Annual Report • May 3, 2018
Annual Report
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Glossary Statement of the Board of Directors Article 447and Qualified Shareholdings
Part I – Shareholding Structure, Organisation and Corporate Governance Part II – Statement of Compliance Appendix I Appendix II
IV LEGAL CERTIFICATION OF ACCOUNTS AND AUDIT REPORT
V REPORT AND OPINION OF THE STATUTORY AUDIT BOARD
1.1. Group at a glance 1.2. Corporate developments in 2017
1.3. Disclosure of non financial information
Sonaecom is a sub-holding of the Sonae Group for the Technology, Media and Telecommunications areas, created in 1994 and first quoted on Euronext Lisbon in 2000.
Its business portfolio includes the Software and Technology area, with Sonae Investment Management, the Online & Media area where there are businesses such as the "Público" daily, generalist newspaper which has been in print for over 27 years in Portugal and the Telecommunications area, which owns an important stake in the NOS group, which is the main asset in its portfolio.
Sonaecom holds a participation of 50% in ZOPT, SGPS, S.A., which in turn holds 52.15% of the share capital of NOS, SGPS, S.A. (NOS).
Sonaecom is an entrepreneurial growth company that chooses exceptional people to work and unlock their full potential. Sonaecom relentlessly pursues the creation of innovative products, services and solutions that fulfil the needs of its markets and generate superior economic value.
Our fundamental commitment is to create economic value founded on the principles of ethical business practice and sustainable development. We take a long-term strategic view based on stakeholder relationships built around confidence and trust.
We develop the competencies and capabilities of every Sonaecom employee through fresh challenges, an appetite for change and teamwork. Supported by an internal culture that promotes meritocracy, we believe these factors are crucial to attracting, retaining and developing people with outstanding talent and potential.
As our guiding force, the strength of our ambition is reflected in the way we continuously challenge ourselves to remain resilient and determined in our efforts to improve our capabilities and add value to our clients.
Innovation is the lifeblood of our business. By continuously challenging conventions, we consistently surprise the market. We believe that failure can also be a source of learning. At the same time, we are aware that it is important to balance mistakes within acceptable risk limits.
We have an active sense of social responsibility. With a strong concern for the environment and the development of human knowledge, fulfilling this responsibility involves helping to improve the lives of the communities around us.
We value efficiency and healthy competition, and continuously strive to optimise the use of our resources while maximising their returns.
We take a position of independence and autonomy in relation to central and local government. That said, we are always ready to co-operate with the authorities to improve the regulatory, legislative and social environment.
On 28 April 2017, Sonaecom's shareholders decided, at the company's Annual General Meeting, to approve all the proposals of the agenda, namely:
Discuss and approve the Company's Annual Report, and the Individual and Consolidated Accounts for 2016;
Decide on the proposed appropriation of the Net Results for year ended 31 December 2016;
Assess the management and audit of the Company;
Discuss and approve the document setting out the proposed remuneration policy to be applied to the Company's management and auditing bodies and to persons discharging managerial responsibilities, as well as on the plan to grant shares and its respective regulation to be applied by the Shareholders' Remuneration Committee;
Authorise the purchase and sale of own shares up to the limit of 10%, as permitted by Portuguese Company Law;
Authorise both purchasing or holding of shares of the Company by affiliated companies, under the terms of Article 325-B of Portuguese Company Law.
In March, Bright Development Studio,SA, acquired a minority stake investing through a convertible loan in Eat Tasty, a start-up born in the North of Portugal and with headquarters in Lisbon, aims to bring to everyday life the homemade flavors, created by a network of neighborhood cooks who operate in their homes with guidance of two experienced Chefs.
Probe.ly started as an internal project at Bright Development Studio,SA, wons Caixa Capital Empreender Award 2017 and, on May, 11th evolved from an MVP (Minimum Valuable Product) to an independent startup that aims to help companies building more secure applications.
In June, Sonae IM acquired a stake in Ometria, a London-based AI-powered customer marketing platform with the vision to become the central hub that powers all the communication between retailers and their customers. Sonae IM has entered as a new investor in a \$6m Series A investment round, alongside several strategic investors (including Summit Action, the US VC fund of the Summit Series).
In October, Sonae IM announced its investment in Secucloud, a Germany based company that provides a cloud security platform for protecting all devices (subscriber endpoints) and operating systems with no installation required, offered to Telcos & ISPs as a white label solution.
In November, Sonae Im invested in Artic Wolf Networks, a US based campany, global pioneer in the SOC-as-a-Service market with cutting-edge managed detection and response (MDR), which provides a unique combination of technology and services for clients to quickly detect and contain threats. US technology investors Lightspeed Venture Partners and Redpoint were joined by Sonae IM and Knollwood Investment Advisory in the last round.
In November, Sonae IM invested in this Spanish based company with an application security platform to address vulnerabilities early in the development process. The investment was made through an investment round of €1.5million euros, which was led by Swaanlaab Venture Factory.
Sonae Investment Management (Sonae IM), reinforced its stake in Armilar III Fund, participating in the capital increases occurred in March, July and November.
Also in Armilar II fund, Sonae IM reinforced its stake as a result of the withdrawal of a shareholder, occurred in July.
In September, Sonae IM and IFD (Instituição Financeira de Desenvolvimento, S.A,) lauched Vector I Fund, in which Sonae IM holds a 50.13% stake. The Fund aims to invest in innovation processes, dedicated to the development of new products, and to support the creation and development of new technological companies; early-stage projects (this is, startups in Pre-seed/Seed to Series A investment stages).
The non-financial information and the information about diversity at Sonaecom, as required by Decree Law n.89/2017, from July, 28th, which transposes the Directive n. 2014/95/UE from de European Parliament and of the Council, will be disclosed in the Sonae Group Sustainability Report, accordingly with the mentioned law and in the terms of article 508º-G n. 7 from the Portuguese Commercial Companies Code, introduced by that law.
2.2. Telecommunications Results in 2017
2.1. Business overview in 2017 2.4. Media Results in 2017 2.3. Technology Results in 2017
2.5. Risk Management
| Million euros | Non-audited | |||||||
|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED INCOME STATEMENT | 4016 | 4Q17 | $\Delta$ 17/16 | 3Q17 | q.o.q. | 2016 | 2017 | $\Delta$ 17/16 |
| Turnover | 32.4 | 34.5 | 6.3% | 28.7 | 20.1% | 130.5 | 139.6 | 6.9% |
| Service Revenues | 23.8 | 23.4 | $-1.7%$ | 20.1 | 16.1% | 90.5 | 87.5 | $-3.3%$ |
| Sales | 8.6 | 11.1 | 28.2% | 8.5 | 29.6% | 40.0 | 52.0 | 30.0% |
| Other Revenues | 0.6 | 0.9 | 44.1% | 0.8 | 10.7% | 1.5 | 2.7 | 76.0% |
| Operating Costs | 32.8 | 35.2 | 7.3% | 30.3 | 16.2% | 131.2 | 141.9 | 8.1% |
| Personnel Costs | 13.7 | 14.8 | 7.7% | 14.3 | 2.9% | 51.5 | 57.3 | 11.1% |
| Commercial Costs (1) | 8.0 | 10.3 | 28.3% | 7.8 | 32.0% | 36.5 | 48.8 | 33.7% |
| Other Operating Costs (2) | 11.1 | 10.2 | $-8.1%$ | 8.2 | 24.7% | 43.2 | 35.8 | $-17.1%$ |
| EBITDA | 1.4 | 3.4 | 142.9% | 6.6 | $-48.7%$ | 17.9 | 27.3 | 52.3% |
| Underlying EBITDA (3) | 0.2 | 0.1 | $-57.5%$ | $-0.8$ | 0.8 | 0.3 | $-60.7%$ | |
