 284,404 1,576,344 Viking Osfrid (West Sea) 236, ,659 Birmingham New Street - Facade and Cladding Works (Martifer UK) 168, ,157 ITER Edifício 13 (Martifer Construções França) 123, , KHS (Martifer Alumínios) 32, ,533 Futura Fabrica da Cerveja (Martifer Angola) - 2,505,873 Stadium Steel Structure - Erection (Martifer Saudi Arabia) - 1,730,595 Shopping Nova Vida Kero (Martifer Angola) - 754,201 Holland Green (Martifer Alumínios) - 820,000 KAPSARC King Abdullah Petroleum Studies and Research Center (Martifer Saudi Arabia) - 763,361 C39 Hall de Pintura (Martifer Construções França) - 728,413 Estación Bello Monte - Tramo PZA Venezuela- Miranda II (Martifer Construções) - 648,508 Birmingham New Street - WP3201 (Martifer Alumínios) - 44,380 Kero Rocha Pinto (Martifer Angola) - 8,602 Others 3,573,179 3,924,751 46,032,883 25,902,288 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 145

146 // DERIVATIVES The Group uses derivatives to manage its exposure to interest rate risk so as to reduce the Group s exposure to variable interest rates on its financing contracts, thereby fixing interest rates. On 31 st December 2016 and 2015, the existing derivative contracts were as follows: 31 st December 2016 DERIVATIVE COMPANY COUNTERPART NOCIONAL TYPE Martifer Metallic Constructions SGPS SA FC Stone Regular margin calls CLOSING DATE FAIR VALUE 3,221 3, st December 2015 DERIVATIVE COMPANY COUNTERPART NOCIONAL TYPE Forward Flexível Sell EUR Buy USD (PUT/CALL) Martifer Metallic Constructions SGPS SA Martifer Metallic Constructions SGPS SA CLOSING DATE FAIR VALUE Novo Banco 675,000 Fixed Exchange rate 1,14 5-jul ,911 FC Stone Regular margin calls 3,203 The fair value of the above derivative contracts has been determined by the counterparties and, as these derivatives qualify as cash flow hedges, they have been recorded in the equity caption Fair value reserves Derivatives and in Derivatives, under Assets and Liabilities. The fair value valuation of the derivatives contracted by the Group (essentially interest rate swaps) was performed by the respective financial institutions acting as counterparties. The fair value valuation model used by the counterparties is based on the discounted cash flows method, using the swaps par rates, listed in the Interbank market, and available on Reuters and/or Bloomberg terminals, for the negotiated periods, which are used to calculate the forward interest rates and discount factors. The present value of the fixed cash flows (fixed leg) and the present value of the variable cash flows (floating leg) are then calculated. From the addition of the two legs results the NPV (Net Present Value or discounted value of the future cash flows or fair value of the derivatives). During the year 2016 no derivative instruments were contracted. 31, COMMITMENTS Financial Guarantees On 31 st December 2016 and 2015, the financial guarantees (bank guarantees and credit insurance) provided by the Group to third parties, namely to clients whose civil works are performed by Group companies may be detailed, by currency, as follows: FY 2016 FY 2015 Euro 31,220,206 64,418,579 Zlotys 22,674 23,453 New Leu 399,123 74,432 US Dollar 14,167,863 29,277,189 Moroccan Dirham 84,354 83,733 Pound Sterling 1,167,979 16,778,366 Jordanian Dinar - 65,045 United Arab Emirates Dirham - 12,514 47,062, ,733,311 (*) Bank guarantees for good execution issued in Angola and Portugal, mostly to guarantee works in Saudi Arabia. 146 // ANUAL REPORT 2016 //

147 12 // The breakdown by Group company is as follows: FY 2016 FY 2015 Martifer Construções Metalomecânicas SA 18,676,046 34,573,154 Martifer Metallic Constructions SGPS 6,168,327 10,511,752 Navalria - 13,382 West Sea Lda 9,223,000 7,505,494 Martifer Construcciones Metálicas Espanha 612, ,061 Martifer Constructii 726, ,879 Martifer Construções SK 721,971 1,134,195 Martifer Konstrukcje 22,674 23,453 EUROCAB FV 1 SL 29,770 29,770 EUROCAB FV 8 SL 11,227 11,227 EUROCAB FV 9 SL 11,227 11,227 EUROCAB FV 10 SL 11,227 11,227 EUROCAB FV 11 SL 11,227 11,227 EUROCAB FV 12 SL 11,227 11,227 EUROCAB FV 17 SL 11,227 11,227 EUROCAB FV 18 SL 11,227 11,227 Martifer Construções SAS 15,000 70,000 Martifer SGPS - 2,549,740 Martifer Construções Metálicas Angola S.A. 10,788,641 10,445,767 Martifer Solar ME - Dubai - 12,514 Martifer Solar Srl - 2,278,537 Martifer Solar - 12,634,205 Martifer Solar NV - 90,957 Martifer Silverado Fund, LLC - 14,211,169 Martifer Solar JO - 65,045 MARTIFER SOLAR CHILE OPERACIONES [CH] - 183,705 MARTIFER SOLAR UK [UK] - 12,976,941 47,062, ,733,311 With regards to bank guarantees issued to clients, there are guarantees of three distinct natures advance payment, good execution and tender: Advance payment aim to ensure the amount delivered by the client in the beginning of the project for material purchase. The amount advanced is defined in contract and is regularized upon invoice. The client cancels the guarantee when the totality of the advance is deducted. Good execution aims to guarantee the compliance with the contract (execution deadlines, quality, etc.). The expiry of this type of guarantee is defined in contract and they are cancelled when the final acceptance of the project is issued. The tender guarantees are issued as a guarantee that the company bidding will be able to carry out the work in the future and to provide the necessary guarantees of good execution in the event of a contract award. The amount of active bank guarantees on 31 st December 2016 was 47 million Euros, a decrease of 57 % compared to This decrease was largely due to the sale of Martifer Solar, SA, that represented 38 % of the total active guarantees on 31 st December On 31 st December 2016, there were no commitments relating to import documentary credits. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 147

148 // 12 Lastly, we also present the credit insurance on 31 st December 2015: Credit insurance FY 2016 FY 2015 Martifer Solar SA - 26,638,192 Empresa de Energía Renovable María Sol del Norte S.A - 149,589-26,787,782 On 31 st December 2016 there is no credit insurance. Credit insurance on 31 st December 2015 refers to companies belonging to the Solar segment, which were sold in August No reimbursements are expected from the commitments above. Pledges or Mortgages On 31 st December 2016 the assets pledged or mortgaged to financial institutions were as follows: COMPANY GUARANTEE ASSET VALUE DEBT AMOUNT Martifer Metallic Constructions SGPS Share pledge of Martifer Construções SA 20% (no. shares 1,500,000) 5,723,440 16,310,458 Martifer Construções SA 5M Generic Mortgage of building Vale Tripeiro, lot 10 - I/J/K/L/M/N/O (Benavente) 2,914,283 5,008,967 Martifer Construções SA 1,208,352 3,299,468 Martifer Construções SA 1st degree mortgage of industrial building Cutting Unit (Monoblocos). 5,527,183 3,299,532 1st degree mortgage of administrative building Navalria SA 2nd degree mortgage of industrial building Wind Tower plant (article 1914) 1,624,246 Martifer SGPS 1,938,676 Martifer Construções SA Mortgage of industrial building Martifer Construções (article 2079) 1,025,008 3,123,996 Martifer Construções SA 3,048,645 Martifer Construções SA 1st degree share pledge of 25% of Martifer Renewables SGPS (no. Shares 1,016,126 23,289,385 25,000,000) Promoquatro Lda 2,035,204 Martifer Energy Systems SGPS 3,048,379 Martifer Construções SA Promisory Loan Note Class A no. 6 pledge 4,500,000 2,510,610 Martifer Construções SA Mortgage of pilot building Mortgage of Land and Warehouse in Albergaria Martifer SGPS MT Construções Assets Pledge 380,925 Martifer SGPS Generic Mortgage (7.5M ) of industrial building W ind Tower plant (article 1914). 7,902,673 Martifer SGPS 1st degree share pledge of Martifer Renewables SGPS 65% (no. shares 65,000,000) 75,228 2,601,527 1,415,300 13,650,935 60,552,402 Martifer SGPS Mortgage of building in Oliveira de Frades (article P-2003) Unit OlF MTC 522,043 Martifer SGPS Loan Note Class A no. 5 pledge 4,500,000 Martifer SGPS Martifer OF warehouse 74,151 Multipark Paços de Ferreira 361,646 Other Lands MGI 326,097 1st degree share pledge of Martifer Renewables SGPS (no. shares 10,000,000) 9,315,754 Various Mercantil equipment pledge 264,856 Equipment Mercantil pledge 81,458 Pledge of 2 term deposits no worth and no West Sea, Lda 1) worth which are associated to bank guarantee no issued in 2014/01/10 in the amount of in favor of Estaleiros Navais de Viana do Castelo S.A. 1st degree share pledge of 100% shares of the following companies: Eurocab FV 1, S.L., Eurocab FV 2, S.L., Eurocab FV 3, S.L., Eurocab FV 4, S.L., Eurocab FV 5, S.L., Eurocab FV 6, S.L., Eurocab FV 7, S.L., Eurocab FV 8, S.L., Eurocab FV 9, Martifer Renovables ETVE, S.A.U. S.L., Eurocab FV 10, S.L., Eurocab FV 11, S.L., Eurocab FV 12, S.L., Eurocab FV 13, S.L., Eurocab FV 14, S.L., Eurocab FV 15, S.L., Eurocab FV 16, S.L., Eurocab FV 17, S.L., Eurocab FV 18, S.L., Eurocab FV 19, S.L., 127,015, ,500-1,152,059 Share pledge of 50% of Martifer Renovables ETVE shares 5,166,422 28,675,178 MARTIFER Romenia SRL Mortgage of the factory 4,222, , // ANUAL REPORT 2016 //

149 12 // COMPANY GUARANTEE ASSET VALUE DEBT AMOUNT Mortgage of farm land and all equipment/construction included in the project/farm 42,525,111 EVIVA NALBANT Share pledge of 100% of Eviva Nalbant shares 3,541,918 Pledge over all movable assets (insurance, bank accounts, accounts receivable, intelectual property, etc.) 1,599,894 11,217, ,603, ,091,229 1) There is no outstanding amount, as it is a bank guarantee issued in the same amount as the real guarantee. During the 2016 financial year, no additional real guarantees were recorded. The evolution recorded is, therefore, the result of the sale of certain tangible fixed assets within the scope the strategic plan for the disposal of non-core assets. 39. SUBSIDIES AND GOVERNMENT GRANTS On 31 st December 2016, investment subsidies and government grants attributed to the Group are as follows: INVESTMENT AMOUNT SUBSIDIES GRANTED DEFERRED INCOME (NOTE 36) AMOUNT RECORDED IN INCOME STATEMENT (NOTE 5) Buildings and other constructions Basic equipment Office equipment Other investments subsidies Closing balance 31 December On 31 st December 2016, operational subsidies and government grants attributed to the Group recorded in the income statement caption Other gains and losses are as follows: COMPANY DESIGNATION AMOUNT RECORDED IN INCOME STATEMENT (NOTE 5) Martifer Construções EOEP 318,313 West Sea IEFP 24, , RELATED PARTIES a) Balances and transactions Group companies have commercial relations with each other that qualify as related parties transactions. All of these transactions are performed on an arm s length basis. Consequently, all these transactions are eliminated, since the consolidated financial statements disclose information regarding the holding company and its subsidiaries as if they were a single entity. The amounts of the balances and transactions with associate companies and joint-ventures, as well as with other shareholders and shareholder-related companies, are as follows: COSTS REVENUES ACCOUNTS RECEIVABLE (NOTE 24) ACCOUNTS PAYABLE (NOTE 32) FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 Associate companies 4,510, ,055 4,113,399 2,542,019 37,933,117 38,829, ,001 1,106,859 Joint Ventures 37,060-1,615, ,203 14,890,174 2,964, , ,001 Other related parties 3,109, ,810 15,530,056 3,166,636 6,318,046 8,680,774 6,949,474 3,347,773 7,657,227 1,695,865 21,259,195 6,377,858 59,141,337 50,474,985 8,192,435 4,724,633 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 149

150 // 12 In addition to the balances and transactions described in the tables above and below, no other balances or transactions exist with the Group s related parties. Accounts receivable and payable vis-à-vis related parties will be cash settled and are not covered by any guarantees. On 31 st December 2016 and 2015, no impairment losses were recognized in connection with accounts receivable with related parties. b) Board of Directors and key management staff remuneration On 31 st December 2016 and 2015, the Board of Directors and the key management staff remuneration amounted to 594,732 Euros and 589,810 Euros, respectively. This remuneration is determined by the Remuneration Committee, taking into consideration the individual performance and the evolution in this type of labour market. Remuneration assigned to the Board of Directors and to key management staff, by remuneration grade, may be summarized as follows (amounts in Euros): FY 2016 FY 2015 Fixed remuneration 486, ,936 Variable remuneration 108,315 95, , ,810 The statement on the remuneration policy applicable to the management and supervisory bodies of Martifer SGPS, approved in accordance with Law 28/2009, as well as the total amount of the remuneration attributed to the members of these bodies, individually and aggregated, are presented in the Corporate Governance Report. Martifer SGPS, S.A. s Board of Directors is constituted by: i. Carlos Manuel Marques Martins ii. iii. iv. Jorge Alberto Marques Martins Pedro Nuno Cardoso Abreu Moreira Arnaldo José Nunes da Costa Figueiredo v. Jorge Bento Ribeiro Barbosa Farinha vi. Luís António de Castro de Valadares Tavares 150 // ANUAL REPORT 2016 //

151 12 // 41. SUBSEQUENT EVENTS Since the reference date of the results, no facts that affect the released financial information occurred. 42. CASH RECEIVABLES/CASH PAYMENTS RELATED TO FINANCIAL ASSETS Cash receivables and cash payments related to financial assets in 2016 and 2015 were as follows: FY 2016 FY 2015 Cash Receivables: Sale of Martifer - Construções Metálicas, Ltda. - 2 Sale of Martifer Alumínios Ltda - 2 Sale of Eviva Gizalki Sp. Zo.o 2,988,795 10,740,104 Sale of Canopy Naos - 9,899 Sale of Canaverosa Renovables, SL - 262,890 Sale of MTS3 S.R.L. - 10,000 Sale of MTS7, S.R.L. - 10,000 Sale of 45% of Duelobrigatório 22,500 - Sale of Martifer Solar S.A. 4,950,000 - Sale of 2,67% of Greenvouga 3,690,349 - Receipts: from continued operations 6,701,645 10,740,108 from discontinued operations 4,950, ,790 Cash Payments: Constitutions of CNA Chantier Naval d'arzew 988,589 - Acquisition of 50% of Warta 607,200 - Acquisition of 9,091% of the Muki Solar 440,000 - Cash Payments: from continued operations 2,035,789 - from discontinued operations - - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 151

152 // APPROVAL OF THE FINANCIAL STATEMENTS These financial statements were approved by the Board of Directors on 5 th April In addition, the accompanying financial statements on 31 st December 2016 are pending approval by the General Shareholders' Meeting. However, the Group's Board of Directors believes that these will be approved without significant changes. 44. EXPLANATION ADDED FOR THE TRANSLATION OF THE FINANCIAL STATEMENTS These financial statements are a translation of the consolidated financial statements originally issued in Portuguese, in accordance with the International Financial Reporting Standards as adopted by the European Union. In the event of discrepancies, the Portuguese version prevails. Oliveira de Frades, 5 th April 2017 The Registered Accountant The Board of Directors João Alexandre Queiroz Oliveira Carlos Manuel Marques Martins (Chairman) Jorge Alberto Marques Martins (Vice-Chairman) Pedro Nuno Cardoso Abreu Moreira (Member of the Board of Directors) Arnaldo José Nunes da Costa Figueiredo (Member of the Board of Directors) Jorge Bento Ribeiro Barbosa Farinha (Member of the Board of Directors) Luís Valadares Tavares (Member of the Board of Directors) 152 // ANUAL REPORT 2016 //

153

154 // 154 // ANNUAL REPORT 2016 //

155

156 // INDIVIDUAL FINANCIAL STATEMENTS INDIVIDUAL INCOME STATEMENTS FOR THE YEARS ENDED ON 31 ST DECEMBER 2016 AND 2015 NOTES FY 2016 FY 2015 Sales and services rendered Operating subsidies External supplies and services 3 ( ) ( ) Staff costs 4 ( ) ( ) Impairment of receivables (losses/reversals) 5 ( ) - Provisions (increases/decreases) Other income Other expenses 6 (32.706) ( ) Earnings before depreciation, financial expenses and taxes ( ) Amortization and depreciation costs 7 and 8 (1.955) (3.789) Impairment of non-depreciable/amortizable investments (losses/reversals) 5 ( ) Operational earnings (before financial expenses and taxes) ( ) Interest and similar revenue Interest and similar expenses 9 ( ) ( ) Gains/losses on associate companies and joint arrangements 5 and 12 ( ) ( ) Earnings before taxes ( ) Income tax (47.508) Net profit for the year ( ) Earnings per share Basic 11 (0,3237) 0,0143 Diluted 11 (0,3237) 0,0143 The accompanying notes are part of these financial statements. 156 // ANNUAL REPORT 2016 //

157 13 // INDIVIDUAL STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED ON 31 ST DECEMBER 2016 AND 2015 FY 2016 FY 2015 Net profit for the year ( ) Fair value of cash flow hedges (derivatives), net of tax - - Income recognised directly in equity - - Total comprehensive income for the year ( ) The accompanying notes are part of these financial statements. INDIVIDUAL FINANCIAL STATEMENTS 157

158 // 13 INDIVIDUAL STATEMENTS OF FINANCIAL POSITION ON 31 ST DECEMBER 2016 AND 2015 NOTES FY 2016 FY 2015 ASSETS Non-current assets Tangible fixed assets Intangible fixed assets Financial investments other methods Group companies Other financial assets Deferred tax assets Current assets Trade receivables Advances to trade creditors State and other public entities Income tax Group companies Other accounts receivable Deferred expenses Cash and cash equivalents TOTAL ASSETS EQUITY Issued capital Treasury stock ( ) ( ) Share premiums Legal reserves Other reserves Retained earnings ( ) ( ) Net profit for the year ( ) TOTAL EQUITY LIABILITIES Non-current liabilities Provisions 5 and Borrowings Current liabilities Trade payables State and other public entities Income tax Group companies Borrowings Other accounts payable TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES The accompanying notes are part of these financial statements. 158 // ANNUAL REPORT 2016 //

159 INDIVIDUAL STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED ON 31 ST DECEMBER 2016 AND // NOTES ISSUED CAPITAL TREASURY STOCK SHARE PREMIUMS LEGAL RESERVES OTHER RESERVES RETAINED EARNINGS NET PROFIT FOR THE YEAR TOTAL EQUITY BALANCE AT THE BEGINNING OF ( ) ( ) ( ) Changes in the period Appropriation of the profit of ( ) Net profit for the year Total comprehensive income for the year Transactions with equity holders Other changes BALANCE AT THE END OF ( ) ( ) BALANCE AT THE BEGINNING OF ( ) ( ) Changes in the period Appropriation of the profit of ( ) - Net profit for the year ( ) ( ) Total comprehensive income for the year ( ) ( ) Transactions with equity holders Other changes BALANCE AT THE END OF ( ) ( ) ( ) The accompanying notes are part of these financial statements. INDIVIDUAL FINANCIAL STATEMENTS 159

160 // 13 INDIVIDUAL CASH FLOW STATEMENTS FOR THE PERIODS ENDED ON 31 ST DECEMBER 2016 AND 2015 FY 2016 FY 2015 OPERATING ACTIVITIES Receipts from customers Payments to suppliers ( ) ( ) Payments to employees ( ) ( ) Cash generated from operations Income tax paid/received ( ) Other receipts/payments relating to operating activities ( ) Net cash generated by operating activities (1) INVESTMENT ACTIVITIES Payments arising from: Tangible fixed assets - (1.987) Financial assets ( ) ( ) Other assets (606) (502) ( ) ( ) Receipts arising from: Tangible fixed assets Financial assets Other assets Interest and similar income Net cash generated by investment activities (2) ( ) FINANCING ACTIVITIES Receipts arising from: Borrowings Payments arising from: Borrowings ( ) ( ) Interest and similar costs ( ) ( ) ( ) ( ) Net cash generated by financing activities (3) ( ) Net increase in cash and cash equivalents ( ) ( ) ( ) Effect of foreign exchange currencies Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The accompanying notes are part of these financial statements. 160 // ANNUAL REPORT 2016 //

161

162 // NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS INTRODUCTORY NOTE Martifer SGPS, S.A. ( Company ) is a limited company, with its registered office at Zona Industrial, Apartado 17, Oliveira de Frades - Portugal, incorporated on 29 th October 2004 and having as its main activities the management of shareholdings held and the rendering of support services to the Group companies. From June 2007 onwards, and following the successful Initial Public Offer (IPO), Martifer SGPS, S.A. started trading on the Portuguese Stock Exchange, Euronext Lisbon. The Company is obliged, in terms of Article 4 of Regulation no. 1606/2002, of the European Parliament and Council, of 19 th July, to prepare its consolidation financial statements in conformity with the International Financial Reporting Standards (IFRS) as adopted by the European Union in terms of Article 3 of the mentioned regulation. As allowed by decree-law no. 158/2009, from 13 th July, the individual financial statements were prepared according to the International Financial Reporting Standards. All the amounts presented in these notes are expressed in Euro, unless otherwise indicated. 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION These accompanying consolidated financial statements relate to the individual financial statements of Martifer SGPS, S.A. and were prepared in accordance with the International Financial Reporting Standards ( IFRS ), as adopted by the European Union, in force at the beginning of the economic period started on 1 st January These are the International Financial Reporting Standards, issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") or by the previous Standing Interpretations Committee ("SIC"), that have been endorsed by the European Union. These consolidated financial statements have been prepared from the books and accounting records of the companies included in the consolidation (Note 2) and have been prepared under the historical cost convention, except for the revaluation of certain noncurrent assets and certain financial instruments, which are stated at fair value. The accounting policies and mensuration criteria adopted by the Company in the 2016 financial period are consistent with those applied in the financial statements of the previous financial period, presented for comparative purposes, except in respect of the standards and interpretations entering into force on or after 1 st January 2016, the adoption of which has not had a significant impact on the Company s comprehensive income or financial position. Effective amendments to standards as of 1 st January 2016 EFFECTIVE DATE IAS 1 - Presentation of financial statements IAS 16 and IAS 38 - Acceptable methods of depreciation / amortization IAS 16 and IAS 41 - Agriculture: bearer plants IAS 19 - Defined benefit plans IAS 27 - Separate financial statements Amendments to IFRS 10, 12 and IAS 28: Investment entities - applying consolidation exception IFRS 11 - Joint arrangements Annual improvements to IFRS s Annual improvements to // ANNUAL REPORT 2016 //

163 14 // The effect on the Company s financial statements of the adoption of the standards, interpretations, amendments and revisions referred above, on the period ended on 31 st December 2016 was not material. Standards that will become effective, on or after 1 st January 2017, already endorsed by the EU EFFECTIVE DATE IFRS 9 Financial instruments IFRS 15 Revenue from contracts with customers Standards (new and amendments) and interpretations that will become effective, on or after 1 st January 2017, not yet endorsed by the EU EFFECTIVE DATE IAS 7 - Cash flow statement IAS 12 - Income taxes IAS 40 - Investment property IFRS 2 - Share-based payments IFRS 4 - Applying IFRS 4 with IFRS Amendments to IFRS 15 - Revenue from contracts with customers Annual improvements to IFRS s / No significant effects are expected from the adoption of these standards in the Company s financial statements. In the preparation of the consolidated financial statements, in accordance with IAS/IFRS, the Company s Board of Directors adopted certain assumptions and estimates that can affect the assets and liabilities reported, as well as the profits and losses incurred in the reporting periods (Note 1 xvi). All the Board of Directors estimates and assumptions were made taking into consideration the best knowledge available at the financial statements approval date based the information available at that time. The accompanying consolidated financial statements were prepared for appreciation and approval on the Annual Shareholder s General Meeting. The Board of Directors has approved them for issuance, on 5 th April 2017 and believes that these will be approved without any changes. MAIN ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES The main accounting policies, judgements and estimates used in the preparation of the Company s individual financial statements for the years presented are as follows: i) Financial investments The equity holdings in Group and associated companies are registered at acquisition cost. An evaluation of the investments in Group and associated companies is performed when there are signs that the asset may be impaired. In that case, the impairment losses that may arise are registered as expense. Subsidiaries are all the entities (including entities with special purposes) in which Martifer SGPS has the power to decide on financial or operational policies, to which the control, direct or indirect, of more than half of voting rights is usually associated. Associates are entities on which Martifer has a significant influence on the definition of the financial and operational policies. ii) Tangible fixed assets Tangible assets are recorded at their acquisition cost, net of depreciation and accumulated impairment losses. The depreciation rates used correspond to the following estimated useful lives: NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 163