| Equity method (4) | 1.2 | 3.3 | 177.9% | 7.4 | $-55.8%$ | 17.1 | 27.0 | 57.6% |
| Underlying EBITDA Margin (%) | 0.6% | 0.3% | $-0.4$ pp | $-3.0%$ | 3.2 pp | 0.6% | 0.2% | $-0.4$ pp |
| Depreciation & Amortization | 7.5 | 2.1 | $-71.5%$ | 2.4 | $-10.8%$ | 15.5 | 9.4 | $-39.2%$ |
| EBIT | $-6.1$ | 1.2 | 4.2 | $-71.4%$ | 2.5 | 17.8 | ||
| Net Financial Results | $-0.1$ | $-0.6$ | $-0.2$ | $-152.1%$ | $-5.3$ | $-1.0$ | 80.4% | |
| Financial Income | 0.6 | 1.8 | 180.5% | 0.5 | 14.9 | 4.6 | $-68.9%$ | |
| Financial Expenses | 0.7 | 2.3 | 0.7 | 20.2 | 5.7 | $-71.9%$ | ||
| EBT | $-6.2$ | 0.6 | 4.0 | $-83.7%$ | $-2.8$ | 16.8 | ||
| Tax results | 19.8 | $-2.7$ | $\overline{a}$ | 0.2 | 22.2 | $-0.8$ | ||
| Direct Results | 13.7 | $-2.1$ | $\mathbf{r}$ | 4.2 | $\overline{a}$ | 19.3 | 16.0 | $-16.9%$ |
| Indirect Results (5) | 28.5 | (0.0) | $\overline{a}$ | $7.1\,$ | $\blacksquare$ | 28.5 | 6.8 | |
| Net Income | 42.1 | $-2.1$ | $\overline{\phantom{a}}$ | 11.3 | $\blacksquare$ | 47.8 | 22.9 | $-52.1%$ |
| Group Share | 42.1 | $-2.1$ | $\overline{a}$ | 11.3 | ÷. | 48.1 | 22.8 | $-52.7%$ |
| Attributable to Non-Controlling Interests | 0.0 | 0.1 | $0.0\,$ | $-0.4$ | 0.1 |
| Million euros | Non-audited | |||||||
|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED BALANCE SHEET | 4Q16 | 4017 | $\Delta$ 17/16 | 3Q17 | q.0.0. | 2016 | 2017 | $\Delta$ 17/16 |
| Total Net Assets | 1104.5 | 1105.6 | 0.1% | 1098.4 | 0.7% | 1104.5 | 1105.6 | 0.1% |
| Non Current Assets | 812.8 | 839.9 | 3.3% | 829.8 | 1.2% | 812.8 | 839.9 | 3.3% |
| Tangible and Intangible Assets | 30.1 | 28.2 | $-6.2%$ | 28.4 | $-0.7%$ | 30.1 | 28.2 | $-6.2%$ |
| Goodwill | 23.7 | 23.4 | $-1.4%$ | 23.4 | $-0.1%$ | 23.7 | 23.4 | $-1.4%$ |
| Investments | 746.6 | 777.2 | 4.1% | 766.4 | 1.4% | 746.6 | 777.2 | 4.1% |
| Deferred Tax Assets | 9.3 | 7.3 | $-21.4%$ | 8.5 | $-14.2%$ | 9.3 | 7.3 | $-21.4%$ |
| Others | 3.1 | 3.8 | 22.1% | 3.0 | 25.6% | 3.1 | 3.8 | 22.1% |
| Current Assets | 291.7 | 265.7 | $-8.9%$ | 268.6 | $-1.1%$ | 291.7 | 265.7 | $-8.9%$ |
| Trade Debtors | 47.1 | 47.2 | 0.1% | 37.6 | 25.5% | 47.1 | 47.2 | 0.1% |
| Liquidity | 210.3 | 202.0 | $-3.9%$ | 190.3 | 6.1% | 210.3 | 202.0 | $-3.9%$ |
| Others | 34.3 | 16.5 | $-51.9%$ | 40.7 | $-59.5%$ | 34.3 | 16.5 | $-51.9%$ |
| Shareholders' Funds | 1033.1 | 1031.9 | $-0.1%$ | 1032.7 | $-0.1%$ | 1033.1 | 1031.9 | $-0.1%$ |
| Group Share | 1033.3 | 1030.3 | $-0.3%$ | 1032.8 | $-0.2%$ | 1033.3 | 1030.3 | $-0.3%$ |
| Non-Controlling Interests | $-0.2$ | 1.6 | $-0.2$ | $-0.2$ | 1.6 | |||
| Total Liabilities | 71.3 | 73.7 | 3.4% | 65.8 | 12.1% | 71.3 | 73.7 | 3.4% |
| Non Current Liabilities | 19.7 | 18.5 | $-6.2%$ | 19.4 | $-4.5%$ | 19.7 | 18.5 | $-6.2%$ |
| Bank Loans | 3.8 | 2.4 | $-36.4%$ | 3.2 | $-25.4%$ | 3.8 | 2.4 | $-36.4%$ |
| Provisions for Other Liabilities and Charges | 4.9 | 3.6 | $-26.8%$ | 3.6 | $-1.1%$ | 4.9 | 3.6 | $-26.8%$ |
| Others | 11.1 | 12.5 | 13.2% | 12.5 | $-0.2%$ | 11.1 | 12.5 | 13.2% |
| Current Liabilities | 51.6 | 55.2 | 7.0% | 46.4 | 19.0% | 51.6 | 55.2 | 7.0% |
| Loans | 1.2 | 1.2 | $-3.0%$ | 1.2 | $-0.6%$ | 1.2 | 1.2 | $-3.0%$ |
| Trade Creditors | 15.6 | 16.0 | 2.6% | 12.5 | 27.7% | 15.6 | 16.0 | 2.6% |
| Others | 34.7 | 38.0 | 9.4% | 32.6 | 16.4% | 34.7 | 38.0 | 9.4% |
| Operating CAPEX (1) | 2.4 | 2.0 | $-16.1%$ | 2.1 | $-4.1%$ | 10.5 | 8.6 | $-18.9%$ |
| Operating CAPEX as % of Turnover | 7.3% | 5.8% | $-1.5$ pp | 7.3% | $-1.5$ pp | 8.1% | 6.1% | $-1.9$ pp |
| Total CAPEX | 34.7 | 11.0 | $-68.2%$ | 3.5 | 45.5 | 20.6 | $-54.6%$ | |
| Underlying EBITDA - Operating CAPEX | $-2.2$ | $-1.9$ | 12.1% | $-2.9$ | 34.9% | $-9.7$ | $-8.2$ | 15.4% |
| Gross Debt | 6.0 | 4.1 | $-31.8%$ | 5.1 | $-18.7%$ | 6.0 | 4.1 | $-31.8%$ |
| Net Debt | $-204.2$ | $-197.9$ | 3.1% | $-185.3$ | $-6.8%$ | $-204.2$ | $-197.9$ | 3.1% |
| (1) One main of ADEV audude of increased bounders onto |
| Million euros | Non-audited | |||||||
|---|---|---|---|---|---|---|---|---|
| LEVERED FREE CASH FLOW | 4016 | 4017 | $\Delta$ 17/16 | 3Q17 | q.o.q. | 2016 | 2017 | $\Delta$ 17/16 |
| Underlying EBITDA-Operating CAPEX | $-2.2$ | -1.9 | 12.1% | $-2.9$ | 34.9% | $-9.7$ | $-8.2$ | 15.5% |
| Change in WC | $-4.4$ | 23.6 | $-1.4$ | ۰ | $-4.9$ | 22.6 | ÷ | |
| Non Cash Items & Other | 2.9 | 1.2 | -59.4% | 1.0 | 13.9% | 2.1 | 1.8 | $-14.4\%$ |
| Operating Cash Flow | $-3.7$ | 22.9 | $-3.3$ | $\overline{\phantom{a}}$ | $-12.5$ | 16.2 | $\sim$ | |
| Investments | $-35.0$ | $-8.7$ | 75.1% | $-1.4$ | 46.8 | $-12.1$ | ||
| Dividends | 0.0 | 0.0 | $\overline{\phantom{0}}$ | 7.5 | $-100.0%$ | 20.1 | 16.5 | $-17.7%$ |
| Financial results | 0.9 | $-1.2$ | $-0.9$ | $-24.3%$ | -0.5 | -4.0 | ||
| Income taxes | $-0.2$ | $-1.5$ | $-0.3$ | $-0.1$ | -0.5 | |||
| $FCF^{(1)}$ | $-37.9$ | 11.5 | 1.5 | 53.6 | 16.1 | $-69.9%$ |
| Million euros | Non-audited | |||||||
|---|---|---|---|---|---|---|---|---|
| $^{\prime\prime}000$ Operational Indicators ( |
401 | 17/16 $\wedge$ 1 |
3017 | 1.0.Q. | 2016 | 2017 | 17/16 | |
| Total RGUs | 9076.8 | 9 4 1 1.7 | 3.7% | 9365.7 | ባ.5% | 9076.8 | 9411.7 | 3.7% |
| Convergent RGUs | 3 387.2 | 3 650.6 | 7.8% | ና 631.5 | በ.5% | 3 387.2 | 3 650.6 | 7.8% |
| Million euros | Non-audited | |||||||
|---|---|---|---|---|---|---|---|---|
| NOS HIGHLIGHTS | 4016 | 4017 | $\Delta$ 17/16 | 3017 | q.o.q. | 2016 | 2017 | ∆17/16 |
| Operating Revenues | 390.9 | 399.3 | 2.2% | 393.1 | 1.6% | 1515.0 | 1 561.8 | 3.1% |
| EBITDA | 125.0 | 129.1 | 3.3% | 151.2 | $-14.6%$ | 556.7 | 580.6 | 4.3% |
| EBITDA margin (%) | 32.0% | 32.3% | 0.4 pp | 38.5% | $-6.0pp$ | 36.7% | 37.2% | 0.4 pp |
| Net Income | 12.0 | 18.6 | 55.3% | 33.6 | -44.6% | 90.4 | 124.1 | 37.3% |
| CAPEX | 100.0 | 117.0 | 17.0% | 90.8 | 28.9% | 392.7 | 380.6 | -3.1% |
| EBITDA-CAPEX | 24.9 | 12.1 | $-51.6%$ | 60.5 | $-80.0\%$ | 164.1 | 200.1 | 21.9% |
| Million euros | Non-audited | |||||||
|---|---|---|---|---|---|---|---|---|
| TECHNOLOGY AREA | 4016 | 4Q17 | $\Delta$ 17/16 | 3Q17 | q.o.q. | 2016 | 2017 | $\Delta$ 17/16 |
| Turnover | 28.8 | 31.2 | 8.5% | 25.3 | 23.3% | 116.7 | 125.9 | 7.9% |
| Service Revenues | 22.1 | 21.9 | $-0.9%$ | 18.9 | 16.1% | 84.7 | 81.9 | $-3.3%$ |
| Sales | 6.6 | 9.3 | 39.7% | 6.4 | 44.4% | 32.0 | 44.0 | 37.7% |
| Other Revenues | 0.4 | 0.7 | 61.8% | 0.5 | 25.9% | 1.0 | 1.8 | 81.2% |
| Operating Costs | 27.7 | 29.7 | 7.6% | 25.8 | 15.5% | 113.0 | 123.1 | 8.9% |
| Personnel Costs | 10.8 | 12.1 | 11.7% | 11.8 | 2.2% | 41.6 | 47.4 | 13.9% |
| Commercial Costs (1) | 6.7 | 9.3 | 37.9% | 6.6 | 41.7% | 32.4 | 44.5 | 37.4% |
| Other Operating Costs (2) | 10.1 | 8.3 | $-17.2%$ | 7.3 | 13.6% | 39.1 | 31.2 | $-20.1%$ |
| EBITDA | 1.5 | 2.1 | 39.0% | 0.1 | 4.7 | 4.7 | 0.1% | |
| EBITDA Margin (%) | 5.3% | 6.8% | 1.5 pp | 0.3% | 6.5 pp | 4.0% | 3.7% | $-0.3$ pp |
| Operating CAPEX (3) | 2.1 | 1.6 | $-21.8%$ | 1.8 | $-9.1%$ | 9.7 | 7.3 | $-24.4%$ |
| Operating CAPEX as % of Turnover | 7.3% | 5.3% | $-2.0pp$ | 7.1% | $-1.9$ pp | 8.3% | 5.8% | $-2.5$ pp |
| EBITDA - Operating CAPEX | $-0.6$ | 0.5 | $-1.7$ | $-5.0$ | $-2.6$ | 47.2% | ||
| Total CAPEX | 34.4 | 10.7 | $-69.0%$ | 3.2 | 44.6 | 19.4 | $-56.5%$ |
3.2. Share price evolution during 2017
3.3. Shareholding structure and own shares
Sonaecom shares have been listed on the Portuguese Stock Exchange – Euronext Lisbon – since June 2000, with the symbol SNC. The table below lists the main statistics relating to Sonaecom's 2017 stock performance.
| Stock market | Euronext Lisbon |
|---|---|
| Ticker | SNC |
| ISIN | PTSNC0AM0006 |
| Bloomberg code | SNC PL Equity |
| Reuters code | SNC.LS |
| Number of shares outstanding | 311 340 037 |
| Share capital | 230 391 627 |
| Stock price as of last day December (euros) | 2.520 |
| Stock price – High (euros) | 2.750 |
| Stock price – Low (euros) | 2.230 |
| Average daily volume – 2017 (# shares) | 26 307 |
| Average daily volume – 2016 (# shares) | 43 368 |
| Market capitalisation as of last day December (euros) | 784 576 893 |
Graph 1 – Sonaecom's performance vs PSI 20 and DJ Euro Stoxx Telecoms in 2017
At the end of 2017, Sonaecom's shares reached a market price of 2.520 euros per share, 1.2% below the closing price of 2.551 euros per share at 31 December 2016. The share price reached a maximum of 2.750 euros per share on 13 March 2017 and a minimum of 2.230 euros on 8 November 2017.