164 // 14 Transportation equipment Office equipment 4 years 3 to 5 years Maintenance and repair costs that neither increase the useful life nor create significant improvements in tangible fixed assets are recognized as costs in the year in which they are incurred. iii) Financial assets and liabilities Financial assets and liabilities are recognized in the balance sheet when the Company is a contractual party to the instrument. a) Financial instruments: The Company classifies financial assets in the following categories: Financial assets at fair value through profit or loss, Borrowings and receivables, Held-to-maturity investments and Available-for-sale financial assets. The classification depends on the intention inherent to the investment s acquisition. The classification is made at the initial recognition date and re-appreciated on a quarterly basis. Financial assets at fair value through profit or loss: this category is divided into two sub-categories: financial assets classified as held for trading and financial assets designated at fair value through profit or loss. A financial asset is classified under this category, namely, if it is acquired for the purpose of selling it in the short term. Derivatives are also classified as instruments held for trading, except if designated as an effective hedging instrument. Financial instruments in this category are classified as current if they are held for trading or if it is expected that they are going to be realized within twelve months from the balance sheet date; Held-to-maturity investments: this category includes financial assets, non-derivative, with fixed or variable reimbursements with a fixed maturity, and which the Board of Directors intends to hold to maturity; Available-for-sale financial assets: these include financial assets, non-derivative, that are designated as available-for-sale or those that are not and cannot be classified in the preceding categories. This category is classified as non-current, unless the Board of Directors has the intention to sell the investment within 12 months from the balance sheet date. Held-to-maturity investments are classified as non-current investments, unless their maturity is less than a year from the balance sheet date. Financial assets designated by the Group at fair value through profit or loss are classified as current. All purchases and sales of financial instruments are recognized on the trade date, irrespective of the date of the financial settlement. These financial assets are initially measured at cost, which is the consideration paid for them, and include transaction costs in the case of available-for-sale investments. After the initial recognition, financial assets valued at fair value through profit or loss and the available-for-sale investments are re-valued at their fair values with reference to their market value at the balance sheet date (measured by their quoted price or through an independent valuation), without regard for any transaction costs that may be incurred until their sale. Financial assets not quoted and in respect of which it is not possible to reliably estimate their fair value, are maintained at acquisition cost less impairment losses. Gains and losses resulting from a change in the fair value of the available-for-sale financial assets are recognized directly in equity, under the caption Fair value reserves until the investment is sold, received or in any way alienated, or until the fair value of the investment falls below the acquisition cost and this corresponds to an imparity, at which moment the accumulated gain or loss is recognized in the income statement. Gains and losses resulting from changes in the fair value of Financial assets at fair value through profit or loss are recognized in the income statement, under the caption Gains/losses in financial assets. Held-to-maturity investments are recorded at their amortized cost using the effective interest rate method, net of capital repayments and interest received. Investments in subsidiaries and associated companies, as laid down by IAS 27, are valued at acquisition cost net of impairment losses. b) Trade and other receivables 164 // ANNUAL REPORT 2016 //

165 14 // Trade and other receivable amounts have no implicit interest and are recorded at their nominal value less any impairment losses, recognized in the allowance account Accumulated Impairment losses, in order to reflect their net realization value. c) Borrowings Borrowings are recorded as liabilities at the nominal value received, net of up-front fees and commissions relating to the issuance of these instruments. Financial expenses are calculated based on the effective interest rate and are recorded in the income statement on an accruals basis. d) Trade and other payables Accounts payable, which do not bear interest, are recorded at their nominal value which is substantially equivalent to their fair value. e) Financial liabilities and equity instruments Financial liabilities and equity instruments are classified based on their contractual substance. The Company classifies as equity instruments those contracts that evidence a residual interest of the Group in a group of assets after deducting a group of liabilities. f) Derivatives The Company uses derivative instruments solely to manage its exposure to financial risks by hedging these, and not with a trading objective. The use of derivative instruments has been approved by the Company s Board of Directors. The derivative instruments used by the Company, classified as cash-flows hedges, are exclusively related to the hedging of interest rates on loans obtained. The loan amount, interest maturity and loan reimbursement plans inherent to the hedging instrument are in all respects similar to the established conditions for the contracted loans, resulting in perfect hedges. Interest rate derivatives (Cash-flow hedges) are initially recorded at cost, if any, and subsequently revalued at their fair value. The portion of the changes in the fair value of derivatives effectively covered are deferred in the statement of comprehensive income in the caption Fair value reserves - Derivatives, being transferred to the income statement in the same period that the hedge instrument affects the income statement. The gain or loss relating to the ineffective portion is recognized immediately in the income statement, when determined. Hedge accounting is discontinued when the hedging instrument expires or is sold. When a hedging instrument no longer qualifies for hedge accounting the cumulative gain or loss that was deferred in the statement of comprehensive income in the caption Fair value reserves Derivatives is transferred to the income statement for the period and the subsequent revaluations of the derivative are also recorded in the income statement. iv) Cash and cash equivalents Cash and cash equivalents include cash on hand, cash at banks, term deposits and other treasury operations with a maturity under three months, readily convertible to a known amount of cash, and which are subject to insignificant value changes. v) Revenue recognition and accrual based accounting Revenue and expenses are recorded in the period to which they relate, regardless of their date of payment or receipt. The captions of Other accounts receivable, Deferred expenses and Other accounts payable include expenses and income relating to the current period, where payment and receipt will occur in future periods, as well as payments and receipts in the current period but which relate to future periods. Dividends from investments are recognized when the Company s right to receive them has been established. Interest revenue is accrued on a time basis, with reference to the principal outstanding and the effective interest rate applicable for the operations. vi) Balances and transactions expressed in foreign currency All the assets and liabilities expressed in foreign currencies are translated to the functional currency, using the official exchange rate at the reporting date. The exchange differences, favourable or unfavourable, originating from the differences between the NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 165

166 // 14 exchange rates at the transaction dates and those used at the collection, payment or at the balance sheet date, are recognized at their gross amount as gains and losses in the income statement. vii) Income Taxes The Income tax charge for the period includes current and deferred tax, in accordance with IAS 12. Current tax is calculated based on the taxable profit, in accordance with the local tax laws applicable to the location where the Company has its registered office. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax base used in the calculation of taxable profit as well as in respect of some fiscal credits attributed to the Company, and it is accounted for using the balance sheet liability method. Deferred tax assets and liabilities are measured at the tax rates and based on the tax legislation expected to apply in the period in which the differences reverse, and evaluated annually using tax rates (and tax laws) that have been enacted or substantively enacted at each balance sheet date. Deferred tax assets are generally recognized to the extent that there is a reasonable probability that taxable profits will be available against which to offset them. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. The deferred tax amount that results from transactions or events recognized directly in equity is registered directly in equity as well, not affecting the net income for the period. viii) Interest charges on borrowings Borrowing costs incurred with borrowings are recorded in the income statement on the accrual basis. ix) Provisions Provisions are recognized when, and only when, the Group has an existing obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation and a reliable estimate can be made of the amount of the said obligation. These provisions are reviewed at each balance date and are adjusted to reflect the best estimate at that date, taking into consideration all the risks and uncertainties inherent to such estimates. When a provision is determined using the future cash flows estimated to settle the existing obligation, its carrying amount is the present value of those cash flows. x) Impairment of assets The Company reviews the carrying amounts of its assets at each balance sheet date or whenever there is any indication (an event or alteration of circumstances) that these assets may have suffered an impairment loss. When the asset carrying amount is greater than its recoverable amount an impairment loss is recognized and recorded in the caption Provisions and impairment losses. The recoverable amount is the higher of fair value less selling costs and value in use. The fair value less selling costs is the amount that can be obtained in an arms-length transaction. Value in use is calculated by assessing the estimated future cash flows to be generated by the asset and its residual value, all discounted to their present value. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The reversal of impairment losses recorded in previous years is recognized when the underlying reasons that caused that entry are no longer applicable and, consequently, the asset is no longer impaired. The reversal of impairment losses is recognized in the income statement as an operational result. However, the reversal of an impairment loss is only recognised up to the amount that would be recorded using the historical cost, or the revalued amount, net of amortization and depreciation, if the impairment loss had not been recorded in previous years. xi) Employee benefits Variable remunerations According to the statutes of some Group companies, the shareholders of those companies approved at the General Meeting or a Remuneration Committee elected by shareholders, establish the fixed and variable remuneration to be distributed to members of governing bodies. Bonus payments are recorded in the period to which they relate. xii) Statement of financial positions presentation 166 // ANNUAL REPORT 2016 //

167 14 // Assets to be realized and liabilities to be settled twelve months after the reporting date are classified as non-current. Likewise, given their nature, Deferred tax and Provisions are classified as non-current on the statement of the financial position. xiii) Contingent assets and liabilities Contingent liabilities are not recorded in the financial statements. Instead, they are disclosed in the notes to the financial statements, unless the probability of a cash outflow is remote. Contingent assets are not recorded in the financial statements but are disclosed in the notes to the financial statements when future economic benefits are probable. xiv) Cash Flow Statement The cash flow statement is prepared, using the direct method, in accordance with IAS 7. The Company classifies as Cash and cash equivalents treasury operations which mature in less than three months, readily convertible to a known amount of cash, and which are subject to insignificant value changes. The cash flow statement is classified by operating, investment and financing activities. Operating activities include cash receipts from clients, cash payments to suppliers, cash payments to and on behalf of employees and other operating activities payments and receipts. Investment activities cash flows essentially include payments and receipts related with the acquisition and sale of tangible and intangible assets. Financing activities cash flows essentially include payments and receipts of loans and borrowings, financial lease contracts and dividend payments. xv) Subsequent events Events occurring after the balance sheet date that provide additional information about conditions existing at the balance sheet date (adjusting events), are recognized in the financial statements. Events occurring after the balance sheet date that provide information on conditions occurring after the balance sheet date (non-adjusting events), if material, are disclosed in the notes to the financial statements. xvi) Judgements and estimates In preparing the financial statements the Board of Directors used its best knowledge and accumulated experience of past and current events in making certain assumptions as to future events. The most significant accounting estimates reflected in the financial statements for the periods ended on 31 st December 2016 and 2015 include: Impairment analysis of financial assets; Recording of provisions and impairment losses; Fair value of financial instruments; and Recognition of deferred tax assets in respect of reportable tax losses. Estimates used are based on the best information available during the preparation of the financial statements. However, events may occur in subsequent periods that, not being foreseeable, were not considered in these estimates. Changes to the estimates that occur after the date of these financial statements, will be recognized in net income, in accordance with IAS 8, using the prospective methodology. xvii) Financial risk management Uncertainty, a characteristic of the financial markets, translates into a number of risks to which the activities of Martifer Group are exposed, namely price risk, currency risk, interest rate risk, liquidity risk and credit risk. a) Currency risk Currency risk is the possibility of registering gains or losses resulting from the changes in the foreign exchange rates between different currencies. The Company s exposure to currency risk results from the existence of foreign based subsidiaries in countries with a currency other than the Euro and of transactions between these subsidiaries and other Group companies and the existence of transactions made by companies operating in a currency other than the reporting currency of the Group. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 167

168 // 14 The currency risk management policy of the Company aims to reduce the sensitivity of its income statement to foreign exchange rate variations. The exposure to currency risk results mainly from the operational activities (in which the gains, earnings, assets and liabilities are expressed in a currency other than the reporting currency), from the operations performed between these subsidiaries and other companies and the existence of operations performed by operational companies in a currency different from the reporting currency. b) Interest rate risk Interest rate risk reflects the possibility of changes in future interest charges in loans obtained as a result of changes in market interest rate levels. The Company relies on external financing to fund its activity and it is exposed to interest rate risk since a significant part of its borrowings are indexed to market interest rates. In the more significant long term loans, the Company relies on fixed interest rate loans or uses interest rate derivatives to hedge exposure to interest rate risk on these loans. The amounts, interest due dates and repayment schedules of the interest rate derivatives are identical to those of the loans they hedge and, as such, these derivatives are considered perfect hedges. During the year 2016, benchmark interest rates in the Euro Zone have remained at very low levels in line with what has been seen in recent years. Thus, according to the European Central Bank's projections published in March 2017 ("March 2017 ECB staff macroeconomic projections for the euro area"), short-term interest rates are expected to remain negative until However, growth forecasts for medium and long-term rates have already been forecasted. Martifer Group's exposure to interest rate risk is currently very low, not only due to the expected maintenance of very low indexes, but also as a consequence of the restructuring agreements signed with the banks in 2015, which made it possible to temporarily stabilize the spreads at fairly competitive levels. c) Liquidity risk Liquidity risk reflects the prospect of the Company and the Group not satisfying their financial responsibilities with the available financial resources. The main objective of liquidity risk management policy is to ensure that the Group has at its disposal at any time the sufficient financial resources to meet its responsibilities and proceed with the outlined strategy, honouring all commitments with third parties, through proper management of the relation cost-maturity of debt. As mentioned above, at the end of 2015, the Group restructured its debt with financial institutions, through the rescheduling of bank financing repayments over time, increasing the debt maturity in order to make it coincide with the long term assets continuity and, at the same time, to allow the cash surpluses to be sufficient to comply with its responsibilities. Therefore, and having in mind the medium/long term features of the investments made, the debt service accompanies the maturity of the associated assets, not jeopardizing the commitments from its short-term operational activity in the pursuit of the Group s goal to adequate the inflows maturity of the operational activity and investment (divestment) to the outflows of the financing activity. The financial management monitors the implementation of risk management policies set by the management to ensure that the economic and financial risks are identified, measured and managed in accordance with such policies. Although the working capital is negative at around 1.8 million Euros, the liquidity risk is considered low, since almost all of the current debt is with Group Companies. d) Credit risk The worsening of global economic conditions or adversities affecting economies on a local, national or international scale may result in the inability of clients to meet their obligations, with possible negative effects on the Company's results. The Company is subject to the risk in the credit related to the operational activity - Clients and Other Debtors and other accounts receivable. 168 // ANNUAL REPORT 2016 //

169 14 // Aware of this reality, the Company seeks to assess the credit risk of all its Clients as a rationale for the establishment of the credit to be granted, and the ultimate objective is to ensure the effective collection of credits within the established deadlines. To mitigate this risk, the Company uses financial information and credit assessment agencies and regularly performs risk analysis and credit control, as well as collection and management of litigation processes, essential procedures to manage the credit activity and to minimize the occurrence of irrecoverable debts. The main balances related to credit risk can be seen in Notes 13 and SALES AND SERVICES RENDERED The Sales and services rendered for the periods ended on 31 st December 2016 and 2015 refer, essentially, to management fees charged to Group companies: CAPTION FY 2016 FY 2015 Services rendered Note SUPPLIES AND EXTERNAL SERVICES The breakdown of supplies and external services for the periods ended on 31 st December 2016 and 2015 is as follows: CAPTION FY 2016 FY 2015 Specialized services Advertising Fees Maintenance and repairs Tools and devices 11 - Books and technical documentation 29 - Office material Other materials 3 - Fuel Travelling expenses Leases and rents - 36 Communications Insurance Legal and notarial fees Travel and accommodation Cleaning, health and safety - 13 Others The item "Supplies and External Services" decreased in 2016, mainly related to the item "Specialized works", which mainly includes the rendering of advisory services. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 169

170 // STAFF COSTS The Staff costs for the periods ended on 31 st December 2016 and 2015 can be analysed as follows: CAPTION FY 2016 FY 2015 Remuneration Social charges Social contributions and others Others During 2016 and 2015, the company s average staff number was as follows: CAPTION FY 2016 FY 2015 Functional division Directors 3 3 Employees PROVISIONS AND IMPAIRMENT LOSSES Provisions and impairment losses for the periods ended on 31 st December 2016 and 2015 are as follows: CAPTION FY 2016 FY 2015 Impairment losses in financial assets Note 12 ( ) Impairment losses in receivables ( ) - Provisions ( ) At the end of 2016, impairment losses and reversals in financial assets were recorded in the amount of 17,756,481 Euros and 800,758 Euros, respectively, following the impairment tests carried out on those assets. The increase in the impairment loss in the year is mainly due to the deterioration in the equity of its subsidiaries, due to losses arising from operational activities (Note 12). As a result of the Prio sale agreement celebrated in 2013, which foresees adjustments based on the operatinal performance of the Prio Group, the Company had to transfer its 5% stake in Prio Energy, SGPS. In 2016 all the conditions set forth in the sale agreement were terminated, thus ceasing all rights and obligations of the Company. This situation was reflected in the item "Imputed gains/losses of subsidiaries, associates and joint ventures" (loss on the termination of the 5% participation). The impairment recorded in 2015 and the provision, in the amount of 560,293 Euros and 596,212 Euros, respectively, that were related to this process were reversed. An impairment loss on receivables amounting to 14,700,000 Euros was recorded, since under the Nutre, SGPS sale agreement, adjustments to the price were foreseen and due to events occurred in 2016, the amount to be received from Ceres Agriculture Holdings (the entity that acquired Nutre) will be reduced in the referred amount. 31 DECEMBER 2016 OPENING BALANCE INCREASES REVERSIONS UTILIZATION CLOSING BALANCE Impairment losses in financial assets Impairment losses in receivables Provisions // ANNUAL REPORT 2016 //

171 14 // 31 DECEMBER 2015 OPENING BALANCE INCREASES REVERSIONS UTILIZATION CLOSING BALANCE Impairment losses in financial assets Impairment losses in receivables Provisions OTHER INCOME AND GAINS AND OTHER EXPENSES AND LOSSES The results of operations for the years ended on 31 st December 2016 and 2015 can be analyzed as follows: OTHER EXPENSES FY 2016 FY 2015 Direct taxes Indirect taxes Taxes Corrections of previous periods Donations 90 - Contributions Others non-specified Foreign exchange losses OTHER INCOME FY 2016 FY 2015 Social services Suplementary income Foreign exchange gains Sales of tangible fixed assets Other income and gains Refund of taxes INTANGIBLE ASSETS The information on the gross values of the intangible asset, with reference to the years ended on 31 st December 2016 and 2015, can be analyzed as follows: 31 DECEMBER 2016 OPENING BALANCE INCREASES SALES AND WRITE-OFFS TRANSFERS CLOSING BALANCE Software and other rights Other intangible assets DECEMBER Software and other rights Other intangible assets NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 171

172 // 14 The information relating to the depreciation amounts and accumulated impairment losses of the intangible assets, with reference to the years ended on 31 st December 2016 and 2015, can be analyzed as follows: 31 DECEMBER 2016 OPENING BALANCE INCREASES SALES AND WRITE-OFFS TRANSFERS CLOSING BALANCE Software and other rights Other intangible assets DECEMBER Software and other rights Other intangible assets The net value of the intangible asset, with reference to the years ended on 31 st December 2016 and 2015, is 0 Euros and 104 Euros, respectively. 8. TANGIBLE FIXED ASSETS Information on the gross values of transportation equipment and administrative equipment for the years ended on 31 st December 2016 and 2015 can be analyzed as follows: 31 DECEMBER 2016 OPENING BALANCE INCREASE SALES AND WRITE-OFFS TRANSFERS CLOSING BALANCE Transportation equipment Office equipment DECEMBER Transportation equipment Office equipment The information on depreciation amounts and accumulated impairment losses of transportation equipment and administrative equipment for the years ended in 2016 and 2015 can be analyzed as follows: 31 DECEMBER 2016 OPENING BALANCE INCREASE SALES AND WRITE-OFFS TRANSFERS CLOSING BALANCE Transportation equipment Office equipment DECEMBER Transportation equipment Office equipment The net amount of fixed tangible assets for the years ended on 31 st December 2016 and 2015 is 944 Euros and 2,794 Euros, respectively. 172 // ANNUAL REPORT 2016 //

173 14 // 9. FINANCIAL RESULTS The financial results for the periods ended on 31 st December 2016 and 2015 may be analysed as follows: CAPTION FY 2016 FY 2015 Interest and similar revenue Borrowings and accounts receivable (including bank deposits) Interest earned Other revenue and financial gains CAPTION FY 2016 FY 2015 Interest and similar expenses Borrowings and accounts payable Interest charges on bank loans Other expenses and financial losses relating to other financial liabilities Other expenses and financial losses The significant decrease in interest charges on bank loans reflects the new conditions agreed in the financial restructuring concluded in December 2015, but which effects report to 1 st January The caption Other expenses and financial losses results, essentially, from the fees incurred in authorized overdrafts. 10. INCOME TAX The breakdown of assets giving rise to deferred taxes in the periods ended on 31 st December 2016 and 2015 may be analysed as follows: CAPTION FY 2016 FY 2015 Tax losses carried forward Fair value of derivatives Deferred tax assets In accordance with the tax statements presented by companies that recorded deferred tax assets arising from tax losses carried forward, as on 31 st December 2016 and 2015, and using exchange rates effective at that time, tax losses carried forward can be summarised as follows: 31 DECEMBER 2016 TAX LOSSES CARRIED FORWARD DEFERRED TAX ASSET TIME LIMIT Generated in DECEMBER 2015 TAX LOSSES CARRIED FORWARD DEFERRED TAX ASSET TIME LIMIT Generated in On 31 st December 2016 there were tax losses, calculated by the companies taxed under the Special Regime for Taxation of Corporate Groups (RETGS), in which the Company is the dominant company before and during the application of RETGS, amounting to 122,151,708 Euros (149,084,140 Euros on 31 st December 2015), whose potential deferred tax assets amounted to 27,484,134 Euros (33,543,931 Euros on 31 st December 2015). In a perspective of prudence, deferred tax assets were registered, NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 173

174 // 14 related with tax losses in Portugal to use in the future, just totalling 2,027,137 Euros. The decomposition can be analysed as follows: TAX LOSSES CARRIED FORWARD 31 DECEMBER DECEMBER 2015 TAX CREDIT TIME LIMIT TAX LOSSES CARRIED FORWARD TAX CREDIT TIME LIMIT Generated in /2016 Generated in Generated in Generated in Generated in Generated in Generated in Generated in The reconciliation of the income tax charge for the period and the current tax charge may be analysed as follows: CAPTION FY 2016 FY 2015 Current tax ( ) Deferred taxes relating to the reversal of timing differences - - Excess/Insufficiency of income tax estimate ( ) (21.626) Tax charge for the period ( ) (21.626) Effective tax rate - - Income tax (47.508) On 31 st December 2016 and 2015, the reconciliation between the normal and effective rate is as follows: CAPTION FY 2016 F 2015 Earnings before taxes ( ) ( ) Nominal income tax on results (nominal rate 21%) ( ) Costs not deductible for tax purposes: Permanent differences - - Impairment losses ( ) Restituition of not deductible taxes and over taxation estimates (18.833) - Capital gain in the sale of financial assets Accounting capital losses Limitation on the deductibility of net financing expenses IRC and other taxes which directly or indirectly are applicable to taxable profits Provisions not accepted Others (2.714) Accounting capital gains (26) ( ) Reversion of provisions ( ) - Tax benefits (1.322) (1.951) Tax losses arising in this period in respect of which no deferred tax assets were recognised Excess/Insufficiency of income tax estimate ( ) (21.626) Autonomous taxation Municipality tax Consolidated tax net effect ( ) - Effective income tax ( ) Net profit for the year ( ) // ANNUAL REPORT 2016 //

175 14 // In 2016, Martifer SGPS, S.A. is subject to corporate income tax (IRC) at the normal rate of 21 %, increased by the municipal surcharge of up to 1.5 % of the taxable profit. Additionally, when the taxable profit subject to corporate income tax is between 1,500,000 Euros and 7,500,000 Euros there is an additional state surcharge of 3 %, for the amount between 7,500,000 Euros and 35,000,000 Euros a tax rate of 5 % applies, for the amount above 35,000,000 Euros a tax rate of 7 % applies. In terms of article 88 of the Corporate Tax Code, the company is, additionally, subject to autonomous tax over a number of expenses, at the rates laid down in the said Code. Since January 2011, Martifer SGPS, S.A. is covered by the RETGS, which comprises companies in which it holds, directly or indirectly, at least 75 % of its capital and meet simultaneously the other conditions set by that mechanism. The remaining Martifer Group companies, not covered by the special tax mechanism, are taxed individually, based on their taxable profit and at the applicable tax rates. In accordance with the legislation in force, tax declarations remain subject to review and adjustment by the tax authorities during a period of four years (five years for social security), except when there are tax losses, fiscal benefits were conceded, or inspections, claims or impugnations are underway, in which cases, depending on the circumstances, the period is extended or suspended. Consequently, the tax declarations for the years 2013 through 2016 may be subject to review. In 2016, Martifer SGPS, SA adhered to the Special Program for the Reduction of Indebtedness to the State (PERES), under which the payment of 14 installments in relation to the IRC of 2013 is underway. On 31 st December 2016, the total outstanding amount is 145, Euros, of which 140, Euros is still pending settlement, which will be fully settled in The Board of Directors believes that any adjustments resulting from reviews/inspections by the tax authorities will have no significant impact on the financial statements on 31 st December EARNINGS PER SHARE Martifer SGPS has issued solely ordinary shares, so there are no special dividends or voting rights. Martifer has a single type of potentially dilutive ordinary share: stock options. To calculate the diluted earnings per share it is necessary to determine whether these options, regardless of whether they may or not be exercised, have a dilutive effect, which occurs when the option exercise price is lower than the quoted share price. Considering that Martifer s quoted share price averaged 0.20 Euros between 1 st January 2016 and 31 st December 2016, which is lower than the option exercise price (3.84 Euros), the latter can be considered non-dilutive as their exercising would result in a reduction in the ordinary shares in circulation. Hence, on 31 st December 2016 there is no difference between the basic and diluted earnings per share calculation. Martifer SGPS, SA s share capital is represented by 100,000,000 ordinary shares, totally subscribed and realized, representing a share capital of 50,000, Euro. The weighted average number of shares in circulation is reduced in 2,215,910 shares, corresponding to own shares acquired by Martifer SGPS. On 31 st December 2016 and 2015, the calculation of earnings per share, basic and diluted, may be demonstrated as follows: CAPTION FY 2016 FY 2015 Net profit for the year (I) ( ) Weighted average number of shares outstanding (II) Basic and diluted earnings per share (I) / (II) (0,324) 0,014 NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 175

176 // FINANCIAL INVESTMENTS OTHER METHODS On 31 st December 2016 and 2015, the breakdown of financial investments in subsidiaries and associated companies was as follows: 31 DECEMBER 2016 % HELD ACQUISITION VALUE SUPPLEMENTARY CAPITAL IMPAIRMENT LOSSES (NOTE 5) Martifer Renewables SGPS * 100% Eviva Hidro 1% Martifer Metallic Constructions SGPS * 75% Martifer Gmbh 100% Ventinveste 6% Martifer Solar SGPS 100% Âncora Wind - Energia Eólica 1% Martifer Romania SRL 98% Duelobrigatório 55% Patris Investimentos SGPS 3% DECEMBER 2015 TOTAL Martifer Renewables SGPS 100% Eviva Hidro 1% Martifer Metallic Constructions SGPS 75% Martifer Gmbh 100% Ventinveste 6% Prio Energy SGPS 5% Martifer Solar SGPS 100% Âncora Wind - Energia Eólica 1% Martifer Romania SRL 98% Patris Investimentos SGPS 3% EQUITY NET PROFIT FOR THE YEAR Martifer Renewables SGPS * Eviva Hidro (14.608) (19.266) Martifer Metallic Constructions SGPS * ( ) ( ) Martifer Gmbh (13.979) Ventinveste ( ) ( ) Martifer Solar SGPS ( ) Âncora Wind - Energia Eólica (53.395) Martifer Romania SRL ( ) Duelobrigatório ( ) * Consolidated accounts ( ) Financial investments are measured as to their recoverable value whenever there is evidence of impairment, and evidence is considered whenever the Equity of the subsidiaries (considering when consolidated Equity is applicable) is lower than their acquisition value. Based on this principle, indications of impairment have been identified in the holdings held in Martifer Metallic Constructions, SGPS, SA, in Martifer Renewables, SGPS, SA, in Martifer Solar, SGPS, SA and in Duelobrigatório, SA. The impairment tests carried out consider the following assumptions: 176 // ANNUAL REPORT 2016 //

177 14 // - For the participation in Martifer Metallic Constructions, SGPS, SA, it was considered appropriate to validate its recovery based on the value in use, in accordance with the discounted cash flow method, based on business plans made by the company managers and duly approved by the Group's Board of Directors and using discount rates that vary according to the risks inherent to the various businesses. On 31 st December 2016, an impairment loss of 77,403,565 Euros was calculated, which compares with the impairment in the year 2015 of 73,522,874 Euros, resulting in a reinforcement of an impairment of 3,880,691 Euros. The methods and assumptions used to measure the existence or not of impairment for these financial assets were as follows: MARTIFER METALLIC CONSTRUCTIONS Financial assets (values in thousand of Euros) Period used 5 years cash flow projection Growth rate (g) 2,00% Average growth rate of turnover for 5 years 3,03% Discount rate 6,48% The impacts of a change (from a normal scenario) in the main assumptions used in the calculation of the recoverable value would have the impacts listed in the table below: Weighted Average Cost of Capital (WACC) MMC WACC INCREASE IN 1.0 P.P. WACC DECREASE IN 1.0 P.P. VAR. TURNOVER +5.0 P.P. (1) VAR. TURNOVER P.P. (1) MARGIN INCREASE EBITDA/TURN OVER 0.5 P.P. (2) MARGIN DECREASE EBITDA/TURN OVER 0.5 P.P. (2) 6,48% 7,48% 5,48% 6,48% 6,48% 6,48% 6,48% CAGR turnover [2016; 2021] (3) 3,03% 3,03% 3,03% 8,03% -1,97% 3,03% 3,03% EBITDA/Turnover average margin [2016; 2021] 5,03% 5,03% 5,03% 5,03% 5,03% 5,53% 4,53% Netbook value (in thousand of Euros) Total recoverable amount Estimated impact 0 (23.702) (29.084) (22.856) Conclusions of the sensitivity analysis Imparidade Sem imparidade Sem imparidade Imparidade Sem imparidade Imparidade (1) (2) (3) Yearly variation in 0,5p.p. (2016=100 %), maintaining a constant EBITDA/Turnover Variation in EBITDA/Turnover margin, maintaining a constant turnover Estimated Average growth rate based on the company's 5-year business plan, carried out according to the Board of Directors' estimates and assumptions For Martifer Renewables, SGPS, SA and Martifer Solar, SGPS, SA, the Group considers as a valid indicator the value of consolidated and individual Equity, respectively, and as a result, impairment losses of 152,101,313 Euros and 24, Euros respectively. Compared to the impairments calculated in 2015, as a result of the impairments calculated in 2016, impairment reversals of 240,465 Euros were recorded in the year in relation to the stake in Martifer Renewables, SGPS, SA and an impairment of 8,898,290 Euros in relation to the stake in stake in Martifer Solar, SGPS, S.A.. This principle was based on the fact that Martifer Renewables, SGPS, SA had a relatively low turnover in relation to the value of its assets, and included in its consolidated balance, essentially, assets related to wind farms and solar projects in development and in respect of which, when applicable, assessments have already been made of their realizable values and the respective impairments have already been recorded, so the consolidated Equity already reflects these adjustments. In the case of Martifer Solar, SGPS, SA, this company sold in 2016 its financial interest in Martifer Solar, S.A. (and its subsidiaries) and at the end of the year it did not hold any financial participation. For Duelobrigatório, SA, a company that holds the assets held by Martifer Solar, SA in the United States that were object of a carve-out in relation to the sale of Martifer Solar, SA to Voltalia Group, the Company decided to register an impairment on the total value of the investment given the uncertainty as to the recoverable value of the same. As mentioned in Note 5, as a result of the sale agreement of Prio concluded in 2013, which foresses adjustments based on the operational performance of the Prio Group, in 2016 the Company had to transfer its 5% stake held in Prio Energy, SGPS. The net impact was nil as there was an impairment recorded to safeguard this situation. Supplementary capital doesn t bear interests or repayment term. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 177

178 // GROUP COMPANIES On 31 st December 2016 and 2015, shareholder loans and other financial operation balances (assets) are as follows: 31 DECEMBER DECEMBER 2015 NON-CURRENT CURRENT TOTAL NON-CURRENT CURRENT TOTAL Nutre SGPS Navalria Martifer Construções Martifer Alumínios Martifer Renewables SGPS Martifer Renewables Martifer Metallic Constructions SGPS Martifer Inovação e Gestão Martifer Solar SGPS Ventinveste Martifer Gmbh Martifer Global SGPS West Sea - Estaleiros Navais Duelobrigatório Others These loans bear interest at the 3-month Euribor rate %. The liabilities presented by the company, with Group companies, on 31 st December 2016 and 2015, are as follows: FY 2016 FY 2015 Martifer Construções Martifer Alumínios Martifer Solar SGPS Gebox Navalria Martifer Solar SRL - - Martifer Gestão de Investimentos Martifer Renewables SGPS Martifer Renewables Martifer Inovação e Gestão Sociedade de Madeiras do Vouga Martifer Metallic Constructions SGPS Martifer Energy Systems SGPS Martifer Global SGPS Nagatel Viseu - Promoção Imobiliária West Sea - Estaleiros Navais On 31 st December 2016, the amount presented in Group companies (liabilities) essentially refers to the liabilities that the Company has with the subsidiaries arising from RETGS and to treasury operations granted by Martifer Renewables SGPS, SA. These treasury operations bear interest at Euribor 3 months %. The higher values of the RETGS refer to the transfer of the tax losses that had been constituted in the subsidiaries and which, according to the management's expectations, they will be recovered within the Group. 178 // ANNUAL REPORT 2016 //

179 14 // 14. TRADE RECEIVABLES AND OTHER ACCOUNTS RECEIVABLE On 31 st December 2016 and 2015, the trade and other accounts receivable were as follows: CAPTION FY 2016 FY 2015 Clients, current accounts Other accounts receivable Other debtors Other detbtors Impairment losses (Note 5) ( ) ( ) On 31 st December 2016 and 2015, the ageing of balances in these captions was as follows: PAST DUE 31 DECEMBER 2016 TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Clients, current accounts (2.018) Other accounts receivable PAST DUE 31 DECEMBER 2015 TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Clients, current accounts Other accounts receivable The Company considers that there is no deterioration of credit rating of the counterparty (including subsidiaries and associate companies) meaning that the old balances are not at risk of uncollectibility. On 31 st December 2015 the caption "Other receivables" included the sale value of Nutre SGPS, S.A., in which Ceres Agriculture Holdings Cooperatief U.A. would have to settle the debt in the amount of 19,600,000 Euros until December 2016, according to what was contractualized. On 31 st December 2016, as a result of the outcome of the lawsuit in which the entity was involved, the amount to be received from Ceres was deducted from an impairment of 14,700,000 Euros. 15. STATE AND OTHER PUBLIC ENTITIES On 31 st December 2016 and 2015, the balances of the caption State and other public entities are as follows: CAPTION FY 2016 FY 2015 Assets Income tax Withholding taxes Liabilities Income tax Withholding taxes Value added taxes Social Security contributions NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 179

180 // CASH AND CASH EQUIVALENTS The caption Cash and cash equivalents may be analysed as follows: CAPTION FY 2016 FY 2015 Cash and cash equivalents Cash Bank deposits Cash and cash equivalents include short term bank deposits, with maturities not exceeding 3 months, for which the risk of value alteration is insignificant. On 31 st December 2016 and 2015, there were no restrictions associated with the balances of the caption Cash and cash equivalents. 17. EQUITY Share capital Martifer SGPS s share capital, fully subscribed and realized on 31 st December 2016, amounted to 50,000,000 Euros and is represented by 100,000,000 bearer shares with a par value of 0.50 Euros each. All shares have the same rights, namely one share, one vote. During the 2016 and 2015 economic periods there were no changes in the number of shares representing the Company s share capital. Treasury Stock During the 2016 economic period, Martifer SGPS didn t acquire, through the stock exchange, own shares. The Group held 2,215,910 treasury shares, corresponding to 2.22% of its capital. In accordance with Portuguese commercial legislation, the company is required to keep unavailable a reserve corresponding to the own shares amount. This is included the caption other reserves. On 31 st December 2016, the share capital of Martifer SGPS, S.A. was held in 42.7 % by I M SGPS, S.A., 37.5 % by Mota-Engil SGPS, S.A., 2.22 % are treasury shares and 0.65 % by board members. The remaining % represents the free-float listed in Euronext Lisbon. Share premium Share premiums correspond to excess amounts gained with the issue of or an increase in share capital. In accordance with Portuguese commercial legislation, the amounts included in this caption must comply with the regime applicable to legal reserves, that is, they are not distributable except in the event of liquidation, but they may be used to offset losses, after all the other reserves have been used up, and/or be incorporated in share capital. Reserves Legal reserves Portuguese commercial legislation establishes that at least 5 % of the annual net income must be used to increase the legal reserve until the latter represents at least 20 % of the share capital. This reserve is non-distributable, except in the event of liquidation, but may be used to offset losses, after all the other reserves have been used up, and/or be incorporated in share capital. Other reserves On 31 st December 2016, this caption included a reserve that is not available, amounting to 2,868,519 Euros (2015: 2,868,519 Euros), related to the own shares amount. 180 // ANNUAL REPORT 2016 //

181 14 // Under Portuguese legislation, the amount of reserves considered distributable is determined based on the Company s individual financial statements, prepared in accordance with International Financial Reporting Standards (IFRS). On 31 st December 2016, Martifer SGPS, S.A. has no distributable reserves available. 18. PROVISIONS On 31 st December 2016 and 2015, the balances of "Provisions" were 22,288 Euros and 618,500 Euros, respectively. The decrease is due to the reversal of the provision related to the sale of Prio Energy, SGPS whose liabilities ended in BORROWINGS The borrowings obtained, with reference to the periods ended on 31 st December 2016 and 2015 are as follows: 31 DECEMBER 2016 TOTAL UNTIL 1 YEAR Financial institutions borrowings PAST DUE BETWEEN 1 AND 3 YEARS BETWEEN 3 AND 5 YEARS MORE THAN 5 YEARS Bank loans DECEMBER 2015 TOTAL UNTIL 1 YEAR Financial institutions borrowings PAST DUE BETWEEN 1 AND 3 YEARS BETWEEN 3 AND 5 YEARS MORE THAN 5 YEARS Bank loans The financial debt restructuring agreement with financial institutions at the end of 2015 made it possible to adjust the maturity of inflows of the Group's operatinal activity and from investment(divestment) to the outflows of the financing activity through the rescheduling of the maturity over time, extending the average maturity of the debt to make it more coincident with the degree of permanence of its long-term assets and a maturity that allows the cash surpluses to be sufficient to fulfill its responsibilities. Thus, on 31 st December 2016, the average maturity of the debt was approximately 5 years. The average interest rate on Martifer SGPS loans in December 2016 was 0.78 % (in 2015 it was 0.96 %). The guarantees related to these loans are presented in Note 21. The amount of the financing is in Euros. 20. TRADE PAYABLES AND OTHER ACCOUNTS PAYABLES The information regarding trade and other accounts payable for the periods ended on 31 st December 2016 and 2015 may be analysed as follows: CAPTION FY 2016 FY 2015 Trade payables Other accounts payables Cost accruals Other accruals Other creditors NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 181

182 // 14 On 31 st December 2016 and 2015, this caption includes amounts due to Suppliers arising from the Company s operational activity and from the acquisition of tangible and intangible fixed assets. The Board of Directors believes that the fair value of these balances do not differ significantly from their carrying value and the impact of updating these amounts is not material. On 31 st December 2016 and 2015, the ageing of accounts payable in captions Trade payables and Other payables is as follows: PAST DUE 31 DECEMBER 2016 TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Trade payables Other accounts payables PAST DUE 31 DECEMBER 2015 TOTAL NOT DUE UNTIL 90 DAYS 90 TO 180 DAYS 180 TO 360 DAYS MORE THAN 360 DAYS Trade payables Other accounts payables The accounts payable due for more than 180 days refers to amounts to be paid to trade creditors with which the Group maintains regular commercial relations. 21. COMMITMENTS Pledges or Mortgages On 31 st December 2016 the collateral given by the Company may be summarized as follows: COMPANY GUARANTEE ASSET VALUE DEBT AMOUNT Martifer SGPS 1st degree mortgage of industrial building Cutting Unit (Monoblocos), 1st degree mortgage of administrative building, 2nd degree mortgage of industrial building Wind Tower s plant (article 1914) Martifer Construções Assets Pledge Martifer SGPS Generic Mortgage (7.5M ) of industrial building Wind Towers plant (article 1914) st degree share pledge of Martifer Renewables SGPS 65 % (no. of shares ) Martifer SGPS Mortgage of building in Oliveira de Frades (article P-2003) Unit OlF MTC Martifer SGPS Loan Note Class A no. 5 pledge Martifer OF Warehouse Multipark Paços de Ferreira Martifer SGPS Others Lands MGI st degree share pledge of Martifer Renewables SGPS (no. of shares ) Various mercantil equipment pledge Equipment mercantil pledge In 2015, as part of the reinforcement of guarantees foreseen in Martifer Group s Debt Restructuring agreement, guarantees were extended with the banks that finance the Holding company. In this agreement it is expected that the sale of certain assets will serve to amortize the existing bank debt. 182 // ANNUAL REPORT 2016 //

183 14 // 22. REMUNERATION PAID TO MANAGEMENT, TO THE SUPERVISORY BOARD AND TO THE CHARTERED ACCOUNTANT Remuneration attributed to the key management personnel, by remuneration category, can be summarized as follows: CAPTION FY 2016 FY 2015 Fixed remuneration Variable remuneration The remuneration attributed to the Supervisory Board in 2016 amounted to 9,600 Euros (2015: 14,400 Euros) and the remuneration paid to the Chartered Accountant amounted to 53,200 Euros (2015: 41,000 Euros). The remuneration policy applicable to Martifer s management and supervisory bodies, approved in terms of Law 28/2009, as well as the annual remuneration received by the members of the said bodies, in total and individually, are presented in the Corporate Governance Report. 23. BALANCES AND TRANSACTIONS WITH RELATED PARTIES Beyond the balances and transactions described in the notes above, the balances or transactions performed with related parties are as follows: COSTS REVENUES ACCOUNTS RECEIVABLE ACCOUNTS PAYABLE FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 Shareholders Group and associated companies Accounts receivable include supplementary capital amounts registered in financial investments (see Note 12). 24. CASH RECEIVABLES/CASH PAYMENTS RELATED TO FINANCIAL ASSETS Cash receipts and cash payments related to financial assets in 2016 and 2015 are mainly due to supplementary capital (see Note 12). 25. SUBSEQUENT EVENTS Since the reference date of the results, no facts occurred that may affect the released financial information. 26. APPROVAL OF THE FINANCIAL STATEMENTS These financial statements were approved by the Board of Directors on 5 th April Additionally, the attached financial statements are pending approval at the Shareholders General Meeting. However, the Board of Directors of the Company believes these will be approved without significant alterations. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS 183

184 // EXPLANATION ADDED FOR TRANSLATION OF THE FINANCIAL STATEMENTS These financial statements are a translation of the individual financial statements originally issued in Portuguese in accordance with the International Financial Reporting Standards as adopted by the European Union. In the event of discrepancies, the Portuguese version prevails. Oliveira de Frades, 5 th April 2017 The Chief Accountant The Board of Directors João Alexandre Queiroz Oliveira Carlos Manuel Marques Martins (Chairman) Jorge Alberto Marques Martins (Vice-Chairman) Pedro Nuno Cardoso Abreu Moreira (Member of the Board of Directors) Arnaldo José Nunes da Costa Figueiredo (Member of the Board of Directors) Jorge Bento Ribeiro Barbosa Farinha (Member of the Board of Directors) Luís Valadares Tavares (Member of the Board of Directors) 184 // ANNUAL REPORT 2016 //

185

186 // I I CONTENTS PART I INFORMATION ON SHAREHOLDER STRUCTURE, ORGANISATION AND CORPORATE GOVERNANCE A. Shareholder Structure B. Corporate Boards and Committees C. Internal Organisation D. Remuneration E. Related Party Transactions PART II CORPORATE GOVERNANCE ASSESSMENT ANNEXES Annex I Professional Qualifications Annex II Positions held and duties carried out by the members of the Board of Directors Annex III Statement on the remuneration policy for 2016 This translation into English of the Portuguese document was made only for the convenience of non-portuguese speaking shareholders. For all intents and purposes, the Portuguese version shall prevail. 186 // 2016 ANNUAL REPORT //

187

188 // I I PART I Information on shareholder structure, organisation and corporate governance A. SHAREHOLDER STRUCTURE I. CAPITAL STRUCTURE 1. Capital Structure The share capital of Martifer SGPS, S.A., a Public Company (henceforth also referred to as Company or Martifer ), amounts to 50,000, (fifty million Euros), is fully subscribed and paid up and is represented by 100,000,000 (one hundred million) nominative, scriptural shares, with a par value of 0.50 (fifty cents) each. All the shares are ordinary, no different categories of shares exist, nor rights and duties beyond those foreseen by law or in the Company s Articles of Association (henceforth also Articles of Association ). All the shares issued by Martifer have been admitted to trading on the Euronext Lisbon regulated market, corresponding to ISIN Code PTMFR0AM0003, trading under the Mnemo Code MAR. The itemized information on the distribution of share capital by the reference shareholders is present in Section 7, Part I of the Corporate Governance Report. 2. Restrictions on transfer and ownership of shares There are neither restrictions on the free transfer of the Company s shares, nor shareholders holding special rights. Consequently, all shares admitted to trading on the stock exchange are freely transmissible in accordance with the normal regulations applicable. 3. Own shares During 2016, no transactions involving own shares occurred. Consequently, on 31 st December 2016 the Company held, as it did in 2015, a total of 2,215,910 of own shares, representative of 2.22 % of its share capital. These shares correspond to 2.22 % of the voting rights of the Company. 4. Impact of changes in shareholder control over the Company on important agreements Martifer neither celebrated nor is it part of any important agreement that comes into effect, is amended or terminates in the event of a change in the shareholder control over the Company due to a takeover bid. Similarly, the Company has not adopted, via the approval of any statutory provisions or other measures adopted by the Company, rules or regulations designed to prevent the success of takeover bids. Likewise, there are no statutory provisions limiting the number of votes that can be held or exercised by a single shareholder, individually or in conjunction with other shareholders. 188 // 2016 ANNUAL REPORT //

189 I // I 5. Countermeasures in the event of changes in shareholder control During the 2016 financial period, no countermeasures were adopted in the event of changes in shareholder control. 6. Shareholder Agreements that the Company is aware of The only shareholders agreement the company is aware of was celebrated on 28 th May 2007 between I M SGPS, S.A. (ex- MTO SGPS, S.A.) and Mota-Engil SGPS, S.A., and was changed by the amendments celebrated on 22 nd December 2009 and 17 th April The shares subject to the shareholders agreement, on 31 st December 2016, are held by the referred shareholders in the following amounts: SHAREHOLDERS NO. SHARES PERCENTAGE VOTING RIGHTS 1 Mota-Engil, SGPS, S.A. 37,500, % 38.35% I M SGPS, S.A. 42,405, % 43.37% Total 79,905, % 81.72% 1 % Voting rights = no. Shares held / (no. Total shares Treasury shares) The referred shareholders agreement regulates a few aspects of the company s life, namely: 1. Imputing voting rights The shareholders agree to exercise, at the company s General Meeting, in a concerted way, their voting rights regarding the matters for which the law demands the deliberation by the shareholders to be made by a qualified majority. 2. Various provisions - At the request of anyone of them, the shareholders oblige themselves to deliberate changes in the company s articles of association, whenever they are needed to ensure, broadly, the execution of the provisions in the shareholders agreement; The shareholders commit not to celebrate, during the validity of the shareholders agreement, with other shareholders any shareholders agreement; and The shareholders agreement does not underlie any restrictions regarding share transfer. 3. Validity - The shareholders agreement will last for an undetermined period of time, but any of the shareholders can freely terminate it with a minimum 30-day notice before the date when the termination should take effect. II. SHAREHOLDINGS AND BONDS HELD 7. Qualifying Holdings On 31 st December 2016, the main shareholders holders of qualifying holdings continued to be the companies I M SGPS, S.A. and Mota-Engil SGPS, S.A.. The directors of Martifer, Mr Carlos Manuel Marques Martins and Mr Jorge Alberto Marques Martins, are the majority shareholders of the company I M SGPS, S.A., holding respectively shares representing 48 % and 50 % of its share capital. Mota-Engil SGPS, S.A. s voting rights are held, pursuant to Article 20 of the Securities Code (Código de Valores Mobiliários - CVM), by the company Mota-Engil, SGPS, SA. CORPORATE GOVERNANCE REPORT 189

190 // I I To both of these shareholders combined it is imputed, on 31 st December 2016, % of the voting rights of the Company, under the shareholder agreement in force at that date. The 420,542 shares held by the shareholder Carlos Manuel Marques Martins are held on an indirect basis, under the household of this Member of the Board of Directors of the Company, through the company BLACK AND BLUE INVESTMENTS, SA, of which that Member is a minority shareholder. The 230,260 and 3,000 shares held respectively by the shareholders and directors Jorge Alberto Marques Martins and Arnaldo José Nunes da Costa Figueiredo are held on a direct basis. On 31 st December 2016, based on the information available to the Company, the following entities were holders of qualifying shareholdings, calculated in accordance with no. 1 of Article 20 of the Securities Code, in the share capital of the Company: SHAREHOLDERS NO. SHARES % OF SHARE CAPITAL % OF VOTING RIGHTS 1 I M SGPS, SA 42,405, % 43.37% Carlos Manuel Marques Martins* 420, % 0.43% Jorge Alberto Marques Martins* 230, % 0.24% Total Imputable to I M SGPS, SA 43,056, % 44.03% Mota-Engil SGPS, SA 37,500, % 38.35% Arnaldo José Nunes da Costa Figueiredo ** 3, % 0.00% Total Imputable to Mota-Engil, SGPS, SA 3 37,503, % 38.35% 1 % Voting rights = No. Shares Held / (No. Total Shares Own Shares) * Member of a corporate body of I M SGPS, SA; ** Member of a corporate body of Mota-Engil SGPS, SA 8. Number of shares and bonds held by members of the management and supervisory boards (In accordance with the dispositions of no. 5 of Article 447 of the Portuguese Commercial Companies Code CCC ) NAME OF THE MEMBER OF THE CORPORATE BODY CORPORATE BODY SHARES HELD ON Carlos Manuel Marques Martins* Board of Directors 420,542 Jorge Alberto Marques Martins Board of Directors 230,260 Pedro Nuno Cardoso Abreu Moreira Board of Directors 0 Arnaldo Nunes da Costa Figueiredo Board of Directors 3,000 Luis António de Valadares Tavares Board of Directors 0 Jorge Bento Ribeiro Barbosa Farinha Board of Directors 0 Américo Agostinho Martins Pereira Supervisory Board 0 Carlos Alberto da Silva e Cunha Supervisory Board 0 Paulo Sérgio Jesus das Neves Supervisory Board 0 António Baia Engana Supervisory Board 0 *The 420,542 shares held by the shareholder Carlos Manuel Marques Martins are held on an indirect basis, under the household of this Member of the Board of Directors of the Company, through the company BLACK AND BLUE INVESTMENTS, SA, of which that Member is a minority shareholder. Note: There are bonds held by members of the Board and by supervisory bodies. 190 // 2016 ANNUAL REPORT //

191 I // I 9. Special powers of the Board of Directors, namely in matters concerning resolutions of capital increases In accordance with the Articles of Association in force, the Board of Directors is authorised to increase, having obtained previously a positive opinion from the Supervisory Board and in compliance with the remaining provisions of the Company s Articles of Association, the company s share capital in cash, once or more than once, up to a maximum limit of one hundred and twenty-five million Euros. The Board of Directors will set the terms and conditions of each capital increase, as well as the form and date/period of the subscription and realisation, as set forth in Article 4, Number 8 of the Company Bylaws, as amended by the resolution approved at the General Meeting Assembly held on 25 th May, Up until the present date, no capital increase has yet occurred pursuant to these powers attributed to the Board of Directors. 10. Significant Business Relationships between the Holders of Qualifying Holdings and the Company On 31 st December 2016, the main shareholders of qualifying holdings continued to be the companies I M SGPS, S.A. and Mota- Engil SGPS, S.A.. During the 2016 financial period, no significant business or commercial transactions occurred between the Company and the holders of qualifying holdings in the Company. Regarding the business or transactions between holders of qualifying holdings in the Company and other Company affiliates, they fall within the normal activities of these companies and were conducted under normal market conditions. B. CORPORATE BOARDS AND COMMITTEES I. GENERAL MEETING a) Composition of the Presiding Board of the General Meeting 11. Details and position of the members of the Presiding Board of the General Meeting and respective terms of office The Board of the Shareholders General Meeting comprises a chairman, a vice chairman and a secretary; the present holders of these positions were elected at the 14 th May 2015 Shareholders General Meeting, for a three-year term of office, ending on 31 st December The members of the Board of the Shareholders General Meeting are: CHAIRMAN José Joaquim Neiva Nunes de Oliveira VICE CHAIRMAN Luís Leitão Marques Vale Lima SECRETARY Luís Neiva de Oliveira Nunes de Oliveira CORPORATE GOVERNANCE REPORT 191