As far as the Portuguese market is concerned, PSI-20, the principal local stock index, ended 2017 at 5,388.33 points, an increase of15.2% versus year-end 2016. DJ Euro Stoxx Telecoms, the European Stock Telecommunications index, ended 2017 with an annual decrease of 6.9%.
Sonaecom's market capitalisation stood at approximately 785 million euros at the end of 2017. The average daily trading volume reached approximately 26,000 shares, a 39.3% decrease compared to 2016 (less 17,000 shares).
In 2017, Sonaecom's market share price decreased 1.2% compared to 2016.
Sonaecom shares would have been influenced by various milestones during the year, as follows:
In accordance with the Portuguese Securities Code, shareholdings amounting to or exceeding the thresholds of 2%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.67% and 90% of the total share capital must be reported to the Portuguese Securities Market Commission and disclosed to the capital market. Reporting is also required if the shareholdings fall below the same percentages.
| Shareholder | Number of shares held | % Shareholding as at 31 Dec. 2016 |
|---|---|---|
| Sonae - SGPS, S.A. | 275,086,083 | 88.36% |
| Own shares | 5,571,014 | 1.79% |
| Free Float | 30,682,940 | 9.86% |
Sonae – SGPS, S.A. (Sonae) is Sonaecom's largest shareholder, owning an 88.36% stake in Sonaecom, equivalent to 89.97% of the voting rights. Sonae is a Portuguese multinational retail company, market leader in Portugal in food and specialised retail formats, with two core partnerships: shopping centres and telecoms. At 31 December 2017, the free float stood at approximately 9.86%. The free float is the percentage of shares not held or controlled by shareholders with qualified holdings and excluding own shares.
Sonaecom didn't acquire or sell treasury shares in 2017.
4
RESULTS
SONAECOM
INDIVIDUAL
Sonaecom SGPS's individual results for the years ended 31 December 2017 and 2016 are summarised as follows:
| Million euros | 2016 | 2017 | Difference | % |
|---|---|---|---|---|
| Service Revenues | 0.3 | 0.5 | 0.3 | 103% |
| Operating Costs (1) | 1.6 | 1.9 | 0.3 | 17% |
| EBITDA | (1.2) | (1.3) | (0.1) | -6% |
| EBIT | (1.3) | (1.3) | (0.1) | -6% |
| Dividend Received | 20.1 | 16.5 | (3.6) | -18% |
| Net Financial Activity | 2.2 | 1.6 | (0.6) | -28% |
| Other Financial Results | (4.2) | (0.9) | 3.2 | 78% |
| EBT | 16.8 | 15.8 | (1.0) | -6% |
| Net Income | 35.0 | 15.8 | (19.2) | -55% |
(1) Excludes Amortization, Depreciation and Provisions
(1) Excluding depreciation, amortisation and provisions.
On 31 December 2017, Sonaecom SGPS's Board of Directors was composed of three directors (the same of last year), and five employees
This line totalled 0.5 million euros and it essentially comprises management services provided to its subsidiaries.
Total operating costs exclude depreciation, amortisation charges and provisions. This line amounted to 1.9 million euros, which compares with 1.6 million euros in 2016. The increase is mainly related to the increase in the number of employees.
EBITDA was negative by 1.3 million euros (negative 1.2 million euros in 2016) and the decrease versus last year was mainly driven by the higher level of operating costs despite of Service Revenues increase.
In 2017, Sonaecom received dividends from ZOPT (16.5 million euros). In 2016, Sonaecom received dividends from NOS (1.8 million euros) and ZOPT (18.3 million euros).
The net financial activity (interest income less interest expenses) was positive by 1.6 million euros, which compares with 2.2 million euros in 2016.
Other financial results related with investments was negative by 0.9 million euros due to an impairments recorded in the financial investments in the amount of 0.8 million euros. In 2016, despite the capital gain generated by the sale to ZOPT of the 2.14% direct stake on NOS, were negative by 4.2 million euros. The negative 15.7 million of market value adjustments related to the 2.14% direct stake on NOS (shares recorded at fair value through profit and loss), until its sale, and the 7.3 million of impairments recorded in the financial investments, explained the negative performance in 2016.
Net results for the year were positive by 15.8 million euros, mainly driven by dividends. The decrease compared to 2016 is almost fully explained by the tax impacts related with the liquidations of Sonaecom BV and Sonaetelecom BV, occurred last year.
The amount of 30,803.98 euros is already reflected in the net income and is planned for a part of the short term variable bonus of executive directors, as a distribution of profit, pursuant to art. 33 n.2 of the Articles of Association as proposed by the Remunerations Committee, which is responsible for the implementation of the remuneration policy approved at the General Meeting held on April 28 th, 2017.
The following table summarises the major cash movements during the year ended at 31 December 2017:
| Changes in Sonaecom SGPS Liquidity | Million euros |
|---|---|
| Sonaecom SGPS stand-alone liquidity as at 31 December 2016 | 210.9 |
| Cash and Bank | 83.9 |
| Treasury Applications | 127.0 |
| Bank | 123.0 |
| Subsidiaries | 4.0 |
| Changes in Nominal Gross Debt | - |
| External Debt | - |
| Treasury applications from subsidiaries | - |
| Shareholder Loans and Supplementary capital granted | (25.0) |
| Dividend paid | (23.5) |
| Free Cash Flow | 28.5 |
| Interest paid | (0.1) |
| Interest received | 1.7 |
| Dividend received | 16.5 |
| Operational Free Cash Flow and others | 10.4 |
| Sonaecom SGPS stand-alone liquidity as at 31 December 2017 | 190.9 |
| Cash and Bank | 120.9 |
| Treasury Applications | 70.0 |
| Bank | 70.0 |
| Subsidiaries | 0.0 |
During the year 2017, Sonaecom's stand-alone liquidity decreased 20.0 million euros to 190.9 million euros due to the following movements:
Although partially offset by the following movements:
The foreign exchange restatement of foreign currency assets and liabilities in associates in Angola (owned by ZOPT) and the conversion of these companies' financial statements to Euro were made using the exchange rate published by the National Bank of Angola on 31 December 2017. During the first quarter of 2018, the kwanza depreciated by approximately 30% against the Euro. As a result of the aforementioned devaluation and based on the position of assets and liabilities denominated in foreign currency in the referred companies and the net assets value thereof, Sonaecom will record in the caption 'Gains and losses on associated companies and jointly controlled entities' a loss of approximately Euro 2 million and the caption 'Exchange translation reserves' included under 'Reserves' will be reduced by approximately Euro 15 million.
The Board of Directors proposes that the net profit in the Individual accounts, in the amount of 15,770,507.18 euros be transferred as follows:
Since it is not possible to determine precisely the number of treasury shares that will be held by the company on the date of the above mentioned payments without limiting the company's capacity for intervention, we highlight the following:
Glossary Statement of the Board of Directors
Article 447 and Qualified Shareholdings
| Commercial Costs | COGS+ Marketing & Sales (Advertising plus Commissions) |
|---|---|
| Other Operating Costs | External Supplies and Services except those referred above as Marketing & Sales + Provisions + Others |
| EBITDA | Underlying EBITDA + Equity method results (namely ZOPT net income) + non recurrent items (when applicable) |
| Underlying EBITDA | Operating Results excluding Amortizations and Depreciations |
| EBIT | Direct EBT deducted from financial result or EBITDA deducted from Depreciations and Amortizations |
| EBT | Direct Result before minority results and taxes |
| Indirect Results | Negative Goodwill related to AVP funds, net of correspondent deferred tax liabilities |
| CAPEX | Gross Investments in tangible and intangible assets and investments in acquisitions |
| Operating CAPEX | CAPEX excluding Financial Investments |
| Free Cash Flow (FCF) | EBITDA – CAPEX – change in working capital – financial results – taxes |
| Gross Debt | Bonds + bank loans + other loans + shareholder loans + financial leases |
| Net Debt | Bonds + bank loans + other loans + shareholder loans + financial leases – cash, bank deposits, current investments and other long term financial applications |
The signatories individually declare that, to their knowledge, the Management Report, the Consolidated and Individual Financial Statements and other accounting documents required by law or regulation were prepared meeting the standards of the applicable International Financial Reporting Standards, giving a truthful (fairly) and appropriate image, in all material respects, of the assets and liabilities, financial position and the consolidated and individual results of the issuer and that the Management Report faithfully describes the business evolution and position of the issuer and of the companies included in the consolidation perimeter and contains a description of the major risks and uncertainties that they face.
The Board of Directors
Ângelo Gabriel Ribeirinho Paupério
Maria Cláudia Teixeira de Azevedo
Antonio Bernardo Aranha da Gama Lobo Xavier
| Additions | Reductions | Position at 31.12.2017 |
Balance at 31 December 2017 |
||||
|---|---|---|---|---|---|---|---|
| Date | Quantity Market price € | Quantity Market Price € | Quantity | ||||
| Ângelo Gabriel Ribeirinho dos Santos Paupério | |||||||
| Sonae- SGPS, S.A.(6) | 24.08.2017 25.08.2017 |
300 000 50 000 |
0.964 0.961 |
212 987 | |||
| Shares attributed under the Medium Term Incentive Plan |
31.03.2017 | 348 739 | 0.047 | ||||
| Enxomil - Consultoria e Gestão, S.A. (10) (a) (b) Enxomil - Sociedade Imobiliária, SA (11) (a) |
Dominant Dominant |
||||||
| Maria Cláudia Teixeira de Azevedo | |||||||
| Efanor Investimentos, SGPS, S.A.(1) Linhacom, SGPS, S.A.(4) Sonae- SGPS, S.A.(6) |
Minoritary Dominant |
377 318 | |||||
| Shares attributed under the Medium Term Incentive Plan |
31.03.2017 | 58 168 | 0.047 | ||||
| António Bernardo Aranha da Gama Lobo Xavier Sonae- SGPS, S.A.(6) |
- | ||||||
| a) Includes shares held indirectly. |
b) Formerly know as Enxomil, SGPS, SA.