192 // I I 12. Restrictions on the right to vote The Company Articles of Association do not establish any percentage or maximum limit regarding the exercising of voting rights by any shareholder. The Company has not issued preference shares without voting rights. The Shareholders General Meeting is, therefore, comprised of shareholders holding Martifer shares, each share carrying one vote. Shareholders can participate provided they hold shares, at the least up to five days prior to the date set for the General Meeting, and provided, that these shares are registered in their name in the securities accounts. Up to three days prior to the date set for the General Meeting, a certificate issued by the relevant entity shall be presented to the Company as proof of ownership of the shares. In the event of the suspension of the General Meeting, the Company does not require the blockage of the shares for the full suspension period; instead, compliance with the ordinary notice period for the first meeting suffices. Shareholders may be represented at the Shareholders General Meetings by means of a written proxy mandate addressed to the Chairman of the General Meeting Board. The referred to mandate may also be sent by electronic mail in accordance with the respective Shareholders General Meeting convening notice instructions. Shareholders may also exercise their vote by correspondence on all matters subject to approval at the General Meeting. The proposals to be submitted for approval at the General Meeting, as well as the other information necessary for the preparation and participation at said meetings is made available to the shareholders up to 21 days prior to the date of the General Meeting, at Martifer s registered office and in the Company s website. Such documentation can be consulted in the Company s website at In addition to the Company s website, the said documentation is also made available to shareholders, for consultation, at the company s registered office during working hours, as well as in the CMVM s Information Disclosure System ( as of the date the convening notice is issued. The Company s website also discloses the minutes of the General Meetings within five days following the said meetings. Martifer has been applying and implementing measures to promote and encourage shareholder participation in general meetings: Postal vote; Availability of proxy letters and voting ballots in the Company s Website; Disclosure in the website, both in Portuguese and in English, of the general meeting convening notice, of the different forms of voting and of the procedures to adopt for correspondence voting or for voting through a proxy; Disclosure in the website, both in Portuguese and in English, of the preparatory documentation relating to the various points on the Agenda; The creation of an internet address, publicised in the convening notice, exclusively dedicated to the general meeting, in order to facilitate the clarification of any doubts. 13. Details of the maximum percentage of voting rights that may be exercised by a single shareholder or by shareholders that are in any relationship as set out in no. 1 of Article 20 There is no restriction on the number of votes that can be held or exercised by a single shareholder or group of shareholders. 192 // 2016 ANNUAL REPORT //

193 I // I 14. Shareholders' resolutions that, imposed by the articles of association, may only be taken with a qualified majority Article 18 of the Company s Articles of Association establishes both for a first or second call notice, the rule of a simple majority of the votes issued to pass resolutions, unless otherwise foreseen in the CCC or in the Articles of Association. The only exception to this rule relates to the provision in the Company s Articles of Association that sets a qualified majority of twothirds of the votes counted for the passing of resolutions relating to the unfair dismissal of directors. II. MANAGEMENT AND SUPERVISION a) Composition 15. Details of the corporate governance model adopted Martifer s corporate governance structure comprises a Board of Directors, a Supervisory Board and a Statutory Auditor, all elected at the Shareholders General Meetings. For the term of office corresponding to the triennium , the Board of Directors delegated powers governing the day-to-day affairs of the Company to an Executive Committee, under the terms and within the limits defined in Point 21.1 below. The members comprising the corporate bodies, the General Meeting Board and the Remuneration Setting Committee were elected for a triennium ( ). The Remuneration Setting Committee, elected at a Shareholders General Meeting, is responsible for setting the remuneration of the members of the Company s corporate bodies as well as for defining the general guidelines to be observed in objectively setting the amounts. 16. Articles of association rules on the procedural and material requirements governing the appointment and replacement of members of the Board of Directors The members of the Board of Directors are proposed and elected every third year by the Shareholders at a Shareholders General Meeting or co-opted by the Board of Directors, subject to ratification at the General Meeting, their re-election being permitted once or more than once. In accordance with the Articles of Association, a member of the management board may be designated by a minimum number of Shareholders, holding at least 10% of the share capital, who voted against the proposal to elect the directors passed. The Board of Directors designates the Chairman and Vice Chairman from amongst its members and, to the extent it considers pertinent and appropriate, constitutes an Executive Committee or delegates powers to executive directors. The substitution of directors is made as set forth in Article 393 of the CCC. In accordance with the Company s Articles of Association, for the purposes of substituting directors under no. 1 of the said Article of the CCC, absence is qualified as permanent when, without acceptable justification to the management body, a director is absent from more than five meetings, consecutive or not. 17. Composition of the Board of Directors In accordance with the Company s Articles of Association, Martifer s Board of Directors is composed of 5 to 9 members, elected at a General Meeting. CORPORATE GOVERNANCE REPORT 193

194 // I I The term of office of the members nominated to the Board of Directors is 3 calendar years and there are no restrictions regarding their re-election. The members of the Board of Directors are considered vested as soon as they are elected and remain in office until replaced by newly elected directors. On 31 st December 2016, the Board of Directors was composed of 6 members, elected at the Company s General Meeting for a three calendar year term of office, ending on 31 st December On 31 st December 2016, the composition of the Board of Directors for the term of office was as follows: NAME OF DIRECTOR FIRST NOMINATION END OF CURRENT TERM OF OFFICE Carlos Manuel Marques Martins (Chairman of the BD) Jorge Alberto Marques Martins (Vice Chairman) Pedro Nuno Cardoso Abreu Moreira Arnaldo José Nunes da Costa Figueiredo Luís António de Castro de Valadares Tavares Jorge Bento Ribeiro Barbosa Farinha Distinction between executive and non-executive members NAME OF DIRECTOR STATUS (Executive / Non-executive) INDEPENDENT or NON- INDEPENDENT Carlos Manuel Marques Martins (Chairman of the BD) Executive - Jorge Alberto Marques Martins (Vice Chairman) Executive - Pedro Nuno Cardoso Abreu Moreira Executive - Arnaldo José Nunes da Costa Figueiredo Non-executive Non-independent Luis António de Castro de Valadares Tavares Non-executive Independent Jorge Bento Ribeiro Barbosa Farinha Non-executive Independent Terminated his duties on 14 th May 2015, following the election of the new governing bodies in the General Meeting which took place on that same date On 31 st December 2016, of the 6 directors on the Board of Directors, 3 are non-executive directors, whose duties are to monitor and appraise the management of the Company by the executive directors, 2 of these 3 non-executive directors are independent directors. Given the Company s size and shareholder structure, the number of independent directors is considered adequate. To verify the independence of the members of the Board of Directors, the criteria used is that foreseen in Article 414, no. 5 of the CCC, as well as that established in Point 18.1 of Annex 1 of the 4/2104 Regulation of the CMVM and in Recommendation II. 1.7 Code of Corporate Governance of the CMVM (2013). 19. Professional qualifications of the members of the Board of Directors The experience and knowledge of the members of the Board of Directors is detailed in their curricula, presented in the document attached to this report as Annex I; these attest, in a rigorous and specific manner, their ability to carry out the duties attributed to them. 194 // 2016 ANNUAL REPORT //

195 I // I 20. Customary and meaningful family, professional or business relationships of members of the Board of Directors with shareholders that are assigned qualifying holdings The Chairman of the Board of Directors, Carlos Manuel Marques Martins and the Vice Chairman, Jorge Alberto Marques Martins, both hold shares and voting rights in one of the major shareholders, I M - SGPS, S.A.. The abovementioned Board Members are brothers. The non-executive director Arnaldo José Nunes da Costa Figueiredo exercises management functions in Mota-Engil Group companies; Mota-Engil SGPS, S.A., Martifer s other major shareholder, being the holding company of the said Group. The remaining Board Members have no kinship relations between them. 21. Organizational charts or flowcharts concerning the allocation of powers between the various corporate boards, committees and/or departments within the Company, including information on delegating powers, particularly as regards the delegation of the Company's daily management 21.1 ORGANIZATIONAL CHART GENERAL MEETING Remuneration Setting Committee STATUTORY AUDITOR (ROC) Board of Directors Supervisory Board Executive Committee Company Secretary Ethics and Conduct Committee Corporate Governance Committee Risk Committee 21.2 POWER DELEGATION In accordance with the Articles of Association and under Article 407, no. 3 of the CCC, daily management powers were delegated to an Executive Committee, positions now held by Carlos Manuel Marques Martins (President), Jorge Alberto Marques Martins and CORPORATE GOVERNANCE REPORT 195

196 // I I Pedro Nuno Cardoso Abreu Moreira. Said executive directors are responsible for the execution of the strategic decisions made by the Board of Directors, as well as for the daily management of the holding company, whilst company managing financial shareholdings, all within the scope of the powers delegated to them. The duties delegated to the Executive Committee include the guidance afforded to the various Business Areas performance, as well as the running of the corporate services, the supervision of all the business areas, the promotion of synergies between these, the deployment of the resources necessary, the management of human and financial resources, the definition of the strategies for each business area and the supervision of the attainment of the objectives of each business area, establishing policies transversal to the Company as a whole. It is also the Executive Committee s duty to exercise the powers that, at any moment, have been delegated to it by resolution of the Board of Directors, except over matters for which the delegation of powers is forbidden by law or by the Articles of Association. According to the Board of Directors resolution dated 28 th July 2015, the following powers and respective limits were delegated: Subscription, acquisition or disposal of shareholdings in any companies; Acquisition or disposal of real estate and other assets; Investment or commitment to invest, excluding those involving new business areas; Acquisition and disposal of own shares within the limits of the resolution of the Company s General Meeting; Investment and divestment foreseen in the annual budgets or, if not foreseen, whose amount is below five million Euros; Contracting of services; Hiring of employees, defining levels, categories, remuneration conditions and other benefits or complements; Exercising of disciplinary powers and applying sanctions; Issuance of binding instructions to wholly controlled Martifer SGPS, S.A. group companies, as defined in the Portuguese Commercial Companies Code; Participation in Joint-Ventures and in Economic Interest European Groups and, additionally, celebration of consortium and associative partnership contracts, incorporation or participation in any other forms of temporary or permanent associations of companies and/or private or public entities, except when the said associations have as their objective projects involving turnover in excess of one hundred million Euros; Appointment of representatives to the general meetings of the companies in which Martifer SGPS, S.A., a Public Company, has shareholdings and determination of voting intentions at the referred to meetings; Representation of the company in court and outside it, actively or passively, including the submission, opposition and appeal regarding any legal or arbitration proceedings, including also the confession, withdrawal, or transactions extinguishing lawsuits or pending issues and the acceptance of arbitration commitments; and Appointment of proxies to carry out specific acts or categories of acts, defining the extent of the respective mandates. Pursuant to Article 407, no. 1 of the Portuguese Commercial Companies Code, the Board of Directors also attributed to Director Pedro Nuno Cardoso Abreu Moreira the special charge of assuming responsibility for the Financial Area, as well as of Company Representative vis-à-vis relations with the Market and with the CMVM. Save for the matters that cannot be delegated by law pursuant to Article 407, nos. 4 and 8 of the CCC, the Board of Directors has expressly stated that certain matters are excluded from the powers delegated to Executive Directors, namely the: I. Approval of the activity plans and budgets for Martifer Group s companies; II. Investment or commitment to invest in new business areas; III. Investment and disinvestment unforeseen in the annual budgets of Martifer Group s companies, when the amounts involved are equal or above five million euros IV. Constitution of any liens and charges on Martifer Group s companies social parties; V. Participation in Joint-Ventures and in Economic Interest European Groups and, additionally, celebration of consortium and associative partnership contracts, incorporation or participation in any other forms of temporary or permanent associations of companies and/or private or public entities, except when the said associations have as their objective projects involving turnover in excess of one hundred million Euros; VI. Appointment of proxies, natural or legal, to hold social roles in other companies; 196 // 2016 ANNUAL REPORT //

197 I // I VII. Constitution of the Executive Committee as well as the definition of the matters to delegate to it. The delegation of powers will cease with the passing of a resolution by the Board of Directors or, automatically, with the end of the term of office of the Board of Directors that delegated the said powers. b) Functioning 22. Availability and place where rules on the functioning of the Board of Directors may be viewed The Board of Directors Organisational and Functional Regulation is presented in Martifer s website at (Tab: Investors, Section: Corporate Governance/Articles of Association). 23. The number of meetings held and the attendance report for each member of the Board of Directors The Board of Directors meets regularly, once per quarter and, as defined in the Articles of Association and in the respective Regulation, whenever the Chairman or two board members call a meeting; valid resolutions being passed with the attendance or representation of a majority of its members. Without prejudice to the above and considering the fact that the Chairman of the Board of Directors accumulates the position of President of the Executive Committee, the Board of Directors Regulation sets forth that the non executive directors may, even so, conduct meetings, when such meeting is called by a non-executive director on his own initiative or at the request of any two of those directors, for the purposes of exercising their powers of monitoring, supervising and appraising the activity of the members to whom the Board of Directors delegated powers. To that end, and in order to safeguard the exercising, in an independent and informed manner, of the powers of the non-executive directors referred to in the previous paragraph, the following mechanisms and procedures were instituted by the Board of Directors and enshrined in its Regulation: (i) obligation to deliver to the directors without delegated powers all the information considered necessary or convenient and that is requested by them of the Company or of any of the directors with delegated powers; (ii) the satisfaction of the requests of directors with no delegated powers shall be made in an appropriate and timely manner; (iii) possibility of any non-executive director requesting the call of meetings so that non-executive directors can exercise the powers attributed to them; and (iv) the specialised committees with monitoring, supervisory and appraisal competencies over the activities of the directors with delegated powers shall be presided and largely composed of directors with no delegated powers. During the 2016 financial year, no constraints were detected regarding the management and operations of the Company; it can therefore be considered that the mechanism that assures the coordination of the work of the non-executive directors is safeguarded. In 2016, the Board of Directors met twenty three times. The minutes are written up and signed by the Directors and the Company Secretary and recorded in the respective minute book, with copies also being sent to the Chairman of the Supervisory Board. CORPORATE GOVERNANCE REPORT 197

198 // I I The attendance level of each Director at the referred to meetings, in the conduct of his respective duties, was as follows: NAME OF DIRECTOR ATTENDANCE Carlos Manuel Marques Martins (Chairman)* 100% Jorge Alberto Marques Martins (Vice Chairman)* 100% Pedro Nuno Cardoso Abreu Moreira 100% Arnaldo José Nunes da Costa Figueiredo* 100% Luís António de Castro de Valadares Tavares * 100% Jorge Bento Ribeiro Barbosa Farinha* 100% * The director justified his absence and was represented by another director at the respective meeting, as per proxy letter issued to the effect. 24. Competent Corporate Boards undertaking the performance appraisal of executive directors The Company s Corporate Governance Committee is composed of non-executive members of the Company s Board of Directors and presided over by an independent director that meets all the independence and compatibility requirements foreseen in Point 18.1 of Annex I of the 4/2013 Regulation of the CMVM and in Recommendation II.1.7 of the CMVM (2013). This Committee has, amongst others, the power to appraise the performance of the executive directors and the overall performance of the Board of Directors, as well as that of the various committees in existence. The Company s Remuneration Committee also undertakes, within its scope of powers, the performance appraisal of the members of the Board of Directors, endeavouring towards a convergence of the interests of the directors, the remaining corporate bodies and the managers with the interests of the Company, promoting a long-term perspective. 25. Predefined criteria for assessing executive directors' performance Directors performance is on the one hand appraised based on the principles listed in the Remuneration Policy Statement. The remuneration policy and the remuneration of the Company s Corporate Bodies is reviewed annually and submitted for approval at the Company s Annual Shareholders General Meeting. The remuneration policy is oriented along principles and criteria based on the duties carried out, the degree of complexity and responsibility assumed, the alignment of the interests of the management board members with the interests of the company, the performance appraisal, the economic situation of the company and general market conditions for equivalent situations, as better set out in Point 70 below. Additionaly within the scope of the Corporate Governance Commission, and in the fulfillment of recommendation II.I.4. a) of the Corporate Governance ackowledged by the Portuguese Securities Market Commission (CMVM) this body analysis the performance of Martifer SGPS s Executive Commission annualy taking into account: (i) a set of economic and financial performance indicators, (ii) deviations from the budgets that were set out, (iii) the level of compliance of the strategic and operational objectives agreed to by the Board of Administration for the years, (iv) the impacto f the evolution of the Group s external environment, namely the national of international economic and financial conjuncture, as well as the general state of demand and supply in its operation markets. 198 // 2016 ANNUAL REPORT //

199 I // I 26. The availability of each member of the Board of Directors and details of the positions held at the same time in other companies, within and outside the group, and other relevant activities undertaken by members of this Board throughout the financial year The indication and description of the positions held and duties carried out by the members of the Board of Directors are better described in the document attached to the present report as Annex II. The company considers that all the members of the Board of Directors have shown total availability to perform the duties decurring from the bodies for which they were elected by the shareholders. Considering, on the one hand, the board members availability to participate in the meetings of the bodies they are a part of (Board of Directors, Risk Committee Ethics and Conduct Committee and Corporate Governance Committee) and, on the other hand, the total availability to perform the tasks attributed to them by the board of directors, regarding both their areas of work and the management of responsibilities in given business areas. c) Committees within the Board of Directors or Supervisory Board and Board Delegates 27. Details of the Committees created within the Board of Directors and the place where the rules on the functioning thereof are available With the aim of adopting the best corporate governance practices, the Board of Directors nominated 3 (three) specialised committees to boost its operational effectiveness. BOARD OF DIRECTORS COMPANY SECRETARY Corporate Governance Committee Ethics and Conduct Committee Risk Committee The Corporate Governance, the Ethics and Conduct and the Risk Committees have their own regulations that establish the rules relating their composition, their functioning and their powers, which can be consulted in the Company s website at (Tab: Investors, Section: Corporate Governance/Articles of Association). CORPORATE GOVERNANCE REPORT 199

200 // I I 28. Details of the Executive Committee s Members The Board Members nominated by the Company s Board of Directors to be a part of the Executive Committee are: - Carlos Manuel Marques Martins; - Jorge Alberto Marques Martins; - Pedro Nuno Cardoso Abreu Moreira The powers delegated to the Executive Committee are established in Point 21.2 above. 29. Description of the powers of each of the committees established and a summary of the activities undertaken in exercising the said powers CORPORATE GOVERNANCE COMMITTEE The Corporate Governance Committee shall, as per the respective Regulation, be composed of 2 to 6 members that are also members of the Supervisory Board and/or Board of Directors, but that do not exercise executive functions. Presently, the Corporate Governance Committee has the following composition: PRESIDENT Mr. Jorge Bento Farinha (Independent, non-executive Director) MEMBERS Mr. Luís António Valadares Tavares (Independent, non-executive Director) Mr. Américo Pereira (President of the Supervisory Board) The Corporate Governance Committee has the power to issue suggestions for the improvement of Martifer s Corporate Governance Model, with the purpose of promoting the compliance with rigorous ethical and deontological principles and the observance of practices which assure compliance with the norms and established corporate governance best practices that sustain a diligent, effective, balanced, ethical conduct and responsibility promoting management, from the perspective of the interests of the shareholders and other stakeholders. Other than the presence of its members in informal meetings and in work groups, the Corporate Governance Committee met formally twice in This Committee records the minutes of its meetings. The Corporate Governance Committee has its own Regulation, which establishes the rules regarding its composition, functioning and powers, which can be consulted in the company s Website at (Tab: Investors, Section: Corporate Governance/Articles of Association and Regulations). The Corporate Governance Committee has as its main responsibilities and powers: to evaluate and develop the corporate governance model; to reflect on the governance system adopted and to verify its effectiveness; to advise and propose to the Company s relevant corporate bodies the promotion of measures aimed at improving Corporate Governance; to undertake performance appraisals of the executive directors and of the Board of Directors as a whole, as well as of the other Committees in existence. 200 // 2016 ANNUAL REPORT //

201 I // I ETHICS AND CONDUCT COMMITTEE The Ethics and Conduct Committee is composed of three to seven members, nominated by the Board of Directors, which also designates the President. Presently, the Ethics and Conduct Committee has the following composition: PRESIDENT Mr. Luís Valadares Tavares (Independent, non-executive Director) MEMBERS Mr. Carlos Eduardo Gil (Martifer s Corporate Legal Department Manager); and Mr. Paulo César Ferreira (Martifer s Corporate Planning and Control Manager) The Ethics and Conduct Committee has its own Regulation, which establishes the rules relating to its composition, functioning and powers regarding the elaboration, implementation, monitoring and control of ethics and conduct norms at Martifer Group. The Ethics and Conduct Committee Regulation can be consulted in the Company s website at (Tab: Investors, Section: Corporate Governance/Articles of Association). The Ethics and Conduct Committee is also responsible for constituting and assuring compliance with the irregularities disclosure policy regarding irregularities occurring inside Martifer Group, under which employees can communicate, in an adequate, immediate and confidential (if requested) manner whilst safeguarding their professional integrity, information relating to the exposure of irregularities occurring within Martifer, establishing and publicizing the most adequate and effective communication channels for this purpose. The Ethics and Conduct Committee coordinates its activity with the company s Supervisory Board, given the specific powers resting with that board, namely those indicated in the CCC. The Committee meets periodically or whenever it is called by its President, by convening notice sent by the President to its members with a minimum notice period of seven working days, which will also indicate the respective agenda. The Ethics and Conduct Committee writes up minutes of all its meetings. In addition to the informal meetings and to the presence of its members in workgroups, the Ethics and Conduct Committee met formally twice in This Committee records the minutes of its meetings. RISK COMMITTEE The Risk Committee is composed of three to six members that integrate the Board of Directors and/or the Supervisory Board, but the majority of the members cannot hold executive functions. The Chairman of the Company s Board of Directors may not form part of the Risk Committee, but may participate in the meetings, without the right to vote. The Risk Committee has the following composition: PRESIDENT Mr. Jorge Bento Farinha (Independent, non-executive Director) VICE PRESIDENT Mr. Américo Pereira (President of the Supervisory Board) MEMBER Mr. Pedro Nuno Cardoso Abreu Moreira (Member of the Executive Committee) The Risk Committee has its own Regulation, which establishes the rules relating to its composition, functioning and powers regarding the preparation, implementation and monitoring of a risk management system transversal to Martifer Group. The Risk Committee Regulation can be consulted in the company s Website at (Tab: Investors, Section: Corporate Governance/Articles of Association). The mission of the Risk Committee is to propose and monitor the implementation of Martifer Group s risk management policy, which aims to ed a strategy for the prevention and management of risk transversal to Martifer Group, so as to reduce the exposure to risk and safeguard the Groups worth and the creation of value for its stakeholders. The main responsibilities attributed to the Risk Committee are: CORPORATE GOVERNANCE REPORT 201

202 // I I to issue recommendations or opinions as to: (a) the definition of a risk policy for Martifer Group; (b) the content, format and methodologies to consider in investment analysis reports, be they organic or of company acquisitions; and (c) the creation of risk identification, monitoring, control and management systems of a (i) legal and contractual, (ii) financial, (iii) technical and operational, (iv) commercial, (v) environmental, (vi) political and (vii) other nature, that the Risk Committee considers relevant; to ensure compliance with the guiding principles of the Martifer Group Risk policy, assisting the Board of Directors with the setting of the strategic objectives of the company in matters of risk assumption; to prepare opinions on financing operations and investments that require the prior opinion of the Risk Committee; to submit to the Board of Directors proposals and suggestions of methodologies to identify and cover risks that are appropriate and that should be adopted by Martifer Group as measures aimed at improving the risk management model in place and to facilitate the pursuit of higher corporate objectives; to inform the Board of Directors of any situation or occurrence of which it has become aware that, in its opinion, configures noncompliance with the Risk identification, monitoring and control rules and practices; and to monitor and analyse the reflections and guidance produced on risk management by national and international organisms, so as to take advantage of these to improve the Martifer Group Risk Management model. In addition to the informal meetings and the presence of its members in work groups, the Risk Committee met formally on 16 th February III. SUPERVISION a) Composition 30. Details of the Supervisory Board Martifer s supervisory model is based on a Supervisory Board and a Statutory Auditor (ROC). The functional separation between the Supervisory Board and the Statutory Auditor basically follows a division of the functions into two: the political supervision being exercised by the Supervisory Board, with the review and certification of the financial statements resting with the Statutory Auditor. 31. Composition of the Supervisory Board with details of the articles of association s minimum and maximum number of members, duration of the term of office, number of effective members, date of first appointment and date of end of the term of office for each member The Company s Supervisory Board is composed of three effective members and an alternate member, elected at the 14 th May 2015 General Meeting, for the triennium , re-electable as permitted by law. The members of the Supervisory Board may only be elected, as a rule, at the Shareholders General Meeting and, in the event of a vacancy in the Supervisory Board, such vacancy shall be filled by the alternate member. If another vacancy occurs, such vacancy can only be filled through the election of a new member at a Shareholders General Meeting. The members, Mr. Américo Agostinho Martins Pereira (President), Mr. Paulo Sérgio Jesus das Neves (Member) and Mr. António Baia Engana (Alternate) were appointed for the first mandate in 2015, ending the current mandate in The member Mr. Carlos Alberto da Silva e Cunha (Member) was appointed for the first mandate in 2008, ending his current and third mandate in // 2016 ANNUAL REPORT //

203 I // I 32. Details of the members of the Supervisory Board Currently, Martifer s Supervisory Board has the following composition: PRESIDENT Mr. Américo Agostinho Martins Pereira MEMBERS Mr. Carlos Alberto da Silva e Cunha Mr. Paulo Sérgio Jesus das Neves ALTERNATE Mr. António Baia Engana 33. Professional qualifications of each member of the Supervisory Board and other important curricular information The experience and knowledge of the current members of the Supervisory Board are better described in their curricula presented in the document attached to this report and attest, in a rigorous and specific manner, their ability to carry out the duties attributed to them. The Company s Supervisory Board is composed of independent members, who are subject to the legal and regulatory requirements regarding incompatibility, independence, and specialisation in force, namely those foreseen in Article 414-A of the CCC, as well as the independence criteria referred to in no. 5 of Article 414 of the CCC. The members comprising the Supervisory Board meet the incompatibility and independence criteria identified above with none of the members holding Martifer shares, in compliance with Article 447 of the CCC, on 31 th December b) Functioning 34. Availability and place where the rules on the functioning of the Supervisory Board may be viewed The Supervisory Board s powers are described in its respective Regulation, which can be consulted in the company s Website at (Tab: Investors, Section: Corporate Governance/Articles of Association). 35. The number of meetings held and the attendance report for each member of the Supervisory Board The Supervisory Board meets, at minimum, once a quarter, whenever its President decides or whenever any of the members request that a meeting be called. The President is responsible for calling and running the meetings. Resolutions are passed when the majority of the members are present and by a simple majority of the votes expressed. In 2016, the Supervisory Board met 10 times, minutes were prepared of all the meetings. The attendance level of each Member at the said meetings, in the conduct of the Member s respective duties, was as follows: ATTENDANCE Mr. Américo Agostinho Martins Pereira 100% Mr. Carlos Alberto da Silva e Cunha 100% Mr. Paulo Sérgio Jesus das Neves 100% CORPORATE GOVERNANCE REPORT 203

204 // I I 36. The availability of each member of the Supervisory Board, indicating the positions held simultaneously in other companies, inside and outside the Group, and other relevant activities undertaken All the members of the Supervisory Board demonstrated throughout the 2016 financial year full availability to exercise the functions attributed to them, having regularly attended the meetings that were called as well as being present whenever such presence was considered convenient. In so far as the activities of the members of the Supervisory Board are concerned, all the members of the Supervisory Board are statutory auditors and develop their activity in different entities, as described in the curricula presented in the annexes to this report, endowing this board with important operational knowledge of the Company s business areas. The President is adequately supported by the remaining members of the Supervisory Board. Within the scope of the most relevant activities of the members of the Supervisory Board we refer to the information contained in Point 33. c) Powers and duties 37. Description of the procedures and criteria applicable to the supervisory body for the purposes of hiring additional services from the external auditor The Company s External Auditor has been the company PricewaterhouseCoopers & Associados, SROC, SA (PwC) since the 2010 financial period. The change in External Auditors followed a market consultation that year, which was the object of analysis and assessment by the Supervisory Board. Services falling outside the statutory and external audit scope requested by Martifer Group companies from the External Auditor and from other entities belonging to the same network, in 2016, do not attain relevant amounts. The Supervisory Board approved the engagement of services outside the scope of the statutory and external audit from the External Auditor, considering that these services, in addition to not exceeding a relative weight in excess of 30% of the total services rendered to the Company, do not impair the External Auditors independence. Additionally, any new service to be rendered by PwC and its companies (national or international) to Martifer Group is subject to the prior approval of both the management of Martifer and the PwC Partner responsible for the PwC work at Martifer Group, within the scope of its quality control system. Martifer s Supervisory Board, within the scope of its supervisory duties vis-à-vis the company s activity, has analytical and appraisal responsibilities over the more significant aspects of the relationship with the External Auditor, namely in aspects relating to the independence of its work. During 2016, the Company s Supervisory Board appraised the activity carried out by the External Auditor, having concluded that it was conducted in a manner consistent with applicable regulations and norms, and that it had acted with technical rigor, transparency and elegance. The Supervisory Board furthermore reflects, whenever necessary or adequate in function of developments at the Company or the market configuration in general, on the adequacy of the External Auditor vis-à-vis the performance of the duties attributed to it. 38. Other duties of the supervisory body In addition to the duties described in the previous point, the Supervisory Board has the powers set forth in law and in the Articles of Association, amongst others, those relating to the monitoring of the Company s operations, the compliance with the applicable 204 // 2016 ANNUAL REPORT //

205 I // I legislation, Articles of Association and regulations, as well as to issue opinions on the budget, the balance sheet, the inventories and the annual financial statements. Hence, in exercising its powers and carrying out its duties, the Supervisory Board proposes at the General Meeting: Nominating the Company s effective and alternate Statutory Auditors; Monitoring the Statutory Auditors independence, namely in respect of the rendering of additional services and the scope of these, and in respect of the statutory audit of the Company s financial statements; Examining, whenever it considers convenient and with regularity, the Company's bookkeeping; Monitoring the Company s activity and compliance with the applicable laws, Articles of Association and regulations; Representing or arranges to represent itself at the Board of Directors meetings whenever it considers such presence convenient; Requesting the call of the Shareholders General Meeting whenever it considers such call convenient; Examining situations periodically presented to it by the Board of Directors during its term of office; Issuing opinions on the budget, the balance sheet, the inventories and the annual accounts. The Supervisory Board is also responsible for representing the Company vis-à-vis the External Auditor, and: For proposing the supplier of these services and the respective remuneration; For ensuring that conditions adequate for the rendering of these services are made available at the Company; For annually appraising the services rendered as well as for acting as the Company s go-between, receiving, simultaneously with the Board of Directors, the respective reports; and For proposing the destitution of the External Auditor with just cause. Finally, Martifer s Supervisory Board is responsible for inspecting and assessing the effectiveness of the risk management systems and monitoring of the activity of the internal audit, including the functioning of the systems of internal control and risk management, both the object of regular monitoring and evaluation by the Supervisory Board within the scope of its functional and legal powers, as can be inferred from the minutes of the meetings and the annual report and opinion issued by the Supervisory Board. IV. STATUTORY AUDITOR 39. Details of the statutory auditor and the partner that represents it The Statutory Auditors, effective and alternate, that were elected for the triennium at the 14 th May 2015 General Meeting are: PRESIDENT PRICEWATERHOUSECOOPERS & Associados Sociedade de Revisores Oficiais de Contas, Lda., Statutory Auditor (effective) ALTERNATE Mr JOSÉ PEREIRA ALVES, Statuary Auditor (alternate) The Statutory Auditor can only be elected at a General Meeting. If a vacancy occurs in this body it shall be filled by the alternate member, and, if the latter does not remain in that function, it can only be filled through the election of a new member at a Shareholders General Meeting. CORPORATE GOVERNANCE REPORT 205

206 // I I The Statutory Auditor may be represented by Mr Hermínio António Paulos Afonso or by Mr António Joaquim Brochado Correia, it being understood that for the 2016 financial year the representative of the Statutory Auditor was Mr Hermínio António Paulos Afonso. 40. Indication of the number of years that the statutory auditor consecutively carries out duties at the company and/or group As better described in the previous point, the current Statutory Auditor, PricewaterhouseCoopers & Associados, SROC, Lda, was appointed at the General Meeting on 10 th April 2013, having carried out its duties since then. 41. Description of other services that the statutory auditor provides to the company The Statutory Auditor also provides the Company with External Audit services, as described in the follow points. V. EXTERNAL AUDITOR 42. Details of the external auditor appointed in accordance with Article 8 and of the partner that represents it in carrying out these duties, and the respective registration number at the CMVM The Company s External Auditor is the company PricewaterhouseCoopers & Associados, SROC, SA (PwC) registered under no at the CMVM, pursuant to a contract initially celebrated for the 2010 financial year, and which has been extended to the 2016 financial year. PwC has been represented by Mr Hermínio António Paulos Afonso, since Indication of the number of years that the external auditor and that the respective partner that represents it in carrying out these duties have consecutively carried out duties at the company and/or group As better described in the previous point, the External Auditor, PricewaterhouseCoopers & Associados, SROC, Lda. and the respective statutory auditor partner representing the prior in the conduct of its duties, have exercised the said duties consecutively at the Company since 2010, i.e. around 7 years. 44. Rotation policy and schedule of the external auditor and the respective partner that represents the said auditor in carrying out such duties In so far as a rotation schedule of the External Auditor is concerned, Martifer Group has no formal policy regarding External Auditor rotation. The Supervisory Board carries out an annual assessment of the External Auditor s work, ensuring compliance with Article 54 of Decree-law no. 487/99, of 16 November (amended by Decree-law no. 224/2008, of 20 November), relating to the rotation of the partner responsible for the execution of the work. 206 // 2016 ANNUAL REPORT //

207 I // I Nevertheless, both the External Auditor and its partner, a Statutory Auditor representing it in the carrying out of the said duties, are still in a second term of office in the Company, and therefore complying with the rules presently in force. 45. Details of the Board responsible for assessing the external auditor and the regular intervals when the said assessment is carried out The Supervisory Board, in the conduct of its functions, carries out an annual assessment of the External Auditor s independence. Additionally, the Supervisory Board, throughout each financial period and whenever necessary or adequate in accordance to the developments in the activity of the Company or the general market configuration, reflects on the adequacy of the External Auditor vis-à-vis the conduct of its duties. 46. Details of services, other than auditing, carried out by the External Auditor for the Company and/or companies in a control relationship and an indication of the internal procedures for approving the recruitment of such services and a statement on the reasons for the said recruitment In addition to auditing services, tax advisory services in respect of foreign companies and a due diligence in respect of an affiliate were carried out for the Company and/or for the Group s companies. The approval and recruitment of the services rendered by the External Auditor, other than the auditing services, was based on the procedures described in Point 37. It being understood that the said recruitment occurred due to the lack of internal resources at the relevant company. The Supervisory Board approved the engagement of services outside the scope of the statutory and external audit from the External Auditor, considering that these services, in addition to not exceeding a relative weight in excess of 30% of the total services rendered to the Company, do not impair the External Auditors independence. Additionally, any new service to be rendered by PwC and its companies (national or international) to Martifer Group is subject to the prior approval of both the management of Martifer and the PwC Partner responsible for the PwC work at Martifer Group, within the scope of Martifer s quality control system. 47. Details of the annual remuneration paid by the Company and/or legal entities in a control or group relationship to the auditor and other natural or legal persons pertaining to the same network and the percentage breakdown relating to the services in question During the 2016 financial period, the annual remuneration paid to the auditors and other private or corporate bodies belonging to the same network, borne by the Company and/or legal entities in a control or group relationship, amounted to 258,371 Euros (including expenses and remuneration paid by foreign subsidiaries). The breakdown of that remuneration is as follows: OTHER 2016 % 2015 % 2014 % Statutory and external audit services ,50% ,11% % Other due diligence /verification services ,38% 0 0,00% 0 0,00% Tax advisory services ,62% ,42% ,00% Other services outside the statutory audit scope ,5% ,00% 0 0,00% Total ,00% ,00% ,00% CORPORATE GOVERNANCE REPORT 207

208 // I I MT SGPS 2016 % 2015 % 2014 % Statutory and external audit services ,41% ,00% ,00% Other due diligence /verification services ,59% 0 0,00% 0 0,00% Tax advisory services 0 0,00% 0 0,00% 0 0,00% Other services outside the statutory audit scope 0 0,00% 0 0,00% 0 0,00% Total ,00% ,00% ,00% GLOBAL TOTAL ** Including individual and consolidated accounts C. INTERNAL ORGANISATION I. ARTICLES OF ASSOCIATION 48. Rules governing the amendment to the Articles of Association (Article 245-A/1/h)) Martifer s Articles of Association do not contain special rules regulating amendments to the same; being, thus, applicable the rules laid down in the CCC. Hence: Constitutive quorum: the provisions laid down in Article 383 of the CCC apply. At a first meeting, for a Shareholders General Meeting to pass resolutions on amendments to the Company s Articles of Association, the presence, or representation, of shareholders holding at least one third of the company s share capital is required; Deliberative quorum: the provisions laid down in Article 18 of the Articles of Association and Article 386, no. 3 of the CCC apply, namely, corporate resolutions in a Shareholders General Meeting as to amendments to the Articles of Association are taken, at a first or second meeting, by two thirds of the votes issued. II. REPORTING OF IRREGULARITIES 49. Reporting means and policy on the reporting of irregularities in the company The policy on the reporting of irregularities defines the Ethics and Conduct Committee as the entity responsible for the reception and management of clains or reports of irregularities, without prejudice to the Supervisory Board s own powers in this matter. In complement to the Supervisory Board, the Committee pursues, applies and follows up on the procedures underlying the denunciation of internal irregularities, affording the appropriate internal treatment to the denunciations and reporting of irregularities and ensuring the rapid resolution of the facts reported. In this manner, Martifer Group seeks to create conditions that allow any employee to freely report his/her concerns on these matters to the Ethics and Conduct Committee and to facilitate the early detection of irregular situations that, being practiced, could cause damage to Martifer Group, as well as to its stakeholders. Any notification, reporting or denunciation of irregularities occurring internally at Martifer Group is forwarded directly in a special mail box, which can be accessed solely by the President of the Ethics and Conduct Committee. The anonymity and confidentiality are assured whenever so requested in the report or denunciation. This channel was considered the most appropriate and independent means for the reception of denunciations, without prejudice to those being received through the post. 208 // 2016 ANNUAL REPORT //

209 I // I The direct reporting of irregularities to the Supervisory Board, and all those that are of the exclusive competence of the Supervisory Board, are likewise immediately reported to that body s President by the President of the Ethics and Conduct Committee. During 2016, no irregularities were reported to Martifer Group s Ethics and Conduct Committee. The Company s reporting and denunciation of irregularities policy is disclosed in the Company s Website at as well as in the Company s intranet site. Martifer s reporting of irregularities policy applies to the entire Martifer Group perimeter. III. INTERNAL CONTROL AND RISK MANAGEMENT 50. Individuals, boards or committees responsible for the internal audit and/or implementation of the internal control systems Board of Directors The risk policy is defined by the Board of Directors based on the analysis and measurement of risk, which also coordinates and develops risk management processes so as to guarantee an integrated risk management streamlined with the strategy and objectives of Martifer Group. Risk Committee Martifer s Risk Committee, which constitutes a Specialised Committee at the service of the Board of Directors, has as its main attributions the compliance with the guiding principles subjacent to the Martifer Group Risk Policy, aiding the Board of Directors with the setting of the Company s strategic objectives in matters pertaining to the assumption of risk, issuing recommendations and opinions, amongst others, on the definition of a Risk Policy for Martifer Group and as to the creation of risk identification, monitoring, control and management systems of a (i) legal and contractual, (ii) financial, (iii) technical and operational, (iv) commercial, (v) environmental, (vi) political and (vii) other nature. The composition, functioning, attributions and powers of the Risk Committee are described in Point 29 above, and can be consulted in the Company s Website at (Tab: Investors, Section: Corporate Governance/Articles of Association). Supervisory Board The assessment of the risk management and control systems constitutes a matter which is the object of regular analysis and discussion by Martifer s Supervisory Board, within the scope of the framework of its legal powers. External Audit As part of its duties, it evaluates the risks subjacent to the reliability and integrity of the accounting and financial information, reporting on the same to the Supervisory Board. Internal Audit Department Martifer has in its organisational structure an Internal Audit Department that carries out its activities with the purpose of assessing the effectiveness and efficiency of the internal control system and of the business processes throughout the Martifer Group, in an independent and systematic manner, that verifies whether the assets at Martifer Group level are duly recorded and sufficiently protected against risks and losses, that examines and evaluates the accuracy, the quality and the application of operational, CORPORATE GOVERNANCE REPORT 209

210 // I I accounting and financial controls, promoting effective control at a reasonable cost and proposing measures that reveal themselves to be necessary to overcome potential weaknesses detected in the internal control systems. Martifer s internal audit department reports functionally to Mr. Jorge Bento Ribeiro Barbosa Farinha, a non-executive, independent director having a seat at the Company s Board of Directors. The scope of the audits to be conducted in order to assess the quality of the control processes that assure compliance with the objectives of the Internal Control System, namely those that guarantee the efficiency of the operations, the reliability of the financial and operational reports and the respect for the law and regulations, is defined annually. Internal control deficiencies are reported up the hierarchy, the most significant matters being reported directly to the Board of Directors. The activities of the Internal Audit Department, including the functioning of the internal control and risk management systems, are regularly monitored by the Company s Supervisory Board whilst supervisory body, within the scope of its functional powers, namely those foreseen in paragraph i) of Article 420 of the CCC. It should be pointed out that the Company s Supervisory Board meets regularly, fully complying with all its duties and attributions, as can be inferred from the minutes of the meetings and from the Supervisory Board s annual report and opinion. During 2016, due to the withdrawal of some employees from the internal audit department, its activity was significantly reduced. However, the company is currently taking active measures to, in the near future, endow the internal audit department with the resources needed to fully comply with the roles attributed to it as an integral part of the Group s organizational structure. Planning and Management Control and Consolidation and Reporting Departments Martifer also has a Planning and Management Control Department that supported by the Company s information systems produces, monitors and analyses management information, raising questions at unit level. The consolidated financial statements are prepared by Martifer s Consolidation and Reporting Department, which guarantees consistency in the application of the accounting policies adopted. It should be highlighted that the risks subjacent to the reliability and integrity of the accounting and financial information are also assessed and reported on as part of the activities of the Statutory and External Auditors. It should also be pointed out that there is an Ethics and Conduct Code and a system for the reporting of irregularities, which fosters Martifer Group s control culture. 51. Details, even if through the inclusion of an organisational chart, of hierarchical and/or functional dependency in relation to other boards or committees of the Company Regarding hierarchical or functional dependency amongst the corporate bodies and departments responsible for the implementation and monitoring of the internal control systems, better described in the preceding point: The Risk Committee is a specialised committee constituted by the Board of Directors, formed primarily by non-executive members of the Board of Directors and/or the Supervisory Board, and is chaired by an independent director; The Supervisory Board is elected at the Company s Shareholders General Meeting and is an independent body; The External Auditor, proposed by the Supervisory Board, is elected at the Company s Shareholders General Meeting and the results of its activity are assessed by the Supervisory Board; The Internal Audit Department reports functionally to an independent non-executive director of the Board of Directors Mr Jorge Bento Ribeiro Barbosa Farinha; The Planning and Management Control and the Consolidation and Reporting Departments both report to the Company s Board of Directors. 210 // 2016 ANNUAL REPORT //

211 I // I 52. Other functional areas responsible for risk control We consider that this point is already explained in detail in the preceding point and, therefore, refer thereto for the response to this point. 53. Details and description of the major economic, financial and legal risks to which the company is exposed in pursuing its business activity FINANCIAL RISKS A) PRICE RISK The volatility of the price of raw materials constitutes a risk for the Group. The anti-dumping measures/rates already implemented by the European Union in relation to steel and aluminium products from China caused a significant increase in the price that affected the operational activity of the metallic constructions business área. Thus, in 2016 there was a sharp rise in the price of this commodity as a consequence of the implementation of the measures, which was, however, followed by a strong stabilization of prices in the second half of the year. Stabilization is expected to be maintained during 2017 at the intervals recorded in the last quarter of 2016 at the prices of the upper limit of the interval. Martifer has sought to mitigate this risk through a strict procurement planning, which has allowed economies of scale in the quantity of the raw-material that is purchased and consequent price fixing and simultaneously a control of the flows through a phased delivery of the materials. On the other hand, it has also controlled this risk through contracts with clients that allow the passing of changes in the price of raw material in the amount to be paid by the client and ensuring with its suppliers fixed prices for large projects. Evolution of the price of steel jan-15 abr-15 jul-15 out-15 jan-16 abr-16 jul-16 out-16 CORPORATE GOVERNANCE REPORT 211

212 // I I B) CURRENCY RISK Currency risk has a strong correlation with the other types of risk, with highlight to its relation with countries risk, through the evolution of economies and their impact in inflation and interest rates, and with credit risk, via currency fluctuations that may jeopardize future financial flows, reflecting the possibility of registering gains or losses resulting from changes in the foreign exchange rates between different currencies. The Group s internationalization forces it to be exposed to currency risk from different countries. Exposure to currency risk results mainly from operational activities (in which expenses, income, assets and liabilities are expressed in a currency other than the reporting currency of the Group), from transactions between these subsidiaries and other Group companies and from the existence of transactions with external parties made by the operational companies in a currency other than the reporting currency of the Group. The Group s currency risk management policy aims to reduce the sensitivity of its results in exchange rate variations. Subsidiaries, in their day-to-day operational activities, seek to use their local currency. Likewise, loans contracted by foreign subsidiaries are preferably denominated in their local currency. Concerning exchange rates hedging, hedges are sporadic as their cost is sometimes considered excessive in relation to the risk level involved. However, whenever considered suitable, the Group contracts exchange rates hedging in order to cover the risk. During 2015, as a result of the severe economic and financial crisis Angola has been facing, explained in large part by the significant drop in oil prices, there was a huge shortage of tradable currency in the Angolan market, causing limitations in the financial flows coming from this geography. During 2016, the worsening of the scarcity of tradable currencies in Angola was highlighted as a consequence of the maintenance of oil prices at very low levels. This high scarcity of tradable currencies caused serious consequences on devaluation of the Angolan currency (Kwanza), wich forced Martifer Group to liquidate local suppliers in a timely manner in order to obtain a natural exchange rate hedge through local commercial transactions. The Group has been trying to mitigate this risk through financial instruments presented by its clients (e. g. letters of credit) in order to maintain the regular financial flow. Also in 2016, UK s announcement of BREXIT and the US elections triggered a climate of uncertainty that directly affected the appreciation of the British Pound and the US Dollar. The Group has managed to circumvent the risk of exposure to these currencies, taking advantadge of the fact that many of the suppliers are contracted in these currencies. C) INTEREST RATE RISK Interest rate risk reflects the possibility of changes in future interest charges on loans contracted due to the evolution of the market interest rate levels. The cost of financial debt contracted by the Group is indexed to short term base rates, reviewed with a year or less frequency, plus a negotiated risk premium. Therefore, variations in interest rates may affect the Group s results. The Group s exposure to interest rates is related to financial liabilities contracted with a fixed and/or floating rate. In the first case, the Group faces a risk of fair value variation on these assets or liabilities, since every change in market rates involves an opportunity cost. In the second case, such change has a direct impact on interest value, consequently causing cash variations. During 2016, the reference interest rates in the Euro area remained at very low levels, in line with what has been seen in recent years. Thus, according to the European Central Bank projections published in March 2017 ( March 2017 ECB staff macroeconomic projections for the euro area ), short-term interest rates should remain in negative territory until 2019, however there is a growth of long-term interest rates. 212 // 2016 ANNUAL REPORT //

213 I // I Martifer Group s exposure to interest rate risk is currently very low, not only due to the expected maintenance of very low indexes, but also as a consequence of the restructuring agreements siged with banks in 2015 that allowed the temporary stabilization of the spreads at fairly competitive rates. D) LIQUIDITY RISK Liquidity risk reflects the Group s ability to satisfy its financial responsibilities with the financial resources available. The main goal of the liquidity risk management program is to ensure that the Group has available, whenever needed, the financial resources to satisfy its responsibilities and pursue the outlined strategies, honouring all its obligations towards third parties, through an adequate management of the financing cost / maturity ratio. As mentioned above, at the end of 2015, the Group restructured its debt with financial institutions, through the rescheduling of bank financing repayments over time, increasing the debt maturity in order to make it coincide with the long term assets continuity and, at the same time, to allow the cash surpluses to be sufficient to comply with its responsibilities. Therefore, and having in mind the medium/long term features of the investments made, the debt service accompanies the maturity of the associated assets, not jeopardizing the commitments from its short term operational activity in the pursuit of the Group s goal to adequate the inflows maturity of the operational activity and investment (divestment) to the outflows of the financing activity. The financial direction accompanies the implementation of the risk management policies defined by the board, in order to ensure that the economic and financial risks are identified, measured and managed according to those policies. E) CREDIT RISK The worsening of the worldwide economic conditions or the adversities affecting local, national and international economies can influence Martifer Group s clients default rate, with possible negative impacts on the Group s results. The Group undergoes credit risk in its operational activity Trade Receivables and Other Receivables. Aware of this reality, the Group tries to assess all its clients credit risk in order to establish credit limits, with the ultimate purpose of ensuring the collection of the due amounts within the negotiated periods. Having this objective in mind, the Group uses credit rating agencies, regular risk analysis and credit control and collects from and manages cases in litigation, procedures which are all considered essential to manage the credit conceded and to minimize the risk of credit default. OPERATIONAL RISKS A) METALLIC CONSTRUCTIONS Operational risks in the Metallic Constructions area, which also incorporated the energy equipment area as of 2011 and the naval area as of 2014, are currently divided into three risk sources client, supplier and external risks, which in turn are sub-divided into specific problems. Under client risk one can identify, for example, issues at the contractual level, such as the lack of convergence in the interpretation and application of the contractual dispositions, the distaste or dissatisfaction with the service/product and also the risk of nonpayment of the price stipulated following the delivery of the projects. CORPORATE GOVERNANCE REPORT 213

214 // I I In terms of demand volatility, it is important to note that the business area partly depends on the launch of public tenders for public infrastructures (e.g. bridges, airports, train stations). Within the scope of public tenders, Martifer is subject to complex regulatory demands, specific to each country, namely in matters concerning the presentation of the proposals and the preparation of complex administrative documentation files to satisfy the project s specifications defined by the contracting entity. This may represent additional costs for Martifer Group. It must be highlighted that, despite the dependence on public tenders, Martifer has been able to win deals from private parties, thereby reducing its exposure to this risk. Under the supplier risk, Martifer Construções, as a specialist in engineering projects, relies on subcontractors very often. If these fail in the execution of their work the project s delivery deadline cannot be met, in a domino effect. In other words, there is also a risk of delays in delivering the projects, with the inherent contractual penalties. Finally, in terms of external risks and considering that the area of Metallic Constructions is strongly correlated with economic growth and with gross fixed capital formation, it is therefore sensitive to the current economic environment. Accordingly, the worsening of the sovereign debt crisis in Europe and the negative evolution in commodity prices also raises other problems, namely the austerity plans that imply severe transversal cuts in public and private investment and the significant decrease in liquidity throughout the financial system, which often causes highly attractive projects to be shelved due to lack of capital. In order to mitigate these risks, the Metallic Constructions area diversified its projects in different geographies, namely by entering markets that register stronger growth in the construction sector. C) RENEWABLES The productivity rates associated with the renewable energy business depend not only on the operational costs, but also on its revenues (price and volume of energy produced by the assets). The equipment used and other exogenous factors, such as the wind that in turn depends on the farm location, influence the energy production and consequently its results. Whenever the wind speed is below or above the equipment limits, no energy is produced. These limits vary according to the manufacturer and type of turbine. Additionally, each turbine has a power curve that determines the generated power at each wind speed. The readiness and power curve of each turbine is contractually guaranteed, with indemnities being payable by the suppliers for situations where their readiness is not satisfied or the power curve is not attained. This risk is also mitigated through the geographical distribution of the wind turbines in the wind farms, allowing the set-off of wind velocity variations at each farm and ensuring the relative stability of the volume of the total energy produced. Regarding solar photovoltaic energy, the exogenous factors are more easily forecasted and therefore the revenues variation is minimized. LICENCING: Wind farms and solar parks are subject to rigorous regulations in matters such as the development, construction, licensing and operation. If the relevant authorities in the jurisdictions in which the Group operates stop or reduce their support in the development of wind farms and solar parks, such actions may have a significant impact on the activity. LEGAL RISKS Martifer is subject to the national and local laws and regulations in the various geographies and markets where it operates. These aim to ensure, among other, labour rights, environment protection, spatial planning and the maintenance of an open and competitive market. Thus, the legal and regulatory changes that affect the conditions conducive to the development of the Groups activities and that consequently harm or impede the attainment of the strategic objectives require the Company to adapt to the new regulatory realities. 214 // 2016 ANNUAL REPORT //