| Additions | Reductions | Balance at 31 December 2017 |
|||
|---|---|---|---|---|---|
| Date | Quantity | Market price € | Quantity | Market price € | Quantity |
| 20 000 | |||||
| 237 609 | |||||
| 27.04.2017 | 65 933 | 0.0926 | |||
| 11.07.2017 | 1 750 | 0.0477 | |||
| 118 627 | |||||
| 27.04.2017 | 26 805 | 0.0926 | |||
| 129 176 | |||||
| 27.04.2017 | 26 703 | 0.0926 | |||
| 11.07.2017 | 8 389 | 0.0477 | |||
| 41 697 | |||||
| Additions | Reductions | Position at 31.12.2017 |
Balance at 31 December 2017 |
||
|---|---|---|---|---|---|
| Date | Quantity Market price | Quantity Market price |
Quantity | ||
| (1) Efanor Investimentos, SGPS, S.A. Sonae - SGPS, S.A.(6) Pareuro, BV(2) |
Dominant | 200 100 000 | |||
| (2) Pareuro, BV Sonae - SGPS, S.A.(6) |
849 533 095 | ||||
| (3) Migracom, SGPS, S.A. Imparfin - Investimentos e Participações Financeiras,S.A.(5) Sonae - SGPS, S.A.(6) |
03.04.2017 | 410 002 0.938 |
Minority | 2 874 339 | |
| (4) Linhacom,SGPS, S.A. Imparfin - Investimentos e Participações Financeiras,S.A.(5) Sonae - SGPS, S.A.(6) |
22.11.2017 | 250 000 1.030 |
Minority | 189 314 | |
| (5) Imparfin- Investimentos e Participações Financeiras, S.A. Sonae - SGPS, S.A.(6) |
4 105 280 | ||||
| (6) Sonae - SGPS, S.A. Sonaecom, SGPS, S.A.(9) Sonae Investments BV(7) Sontel BV(8) |
Dominant Dominant Dominant |
||||
| (7) Sonae Investments BV Sontel BV(8) |
Dominant | ||||
| (8) Sontel BV Sonaecom, SGPS, S.A.(9) |
Dominant | ||||
| (9) Sonaecom, SGPS, S.A. (10) Enxomil - Consultoria e Gestão, S.A. (a) Sonae - SGPS, S.A.(6) |
5 571 014 2 021 855 |
||||
| (11) Enxomil - Sociedade Imobiliária, SA Sonae - SGPS, S.A.(6) |
450 000 | ||||
a) Formerly know as Enxomil, SGPS, SA.
| Shareholder | Number of shares | % of Share capital | % Share capital and voting rights* |
% of exercisable voting rights** |
|---|---|---|---|---|
| Efanor Investimentos, SGPS, S.A.(1) | ||||
| Directly | ||||
| Sontel BV (company controlled by Sonae SGPS) | 194 063 119 | 62.33% | 62.33% | 63.47% |
| Sonae- SGPS, S.A. (company controlled by Efanor SGPS,S.A) | 81 022 964 | 26.02% | 26.02% | 26.50% |
| Total attributable (1) | 275 086 083 | 88.36% | 88.36% | 89.97% |
(1) Sonaecom SPGS, S.A is indirectly controlled company by Efanos Investimentos SGPS, S.A. ("Efanor"), as of this company indirectly controls Sonae SGPS, S.A. and Sontel BV. Efanor Investimentos SGPS, S.A., with effect from 29 November 2017, has no longer a controlling shareholder under the terms and for the purposes of articles 20 and 21 of the Portuguese Securities Code
* Voting rights calculated based on the Company's share capital with voting rights, as per subparagraph b) of paragraph 3 of article 16 of the Portuguese Securities Code
**Voting rights calculated based on the Company's share capital with voting rights that are not subject to suspension of exercise
Part I Shareholding Structure, Appendices I and II Organisation and Corporate Governance
Part II Statement of Compliance
The company's share capital is 230,391,627.38 euros, fully subscribed and paid up and is divided into 311,340,037 registered ordinary shares with a nominal value of 0.74 Euro each.
All shares representing the share capital of Sonaecom are traded in the Euronext Lisbon regulated market.
There are no restrictions on the transferability or ownership of Sonaecom shares.
At 31 December 2017, Sonaecom held 5,571,014 treasury shares, representing 1.789% of its share capital.
There are no agreements signed by Sonaecom that include clauses intended to constitute defensive measures against change in its shareholding control or which would cease in case of change in control of the company after a takeover bid.
The majority of Sonaecom's share capital is owned by one single shareholder.
5. System to which the renewal or removal of defensive measures are subject, in particular those which establish the limitation ofthe number of votes that can be cast or exercised by a single shareholder individually or in agreement with other shareholders. No defensive measures were taken.
No shareholders' agreements regarding Sonaecom are known.
In compliance with the Article 8, paragraph 1, subparagraph (b) of the Securities and Exchange Commission Regulation 05/2008, the qualified shareholdings of 2% or more of the share capital of Sonaecom, SGPS, S.A., calculated in accordance with article 20 of the Portuguese Securities Code, at 31 December 2017, are described as follows:
| Shareholder | Number of shares | % of Share capital | % Share capital and voting rights* |
% of exercisable voting rights** |
|---|---|---|---|---|
| Efanor Investimentos, SGPS, S.A.(1) | ||||
| Directly | ||||
| Sontel BV (company controlled by Sonae SGPS) | 194 063 119 | 62.33% | 62.33% | 63.47% |
| Sonae- SGPS, S.A. (company controlled by Efanor SGPS,S.A) | 81 022 964 | 26.02% | 26.02% | 26.50% |
| Total attributable (1) | 275 086 083 | 88.36% | 88.36% | 89.97% |
(1) Sonaecom SPGS, S.A is indirectly controlled company by Efanos Investimentos SGPS, S.A. ("Efanor"), as of this company indirectly controls Sonae SGPS, S.A. and Sontel BV. Efanor Investimentos SGPS, S.A., with effect from 29 November 2017, has no longer a controlling shareholder under the terms and for the purposes of articles 20 and 21 of the Portuguese Securities Code
* Voting rights calculated based on the Company's share capital with voting rights, as per subparagraph b) of paragraph 3 of article 16 of the Portuguese Securities Code
**Voting rights calculated based on the Company's share capital with voting rights that are not subject to suspension of exercise
The information can be found in Appendix of the Management Report.
This is a competence that corresponds exclusively to the General Shareholders' Meeting.
Business and transactions with holders of qualified shareholdings are part of the usual activity of Sonaecom subsidiaries and are conducted in normal market conditions.
The Shareholders' General Meetings are directed by a Board elected by the shareholders for a four-year mandate, which begins and ends within the same calendar mandate as that of the other statutory governing bodies.
The members of the Board of the Shareholders' General Meeting throughout the reference year were:
| Manuel Eugénio Pimentel Cavaleiro Brandão | Charmain | Term of office 2016-2019 |
|---|---|---|
| Maria da Conceição Henriques Fernandes Cabaços | Secretary | Term of office 2016-2019 |
The company's Articles of Association do not envisage any restriction in terms of voting rights. The company's share capital is integrally represented by a single kind of shares that correspond to one vote per share.
Pursuant to the law and the company's articles of association, shareholders with voting rights have the right to participate, discuss and vote at the General Shareholders' Meeting if, on the registration day (which is considered to be at 0:00 GMT of the fifth trading day before the meeting), they own shares which grant them at least one vote. Shareholders shall also comply with the legal formalities as described in the corresponding notice of the meeting.
The right to vote by proxy and how such right may be exercised is also given on the notice for each General Meeting, pursuant to the law and articles of association.
Notwithstanding the need to prove they are shareholders, shareholders can vote by post regarding all matters under appreciation at the General Meeting. The General Meeting notice shall contain adequate information about postal voting.
The Company also has an electronic voting system that allows shareholder unlimited access to exercise voting rights. Shareholders are advised how to vote electronically in the General Meeting notice.
There is no statutory limitation on exercising voting rights.
As established in the Company's Articles of Association, any decisions made by the General Shareholders' Meeting shall be by simple majority, unless otherwise required by law.
This company has adopted the monist governance model, whose administration structure is centralised in the Board of Directors. The supervisory structure includes a Statutory Audit Board and a Statutory External Auditor.
The Board of Directors is the body in charge of managing the company's business, performing all the administration functions pertaining to the corporate purpose, monitoring risks, and executing the organisation's objectives and strategy. The Statutory Audit Board has the supervising responsibility.
The members of the Board of Directors are elected accordingly with the provisions established by the law and the Company's Articles of Association, in the terms specified in the proposal approved in the General Shareholders' Meeting.
The Articles of Association establish that, should shareholders representing at least 10% of the share capital vote against the winning proposal for the election of the directors, a director will be elected by the shareholders in said minority, in the same meeting, and the director elected shall automatically replace the person with the lowest number of votes in the winning list, or, in case of an equal number of votes, the person in the last position in the list. One shareholder may not nominate more than one candidate.
Should candidates be nominated by more than one group of shareholders, the vote shall concern those candidacies as a whole. These regulations shall not apply to the election of a substitute director.
It is also statutorily established that in case of death, resignation, or any temporary or definitive incapacity of any director other than a director elected under the minority rule, the Board of Directors shall replace that director through co-option. This appointment shall be subject to ratification by the shareholders in the following General Meeting.
However, the definitive lack, for any reason, of a director elected under the aforementioned special rules shall lead to a new election by the General Meeting.
The Board of Directors shall appoint its Chairman.
Recognizing the benefits of diversity within its board of directors and audit board as pillar of a good governance, the company adopted a Diversity Policy for the Board of Directors and Audit Board.
With such policy, the company seeks a significant and differentiated representation of gender, origins, qualifications and professional experience, as a way to ensure its alignment with the stakeholders' interests and to achieve an enhanced balance in its composition. Such policy, takes into account not only the nature and complexity of the activities carried out by the company, but also the context in which it operates.
In light of the above said, the Company undertakes to make every effort to ensure that, in the selection of the members of said corporate bodies, criteria that assure that they meet a greater breadth and diversity of knowledge, skills, experience and values are imperative.
These criteria focus mainly on: (i) gender diversity; ii) the professional qualification along with the necessary renewal of the composition of the governing bodies, in order to ensure a compatibility between seniority and the diversification of career paths, avoiding group thinking; iii) the plurality of knowledge and iv) not considering the age as an obstacle and without a restrictive view on the limits of such age, in particular regarding the following:
Gender: gender diversity aims to promote the existence of different perspectives and styles, bringing innovation and creativity to the respective body;
Professional experience: the coexistence of professional and diversified backgrounds provides appropriate know-how to the Company's activities and to the defined strategy, namely in the following areas: financial, accounting, legal, corporate governance, securities / derivatives market, retail, industry, investor relations, banking, corporate social responsibility, risk management, auditing, procurement and asset management, marketing, environment and sustainability;
Qualifications: a balanced diversity of professional qualifications enables the company to have the skills necessary to carry out its activities and the defined strategy, taking into account their complexity. The inclusion of different areas such as engineering, economics, management, law and other areas, promotes the diversity of technical knowledge, which will allow a better understanding of the issues, risks and opportunities inherent to the activity of the company; and
Age: the society does not have a restrictive view of the age limits for the exercise of administration or supervisory functions. The company trusts that age diversity will allow to combine the experience of older members with the perspective of the younger ones, which may result in a more innovative, agile and thoughtful decision-making process.
The company undertakes to implement and monitor the alignment of this policy with the most advanced corporate governance standards and to review it with adequate frequency (always in reasonable time before each elective general meeting), taking into account also the rules and principles of non-discrimination, including on the basis of ethnic origin, race, disability or sexual orientation.