215 I // I The management of the legal risk is carried out by the legal department of the holding company and of each of the Group s Business Areas and is monitored within the scope of reviews performed by internal legal and fiscal service providers dedicated to the respective activities, which operate in the dependence of the Board of Directors and management, conducting their work in articulation with the other fiscal and financial departments, so as to ensure the protection of the Company s interests and ultimately those of the stakeholders, in strict compliance with their legal duties. The members of the legal departments and internal advisory service providers referred to above have specialized formal qualifications and undergo regular formal training and updating. Legal and fiscal advisory services are also ensured, nationally and internationally, by external professionals selected amongst reputable firms and in accordance with the highest standards of competence, ethics and experience. 54. Description of the procedure for identification, assessment, monitoring, control and risk management RISK MANAGEMENT SYSTEMS Risk Management is one of the components of Martifer s culture, being present in all the management processes and representing a responsibility of all managers and employees at the various levels of the organisation. Risk policy is defined by the Board of Directors based on the analysis and measurement of risk, which also coordinates and develops risk management processes in order to guarantee an integrated risk management streamlined with the strategy and objectives of the Group. In parallel, Martifer continues to implement internal control and risk management procedures with the objective of reinforcing the integrated risk management, establishing a strategy for the prevention and management of risk transversal to the Group, so as to reduce exposure to risk and safeguard the value of the Group. The procedure is characterised, summarily, by the identification of the risks in each business area, accompanied, in parallel, by the formalisation of an assessment, management, prevention and mitigation of risk process, to be elaborated by the Company s Board of Directors, supported by the Risk Committee. Risk Management comprises the processes of identifying current and potential risks, analysing their possible impact on the strategic objectives of the organisation and estimating the probability of their occurrence, in order to determine the best way to manage exposure to these. All these risks are duly identified, assessed and monitored, and it is the responsibility of the different structures in the company to manage and/or to mitigate them. Risk Management at Martifer Group starts at the operational company level, with the identification, measurement and analysis of the different risks to which it is subject, with special emphasis on risks of an operational and market nature, seeking to estimate the probability of the occurrence of the various factors that determine such risks and their potential impact on the business of the Company or activity in question. Without prejudice to the definition of the risk strategy by Martifer s Board of Directors, those responsible for the operations are also responsible for the implementation of risk control mechanisms, which are scrutinised by the competent Financial, Tax and Legal Departments. The identification of the risks is a responsibility transversal to the different levels of the organisation, Specific templates have been created to identify and categorise the main risks in each Business Area, as well as the new risks that may arise as the CORPORATE GOVERNANCE REPORT 215

216 // I I respective activities develop, including: (i) economic and business risks, (ii) financial risks, and (iii) legal risks. The Risk Committee is also responsible for the analysis and issuance of opinions, which are submitted to the Board of Directors on, amongst others, new Group investments above certain amounts and new geographies for Martifer Group s activities. The efficiency of these mechanisms is periodically assessed by the Holding Company, through the Internal Audit Department, during the execution of the audit plan covering the financial aspects, information systems, processes and conformity with the procedures approved. This audit plan is prepared and developed annually, based on a prior assessment of the business risks, the mechanisms and assessments of the internal audit department being monitored and verified by the Company s Supervisory Board within the scope of its functional powers. The function of Planning and Management Control also promotes and supports the integration of risk management in the companies planning and management control processes. It is an objective of the Holding Company to obtain an integrated vision of the risks that the Group faces in each of its different activities or business areas and to guarantee the consistency of the resulting risk profile with that of the Group s global strategy and, in particular, to determine what it considers an acceptable risk level, given the structure of its capital. To this effect, operations with the highest relevance and impact on Martifer Group, as well as those of a more financial nature are directly assessed and validated by the Financial, Tax and Legal Departments at the Holding Company level, in line with the policies and risk strategies set by the management. 55. Core details on the internal control and risk management systems implemented in the company regarding the procedure for reporting financial information (Article 245-A/1/m) Concerning the release of financial information, Martifer Group promotes strict cooperation amongst all the bodies, departments and remaining participants in the process, so that the financial information is prepared in accordance with the legal requirements in force, complying with the best practices of transparency, relevance and reliability, it is subject to an effective verification, whether by internal analysis, by the supervisory bodies and the External Auditor, it is approved by the responsible corporate body and its disclosure complies with all the legal requirements and recommendations, namely those of the CMVM. In the financial information disclosure process we highlight: The use of accounting policies that are explained in the Notes to the Financial Statements; The financial information is analysed by those responsible for the management of the respective business areas, seeking to exercise permanent monitoring and the respective budget control; The accounting records and the preparation of the financial statements are prepared by the Financial, Accounting and Planning and Management Control Departments, that guarantee the control over the recording of the transactions of the business processes and over the balances of the asset, liability and equity accounts; The consolidated financial statements are prepared periodically, on a quarterly basis, by the Consolidation and Reporting Department and validated by the Planning and Management Control Department; The Management Report is prepared by the competent internal departments, with the contribution and additional review of the various business and support areas. The Statutory Auditor also reviews the content of this report (the annual and half-yearly versions) and its conformity with the supporting financial information; The Group s financial statements are prepared under the supervision of the Executive Directors of the Group. The documents comprising the half-yearly and annual reports are sent for the review and approval of the Board of Directors. Subsequent to their 216 // 2016 ANNUAL REPORT //

217 I // I approval, these documents are sent to the External Auditor, who issues his legal certification of the accounts and the External Audit s Report; The Statutory Auditor carries out both an annual audit and a limited review at the half-year of the individual and consolidated accounts, carried out in accordance with the Auditing Standards in force. IV. INVESTOR ASSISTANCE 56. Department responsible for investor assistance, composition, functions, the information made available by the said department and contact details Martifer privileges a permanent contact with the capital market, seeking to guarantee a permanent access to information on the Group in a continued and consistent manner, be it through the disclosure of periodic financial information or through contacts with institutional investors, namely by participating in road-shows and conferences, or through permanent contact with financial analysts. Shareholders and investors can generally obtain all the relevant Group information from Martifer s Website at in particular from the Investor Relations page, where they can find, in addition to the mandatory information of a corporate and financial nature, information on the evolution of its quoted share price. Shareholders and Investors can also contact the Investor Assistance Office, which assures a permanent contact with the market. During the 2016 financial year, Martifer participated in various events amongst which roadshows, seminars, one-to-one meetings and conferences aimed at institutional investors. The Investor Relations and Communications Office seeks to assure the market, the investors, the analysts and the journalists the disclosure of information on Martifer Group in a continued, opportune and balanced manner. The main functions of the Investor Assistance Office are, amongst others: Assuring, vis-à-vis the authorities and the market, compliance with the legal and regulatory reporting obligations applicable to Martifer SGPS, SA. The disclosure of information falling within the scope of announcement of privileged information, the announcement of quarterly information on the activities and results of the Group and the preparation of the annual, half-yearly and quarterly reports and financial statements, are to be highlighted; Satisfy investor (institutional and private), financial analysts and other agents requests for information; Supporting and advising Martifer s Executive Committee in aspects relating to the company s public status, an example being the monitoring of the evolution of Martifer s quoted share price, in its multiple aspects, supporting the Executive Committee with the direct contacts it regularly maintains with financial analysts and institutional investors (national and foreign), through conferences, meetings and road-shows. At an organic level, the Investor Assistance Office reports directly to the Executive Committee of the Board of Directors of Martifer SGPS, SA. Information made available by the Investor Assistance Office: Investor Kit General Information Main Indicators Corporate Governance Corporate Bodies Articles of Association Ethics and Conduct General meetings Share Price Quotation Agenda Publications Financial Information Presentations Notices The Investor Assistance Office may be contacted by the following: investor.relations@martifer.pt CORPORATE GOVERNANCE REPORT 217

218 // I Martifer SGPS, Apartado Oliveira de Frades Portugal Telephone: Fax: Market Liaison Officer For purposes of the Securities Code, the Market Liaison Officer is, Mr. Pedro Nuno Cardoso Abreu Moreira. Mr. Pedro Nuno Cardoso Abreu Moreira Martifer SGPS, Apartado Oliveira de Frades Portugal Telephone: Fax: Data on the extent and deadline for replying to the requests for information received throughout the year or pending from preceding years Requests for information received by the Investor Assistance Office recorded a significant increase as from the second-half of 2016, which is justified by the improvement in the financial markets expectations regarding Portugal and company performance. Information requests were largely made by institutional investors, but some information requests were also placed by small retail investors. The Market Liaison Office aims to minimize the response time for the requests, and when an immediate response is not possible, it shall not exceed 24 hours, except for exceptional circumstances. V. WEBSITE 59. Address(es) Martifer has a Website bearing the electronic address with a wide range of information on Martifer Group. 60. Place where information on the firm, public company status, registered office and other details referred to in Article 171 of the Commercial Companies Code is available Information can be consulted at the following electronic address: // 2016 ANNUAL REPORT //

219 I // I 61. Place where the articles of association and regulations on the functioning of the boards and/or committees are available Information can be consulted at the following electronic address: Place where information is available on the names of the corporate bodies' members, the Market Liaison Officer, the Investor Assistance Office or comparable structure, respective functions and contact details Information can be consulted at the following electronic addresses: Place where the documents are available and relate to financial accounts reporting, which should be accessible for at least five years and the half-yearly calendar on company events that is published at the beginning of every six months, including, inter alia, general meetings, disclosure of annual, half-yearly and where applicable, quarterly financial statements Information can be consulted at the following electronic address: Place where the notice convening the general meeting and all the preparatory and subsequent information related thereto is disclosed Information can be consulted at the following electronic address: Place where the historical archive of the resolutions passed at the company's General Meetings, share capital and voting results relating to the preceding three years are available Information can be consulted at the following electronic address: CORPORATE GOVERNANCE REPORT 219

220 // I D. REMUNERATION I. Power to establish 66. Details of the powers for establishing the remuneration of corporate boards, members of the executive committee or chief executives and directors of the company The remuneration policy and the remuneration of the Company s Corporate Bodies are established by a Remuneration Setting Committee, elected at the Shareholders General Meeting. This policy is reviewed annually and submitted for approval at the Company s Annual Shareholders General Meeting, where at least one representative of the said Remuneration Setting Committee is present. The Remuneration Setting Committee s activity is dedicated to the preparation of master guidelines and the determination of the remuneration policy of the Company s corporate bodies, to monitor the execution of that policy and to guarantee the alignment of the actions of those bodies with the interests of the Company. The Remuneration Setting Committee has as its main powers: To define the remuneration policy of the Corporate Bodies of the Company, particularly of the executive members of the Board of Directors, fixing the criteria to determine the variable component of the remuneration; To determine the various components of the fixed and variable remuneration, possible benefits and complements, as well as the annual remuneration payable to the members of Martifer s Corporate Bodies; To monitor the performance of the executive members of the Board of Directors for the purposes of determining the variable remuneration; To monitor the performance of the non-executive members of the Board of Directors; To Submit, in an advisory capacity, an informative exposition on the company s remuneration policy to the annual General Meeting. The Remuneration Setting Committee sporadically requests, if necessary, from Martifer s internal departments (namely the Human Resources Department, the Planning and Management Control Department and the Legal Department) specialised information and data of a technical nature, amongst other, relating to the structure of the company, the results of the Group and the members and activities of the corporate bodies. The information requested and received by the Committee is aimed at the compilation of a body of information and technical data that permits the definition and implementation of the Group s remuneration policy. The information requested is provided free of charge, and the Committee has no need to hire persons, natural or legal, to carry out its duties. The External Auditor is also obliged to verify the application of the policies described and the remuneration systems of the corporate bodies, being obliged to report any potential non-conformity detected to the Supervisory Board. II. Remuneration Committee 67. Composition of the remuneration committee, including details of individuals or legal persons recruited to provide services to the said committee and a statement on the independence of each member and advisor The composition of the current Remuneration Setting Committee, elected at the Shareholders General Meeting for a three-year term of office ( ), is as follows: 220 // 2016 ANNUAL REPORT //

221 I // I PRESIDENT António Manuel Queirós Vasconcelos da Mota MEMBERS Maria Manuela Queirós Vasconcelos Mota dos Santos Júlia Maria Rodrigues de Matos Nogueirinha The members of the Remuneration Setting Committee are independent of the management body, considering the explanation contained in the paragraph that follows. During the 2016 corporate period, a member of the Remuneration Setting Committee Mrs. Júlia Matos was also a member of a corporate body of a company, whose share capital is held by two executive directors of the Company, namely Messrs Carlos Marques Martins and Jorge Marques Martins. However, the Company considers that the independence of the Remuneration Setting Committee is safeguarded not only because of the professional training of this member in particular, but also because of the fact that the remaining members of the Committee, which for the majority, are independent from the executive members of the management body of the Company. No persons were hired to integrate the Remuneration Setting Committee. 68. Knowledge and experience in remuneration policy issues by members of the Remuneration Committee The Company considers that all the individuals comprising this Remuneration Setting Committee, are totally fit to carry out their duties with excellence from a professional training perspective or based on positions they previously held. Ms. Maria Manuela Queirós Vasconcelos Mota dos Santos is President of the Human Resources Development Commission of the Mota-Engil Group. The experience and knowledge of the members of the Remuneration Setting Committee are better described in their curricula presented in the document attached to this report and attest, in a rigorous and specific manner, their ability to carry out the duties attributed to them. III. Remuneration structure 69. Description of the remuneration policy of the Board of Directors and Supervisory Board as set out in Article 2 of Law No. 28/2009 of 19 June The remuneration of the members of the Board of Directors and of the Supervisory Board of the Company is determined, in terms of the Articles of Association, by the Remuneration Setting Committee, which submits an annual document, for appraisal at the General Meeting, containing the general guidelines to be followed in establishing the specific amounts to attribute to the members of the various Corporate Bodies. At the Company s General Meeting of 19 th May 2016, the remuneration policy of the management and supervisory bodies, prepared by the Remuneration Setting Committee, in compliance with Article 2 of Law no. 28/2009, of 19 June, and available in the Company s Website at (Tab: Investors, Section: Corporate Governance/General Meeting), was discussed and submitted for approval. CORPORATE GOVERNANCE REPORT 221

222 // I In general terms, the said remuneration policy of the management and supervisory bodies seeks to closely follow the CCC and the Portuguese Securities Market Commission s Corporate Governance Code provisions applicable, this being reflected in the statement submitted for approval at the General Meeting referred to in the point that follows. In defining the remuneration policy for the 2016 year, the legal provisions foreseen in (i) the CCC, namely in Article 399; (ii) Law 28/2009, of 19 June; (iii) the 2010 Corporate Governance Code issued by the CMVM; and (iv) the special regime laid down in the Company s Articles of Association, were considered. 70. Information on how remuneration is structured so as to enable the aligning of the interests of the members of the Board of Directors with the Company's long-term interests and how it is based on the performance assessment and how it discourages excessive risk taking Martifer s remuneration policy aims to promote the convergence of the interests of the directors, those of the other corporate bodies and of the managers with the Company s interests, namely those regarding the creation of value for the shareholder and real growth for the Company, privileging a long-term perspective. Hence, the Committee structured the components of the remuneration of the Management bodies so as to reward their performance in achieving high and simultaneous sustained growth, discouraging, however, excessive risk-taking. Additional determining factors include the company s economic situation and general market conditions practiced for equivalent functions. The remuneration of the executive members of the Board of Directors shall comprise a fixed and, when so deliberated by the Remuneration Setting Committee, a variable component, with the latter variable part of the remuneration to not exceed 5% (five per cent) of the results for the period, as laid down in law and in Article 20, no. 3 of the Articles of Association. The informative principles observed by the Committee in establishing the remuneration are: a) DUTIES CARRIED OUT, degree of complexity inherent to the duties, responsibilities attributed, time spent and the added value to the Company of the work produced. Other duties carried out at group companies are also relevant, in virtue of the increased responsibilities and of their constituting additional sources of revenue. b) ALIGNMENT OF THE INTERESTS OF THE MEMBERS OF THE MANAGEMENT BODY WITH THOSE OF THE COMPANY, appraisal of the performance of the members of the management body and of the creation of value for the shareholders. c) ECONOMIC SITUATION OF THE COMPANY, present and future, privileging the interests of the Company in the long-term and the achievement of real growth for the Company and the creation of value for its shareholders, based on criteria defining the economic situation of the Company, amongst others, those of a financial nature. d) GENERAL MARKET CONDITIONS FOR EQUIVALENT SITUATIONS, considering that the remuneration shall be aligned with market practice, permitting it to serve as a means of achieving high individual and collective performance, assuring the interests of the member but essentially those of the Company and of the shareholders. The general guidelines governing the remuneration policy followed by the Remuneration Setting Committee during the 2016 financial period were those contained in the Remuneration Policy Statement, which ware subject to the resolution at the Company s General Meeting of 19 th May 2016, and can be found in Annex III of this report. 71. Reference, where applicable, to there being a variable remuneration component and information on any impact of the performance appraisal on this component As described in more detail in the preceding point the remuneration of the Executive Members of the Board of Directors shall comprise a fixed and, when attributed, a variable component. 222 // 2016 ANNUAL REPORT //

223 I // I The fixed component of the remuneration of the members of the Board of Directors with executive functions, as well as of the nonindependent, non-executive members (when attributed), shall consist of a monthly amount payable fourteen times a year, the variable portion not being permitted to exceed five per cent of the results for the financial period, as laid down by law and in Article 20, no. 3 of the Articles of Association. In setting all remuneration, including, namely, in distributing the total amount of the variable remuneration amongst the members of the Board of Directors, the general principles consigned above shall be observed: duties carried out, alignment with the interests of the Company, privileging the long-term, the situation of the Company and market criteria. The process of attributing variable remuneration (VR) to the Executive Members of the Board of Directors shall follow the criteria laid down by the Remuneration Setting Committee, namely, their position in the hierarchy, the performance appraisal carried out, the company s real growth, seeking in determining those criteria to strengthen the convergence of the interests of the Management bodies with those of the Company, privileging the long-term perspective, this perspective being considered in the performance criteria applied to Management. The following will therefore be decisive for the appraisal and mensuration of the VR: the contribution of the Executive Directors to the results obtained; the profitability of the businesses from the shareholder perspective; the evolution of the share price quotation; and the extent to which the projects integrated and measured by the Balanced Scorecard of the Group are accomplished. During the course of 2016, no contracts were celebrated, be it with the Company, or with third parties, which effects are to mitigate the risk inherent to the variable remuneration established by the Company for the members of the management board. 72. The deferred payment of the remuneration s variable component, specifying the relevant deferral period During the 2016 financial year, no variable remuneration was attributed to the directors of Martifer; consequently, the issue of deferral of this remuneration component did not arise. On the other hand, the Remuneration Policy of the management and supervisory bodies, drawn up by the Remuneration Setting Committee and approved at the General Meeting held on 19 th May 2016, does not foresee the deferral of variable remuneration, when attributed. Therefore, during the relevant financial year the company s directors did not receive variable remunerations and, consequently, the issue of deferral of this remuneration component did not arise. 73. The criteria whereon the allocation of variable remuneration on shares is based, and also on maintaining company shares that the executive directors have had access to, on the possible share contracts, including hedging or risk transfer contracts, the corresponding limit and its relation to the total annual remuneration value Martifer s existing Remuneration Plan in Stock Options was constituted and attributed in the 2008 corporate period, foreseeing the deferral of the exercising of the options for a period of 4 years; consequently, the exercising of the options related thereto expired during the 2013 corporate period. Regarding the 2008 Plan, none of the Directors exercised his/her option rights during the respective deferral period. During the course of the 2016 corporate year, the Company neither implemented nor attributed another stock and/or stock options plan and, consequently, no variable remuneration was allocated on shares to the Directors and no criteria were established for the maintenance of those shares by the executive directors. CORPORATE GOVERNANCE REPORT 223

224 // I 74. The criteria whereon the allocation of variable remuneration on options is based and details of the deferral period and the exercise price As better described in the preceding, and given that during the fiscal year 2016, the Company didn t implement, nor charge allocation of shares and/or a share purchase option plan, the Company considers this point not applicable. 75. The key factors and grounds for any annual bonus scheme and any additional nonfinancial benefits The Company has neither implemented any annual bonus scheme nor any additional non-financial benefits. 76. Key characteristics of the supplementary pensions or early retirement schemes for Directors and date when the said schemes were approved at the General Meeting, on an individual basis The Company does not have supplementary pensions or early retirement schemes for the members of the management and supervisory bodies and for other managers, as defined in no. 3 of Article 248-B of the Securities Code. 77. Details on the amount relating to the annual remuneration paid as a whole and individually to members of the Company's Board of Directors DIRECTOR EXECUTIVE DIRECTOR FIXED REMUNERATION VARIABLE REMUNERATION STOCK OPTIONS ATTENDANCE FEES TOTAL ( ) Carlos Manuel Marques Martins (Chairman) Jorge Alberto Marques Martins (Vice Chairman) Pedro Nuno Cardoso Abreu Moreira Arnaldo Nunes da Costa Figueiredo Luis António de Valadares Tavares Yes , ,92 Yes , ,00 Yes , ,08 No No , ,00 Jorge Bento Barbosa Farinha No , , // 2016 ANNUAL REPORT //

225 I // I 78. Any amounts paid, for any reason whatsoever, by other companies in a control or group relationship, or are subject to a common control During 2016, only the following members of the Board of Directors earned a fixed remuneration from the following Company affiliates: DIRECTOR COMPANY FIXED REMUNERATION Jorge Alberto Marques Martins Martifer Renováveis, Lda (Brasil) R$ ,00 (i) Jorge Alberto Marques Martins SPEE 2 - Parque Eólico de Vila Franca de Xira, S.A ,00 Jorge Alberto Marques Martins SPEE 3 - Parque Eólico de Baião S.A ,00 (i) Remuneration received in local currency Brazilian Real, which global amount corresponds to 5,258,28, at the 30/12/2016 foreign exchange rate (R$ ), i.e. that of the last day of the financial period being reported. 79. Remuneration paid in the form of profit sharing and/or bonus payments and the reasons for said bonuses and/or profit sharing being awarded During the 2016 financial period, no remuneration was paid in the form of profit sharing and/or bonus payments were made. 80. Compensation paid or owed to former Executive Directors concerning contract termination during the financial year During 2016, no compensation was paid, nor is it owed, to former executive directors in respect of contract termination. 81. Details of the annual remuneration paid, as a whole and individually, to the members of the Company's Supervisory Board for the purposes of Law no. 28/2009, of 19 June MR. AMÉRICO AGOSTINHO MARTINS PEREIRA 4, MR. CARLOS ALBERTO DA SILVA E CUNHA 4, MR. PAULO SÉRGIO JESUS DAS NEVES 4, MR. ANTÓNIO BAIA ENGANA 0.00 TOTAL 14, CORPORATE GOVERNANCE REPORT 225

226 // I 82. Details of the remuneration in the said year of the Board of the General Meeting JOSÉ JOAQUIM NEIVA NUNES DE OLIVEIRA 1, LUIS LEITÃO MARQUES VALE LIMA 0.00 LUIS NEIVA DE OLIVEIRA NUNES DE OLIVEIRA TOTAL 1, V. Agreements with remuneration implications 83. Envisaged contractual restraints for compensation payable for the unfair dismissal of Directors and relevance thereof to the remunerations variable component The Company has neither established nor agreed to any contractual restraints for compensation payable to directors of the Company on unfair dismissal. Likewise, the Remuneration Policy approved at the General Meeting of 19 th May 2016 does not foresee any calculation or determination formula for the amount due to a director in these circumstances; consequently, the normal regime would apply in such circumstances. 84. Reference to the existence and description, with details of the sums involved, of agreements between the company and members of the Board of Directors and Managers, pursuant to Article 248-B/3 of the Securities Code that envisages compensation in the event of resignation or unfair dismissal or termination of employment following a takeover bid (Article 245-A/1/l)) The Company hasn t take part in any agreement with the members of the management body or other managers, as defined in no. 3 of Article 248-B of the Securities Code, that foresees compensation in the event of resignation, unfair dismissal or employment termination following a takeover bid. VI. Share-Allocation and/or Stock Option Plans ( stock options ) 85. Details of the plan and the number of persons included therein Martifer currently has no active Remuneration Plan in Stocks and Stock Options. 226 // 2016 ANNUAL REPORT //

227 I // I 86. Characteristics of the plan (allocation conditions, non-transfer of share clauses, criteria on share-pricing and the exercising option price, the period during which the options may be exercised, the characteristics of the shares or options to be allocated, the existence of incentives to purchase and/or exercise options As better described in the preceding point, the Company has no active Stock or Stock Options Plan; consequently, the information pertaining to this point is not applicable. 87. Stock option plans for the company employees and staff The Company has no active Stock or Stock Options Plan; consequently, the information pertaining to this point is not applicable. 88. Control mechanisms for a possible employee-shareholder system inasmuch as the voting rights are not directly exercised by the said employees (Article 245-A/1/e)) The Company has no active Stock or Stock Options Plan; consequently, the information pertaining to this point is not applicable. E. RELATED PARTY TRANSACTIONS I. Control mechanisms and procedures 89. Mechanisms implemented by the Company for the purpose of controlling transactions with related parties (For the said purpose, reference is made to the concept resulting from IAS 24) Transactions with Directors of Martifer or with entities in a group or dominant relationship in which the former are likewise also Directors, irrespective of the amount, are subject to the prior approval of the Board of Directors with the approval of the supervisory body, in terms of Article 397 of the CCC. 90. Details of transactions that were subject to control in the referred year In 2016, no deals or transactions were carried out between the company and the Board of Directors or the Supervisory Board. 91. A description of the procedures and criteria applicable to the Supervisory Body when the same provides preliminary assessment of the business deals to be carried out between the company and the holders of qualifying holdings or entity relationships with the former, as envisaged in Article 20 of the Securities Code The Supervisory Board established the procedures and criteria necessary to define the relevant level of significance, of business between the company and the holders of qualifying holdings or entities with which the former are linked in any relationship of dominium or group, in excess of which amount, the intervention of the supervisory body is required. CORPORATE GOVERNANCE REPORT 227

228 // I Hence, without prejudice to the provisions foreseen in Article 397 of the CCC, deals between, on the one hand, the Company or Group companies and on the other hand holders of qualifying holdings or entities with which the former are linked in any relationship, shall be subject to assessment and prior approval by the Supervisory Board if they meet any one of the following criteria: a) Are for an amount equal to or in excess of half-a-million Euros, or, when lower, when aggregated with other transactions carried out with the same Shareholder holder of qualifying holdings, during the same financial period, result in an amount equal to or in excess of one million Euros, except those relating to normal Company business; b) Regardless of the amount, when they may cause a material impact on the Company s reputation, in matters concerning the independence in its relations with holders of qualifying holdings. II. Data on business deals 92. Details of the place where the financial statements including information on business dealings with related parties is available, in accordance with IAS 24, or alternatively a copy of the said data Business dealings with related parties are described in Note 39 of the Notes to the Consolidated Financial Statements, forming part of the 2016 Consolidated Report and Accounts, available in the Company s Website at (Tab: Investors, Section: Financial Information). 228 // 2016 ANNUAL REPORT //

229

230 // II PART II Corporate Governance Assessment 1. Details of the Corporate Governance Code implemented Martifer, whilst issuer of shares that have been admitted to trading on an official stock exchange, is subject to the Portuguese Securities Market Commission s ( Comissão do Mercado de Valores Mobiliários, henceforth also CMVM) Regulation no. 4/2013, of 18 July 2013, and abides by the recommendations contained in the 2013 Corporate Governance Code approved by the CMVM, both documents available in the CMVM s Website at Martifer has not voluntarily adhered to any other corporate governance codes. The present report was prepared and follows, under no. 2 of Article 4 of CMVM Regulation no. 4/2013, the model appended to the said Regulation, having as its reference the 2013 CMVM Corporate Governance Code. 2. Analysis of compliance with the Corporate Governance Code implemented In the matter of Corporate Governance and whilst a Public Company, Martifer has sought to promote the implementation and adopt the best corporate governance practices, including those contained in the new 2013 CMVM Corporate Governance Code, guiding its policy along the highest standards of conduct, ethics and social responsibility, which are intended to be transversal to the Group. It is an objective of the Board of Directors to implement an integrated and effective management of the Group, enabling the Company to create value by promoting and guaranteeing the legitimate interests of its Shareholders, clients, suppliers, employees, the capital market as well as of the community in general, permanently seeking transparency in its relations with the investors and the market. Martifer considers that, despite the fact that it does not comply fully with the recommendations contained in the 2013 CMVM Corporate Governance Code, as amply described and justified in the following chapters of this report, the degree of adoption of the recommendations is extremely wide and thorough. 3. Analysis of compliance with the Corporate Governance Code adopted 3.1 STATEMENT ON THE ACCEPTANCE OF THE CORPORATE GOVERNANCE CODE Pursuant to and for the purposes of that laid down in paragraph o) of no. 1 of Article 245-A of the Securities Code, the recommendations included in the CMVM s Corporate Governance Code, with the indication of whether adopted or not, whenever applicable to Martifer s structure, and references to the text in the report where the form of adoption is described in greater detail, are listed below: 230 // 2016 ANNUAL REPORT //

231 II // CMVM RECOMMENDATIONS ADOPTION REFERENCE I. VOTING AND CORPORATE CONTROL CHAPTER, TITLE, SECTION I.1. Companies shall encourage shareholders to attend and vote at general meetings and shall not set an excessively large number of shares required for the entitlement of one vote, and implement the means necessary to exercise the right to vote by and electronically. I.2. Companies shall not adopt mechanisms that hinder the passing of resolutions by shareholders, including fixing a quorum for resolutions greater than that provided for by law. I.3. Companies shall not establish mechanisms intended to cause mismatching between the right to receive dividends or the subscription of new securities and the voting right of each common share, unless duly justified in terms of long-term interests of shareholders. I.4. The company s articles of association that provide for the restriction of the number of votes that may be held or exercised by a sole shareholder, either individually or in concert with other shareholders, shall also foresee for a resolution by the General Assembly (5 year intervals), on whether that statutory provision is to be amended or prevails without super quorum requirements as to the one legally in force and that in said resolution, all votes issued be counted, without applying the said restriction. I.5. Measures that require payment or assumption of fees by the company in the event of change of control or change in the composition of the Board and that which appear likely to impair the free transfer of shares and free assessment by shareholders of the performance of Board members, shall not be adopted. Partially Adopted Partially Adopted Adopted Adopted Adopted Part I B. I b) - 12 Part II 3.2 Part I B. I b) - 12 and 14 Part II 3.2 Part I B. I b) 12 Part I B. I b) 13 Part I A. I 5 II. SUPERVISION, MANAGEMENT AND OVERSIGHT II.1. SUPERVISION AND MANAGEMENT CHAPTER, TITLE, SECTION II.1.1. Within the limits established by law, and except for the small size of the company, the board of directors shall delegate the daily management of the company and said delegated powers shall be identified in the Annual Report on Corporate Governance. II.1.2. The Board of Directors shall ensure that the company acts in accordance with its objectives and shall not delegate its responsibilities as regards the following: i) define the strategy and general policies of the company, ii) define business structure of the group iii) decisions considered strategic due to the amount, risk and particular characteristics involved. Adopted Adopted Part I B. II a) 21.2 Part I B. II a) 21.2 II.1.3. The General and Supervisory Board, in addition to its supervisory duties, shall take full responsibility at corporate governance level, whereby through the statutory provision or by equivalent means, shall enshrine the requirement for this body to decide on the strategy and major policies of the company, the definition of the corporate structure of the group and the decisions that shall be considered strategic due to the amount or risk involved. This body shall also assess compliance with the strategic plan and the implementation of key policies of the company. Not applicable Part II 3.3 II.1.4. Except for small-sized companies, the Board of Directors and the General and Supervisory Board, depending on the model adopted, shall create the necessary committees in order to: a) Ensure a competent and independent assessment of the performance of the executive directors and its own overall performance, as well as of other committees; b) Reflect on the system structure and governance practices adopted, verify its efficiency and propose to the competent bodies measures to be implemented with the purpose of their improvement. Adopted Part I B. II c) 24, 25, 27 and 29 II.1.5. The Board of Directors or the General and Supervisory Board, depending on the applicable model, should set goals in terms of risk-taking and create systems for their control to ensure that the risks effectively incurred are consistent with those goals. Adopted Part I C. III 50 and 54 CORPORATE GOVERNANCE REPORT 231

232 // II CMVM RECOMMENDATIONS ADOPTION REFERENCE II.1.6. The Board of Directors shall include a number of non-executive members ensuring effective monitoring, supervision and assessment of the activity of the remaining members of the board. II.1.7. Non-executive members shall include an appropriate number of independent members, taking into account the adopted governance model, the size of the company, its shareholder structure and the relevant free float. The independence of the members of the General and Supervisory Board and members of the Audit Committee shall be assessed as per the law in force. The other members of the Board of Directors are considered independent if the member is not associated with any specific group of interests in the company nor is under any circumstance likely to affect an exempt analysis or decision, particularly due to: a. Having been an employee at the company or at a company holding a controlling or group relationship within the last three years; b. Having, in the past three years, provided services or established a commercial relationship with the company or company with which it is in a control or group relationship, either directly or as a partner, board member, manager or director of a legal person; c. Being paid by the company or by a company with which it is in a control or group relationship besides the remuneration arising from the exercise of the functions of a board member; d. Living with a partner or a spouse, relative or any first degree next of kin, up to and including the third degree of collateral affinity of board members or natural persons that are direct and indirectly holders of qualifying holdings; e. Being a qualifying shareholder or representative of a qualifying shareholder. II.1.8. When board members that carry out executive duties are requested by other board members, they shall provide the information requested, in a timely and appropriate manner to the request. Adopted Adopted Adopted Part I B. II a) 17 and 18 Part I B. II a) 18 Part I B. II b) 23 II.1.9. The Chair of the Executive Board or of the Executive Committee shall submit, as applicable, to the Chair of the Board of Directors, the Chair of the Supervisory Board, the Chair of the Audit Committee, the Chair of the General and Supervisory Board and the Chairman of the Financial Matters Board, the convening notices and minutes of the relevant meetings. Not applicable Part II 3.2 II If the chair of the board of directors carries out executive duties, the said body shall appoint from among its members an independent member to ensure the coordination of the work of other non-executive members and the conditions so that said can make independent and informed decisions or to ensure the existence of an equivalent mechanism for such coordination. Adopted Part I B. II b) 23 II.2. OVERSIGHT II.2.1. Depending on the applicable model, the Chair of the Supervisory Board, the Audit Committee or the Financial Matters Committee shall be independent in accordance with the applicable legal standard, and have the necessary skills to carry out their relevant duties. II.2.2. The supervisory body shall be the main representative of the external auditor and the first recipient of the relevant reports, and is responsible, inter alia, for proposing the relevant remuneration and ensuring that the proper conditions for the provision of services are provided within the company. II.2.3. The supervisory board shall assess the external auditor on an annual basis and propose to the competent body its dismissal or termination of the contract as to the provision of their services when there is a valid basis for the said dismissal. II.2.4. The supervisory board shall assess the functioning of the internal control systems and risk management and propose adjustments as may be deemed necessary. II.2.5. The Audit Committee, the General and Supervisory Board and the Supervisory Board decide on the work plans and resources concerning the internal audit services and services that ensure compliance with the rules applicable to the company (compliance services), and should be recipients of reports made by these services at least when it concerns matters related to accountability, identification or resolution of conflicts of interest and detection of Adopted Adopted Adopted Adopted Adopted Part I B. III a) 33 Part I B. III c) 38 and V 45 Part I B. III c) 38 and V 45 Part I B. III c) 38 and C. III 50 Part I B. III c) // 2016 ANNUAL REPORT //

233 II // CMVM RECOMMENDATIONS ADOPTION REFERENCE potential improprieties. II.3. REMUNERATION SETTING II.3.1. All members of the Remuneration Committee or equivalent should be independent from the executive board members and include at least one member with knowledge and experience in matters of remuneration policy. II.3.2. Any natural or legal person that provides or has provided services in the past three years, to any structure under the board of directors, the board of directors of the company itself or who has a current relationship with the company or consultant of the company, shall not be hired to assist the Remuneration Committee in the performance of its duties. This recommendation also applies to any natural or legal person that is related by employment contract or provision of services with the above. II.3.3. A statement on the remuneration policy of the management and supervisory bodies referred to in Article 2 of Law No. 28/2009 of 19 June, shall also contain the following: a) Identification and details of the criteria for determining the remuneration paid to the members of the governing bodies; b) Information regarding the maximum potential, in individual terms, and the maximum potential, in aggregate form, to be paid to members of corporate bodies, and identify the circumstances whereby these maximum amounts may be payable; c) Information regarding the enforceability or unenforceability of payments for the dismissal or termination of appointment of board members. II.3.4. Approval of plans for the allotment of shares and/or options to acquire shares or based on share price variation to board members shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess the said plan. II.3.5. Approval of any retirement benefit scheme established for members of corporate bodies shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess the said system. Partially Adopted Adopted Partially Adopted Not applicable Not applicable Part I D. II 67 and Part II 3.2 Part I D. II 67 Part I D. III 69 and 70 and Part II 3.2 Part I D. III 73 and 74 Part II 3.2 Part I D. III 76 Part II 3.2 III. REMUNERATION CHAPTER, TITLE, SECTION III.1. The remuneration of the executive members of the board shall be based on actual performance and shall discourage excessive risk-taking. III.2. The remuneration of non-executive board members and the remuneration of the members of the supervisory board shall not include any component whose value depends on the performance of the company or of its value. III.3. The variable component of remuneration shall be reasonable overall in relation to the fixed component of the remuneration and maximum limits should be set for all components. III.4. A significant part of the variable remuneration should be deferred for a period not less than three years, and the right of way payment shall depend on the continued positive performance of the company during that period. III.5. Members of the Board of Directors shall not enter into contracts with the company or with third parties which intend to mitigate the risk inherent to remuneration variability set by the company. Adopted Adopted Adopted Not Adopted Adopted Part I D. III 69 and 70 Part I D. III 69, 70 and 71 Part I D. III 69 and 70 Part I D. III 72 and Part II 3.2 Part I D. III 71 CORPORATE GOVERNANCE REPORT 233

234 // II CMVM RECOMMENDATIONS ADOPTION REFERENCE III.6. Executive board members shall maintain the company's shares that were allotted by virtue of variable remuneration schemes, up to twice the value of the total annual remuneration, except for those that need to be sold for paying taxes on the gains of the said shares, until the end of their mandate. III.7. When the variable remuneration includes the allocation of options, the beginning of the exercise period shall be deferred for a period not less than three years. III.8. When the removal of board member is not due to serious breach of their duties nor to their unfitness for the normal exercise of their functions but is yet due on inadequate performance, the company shall be endowed with the adequate and necessary legal instruments so that any damages or compensation, beyond that which is legally due, is unenforceable. Adopted Not applicable Adopted Part I D. III 73 and 74 Part I D. III 74 and Part II 3.2 Part I D. V 83 IV. AUDITING CHAPTER, TITLE, SECTION IV.1. The external auditor shall, within the scope of its duties, verify the implementation of remuneration policies and systems of the corporate bodies as well as the efficiency and effectiveness of the internal control mechanisms and report any shortcomings to the supervisory body of the company. IV.2. The company or any entity with which it maintains a control relationship shall not engage with the external auditor or with any entity with which it finds itself in a group relationship or that incorporates the same network, for services other than audit services. If there are reasons for hiring such services - which must be approved by the supervisory board and explained in its Annual Report on Corporate Governance the said should not exceed more than 30% of the total value of services rendered to the company. IV.3. Companies shall support auditor rotation after two or three terms whether four or three years, respectively. Its continuance beyond this period must be based on a specific opinion of the supervisory board that explicitly considers the conditions of the auditor s independence and the benefits and costs of its replacement. Adopted Adopted Adopted Part I C. III 50 and D. I 66 Part I B. V 46 and 47 Part I B. V 44 V. CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS CHAPTER, TITLE, SECTION V.1. The company's business with holders of qualifying holdings or entities, with which they are in any type of relationship pursuant to Article 20 of the Portuguese Securities Code, shall be conducted under normal market conditions. V.2. The supervisory or oversight board shall establish procedures and criteria that are required to define the relevant level of significance of business with holders of qualifying holdings - or entities with which they are in any of the relationships described in Article 20/1 of the Portuguese Securities Code thus significant relevant business is dependent upon prior opinion of that body. Adopted Adopted Part I A. II 10 E. I 89 and 90 Part I E. I 91 VI. INFORMATION CHAPTER, TITLE, SECTION VI.1. Companies shall provide, via their websites, both in Portuguese and in English, access to information on their progress as regards the economic, financial and governance state of affairs. VI.2. Companies shall ensure the existence of an investor support and market liaison office, which responds to the requests from investors in a timely fashion and a record of the submitted requests and their processing shall be kept. Adopted Adopted Part I V. 59 and following Part I V. 63 a // 2016 ANNUAL REPORT //

235 II // 3.2 CLARIFICATIONS AS TO DIVERGENCES BETWEEN THE COMPANY S GOVERNANCE PRACTICES AND THE CMVM RECOMMENDATIONS In this chapter, the grounds for the non-adoption or non-application of every single recommendation, which should be read together with the table presented in the preceding chapter, are explained. Recommendation I.1. Companies shall encourage shareholders to attend and vote at general meetings and shall not set an excessively large number of shares required for the entitlement of one vote, and implement the means necessary to exercise the right to vote by mail and electronically. Martifer encourages its Shareholders to participate in the General Meetings and promotes the active exercise of the right to vote, namely: Disclosure in the Website, in Portuguese and in English, of the General Meetings convening notices, the forms of exercising the vote and the procedures to adopt for correspondence or proxy voting; Disclosure in the Website, in Portuguese and in English, of the preparatory information in respect of the various points on the Agenda; Access to proxy forms and voting ballots in the Website; The creation of an electronic mail exclusively dedicated to the General Meeting, which is disclosed in the convening notice to facilitate the clarification of doubts; Statutory provision that each share is entitled to one vote. Under Article 17 of Martifer s Articles of Association, correspondence voting is permitted, without any restriction, in respect of all matters subject to the appreciation of the Shareholders. Martifer considers it has only adopted this recommendation partially due to the fact that its Articles of Association do not foresee electronic correspondence voting. It should be noted that Martifer has adopted a flexible stance vis-à-vis the acceptance of documentation in respect of correspondence or proxy voting sent via electronic means. On the other hand, up till the present date, the Company has received no request or manifestation of interest from any Shareholders or Investors as to the availability of electronic voting, as a result of which Martifer considers that the correspondence voting system in place, as foreseen in the Articles of Association, totally safeguards all the Shareholders access to participation in the decisions submitted for deliberation. Recommendation I.2. Companies shall not adopt mechanisms that hinder the passing of resolutions by shareholders, including fixing a quorum for resolutions greater than that provided for by law. Article 18 of the Company Articles of Association establishes the rule of a simple majority of the votes to pass corporate resolutions, except when otherwise established by the CCC or the Articles of Association. Hence, Martifer considers it has adopted this Recommendation, except as to the provision in the Articles of Association that requires a greater quorum than that foreseen in the CCC for resolutions on the unfair dismissal of Directors. The reason for the inclusion in the Articles of Association of a quorum greater that that foreseen in the CCC for unfair dismissal of directors was to protect the interest of the Company, namely to mitigate the risk of the Company being obliged to compensate directors for unfair dismissal as laid down in no. 5 of Article 403 of the CCC. Indeed, considering the gravity and impact of an unfair dismissal of directors, the intention was to avoid the occurrence of such a resolution passed by a simple majority of shareholders as opposed to one based on grounds approved by a more expressive and representative majority of the Shareholders. Martifer considers this is the model that best defends corporate interests. Recommendation II The General and Supervisory Board, in addition to its supervisory duties, shall take full responsibility at corporate governance level, whereby through the statutory provision or by equivalent means, shall enshrine the requirement for this body to decide on the strategy and major policies of the company, the definition of the corporate structure of the group CORPORATE GOVERNANCE REPORT 235

236 // II and the decisions that shall be considered strategic due to the amount or risk involved. This body shall also assess compliance with the strategic plan and the implementation of key policies of the company. Martifer considers this Recommendation as not being applicable since the said Recommendation relates to a governance model not adopted by Martifer. Under the terms and conditions foreseen in Article 278 of the Portuguese Commercial Companies Code, the corporate governance model adopted by Martifer comprises a Board of Directors, a Supervisory Board and a Statutory Auditor. Recommendation II.1.9. The Chair of the Executive Board or of the Executive Committee shall submit, as applicable, to the Chair of the Board of Directors, the Chair of the Supervisory Board, the Chair of the Audit Committee, the Chair of the General and Supervisory Board and the Chairman of the Financial Matters Board, the convening notices and minutes of the relevant meetings. Martifer considers this Recommendation as not being applicable since the Corporate Governance Model of the Company, applicable during the 2016 financial year, does not foresee the existence of a chairman of an executive board or an executive committee, but rather the delegation of powers by the Board of Directors on executive directors. Consequently, a formal structure of executive directors subject to convening notices and meeting minutes has not been set up. Recommendation II.3.1. All members of the Remuneration Committee or equivalent should be independent from the executive board members and include at least one member with knowledge and experience in matters of remuneration policy. Martifer considers this Recommendation to be partially adopted. The Company s Remuneration Setting Committee comprises three members, including one with knowledge and experience in matters pertaining to Remuneration policy. During the 2016 financial period, one of the members of the Remuneration Setting Committee - Mrs Júlia Matos was also a member of a corporate body of a commercial company whose share capital is held by two of the Company s executive directors, namely Messrs Carlos Marques Martins and Jorge Marques Martins. However, the Company considers that the purpose of this Recommendation is to duly safeguarded not solely because of the professional training of this member in particular, but also because the majority of the members of the Remuneration Setting Committee are independent from the executive members of the Company s management body, and also because the remaining provisions of this recommendation are fully complied with. Recommendation II.3.3. A statement on the remuneration policy of the management and supervisory bodies referred to in Article 2 of Law No. 28/2009 of 19 June, shall also contain the following: a) Identification and details of the criteria for determining the remuneration paid to the members of the governing bodies; b) Information regarding the maximum potential, in individual terms, and the maximum potential, in aggregate form, to be paid to members of corporate bodies, and identify the circumstances whereby these maximum amounts may be payable; c) Information regarding the enforceability or unenforceability of payments for the dismissal or termination of appointment of board members. Martifer considers this Recommendation to be partially adopted. The declaration on the remunerations policy was submitted and approved in the Company s General Meeting on 19 th May 2016, with all the elements contained in article 2 of the Law no. 28/2009, from 19 th June, as well as part of the included on the Recommendation II.3.3 of the 2013 Corporate Governance Code. Concerning item b) of the recommendation II.3.3, the company considers that the maximum potential amounts, aggregate and individual, as well as the circumstances in which these amounts may be due, is exclusively the Remunerations Committee s responsibility, a corporate body independent from the Board of Directors. Therefore, the total compliance of the referred recommendation is on exclusive power of the Remuneration Committee s, which decided not to comply with the recommendation, since it believes that the way the board member s remuneration is structured is adequate and allows the alignment of their interests with the Company s interests in the long term and is in line with the remuneration practices of most similar companies, keeping in mind the company s characteristics. 236 // 2016 ANNUAL REPORT //

237 II // Recommendation II.3.4. Approval of plans for the allotment of shares and / or options to acquire shares or based on share price variation to board members shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess the said plan. Martifer s existing Stock Options Remuneration Plan was constituted and allocated in the 2008 financial year and the exercising of the options deriving therefrom expired during the 2013 financial period; consequently, during the course of this financial year there was no need to assess or approve the said plan at the Company s General Meeting. Furthermore, during the 2016 financial year, no additional stock attribution or stock options plan existed or was allocated; consequently, there was no need to submit any proposal related to stock options plans for approval at the General Meeting. Hence, Martifer considers this Recommendation as not applicable. Recommendation II.3.5. Approval of any retirement benefit scheme established for members of corporate bodies shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess the said system. During the 2016 financial year, no retirement benefits scheme existed or was established in respect of the members of the corporate bodies; consequently, there was no need to submit any proposal related to retirement benefit schemes for approval at the General Meeting. Hence, Martifer considers this Recommendation not applicable. Recommendation III.3. The variable component of remuneration shall be reasonable overall in relation to the fixed component of the remuneration and maximum limits should be set for all components. The Company s Remuneration Setting Committee established the exact annual amount for the fixed remuneration component payable to the directors receiving remuneration from the Company. In parallel, the Company Articles of Association, under Article 20, no. 3, state that the directors variable remuneration may not result in an allocation in excess 5% of the year s profit, under law. In this manner, the maximum remuneration limits for the fixed and variable remuneration components are set. During the 2016 financial period, the Remuneration Setting Committee opted to attribute only the fixed remuneration component to the directors and not the variable remuneration component, with the purpose of harmonizing the amount of the remuneration received by the members of the Company s Board of Directors in accordance with the measures implemented over the last few periods, relating to the expense and structural cost reduction adopted transversally throughout Martifer Group so as to safeguard the highest number of jobs and the Company s sustainability. Consequently, the Company considers that it has partially adopted this Recommendation since, even though the Remuneration Setting Committee has set the exact fixed annual remuneration amount and a statutory limit has already been set for the variable remuneration component, during the 2016 financial period no variable remuneration was attributed to Martifer s directors. Recommendation III.4. A significant part of the variable remuneration should be deferred for a period not less than three years, and the right of way payment shall depend on the continued positive performance of the company during that period. Martifer considers this recommendation to not have been adopted as the remuneration policy established by the Remuneration Setting Committee for the management and supervisory bodies does not foresee the deferral of the variable remuneration component, when attributed. Notwithstanding, the said non-adoption of this Recommendation, the Company considers that the purpose of the said recommendation was safeguarded during the 2016 financial period in that no variable remuneration component was attributed to the directors of Martifer during that period. The Remuneration Setting Committee is analysing the definition of criteria to fix the deferral of part of the variable remuneration, when the same is attributed. CORPORATE GOVERNANCE REPORT 237

238 // II Recommendation III.7. When the variable remuneration includes the allocation of options, the beginning of the exercise period shall be deferred for a period not less than three years. Martifer considers this Recommendation as not applicable as no variable remuneration was attributed to the directors of Martifer in 2016 and therefore there was no place for its deferral. Furthermore, during the 2008 financial period, stock options were attributed and their exercise was deferred for a period of four years, inclusive. Up till the present date, these stock options allocated as variable remuneration have not been exercised and, in fact, the possibility of such exercise expired at the end of the 2013 financial period. 4. Other Information Besides the information and explanations presented in the present Report, there is no additional information of relevance that should be presented for a proper understanding of the model and the governance practices adopted by Martifer. Oliveira de Frades, 5 th April 2017 The Board of Directors, Carlos Manuel Marques Martins Jorge Alberto Marques Martins Pedro Nuno Cardoso Abreu Moreira Arnaldo José Nunes da Costa Figueiredo Jorge Bento Ribeiro Barbosa Farinha Luís Valadares Tavares 238 // 2016 ANNUAL REPORT //