In what regards the compliance with the described policy, reference is made to Annex I, where the curricula of the members of the Board of Directors and the Supervisory Board of the company are available, showing the diversity of the same, in what referrers to gender, age, qualifications literacy and professional experience.
It should also be noted in such respect that, by reference to 31 December 2017, the company fully complied with the balanced representation of men and women in management and supervisory bodies in listed companies, imposed by law since 1 August 2017.
Pursuant to the Sonaecom's Articles of Association, the Board of Directors may be constituted by an odd or even number of members, between a minimum of three and a maximum of twelve, elected by the shareholders in the General Shareholders' Meeting. The Board of Directors' term of office is four years. Its members may be re-elected.
| Members | Date of 1st Appointment | End of term of Office |
|---|---|---|
| Angêlo Gabriel Ribeirinho dos Santos Paupério | 24/04/2007 | 31/12/2019 |
| António Bernardo Aranha da Gama Lobo Xavier | 23/04/2010 | 31/12/2019 |
| Maria Claúdia Teixeira de Azevedo | 05/04/2006 | 31/12/2019 |
Ângelo Gabriel Ribeirinho dos Santos Paupério Chairman of the Board of Directors António Bernardo Aranha da Gama Lobo Xavier Non-Executive Director
Maria Cláudia Teixeira de Azevedo Executive Director and CEO of the Software and Technologies areas and Online & Media
The academic qualifications, experience, and duties of the directors are given in Appendix I of this report.
20. Significant family, professional, and commercial relationships of the members of the Board of Directors with shareholders that have qualified shares
Maria Cláudia Teixeira de Azevedo, executive member of the Board of Directors, is daughter of Maria Margarida Carvalhais Teixeira de Azevedo and sister of Nuno Miguel Teixeira de Azevedo and Duarte Paulo Teixeira de Azevedo, all shareholders of Efanor Investimentos, SGPS, S.A. ("Efanor"), a company that holds the control of Sonaecom's share capital. Duarte Paulo Teixeira de Azevedo (brother of the referred director) is also Co-CEO of Sonae – SGPS, S.A. – a company that holds, as of 31 December 2017, an 88.36% share in Sonaecom, corresponding to 89.97% of the voting rights. The Chairman of the Board of Directors of Sonaecom, Ângelo Gabriel Ribeirinho dos Santos Paupério, is Co-CEO of Sonae – SGPS, S.A., shareholder of Sonaecom in the terms described above.
21. Distribution of competences among the various corporate bodies, committees, and/or company departments, including information about delegation of competence, in particular regarding delegation of the company's daily management
Sonaecom's corporate structure clearly describes the functions, responsibilities and duties of its bodies.
The Board of Directors is responsible for managing the company's business, monitoring risks, handling conflicts of interest, and executing the organisation's objectives and strategy.
Sonaecom's Articles of Association allow the Board of Directors to delegate powers in an Executive Committee when it comes to everyday business, duties and management responsibilities. However, the articles of association do not allow the Board of Directors to approve capital increases, which has to be decided in the General Shareholders' Meeting.
All the terms of reference for the Board of Directors, approved at the Board Meeting held on 3 May 2012 and amended by the resolutions taken on 2 November 2015 and 13 March 2017, may be viewed on the company's website (www.sonae.com) at http://other.static.sonae.com/2017/05/30/Scom\\\Regulamento\_BoD\\\_2017\_03\_13\_ENG/Scom\\\_Regulamento\_BoD\\_\_2017\_03\_13\_ENG.pdf
The Board of Directors is advised by a series of corporate functions:
Main duties:
To ensure the control of internal processes and transactions and the reliability and timely reporting of financial, fiscal, and management information;
Accounting records of transactions and preparation of individual and consolidated financial reports for the companies;
Efficient management of the Sonaecom Group's cash;
Main duties:
Supporting the development of the corporate and/or business strategy;
Promoting, leading, and implementing the annual strategic planning;
Leading and monitoring the annual Sonaecom budgeting process, as well as preparing the report on budget implementation;
Challenging the corporate business and areas as regards the goals set so as to constantly improve and optimise the efficiency of Sonaecom's business, performance, and results;
Preparing and analysing business management information, as well as consolidated data, on a monthly, quarterly, and annual basis, analysing deviations from the budget and proposing corrective actions;
Supporting decisions for the allocation of capital to ongoing businesses and new business opportunities; analysing the invested capital and the return on the invested capital;
Creating business plans together with the business management teams;
Performing technical and benchmark studies for the business in order to evaluate its performance in comparison with competitors and other players in the market.
The Risk Management is ensured at the level of company business. Thus, each business unit is involved in the functional processes, with the responsibility of implementing internal controls and managing specific risks. In general, the main responsibilities of each one of the businesses involves:
Promoting a culture of risk awareness, as well as mediating and managing the business risks that interfere with the achievement of objectives and the creation of value in the organisation;
Promoting and monitoring the implementation of programmes and actions aimed at bringing risk levels close to the acceptable levels established by the management.
Main duties:
Assessing risk exposure and checking the effectiveness of risk management and internal controls through the execution of audits of business processes and information systems;
Proposing measures to improve controls and monitor the evolution of risk exposure associated with the main audit findings.
Main duties:
Legal management of company governance and monitoring of compliance with best practices in this area;
Monitoring, controlling and ensuring compliance of business activities in Software, and Technologies and Online & Media areas;
Drafting and/or analysing contracts to maximise security and reduce legal risks and potential costs;
Management of all aspects pertaining to the intellectual and industrial property of the various businesses, such as brands, trademarks, names, patents, logos, domain names and copyright;
Execution of all public deeds, registrations and notarial procedures required for business, whether they are commercial, property, or corporate;
Management of all dispute processes;
Support to obtain the various licences required for business;
Monitoring the development of the legislation relevant to the Group's business;
Legal support in national and international operations of the company's business, as well as analysis of new national and international operations, in particular, in the latter, regarding the legal environment in the countries under analysis;
Mergers/demergers, acquisitions, winding up, liquidations and similar corporate restructuring.
Main duties:
Support to senior management on the implementation and development of human resources policies;
Defining and implementing the human resources strategy, planning and talent management on various levels;
Ensuring the presence and development of the technical and management competences of Sonaecom executives, either through the implementation of adequate recruitment and selection practices, or through the design and implementation of transversal training and/or individualised training and development plans;
Developing human resources management models and processes in areas such as remuneration and benefit policy; career management; social climate monitoring and development; administrative management and salary processing; staff budgeting and reporting on human resources issues; occupational health, hygiene; and safety management;
Monitoring legal occupational issues;
Main duties:
The terms of reference of the Board of Directors are available on the company's website (www.sonae.com) at
The Sonaecom Board of Directors meets at least four times every year, as specified by the Company's Articles of Association, and whenever the Chairman or two members of the Board of Directors call a meeting. Five meetings of the Board were held in 2017 with a 100% attendance rate, in person. The following table displays detailed information about the attendance at meetings:
| Date | Participants |
|---|---|
| 13 March 2017 | Ângelo Paupério Cláudia de Azevedo António Lobo Xavier |
| 17 May 2017 | Ângelo Paupério Cláudia de Azevedo António Lobo Xavier |
| 28 July 2017 | Ângelo Paupério Cláudia de Azevedo António Lobo Xavier |
| 13 November 2017 | Ângelo Paupério Cláudia de Azevedo António Lobo Xavier |
| 15 December 2017 | Ângelo Paupério Cláudia de Azevedo António Lobo Xavier |
To establish the variable component of remuneration, an individual evaluation of the Executive Directors' performance is carried out by the Remuneration Committee, which represents the company's shareholders, accordingly with the remuneration policy approved at the Shareholders' General Meeting. This evaluation is performed once the company's performance is known.
The performance evaluation of the Executive Directors is based on predetermined criteria, consisting of objective performance indicators established for each period and aligned with the overall strategy of growth and positive business performance.
These indicators consist in business, economic and financial Key Performance Indicators (KPIs) and are subdivided into collective, departmental and personal KPIs.
Collective business KPIs include economic and financial indicators based on the budget, on the performance of each business unit, as well as on the consolidated performance of Sonaecom.
In turn, departmental business KPIs are similar in nature to the previous ones, being directly influenced by the performance of the business Executive Director.
Personal KPIs include objective and subjective indicators and seek to assess the compliance with the obligations and commitments undertaken individually by the executive director.
The information regarding the positions held by the company directors simultaneously in other companies, inside and outside the group, is disclosed in Appendix I of this report.
Each one of the members of the Board of Directors consistently displayed their availability to perform their duties, attending meetings and taking part in the respective works on a regular basis.
At the Board Meeting held on 13 March 2017, the Board of Directors resolved to delegate to an Executive Committee the powers to manage the day-to-day operations of the Company, with the following powers:
a) To appoint the Chairman of the Board;
i) To approve the Company's annual budget and the financing of the Group's Business plan and any significant change thereto;
The terms of reference of the Executive Committee (included in Board of Directors' Terms) are available on the company's website, at http://other.static.sonae.com/2017/05/30/Scom\\\Regulamento\_BoD\\\_2017\_03\_13\_ENG/Scom\\\_Regulamento\_BoD\\\_2017\_03\_13\ ENG.pdf
The Board of Directors, in virtue of the company's dimension, considers that keeping any other specialized Committee is unnecessary.
The company keeps a Corporate Governance Officer, who reports to the Board of Directors, through the Chairman, or when there is one, through the Senior Independent Non-Executive Director.
In particular, the main duties of the Corporate Governance Officer are:
(iv) Supporting the Board in defining its role, objectives and operating procedures; taking a leading role in organising Board evaluations and assessments;
(v) Keeping all Legislative, Regulatory and Corporate Governance issues under close review; supporting and challenging the Board to achieve the highest standards in Corporate Governance;
(vi) Ensuring that the Board is conscious of the concept of stakeholders and the need to protect minority interests, when important business decisions are being taken by the Board of Directors;
(vii) Helping to ensure that the procedure to nominate and appoint Directors is properly carried out and assist in the induction of new directors;
(viii) Acting as a primary point of contact and source of advice and guidance for Non-Executive Directors in particular as regards the company and its activities; facilitating and supporting the Independent Non-Executive Directors in the assertion of their 'independence';
(ix) Helping to ensure compliance with the continuing obligations of the Portuguese Securities Market Commissions;
(x) Participating in making arrangements for and managing the process of Shareholders' General Meetings;
(xi) Participating in the arrangement of insurance cover for Directors and Officers;
(xii) Participating, on behalf of the company, in external initiatives to debate and improve Corporate Governance regulations and practices in Portugal.
The Executive Committee is composed as follows:
Ângelo Gabriel Ribeirinho dos Santos Paupério - Chairman
Maria Cláudia Teixeira de Azevedo – Board Member
The Board of Directors, given its composition and considering the company's dimension trusts that keeping any specialized Committee is unnecessary.
The company has a Corporate Governance Officer, with the functions and responsibilities disclosed in section 27 of this Report.
The company has also a company's secretary, who is responsible for:
Under the adopted governance model, the Board of Auditors and the Statutory Auditor Board are the company's supervisory bodies.
In accordance with the Articles of Association, the SAB may be made up of an odd or even number of members, with a minimum of three and a maximum of five members, elected for four-year terms. The SAB also includes one or two alternate members, depending on whether the number of members is three or more.
In 2017, the Board of Auditors was composed of the following members, elected for the 2016/2019 four-year period:
| João Manuel Gonçalves Bastos | Chairman |
|---|---|
| Maria José Martins Lourenço Fonseca | Member |
| Óscar José Alçada da Quinta | Member |
| António Augusto Almeida Trabulo | (Alternate Member) |
The Statutory External Auditor is identified in Chapter IV of this Report.
All members of the Statutory Audit Board ("SAB") are independent under the terms of article 414, paragraph 5, and they are not covered by any incompatibility under the terms of article 414-A paragraph 1, both from the Portuguese Companies Act. The Statutory Audit Board carried out an assessment of the independence of its members by the renewal of written declarations issued individually.
Members of the Statutory Audit Board must notify the company immediately of any occurrence during the course of their terms of office that gives rise to incompatibilities or a loss of independence, as required by law.
Professional qualifications and other relevant curricular elements are disclosed in Appendix I of this Report.
The operating regulations of the Statutory Audit Board can be consulted in the Sonaecom website (www.sonae.com), at http://other.static.sonae.com/2016/03/22/Statutory\_Audit\_Board\_ToR\_Nov2015/Statutory\_Audit\_Board\_ToR\_Nov2015.pdf.
The annual report and opinions of the Statutory Audit Board are published during each financial year, together with documents relating to accountability of the Board of Directors, available athttp://www.sonae.com/investidores/informacao-financeira/relatorios/?l=en (the 2017 documents are in the folder MR&A 2017 /Chapter IV).
The resolutions of the Statutory Audit Board are taken by a majority of the votes, with dissenting members being required to give their reasons for dissent in the minutes.
The Statutory Audit Board meets at least once a quarter. In 2017, the Statutory Audit Board held five meetings with a 100% attendance rate.
Members of the Statutory Audit Board consistently demonstrated their availability when carrying out their functions, having regularly attended meetings of the board and taken part in the respective work.
Information relating to other posts held by the members of the Statutory Audit Board, as well as those members' qualifications and professional experience are available in Appendix I to this report.
The Statutory Audit Board shall have the authority to approve the provision of services that are additional to the audit services provided by the External Auditor.
To that end, at the first meeting held in each financial year, the Statutory Audit Board schedules a work plan that includes supervisions of the External Auditor's activity in matters concerning: (i) the External Auditor's annual activity plan; (ii) monitoring of work performed and review of conclusions of the audit work and of interim and annual statutory audits; (iii) overseeing the External Auditor's independence; (iv) providing services other than audit services, in fulfilment of Recommendation CMVM IV.2 and (v) assessing annual activity.
In the assessment of criteria that supports the hiring of additional duties to the Statutory External Auditor, the Board verifies the presence of the following:
contracting additional services should not affect the independence of the External Auditor;
additional services do not account for a surcharge of more than 30%;
additional services not prohibited (according to the legislation currently in force) shall be provided with high levels of quality, autonomy and independence in relation to the services carried out as part of the audit process;
the necessary factors guaranteeing independence and exemption are in place.
The Statutory Audit Board, while performing its statutory and legally assigned functions, including the ones set out in Art. 420 of the Portuguese Companies Act, has the following main duties, among others:
a) To oversee the company's management;
b) To oversee compliance with legal and regulatory requirements and the company's Articles of Association;
c) To verify that the books of account, accounting records and supporting documentation are correctly maintained and kept up to date;
d) To verify the accuracy of the documents used in the presentation of the accounts;
e) To verify if the accounting policies and accounting criteria used by the company are suitable to showing a true and fair view of the financial position and the results of its operations;
f) To prepare an annual report on the supervisory work performed and express an opinion on the management report, accounts and other proposals submitted by the Board of Directors, in which it should express its agreement or not, with the management report and the year's accounts;
g) To check if the disclosed corporate governance report includes the information listed in Art. 245.º - A of the Portuguese Securities Code;
h) To convene the Shareholders' General Meeting, should the Chairman of the General Meeting fail to do this in circumstances when it is necessary; i) To assess the risk management systems, internal control system and internal audit system and to monitor the effectiveness of them, and receive the respective reports;
j) To oversee the independence of the internal audit function, particularly with regard to restrictions to its organisational independence and any lack of resources for internal audit activity;
k) To receive communications of alleged irregularities occurring in the company and presented by the company's shareholders, employees or others;
l) To appoint and hire services from experts to help one or more members in the exercise of their duties. The hiring and fees of these experts should take into consideration the complexity of the matters involved and the financial position of the company;
m) To oversee the preparation and disclosure of financial information;
n) To propose the appointment of the Statutory External Auditor to the Shareholders' General Meeting and corresponding remuneration;
o) To oversee the company's financial statements, and to assess the Statutory External Auditor on an annual basis and recommend their dismissal to the Shareholders´ General Meeting, if there is due case to do so;
p) To assure that the company provides the Statutory External Auditor with the necessary conditions for carrying out its duties, to intermediate between him and the company, as well as, to receive the reports;
q) To issue a prior opinion on relevant business activities (higher than 10 million euros) with qualified shareholders, or entities with whom they are in any relationship, according to Art. 20 of the Portuguese Securities Code;
r) To carry out any other supervisory duties required by law.
The SAB obtains all the necessary information to carry out its duties from the Board of Directors, namely relating to the operational and financial progress of the company, changes to its business portfolio, the terms of any transactions that have occurred and the details of the decisions taken.
The SAB is the overall supervision body of the company for matters of internal control and risk management, acts in an independent manner and has primacy over other bodies regarding the supervision of those matters.
The full Terms of Reference of the Statutory Audit Board are available on the company's website (www.sonae.com), at http://other.static.sonae.com/2016/03/22/Statutory\_Audit\_Board\_ToR\_Nov2015/Statutory\_Audit\_Board\_ToR\_Nov2015.pdf.
The Statutory Auditor is the supervisory body responsible for the legal certification of the Company's financial information with the following competences:
a) To check the regularity of all books, records and supporting documents;
b) To check the extension of cash and values of any type of assets or securities belonging to the Company or received as a guarantee, deposit or another purpose whenever it feels appropriate and through whatever means it deems appropriate;
c) To check the accuracy of financial statements and express opinions regarding them on the Statutory Audit Certificate and on the Audit Report; d) To verify that the accounting policies and valuation criteria adopted by the Company result in the correct valuation of assets and results;
e) To perform any examinations and tests required for the audit and legal certification of accounts and execute all procedures set forth in the law; f) To verify, within its functions, the implementation of policies and remuneration systems, as well as the efficiency and effectiveness of the internal control mechanisms, reporting any deficiencies to the Statutory Audit Board, within the limits of legal powers and applicable procedures; g) To evaluate if the corporate governance report includes the information listed in Art. 245-A of the Portuguese Securities Code.
The Statutory External Auditor is PWC – Price Waterhouse Coopers & Associados, Sociedade de Revisores Oficiais de Contas, LDA., registered at OROC under the no. 183 and at the Portuguese Securities Market Commission under the no. 20161485, represented by Hermínio António Paulos Afonso or by António Joaquim Brochado Correia integrating the mandate of 2016/2019.
The alternate Statutory External Auditor is Joaquim Miguel de Azevedo Barros (Statutory External Auditor no. 1426, registered at the Portuguese Securities Market Commission under the no. 20161036).
In 2016, a new mandate corresponding to the 2016/2019 four-year period began and PWC – Price Waterhouse Coopers & Associados, Sociedade de Revisores Oficiais de Contas, LDA. was elected to the post of Statutory External Auditor, through a proposal submitted by the Statutory Audit Board to the Shareholders' Annual General Meeting held on 29 April 2016.
PWC – Price Waterhouse Coopers & Associados, Sociedade de Revisores Oficiais de Contas, LDA. performs the duties of an External Auditor and provides other services of assurance under the supervision of the Statutory Audit Board.
42. Identification of Statutory external auditor designated for the purposes of article 8 and of the partner who represents it in the performance of these duties, as well as the respective registry number at the Portuguese Securities Market Commission (CMVM).
The Sonaecom External Auditor, designated for the purposes of Article 8 of the Portuguese Securities Code, is PWC – Price Waterhouse Coopers & Associados, Sociedade de Revisores Oficiais de Contas, LDA. registered at OROC under the no. 183 and at the Portuguese Securities Market Commission under the no. 20161485, represented by Hermínio António Paulos Afonso or by António Joaquim Brochado Correia.
The alternate Statutory External Auditor is Joaquim Miguel de Azevedo Barros (Statutory External Auditor no. 1426, registered at the Portuguese Securities Market Commission under the no. 20161036).
43. Number of consecutive years in which the external auditor and the respective partner who represents it have performed duties for the company and/or for the Group
PWC – Price Waterhouse Coopers & Associados, Sociedade de Revisores Oficiais de Contas, LDA. was first elected on 29 April 2016, to integrate the mandate 2016/2019.
The Statutory Audit Board has adopted the recommended principle of not replacing the External Auditor after the end of two four-year mandates if, after a careful assessment, it concludes that the supervision of its activity does not interfere with the independence of the External Auditor, and the advantages and costs of renewing the mandate outweigh its replacement. Such principle shall also meet the conditions set forth in article 54º, paragraphs 4 and 5 of Law nº 140/2015, of 7 September.
Based on the company's governance model, the appointment or removal of the Statutory Auditor/External Auditor is decided at the General Shareholders Meeting, based on a proposal from the Statutory Audit Board.
The Statutory Audit Board oversees the performance of the External Auditor and the work done each year, considers and approves the additional work to provide and, annually, prepares an overall appraisal of the External Auditor, which includes an assessment of their independence.
46 and 47. Work other than auditing performed by the External Auditor for the company and/or for companies with which it is in a control relationship, as well as reporting on the internal procedures for purposes of approval of the contracting of such services and the reasons for such hiring and the annual remuneration paid by the company and/or by legal entities in a control or group relationship to the auditor and to other individuals or legal entities belonging to the same network, and break out of the percentages for each service.