239

240 // ANNEX I Professional Qualifications BOARD OF DIRECTORS Carlos Manuel Marques Martins is the Chairman of the Management Board of Martifer (Chairman of the Board of Directors and executive director) and one of the founding shareholders of Martifer Group in 1990, having started his professional activities in 1987 in the Company Carvalho & Nogueira, Lda, as Director of Production in the iron sector. He has a degree in Mechanical Engineering completed at FEUP (Faculdade de Engenharia, Universidade do Porto). Jorge Alberto Marques Martins is a Board Member of Martifer (Vice Chairman of the Board of Directors and executive director) and one of the founding shareholders of Martifer Group in 1990, having started his professional activities in 1987 at SOCARPOR - Sociedade de Cargas Portuárias (Douro e Leixões), Lda as Adjunct to the Financial Director. He has a degree in Economics completed at FEP (Faculdade de Economia, Universidade do Porto) and a MBA completed at UCP (Universidade Católica Portuguesa). Pedro Nuno Cardoso Abreu Moreira is a member of the Board of Directors of Martifer (executive and non-independent director) since 6 th January, 2015, when he was co-opted further to the resignation of Mr. Mário Rui Rodrigues Matias. He has a degree in Economics at Faculdade de Economia of Porto University (1999), and has been granted an Advanced Management Programme for Managers by Oporto Business School and an In-Company Executive Training Programme by AESE Business School. He has extensive international experience, initially being appointed to perform corporate financial coordination functions within Mota-Engil Group's operations in Central Europe, in Africa and in Latin America; lived between 2008 and 2014 in Warsaw and Budapest, and was appointed to several board positions of the Mota-Engil Group's operations in Central Europe in the areas of Real Estate, PPP/PFI, M&A and Corporate Development. During this period he was appointed as member of the Board of Directors of several companies within the Mota-Engil Group, notably Mota Engil Central Europe SA (Poland), Mota-Engil Real Estate Management (Holding Real Estate Central Europe), Mota-Engil EC CZ (Czech Republic) Mota-Engil EC Slovakia (Slovakia), Mota-Engil Magyar (Hungary), Mota-Engil EC RO (Romania)), Mota-Engil Brand Management (Netherlands), Mota-Engil Brand Development (Ireland). Arnaldo José Nunes da Costa Figueiredo is a member of the Board of Directors of Martifer (non-executive and non-independent director) since 30 th April He has a degree in Civil Engineering at Faculdade de Engenharia of Porto University (1977). He was Chairman of Mota-Engil, Engenharia e Construção, SA and of the Board of Directors of MEITS - Mota-Engil, Imobiliária e turismo, SA; Manager of Mota Internacional, LDA.; Chairman of the Board of the Shareholders General Assembly of Maprel-Nelas, Indústria de Pré-Fabricados em Betão, SA; Member of the Board of the Shareholders General Assembly of Paviterra, SARL; Chairman of the Remuneration Committee (on behalf of Mota-Engil, Engenharia e Construção, SA) of Ferrovias e Construções, SA; of Aurimove Sociedade Imobiliária, SA; of Nortedomus Sociedade Imobiliária, SA; and of Planinova Sociedade Imobiliária, SA. Jorge Bento Ribeiro Barbosa Farinha has been a Board Member of Martifer SGPS, SA since In his academic work, he has been a teacher since 1987, in the category of Assistant Professor at the Economics Faculty of Porto University (EFPV) since 1989 and since 1991 he has occupied several positions at EGP / University of Porto Business School and performed duties as the Vice- President of EFPV ( ). He was also a teacher at Instituto de Estudos Superiores Empresariais (ISEE), at Universidade do Porto ( ), and Vice President of the Pedagogical Council at Faculdade de Economia do Porto (FEP, ). In his extra-academic activities, he was a Financial Analyst of Capital Markets at Cisf- Companhia de Investimentos e Serviços Financeiros, S.A. ( ), a Senior Analyst of the Mergers & Acquisitions Department at Banco Português de Investimento, S.A. ( ), Sub-director of the Mergers & Acquisitions Department at Banco Português de Investimento, S.A. ( ), partner of Cf&A Associados - Consultores de Gestão, Lda ( ), partner of Futop Consultores de Gestão, S.A. ( ) and a non-executive Board member at Enotum.com (companies establishment helper in the area of telecommunications) ( ). He has a degree in Economics (Economics Faculty, Porto University), an MBA at INSEAD (Institut Européen d'administration des Affaires, Fontainebleau, France) and a PhD in Accounting and Finance by the University of Lancaster (Management School), UK. He is a non-executive and independent Board member. Luís António de Castro de Valadares Tavares has been a Board member at Martifer SGPS, SA (independent non-executive director) since Since 1980 he has been a Professor of Systems Management at Instituto Superior Técnico, Universidade Técnica de Lisboa, and, since 2002 President of the Centre for Prospective - OPET. He is president of APMEP - Portuguese 240 // 2016 ANNUAL REPORT //

241 // Association of Public Markets and EDP s Customer Ombudsman, an EDP independent entity. Previously, he was President of the National Institute of Administration ( ), the First Coordinator of the Master Degree in Operational Research and Systems Engineering (IST), Director of the Distance Education in Management Program (Dislogo) at UCP, Director and Founder of the Master Degree in Health Engineering at UCP, First Coordinator of the MBA at the Inter-University Institute of Macau, General Director of the Studies and Planning Office of the Ministry of Education (PRODEP), Manager of the Program for the Development of Education in Portugal (PRODEP), Director of the World Banks Program for Educational System Financing, Director of the Minerva Program (Informatics in Schools), Vice-President of the Committee for Education (OCDE), President of the Committee for Education (OCDE), President of the Education Committee of the European Communities (first Portuguese Presidency), First President of the Portuguese Association of Operational Research (APDIO), Vice-President of the Operational Research Societies Federation (IFORS), Visiting Professor at the following Universities: North Carolina (Raleigh, USA), Colorado (Denver, USA), Columbia (NY, USA), Princeton (NY, USA), UCLA (Los Angeles, USA), Business School of the University of Newcastle (Newcastle, UK), Paris-Dauphine (Paris, France), Mohammed (Rabat, Morocco), Middle East Technical University (Ankara, Turkey), Technical of Poznan (Poznan, Poland), Technical of Helsinki (Helsinki, Finland); PUC (Rio de Janeiro, Brazil); Federal of Santa Catarina (Florianopolis, Brazil). He has a degree in Civil Engineering completed at IST, a Masters Degree in Operations Research completed at the University of Lancaster (UK), a PhD degree in Science and Engineering completed at IST, and Aggregated in Operational Research at IST. SUPERVISORY BOARD Américo Agostinho Martins Pereira holds a Diploma in Accounting Audit, with Superior Specialized Studies in Audit. He is a Statutory Auditor, registered with the Ordem dos Revisores Oficiais de Contas under the number 887, performing this activity since April 1994, initially individually and since March 2013 as a partner in the company M.PEREIRA & ASSOCIADOS, SROC, LDA.. Carlos Alberto da Silva e Cunha holds a Diploma in Advanced Studies (program of PhD degree on Management Sciences), completed at Vigo University, Spain. A Master degree in Accounting and Administration completed at the University of Minho and is Postgraduate in "The Impact of the Euro in Business" by the Institute for High Studies on Finances and Tax. He has a degree in Auditing and the course of Specialized High Studies in Auditing at Instituto Superior de Contabilidade e Administração, Porto. He also has a degree completed in Accounting at Instituto Comercial, Porto. He is a registered Auditor in the official list since March He also performs duties as Assistant Professor, teaching at Escola de Economia e Gestão, Universidade do Minho as well at Universidade Lusíada, in Porto. In 2008 and 2009 was invited to teach in the Post-Graduation Course "Fraud Management" promoted by the Economics Faculty of Porto University (FEP). Paulo Sérgio Jesus das Neves holds a diploma in Accounting Audit, with Superior Specialized Studies in Audit. He holds an MBA in Finance by the Economics Faculty of Porto (FEP). He is a Statutory Auditor registered with the Ordem dos Revisores Oficiais de Contas under the number 1342, performing this activity since February He is a company consultant, in the fields of organization and management, finance, tax and accounting. António Baia Engana holds a diploma in Economics by Instituto Superior de Economia (ISE) and a bachelor s degree in Accounting by Instituto Comercial de Lisboa (ICL). He is a Statutory Auditor registered with the Ordem dos Revisores Oficiais de Contas under the number 612, being currently a partner at ALVES DA CUNHA, A. DIAS & ASSOCIADOS, SROC, LDA.. He has been a member of the General Council and Executive Committee of the Commission of Accounting Standards since 1994, having presided to the Executive Committee between 1999 and He has been a member of Supervisory Boards in insurance companies since October CORPORATE GOVERNANCE REPORT 241

242 // REMUNERATION COMMITTEE António Manuel Queirós Vasconcelos da Mota has a degree in Civil Engineering (Inland Communications) completed at Faculdade de Engenharia, Universidade do Porto. Currently performs duties as Chairman of the Board of Directors of Mota-Engil, SGPS, SA, a position he holds since He has already served as Chairman of the Board in other companies, in particular, Mota-Engil, Engenharia e Construção, SA ( ), Mota-Engil Internacional, SA ( ), Engil - Sociedade de Construção Civil, SA ( ) and Mota & Companhia, SA ( ), where he also held the position of Vice-Chairman ( ). He started his professional life in 1977 as a trainee in Mota & Companhia, Lda, and between 1979 and 1981, he worked in several departments of the same company, where he also worked as a General Director of Production ( ). Maria Manuela Queirós Vasconcelos Mota dos Santos has a degree in Economics from the Faculdade de Economia, Universidade do Porto. She has worked in several companies of the Mota-Engil Group, being responsible for the Human Resources Department. Presently she is a member of the Board of Directors at Mota-Engil, SGPS, SA. Júlia Maria Rodrigues de Matos Nogueirinha has a degree in Law from Faculdade de Direito da Universidade de Coimbra and is registered with the Portuguese Bar Association since She is presently a member of the Board of Directors of I M SGPS, S.A, having held the post of Member of the Board of Directors in other companies of the I M group, namely in Almina Minas do Alentejo, S.A. 242 // 2016 ANNUAL REPORT //

243 // ANNEX II Positions Held and Activities Undertaken by the members of the Board Of Directors CARLOS MANUEL MARQUES MARTINS a) Positions within Martifer Group: CHAIRMAN OF THE BOARD OF DIRECTORS: Martifer - SGPS, S.A. Martifer Metallic Constructions SGPS, S.A. Martifer Construções Metalomecânicas, S.A. Sociedade de Madeiras do Vouga, S.A. Navalria- Docas,constr. e reparações navais, S.A. Martifer Amal, S.A Martifer Construcciones Metálicas España, S.A. Martifer Beteiligungsverwaltungs GmbH (Áustria) Eviva Beteiligungsverwaltungs GmbH MEMBER OF THE BOARD OF DIRECTORS MEMBER OF THE SUPERVISORY BOARD: MANAGER: CHAIRMAN OF THE REMUNERATION COMMITTEE: SECRETARY: Martifer Renewables SGPS, S.A. Martifer Renewables, S.A. Martifer Aluminium LTD (UK) Martifer Construction UK, LTD (UK) Martifer Aluminium LTD (Ireland) Martifer Construction Ltd (Ireland) Martifer Constructions SAS (France) Martifer Aluminium SAS (France) MT Constructions Maroc, SARL (Morocco) Martifer Construcciones PERÚ, SA Martifer Construções Metalomecânicas, SA, Suc. Colombia Martifer Mota Engil Coffey Joint Venture Limited Martifer Renewables, SA (Poland) Parque Eólico da Penha da Gardunha, Lda. Promoquatro - Investimentos Imobiliários Lda. West Sea Estaleiros Navais, Lda. Martifer Renewables, S.A. Martifer Renovables ETVE S.A. CORPORATE GOVERNANCE REPORT 243

244 // b) Positions in companies with shareholding by Martifer Group: MEMBER OF THE BOARD OF DIRECTORS: Ventinveste, S.A. MANAGER: Centralrest, Lda. a) Positions outside the Group: CHAIRMAN OF THE BOARD OF DIRECTORS: I M - SGPS, S.A. I M Mining, SGPS, S.A. ESTIA SGPS, S.A. ESTIALIVING, SGPS S.A. Tavira Gran Plaza, SA EPDM Empresa de Perfuração e Desenvolvimento Mineiro, SA Severis, SGPS S.A. MEMBER OF THE BOARD OF DIRECTORS: ESTIALIVING, SGPS S.A. PCI - Parque de Ciência e Inovação, S.A. Estia Retail & Warehousing S.R.L. Mamaia Investments S.R.L. OFFICE BUILDING VACARESTI SRL Bunge Prio Cooperatie U.A. (The Netherlands) Nutre Farming B.V. (The Netherlands) Nutre MZ (Mozambique) MANAGER: SOLE DIRECTOR: Exclusipolis, SGPS, Lda. PANNN - Consultores de Geociências, Lda. Black and Blue Investimentos, S.A. Expertoption, SGPS, SA JORGE ALBERTO MARQUES MARTINS a) Positions within Martifer Group: CHAIRMAN OF THE BOARD OF DIRECTORS: VICE-CHAIRMAN OF THE BOARD OF DIRECTORS: Martifer Solar - SGPS, S.A. Martifer Solar Ltda. (Brazil) Martifer Renewables, SGPS, S.A. Martifer Renewables, S.A. Martifer Renovables ETVE, S.A. (Spain) Martifer Renewables Investments ETVE, S.L. SPEE 3 - Parque Eólico do Baião, S.A. Martifer - SGPS, S.A. MEMBER OF THE BOARD OF DIRECTORS: Martifer Metallic Constructions - SGPS, S.A SPEE 2 Parque Eólico de Vila Franca de Xira, S.A. Martifer Renewables Italy B.V. (The Netherlands) 244 // 2016 ANNUAL REPORT //

245 // Martifer Renewables Brazil B.V. (The Netherlands) Martifer Beteiligungsverwaltungs GmbH (Austria) Eviva Beteiligungsverwaltungs GmbH (Austria) Martifer Deutschland GmbH (Germany) Martifer Renováveis Geração de Energia e Particip S.A. Rosa dos Ventos Geração e Comerc. de Energia S.A. (Brazil) Martifer Wind Energy Systems LLC (USA) Martifer Construcciones Metálicas España, S.A. MEMBER OF THE SUPERVISORY BOARD: Martifer Renewables, SA (Poland) MANAGER: SOLE DIRECTOR: SECRETARY: REPRESENTATIVE: Global Holding Limited Global Engineering & Consulting Limited Martifer Renewables Investments Etve, S.L. Martifer Construcciones Metálicas España EUROCAB FV 1, S.L.; EUROCAB FV 2, S.L.; EUROCAB FV 3, S.L.; EUROCAB FV 4, S.L.; EUROCAB FV 5, S.L.; EUROCAB FV 6, S.L.; EUROCAB FV 7, S.L.; EUROCAB FV 8, S.L.; EUROCAB FV 9, S.L.; EUROCAB FV 10, S.L.; EUROCAB FV 11, S.L.; EUROCAB FV 12, S.L.; EUROCAB FV 13, S.L.; EUROCAB FV 14, S.L.; EUROCAB FV 15, S.L.; EUROCAB FV 16, S.L.; EUROCAB FV 17, S.L.; EUROCAB FV 18, S.L.; EUROCAB 19, S.L. b) Positions in companies with shareholding by Martifer Group: MEMBER OF THE BOARD OF DIRECTORS Ventinveste, S.A. c) Positions outside the Group: MEMBER OF THE BOARD OF DIRECTORS: MANAGER: I M SGPS, S.A. I M Mining, SGPS, S.A. ESTIA SGPS, S.A. BRASEME - Investimentos e Consultoria, Lda. ARNALDO JOSÉ NUNES DA COSTA FIGUEIREDO a) Positions within Martifer Group: CHAIRMAN OF THE BOARD OF DIRECTORS: Martifer Metallic Constructions SGPS, S.A. CORPORATE GOVERNANCE REPORT 245

246 // MEMBER OF THE BOARD OF DIRECTORS: Martifer - SGPS, S.A. b) Positions outside the Group: CHAIRMAN OF THE MANAGEMENT BOARD: VICE-CHAIRMAN OF THE MANAGEMENT BOARD: MEMBER OF THE GENERAL BOARD: Mota-Engil, Indústria e Inovação, SA Mota-Engil, SGPS, SA (vice-chairman and executive director) AEM-Associação de Empresas Emitentes de Valores Cotados em Mercado ELO Associação Portuguesa para o Desenvolvimento Económico e a Cooperação CHAIRMAN OF THE GENERAL MEETING: MEMBER OF DIRECTOR: Mercado Urbano Gestão Imobiliária, S.A. Tabella Holding, B.V. PEDRO NUNO CARDOSO ABREU MOREIRA a) Positions within Martifer Group: MEMBER OF THE BOARD OF DIRECTORS: MANAGER: Martifer - SGPS, S.A. Martifer Metallic Constructions, SGPS, S.A. Martifer Construções Metalomecânicas, S.A. Sociedade de Madeiras do Vouga, S.A. Martifer Amal, S.A Martifer Renewables SGPS, S.A. Martifer Renewables, S.A. Martifer Solar SGPS, S.A. Liszki Green Park Spółka Z Ograniczona Odpowiedzialnoscia (Poland); M-City Białystok Sp. Z O.O (Poland) M-City Szczecin Sp. Z O.O (Poland) Park Logistyczny Biskupice Sp. Z O.O. (Poland) Martifer Energia Ro (Romania) Promoquatro - Investimentos Imobiliários Lda. West Sea - Estaleiros Navais, Lda. Isn t a member of any other company outside Martifer Group. b) Positions outside the Group: MEMBER OF THE GENERAL BOARD: AEM-Associação de Empresas Emitentes de Valores Cotados em Mercado 246 // 2016 ANNUAL REPORT //

247 // LUIS ANTÓNIO DE CASTRO DE VALADARES TAVARES a) Positions within Martifer Group: MEMBER OF THE BOARD OF DIRECTORS: Martifer - SGPS, S.A. Isn t a member of any other company inside or outside Martifer Group. JORGE BENTO RIBEIRO BARBOSA FARINHA a) Positions within Martifer Group: MEMBER OF THE BOARD OF DIRECTORS: Martifer - SGPS, S.A. Isn t a member of any other company inside or outside Martifer Group. CORPORATE GOVERNANCE REPORT 247

248 // ANNEX III [STATEMENT ON THE REMUNERATION POLICY OF THE MANAGEMENT AND SUPERVISORY BODIES APPROVED ON THE GENERAL MEETING ON 19 TH MAY 2016] I - INTRODUCTION In use of a legal right conferred by Article 399 of the Portuguese Companies Code (CSC), the Bylaws of Martifer SGPS, in its article 20, delegate to a Remuneration Committee the powers to decide on the remunerations of the Management and Supervisory Bodies of the Company. According to the applicable provisions of the Articles of Association, the Remuneration Committee was appointed at the Shareholders General Meeting on 14 th May 2015, to exercise its duties for the three year period and is currently formed by: António Manuel Queirós Vasconcelos da Mota (President) Maria Manuela Queirós Vasconcelos Mota dos Santos (Member) Júlia Maria Rodrigues de Matos Nogueirinha (Member) In order to promote a clear and legitimate fixing of the remuneration of corporate bodies, the Remuneration Committee, in compliance with Article 2 of Law 28/2009, of 19 June, hereby submitted for approval at the General Meeting of the Shareholders of Martifer SGPS, S.A. of 19 th May 2016, this declaration on the policy of remunerations of the Management and Supervisory Board. This statement seeks to follow closely the applicable provisions of the CSC and the 2013 Corporate Government Code of Comissão do Mercado de Valores Mobiliários ( CMVM ). It is also relevant to point out that the present statement, more than mandatory by law, intends to be an important instrument of good Corporate Governance, aiming the proper information of the shareholders, the protection of their interests and the transparency of Corporate Governance in matters of remuneration of Corporate Bodies. II REGULATORY REGIME In the definition of the remuneration policy to be established by the Remunerations Committee, the legal provisions of CSC were first taken into account, namely in its article 399º; the Law 28/2009, 19 June, concerning the regime of approval and disclosure of remunerations policy of the Management and Supervisory Bodies in Listed Companies, as well the 2013 Corporate Governance Code of CMVM, in particular the provisions of Recommendation II.3.3. Secondly, it has also been taken into consideration, for the definition of the remuneration policy, the special regime established in the Company s Bylaws. The Portuguese Companies Code provides, in Article 399, the statutory scheme of remuneration for the board of directors, which, in summary, establishes that: - The setting of the remunerations is a responsibility of the General Shareholders' Meeting or by a committee appointed by it for this purpose and shall take into account the duties performed and the economic situation of the company; - The remuneration may be fixed or partially represent a percentage of the financial year s profit, nevertheless the maximum percentage allocated to the directors shall be authorized by a clause of the Articles of Association and shall not be levied on the distribution of reserves or to any portion of the profits not legally available for distribution to the shareholders. Regarding the members representing the Supervisory Board and the Board of the General Meeting, the Portuguese Companies Code states that remuneration shall consist of a fixed amount which is equally determined either at a General Shareholders' 248 // 2016 ANNUAL REPORT //

249 // Meeting or by a committee appointed by it for this purpose, taking into consideration each member's performance and the company's economic situation. Moreover, Articles 13 and 20 of the Articles of Incorporation state the following: - The remunerations of the members of the Corporate Bodies shall be fixed by the Remuneration Committee; - The General Meeting that elects the corporate bodies shall also elect the Remuneration Committee; - As the remuneration of the Board of Directors may be formed by a fixed part and a variable one, the latter representing a percentage that can never exceed five per cent of the net profits for the year; and - The remuneration of the Supervisory Board shall consist of a fixed amount. III GENERAL PRINCIPLES The Remunerations Committee pursues, in its remunerations policy, to promote the convergence of the interests of Directors, other Corporate Bodies and Managers with the interests of the Company, namely shareholder value creation and real growth of the Company, privileging here a long-term perspective. Pursuing this aspiration, and according to the policy adopted in previous years, the Committee structured the integrant components of the income of the Board of Directors in order to reward their performance, discouraging, however, excessive risk-taking. This way, it is intended to promote a high-level sustained growth. Finally, it is relevant to say that it is determinant in this Committee s mission the economic position of the Company as well the general market practices for similar situations. Specifying the general policy herein stated, we hereby present to the shareholders the principal informants observed by this Committee in the definition of the remunerations: a) Interests alignment between the Management and Supervisory Bodies and the Company performance evaluation In the decision of the remuneration of each member of the Board of Directors, it shall be taken into account, for each single member, the functions performed by individual members, the complexity of his/her duties, the responsibilities that are, in fact, attributed to him/her, the time dedicated and the added value that the result of his/her work brings to the Company. In that extent, one cannot fail to differentiate the remuneration between the Executive Board members and the non-executive Board members, as well as the remuneration amongst each of the cited group. There are also duties performed in other controlled companies which cannot be excluded from this consideration, as this means, on one side, that there is an increase in terms of responsibility and, on the other, in terms of the collective source of income. b) Interests alignment between the Management and Supervisory Bodies and the Company performance evaluation In order to grant an efficient alignment of interests of the Management and Supervisory Bodies with the ones of the Company, this Committee shall not fail to pursue a policy that rewards the Board of Directors by the performance of the Company in a long term perspective and in the creation of value for the shareholder. c) Economic position of the Company This criterion has to be understood and interpreted carefully. The size of the Company and the inevitable complexity of management associated to it is clearly one of the relevant aspects to determine the economic situation of the Company and of remuneration, understood in its sense. To a higher level of complexity, corresponds a higher remuneration, but it has to be adjusted accordingly to other criteria informants of the economic situation of the Company (of financial nature, of human resources nature, etc). CORPORATE GOVERNANCE REPORT 249

250 // d) Market Criteria The balance between supply and demand is unavoidable when setting any remuneration and the situation regarding members of the Corporate Bodies is no exception. Only by taking into account market practices will the Company be allowed to maintain professionals guided to perform at an adequate level of complexity and responsibility It is important that the remuneration is aligned with market practices and that it is stimulant, allowing it to become an instrument to help achieve a single and collective high level of performance, thus ensuring not only the individual interest, but mostly the interests of the Company and of the shareholders. IV CONCRETE OPTIONS Based on the above mentioned principles, this Committee disclosure the relevant information regarding the concrete options of the remunerations policy, which hereby are submitted to the Company s shareholders appreciation: 1 st Remuneration of Executive members of the Board of Directors shall be made up of a fixed and, when so determined by the Remuneration Committee, a variable part, and, according to law and article 20.3 of the Articles of Association, the variable part may not exceed 5% (five per cent) of the annual net profit. 2 nd Remuneration for non-executive independent members of the Board of Directors, members of the Supervisory Board and members of the Board of the General Meeting shall only consist of a fixed part. 3 rd The fixed part of the remuneration of the Executive members of the Board of Directors, as well the non-executive Members non independent (when applicable), shall consist in a monthly amount payable fourteen times per annum. 4 th A fixed remuneration, for each participation in the meetings of the Board of Directors, shall be set for the non-executive and independent Board members. 5 th Fixed remuneration of members of the Supervisory Board shall be set in a monthly value payable twelve times per annum. 6 th In setting all remunerations, including in distributing the global amount of the variable pay of the members of the Board of Directors, the general principles referred to above will be observed: functions carried out, alignment with the interests of the company, privileging the long term, the company situation and market criteria. 7 th Fixed remuneration of the members of the Board of the General Meeting will be a predetermined value for each meeting. 8 th The process of attribution of variable remuneration to Executive members of the Board of Directors must follow the criteria proposed by the Remunerations Committee, namely their hierarchal stand, evaluation of performance and real growth of the Company, seeking to promote in those the convergence of the interests of the Management Body with the Company, with emphasis on the long-term performance. Thus, it will be considered decisive for the evaluation and measurement of the VR: The contribution of the Executive Directors for the results obtained; The profitability of business in the perspective of the shareholder; The evolution of the stock quotes; The degree of achievement of the projects integrated in and measured by the Balanced Scorecard of the Company. 9 th Notwithstanding the policies mentioned above of protection of the shareholders and of the Company s interests in the long-term, the Committee, in search of the best practices of Corporate Governance regarding remuneration policies of the Corporate Bodies, continues: (i) to promote a study and comparative analysis of remuneration policies and practices of other groups of companies in the same sector with respect to the fixing of remuneration for future implementation and adoption in Martifer, as well as (ii) to study the possibility of adoption of politics that, shown to be feasible and balanced to all actors, foresee the possibility of the variable remuneration when attributed - to be payable, in part or totally, only after clearance of the fiscal accounts of all the mandate and, on the other hand, that allows a limitation to the variable remuneration in case the results show a relevant deterioration of the company s Performance in the last cleared fiscal year or when it is expected in the designated year. 250 // 2016 ANNUAL REPORT //

251 // V LIMITS In case of verification of a permanent and not exceptional increase of the volume of activity associated with the exercise of the functions by the General Meeting and the Supervisory Board members, the maximum amount payable to the members of the governing bodies, in particular to the members of the General Meeting and the Supervisory Board may not exceed, respectively, either individually or in aggregate, 25% of the average amount paid in the last 3 financial years, for the corresponding member of the governing body. VI OTHER RESPONSIBILITIES Regarding the process of hiring or appointing members to its governing bodies, the Company shall not enter into any contracts or agreements with such members that allow the recognition or assignment of the right to receive payment of any damages or compensation beyond the amounts legally payable, in the event of dismissal or termination of service. It is our understanding that, in light of what is said above, these options should be maintained until the next General Meeting. CORPORATE GOVERNANCE REPORT 251

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