The remuneration paid to the Statutory External Auditor and to the External Auditor, PWC – Price Waterhouse Coopers & Associados, Sociedade de Revisores Oficiais de Contas, LDA. In 2017 and 2016, by proposal of the Statutory Audit Board, and to other individuals and entities of the same company network, supported by the Company and/or by corporate entities in a control relation with the latter, are as follows, analysed by type of service:
| 2017 | 2016 | |||
|---|---|---|---|---|
| Values in € | % | Values in € | % | |
| For the company * | ||||
| Statutory audit review | 18 926 | 11% | 17 138 | 13% |
| By entities inclued in the group | ||||
| Statutory audit review | 143 031 | 86% | 101 135 | 77% |
| Other guarantee and reliability services | - | - | 13 000 | 10% |
| Other services | 3 572 | 2% | - | - |
| Total | ||||
| Audit services | 161 957 | 98% | 118 273 | 90% |
| Other services | 3 572 | 2% | 13 000 | 10% |
| Total | 165 529 | 100% | 131 273 | 100% |
(*) Includes individual and consolidated accounts.
The additional services to the auditing services were contracted from the External Auditor upon authorisation from the Statutory Audit Board, which recognised that the contracting of the additional services did not affect the External Auditor's independence, and corresponded to the satisfaction of the company interests, given the provider's expertise, the history of providing services in those areas and the knowledge of the Company and its Group.
As an additional safeguard, the SAB receives and analyses the information about the fees and services provided by the Statutory Auditor every quarter and in the adoption of the procurement of services to the External Auditor, it was ensured that:
a) no prohibited services are provided according to Law 140/2015, which came into force on 1 January 2016;
b) the additional services do not account for a surcharge of more than 30%;
c) the tax consulting services and the other services, when existing, are provided by experts other than those who were involved in the audit process;
d) the fees paid by Sonaecom group to the PWC group represented less than 1% of PWC's total billing in Portugal:
e) the External Auditors' internal control system, according to the provided information, monitors the potential loss of independence risks, or of any conflicts of interest with Sonaecom and ensures the quality and the rules of ethics and independence.
Every year a Declaration of Independence is prepared by the External Auditor, in which they guarantee the respective independence and compliance with international guidelines in matters of auditor independence (IFAC – International Federation of Accountants).
48. Rules applicable to amendment of the company's articles of association
Amendments to the company's articles of association follow the terms of the Portuguese Companies Act, requiring a two-thirds majority of the votes cast for approval. For the Shareholders' General Meeting to be held, in the first occasion it is convened, the Company's Articles of Association require that a minimum of 50% of the issued share capital should be present or represented at the meeting.
Sonaecom's values and principles, widespread and deeply rooted in the culture of its people, are based on absolute respect and the adoption of rules of good conduct in the management of conflicts of interests and duties of care and confidentiality, having adopted a Code of Ethics and Conduct which sets out the principles and standards of conduct that reflect the culture of the company.
This Code of Conduct, which should guide the actions of its employees when exercising their functions, is available at http://www.sonae.com/investidores/governo-das-sociedades/codigo-de-etica-e-conduta/
Any individual who seeks to report an irregularity that they think has been or know to have been committed by any manager, staff member or partner of Sonaecom shall do so through a letter sent to the Statutory Audit Board, with a brief description of the facts. The identity of the discloser will be kept anonymous if this is expressly requested.
The complaint will be analysed and, if there are grounds for reporting an irregularity, the appropriate steps will be taken.
The Statutory Audit Board has statutory accountability in this process, specifically to receive reports of alleged irregularities, submitted by company stockholders, by staff or by other parties. After the receipt, the Statutory Audit Board must record all alleged irregularities reported, undertake an investigation with due diligence by the Board of Directors through internal and/or external auditing, and to report its/their conclusions.
Risk Management is one of the components of Sonaecom's culture and a pillar of the Corporate Governance, which is why each business unit in Sonaecom has, as part of its competencies in the functional processes, the responsibility of implementing internal controls and management of specific risks.
At the same time, the Internal Audit Department evaluates the exposure to risk and verifies the effectiveness of risk management in the internal controls of business processes and information systems. Additionally, it proposes measures to improve controls and monitor the evolution of risk exposure associated with the main audit findings and conclusions.
The Board of Directors monitors the activities of the Internal Audit Department, which reports functionally to the Statutory Audit Board, as a supervisory body and independent entity of the Board of Directors. Internal Audit can meet with the Statutory Audit Board, without the presence of any member of the Board of Directors.
As regards matters of internal control and risk management, the Statutory Audit Board is the supervisory statutory body, acting independently and with the responsibility of overseeing the Internal Audit plan of activities, gathering regular information on their work, evaluating findings and issuing the guidelines it deems necessary.
The External Auditor, within the scope of the annual audit process, analyses the functioning of internal control mechanisms and reports identified shortcomings.
Responsibilities for the creation, operation and periodic evaluation of the internal control and risk management systems are published under the terms of reference of the Board of Directors and the Statutory Audit Board, all of which are available at the company's website.
Besides the areas mentioned above, Sonaecom has other functional areas and business processes with competency in controlling and monitoring risks, in particular the following:
The functions of Planning and Control, along with the respective pivots in the business areas, are responsible for preparing and monitoring the execution of annual plans of action as well as resources, budgets and forecasts in the finance and operating areas;
The various business areas have processes and indicators to monitor operations and KPIs;
Risks are presented and ranked, in the present section, based on the ranking and structure of Sonaecom's Business Risk Management (BRM). BRM is a systematic way of identifying risks that affect the organisation (everyday language) and makes it possible to define and group risks along with their main causes (dictionary of risks).
According to Sonaecom's BRM, economic risks are associated with the following risk categories: business environment, strategy, operations, information processing and technology, empowerment and integrity.
Sonaecom is exposed to the current adverse economic environment in Portugal, although, due to the increasing pace of the internationalisation of the Software and Technology area, this exposure is more and more mitigated.
Regarding WeDo Technologies, the impact of the adverse economic environment in the business is diluted due to regional expansion, to the expansion of the respective product portfolio and to the expansion to other business sectors.
S21Sec, although mainly operating in the Spanish market, in which the economic recovery has been slower, mitigates that risk by operating in a segment of high growth and criticality in organizations.
In the case of Bizdirect, although it is still highly dependent on the national market for IT equipment, the company has continued to diversify its risk with the provision of software licensing corporate agreements' management services and with the expansion of the Microsoft solutions integration activity.
Saphety has a constant position in the domestic market as a leader in process simplification and automation solutions and has been investing in the expansion of this activity into the international market.
In the case of Público, the exposure to a segment that is going through a period of financial crisis and changing of reading trends has forced the definition of a restructuring project. With the need to ensure sustainability without compromising its role as an independent information source in
Portugal, Público has continued to conduct this project, which involves a greater focus on meeting growing demands in the digital world and a sizeable reduction in its operating costs structure.
Bright Pixel, despite acting in very early stages of business and in venture capital areas, is able to mitigate its risk by working in technological market with high potential for growth and international expansion. As for Inovretail, the technological argument is also applicable.
With respect to Armilars' venture capital funds, the economic risk is mitigated by asset portfolio diversification, which operates in different segments and different geographic markets.
For Sonaecom, having an optimised technology infrastructure is a critical success factor that helps to reduce potential failures in leveraging technological developments. Accordingly, its various businesses continue to take actions to optimize the technological structure and boost innovation.
WeDo Technologies is certified in Research, Development and Innovation Management (NP 4457:2007). This certification, along with its existing quality certification (ISO 9001:2008), helps the company to continue innovating sustainably and helps to mitigate potential risk factors, ensuring that the offer is continuously adapted to technological trends. In 2015, WeDo Technologies also managed to be awarded ISO/IEC 27001: 2013 certification, for the Managed Services area.
S21Sec operates in a sector that demands constant innovation and a clear domain of all technological trends and it continuously invests in research and innovation. It is also certified by UNE-EN ISO 9001:2008 quality management and by UNE- ISO/ IEC 27001:2007, Information Security management International reference Standard.
Although Bizdirect assumes cloud computing as a risk factor for their activity, since it can cannibalise the market for the sale of infrastructure and reduce procurement of systems by clients, it also assumes it as a chance to extend its offer. Strategic relationships with partners allow them to offer a full portfolio of products, including cloud solutions. We emphasise, for example, the partnership that allows Bizdirect to offer integration of Microsoft solutions, such as Dynamics CRM, SharePoint, BizTalk, and Office 365.
Inovretail is certified in Research, Development and Innovation Management (NP 4457:2007) and in Quality by ISO 9001:2008.
Público has continued with restructuring of its layout and content and in adopting technological innovations in its online edition. These innovations are designed to ensure a greater alignment with the new reading habits of the Portuguese, offering new access channels to information using smartphones and tablets, as well as sustaining Público's position as the leading non-specialist online newspaper.
Sonaecom's various companies are exposed to risks of competition from other operators in the domestic and international markets in its respective businesses sectors.
WeDo Technologies may be most exposed to international competition; however, it is known as the worldwide leader in revenue assurance software and is a top-three global competitor in the aggregate market for revenue assurance and fraud management.
The risk of specialization and consequent limitation of activity due to portfolio has been mitigated in all Sonaecom's businesses, through the expansion of the product line or business segments.
WeDo Technologies continues to consolidate its global presence outside Portugal and has identified new target business sectors since 2009, in order to reduce exposure to centralization in a single market and in a single line of products. Therefore, to offset the concentration of clients in the telecommunications sector, it expanded the scope of its activity into new sectors, like retail, energy, and financial sectors. It also enlarged its product portfolio, expanding from revenue assurance and fraud management to business assurance. Also, since 2012, following the acquisition of Connectiv Solutions in the USA, WeDo Technologies has made a commitment to managed services and Software as a Service (SaaS).
In the case of S21Sec, one of the strategic priorities is to strengthen its position in the telecommunications sector, while still maintaining its focus in the financial segment. In addition, its product portfolio is to be extended in order to evolve in the e-crime market and incorporate analytic technologies, thus allowing the expansion of its operating area.
Bizdirect has recently expanded its portfolio to the integration of solutions focused on Microsoft technologies.
Saphety, apart from being divided into three types of solutions that can operate in integrated fashion SaaS: SaphetyGov, SaphetyBuy and SaphetyDoc, has widened its portfolio to a new solution: SaphetySync. This is a global standard solution, based on GS1 standard, which allows for the continuous and safe data synchronization, thus representing a differentiating key-factor for the internationalization of its portfolio.
Bright Pixel explores different types of activity being the only link to technological component.
Inovretail, despite its focus on retail segment and product sales, also includes a significant component of professional services in its portfolio.
Since Sonaecom businesses are particularly focused on the use of technology, potential faults with technical/operational resources (network infrastructure, information system applications, servers etc.) can present a significant risk of business interruption if they are not well managed. This, in turn, can pose other risks to the company, such as adverse impacts on our reputation and our brand, on the integrity of our revenues and client satisfaction, and on quality of service. These can lead to loss of clients.
In the IT sector, business clients typically have a lower tolerance for interruptions. In this context, technology companies face risks associated with the availability of software platforms that support the companies' processes as well as the corresponding clients.
To identify this specific set of risks and to implement actions for prevention and mitigation that guarantee continuity of critical services and operations, Sonaecom has adopted a Business Continuity Management (BCM) programme over several years.
Since Sonaecom is primarily a technology, media and telecommunications group, all its subsidiary companies extensively use technology and information that are typically subject to availability, integrity, confidentiality and privacy risks.
In addition to being a technological issue, security should also be considered as a cultural and behavioural issue. In this sense, awareness is a key success factor when it comes to promoting a strong culture of information security among employees, partners and key stakeholders. Sonaecom has developed several initiatives to raise awareness and accountability over the past few years, of which the following stand out:
A security communication plan based on campaigns to raise awareness of the issues considered most relevant in each year;
Publication of the information security policy on the company's Intranet, accessible to all employees from the homepage;
Clauses on personal data protection and confidentiality in contracts with employees and business partners. All employees are bound to obligations of confidentiality, secrecy and protection of personal data. As such they are forbidden from disclosing to third parties information to which they have access as a result of their roles in the company. These obligations and these duties shall remain in force even after the end of the employment relationship between the company and the employee. Our business partners have, generally, the same confidentiality obligations.
For specific issues related to the confidentiality and privacy of personal data, a few Sonaecom companies has appointed a Chief of Personal Data Protection Officer (CPDPO), who:
Has responsibility for implementing and complying with the laws and regulations applicable to data processing.
Acts on behalf of the company during interactions with the national regulatory authority for data protection (CNPD − National Data Protection Commission).
Promotes the adoption of data protection principles that are consistent with international standards and best practices.
As Sonaecom companies are customer-oriented, we give special attention to the impact that the potential failure of our products or services may have on our customers, particularly with regard to civil liability issues. Risk events can be physical (for example: damage to equipment or facilities) or non-physical (for example: error in a software installation) and, usually, they are related to accidents, unintentional acts, errors or omissions by employees or subcontractors.
The risk management strategy selected by Sonaecom for this type of risk, involves the transfer of risk through insurers in addition to the implementation of internal controls. In this context, we continue to carry out the actions designed and implemented in previous years relating to professional liability insurance, and which consist of:
Implementation of improvements in certain internal controls to further reduce the causes of risk.
Renewal of existing professional liability insurance that incorporates an extended scope of coverage and is adapted to the business realities of Technology companies and Media;
Additional subscriptions of professional liability insurance for foreign companies, improving coverage in certain international locations where our general insurance policy is not applicable due to legal restrictions.
Sonaecom's businesses are exposed to a variety of financial risks associated with its operations, namely interest rate risk, foreign exchange risk, liquidity risk, and credit risks (described and analysed in detail in the Appendix to the Annual Consolidated Financial Statements).
The financial risks management policy is determined by the Board of Directors, and the risks are identified and monitored by the Finance Department and Treasury.
In addition to a management policy for each of the identified risks and the implementation of control mechanisms to identify and determine them, Sonaecom uses, among others, natural hedges, credit insurances and, occasionally, derivative financial hedging instruments. Sonaecom's attitude in relation to financial risk management is conservative and prudent, refusing speculative purposes and resorting only to high credit quality financial institutions.
Sonaecom and its subsidiaries have the support of legal and tax departments permanently dedicated to the specifications of the corresponding activity, under management's supervision, and exercising their competencies in interaction with other functions and departments, in order to preemptively ensure the protection of the company's interests and businesses, in compliance with their legal obligations, as well as by applying good
practices. The teams in these departments have specialized training and participate in in-house and external training courses to update their knowledge.
Legal and tax advice is also provided, nationally and internationally, by outsourced resources selected from firms with established reputations and which always have the highest standards of competence, ethics and experience.
The Software and Technology companies face an additional risk relating to the globalisation process, arising because these companies have a presence in several countries, which involves specific risks relating to very different legal frameworks in each country.
They are exposed to specific national, local and sectorial laws and regulations, depending on the market they operate in; they are particularly exposed to the continuous risk of eventual regulatory changes that can condition business and, consequently, hinder or harm the range of the strategic goals.
Sonaecom collaborates with the authorities with the aim of defining an optimal legal and regulatory framework that, in our opinion, promotes the development of the Information Technology sector in Portugal. Such collaboration may involve sending comments in response to public consultations, issued by national and international entities.
The risk management process is supported by a consistent and systematic methodology, based on the international standard Enterprise Risk Management − Integrated Framework issued by COSO (Committee of Sponsoring Organisations of the Treadway Commission). This methodology aims to identify business risks, assess their causes, measure triggers, manage the identified risks and, finally, monitor them.
Derived from this general framework, the management and control of the main risks facing Sonaecom, are achieved through the following key approaches and methods:
Concerning the Enterprise-Wide Risk Management, this approach allows Sonaecom's businesses to prioritise and identify critical risks that might compromise their performance and goals and to take actions to manage those risks, within the predefined levels of acceptance. This is achieved through constant monitoring of risks and the implementation of certain corrective measures.
Regarding Safety Management, the implementation of Information Security Management processes is intended to manage the risks associated with the availability, integrity, confidentiality, and privacy of information. The scope of this process also includes the development and maintenance of the Information Security Policy, verification of compliance with policy procedures, development of training programmes and awareness, setting and supervision of KPIs for information security.
Finally, regarding the Specific Risk Management Cycles or Processes, the development of specific risk management cycles/processes enables the mitigation of critical risks that can impact certain processes, areas or entities, positioning these risks within the levels defined by the management team. In addition, it identifies and monitors other operational risks that management considers relevant.
Sonaecom acknowledges that, as with other listed companies with similar activities, it is potentially exposed to risks related to the financial and accounting reporting processes, in addition to other financial risks, as detailed above. Sonaecom's attitude concerning financial risk management is conservative and prudent, and these principles have been maintained during 2017.
Therefore, Sonaecom is committed to ensuring an effective internal control environment, particularly regarding the financial reporting process. It seeks to identify and improve the most relevant processes in terms of the preparation and disclosure of financial information, with the objectives of transparency, consistency, simplicity and materiality. The internal control system aims to obtain reasonable assurance regarding the preparation of financial statements, in accordance with accounting principles and adopted policies, and warranting the quality of financial reporting.
The internal control system for the accounting department and the preparation of financial statements includes the following key controls:
of the Director of Corporate Governance and the Legal Department. The set of documents that constitute the Annual Report are sent for review and approval by the Sonaecom Statutory Audit Board and the Board of Directors. After approval, the documents are sent to the Statutory External Auditor, which issues its legal certification of accounts and the Auditor Report.
The most significant accounting estimates are disclosed in the notes to the financial statements. These estimates were based on the best information available during the preparation of the financial statements, and in the best knowledge and experience of past and/or present events. The most significant balances and transactions with related parties are disclosed in the notes to the financial statements. In the appendix to the Report and Accounts, we present a list of all parties related to the Sonaecom Group. These are mainly associated with the operational activities of the Group, as well as the granting and obtaining of loans under arm's length conditions.
More specific information regarding how these and other risks were mitigated, is disclosed in the notes to the financial statements.
56. Department responsible for investor relations, composition, functions, information provided by these services and contact details The Investor Relations Department is responsible for managing Sonaecom's relationship with the financial community – current and potential investors, analysts and market authorities – with the goal of enhancing their knowledge and understanding of Sonaecom's businesses and activities, by providing relevant, timely and reliable information.
The department regularly prepares presentations and communications covering quarterly, half-year and annual results. It is also its responsibility to make any announcements to the market, whenever necessary, and disclose or clarify any relevant event that could influence Sonaecom's share price.
Any interested party may contact the Investor Relations Department using the following contact details:
Tel: (+351) 22 013 2349 E-mail: [email protected] Address: Edifício 1.A Lugar do Espido – Via Norte – 4471-909 Maia Website: www.sonae.com
57. Legal representative for Capital Market Relations The legal representative for Capital Market Relations and Euronext is António Bernardo Aranha da Gama Lobo Xavier, who may be contacted by phone or e-mail: Tel: (+351) 22 013 2349 E-mail: [email protected] / [email protected] Address: Edifício 1.A Lugar do Espido – Via Norte – 4471-909 Maia
58. Details regarding information requests received during the target year or pending from previous years, amount and average response time During 2017, the Investor Relations Department received a normal number of information requests, considering the size of the company in the capital markets. These information requests were submitted either by e-mail or post, or by phone. The response to these requests was provided with the maximum possible speed. The average response time, without prejudice to the complexity of the matter, didn't exceed 2 working days.
Company's website: www.sonae.com
60. Location of the information mentioned in Article 171 of the Portuguese Companies Act
Website: http://www.sonae.com/investidores/governo-das-sociedades/identificacao-da-sociedade/?l=en
61. Location where the Articles of Association, Bodies and/or Committees' regulations can be found
http://other.static.sonae.com/2015/05/19/Articles\_of\_Association\_of\_Sonaecom\_SGPS\_SA/Articles\_of\_Association\_of\_Sonaecom\_SGPS\_S A.pdf?download=1
http://www.sonae.com/investidores/governo-das-sociedades/orgaos-de-governacao/?l=en in the documents called "Internal Regulation of The Board of Directors" and "Statutory Audit Board"
Websites:http://www.sonae.com/investidores/governo-das-sociedades/orgaos-de-governacao/?l=en http://www.sonae.com/investidores/contactos/?l=en
Accounting documents: http://www.sonae.com/investidores/informacao-financeira/relatorios/?l=en Calendar of corporate events: http://www.sonae.com/investidores/calendario-do-investidor/?l=en
64. Location of the notice for the General Meeting and all the preparatory and subsequent information related to it Website: http://www.sonae.com/investidores/assembleia-geral/?l=en in the document called "Notice of meeting" included in each of the annual folders
65. Location of the historical records with the resolutions taken at the Company's General Meetings, the represented share capital and the voting results, with reference to the previous three years
Website: http://www.sonae.com/investidores/assembleia-geral/?l=en
66. Competence for determining the remuneration of Governing bodies, members of the Executive Committee or Managing Director and the Company's Directors
Sonaecom's Remuneration Committee is responsible for approving the remuneration of Board members and other Statutory Governing Bodies, on behalf of the shareholders and under the terms specified in the compensation policy approved at the Shareholders' General Meeting.
Sonaecom has a Remuneration Committee consisting of two members: Duarte Paulo Teixeira de Azevedo, on behalf of Sonae SGPS, S.A. and Francisco de la Fuente Sánchez, on behalf of Sontel BV.
The company has not hired any entities to provide regular support to the Remuneration Committee.
When establishing the remuneration policy, the Remuneration Committee resorts to benchmark studies on remuneration practices annually disclosed by the internationally renowned consultants Hay Group and Mercer, and also by companies included in the main Portuguese Stock Market Index (PSI 20), in order to ensure that the statutory governing bodies' remuneration policy to be submitted to the approval of the Shareholders' Annual General Meeting fulfils comparable market standards.
The members of the Remuneration Committee are independent in relation to the Board of Directors.
The experience and professional qualifications of the members of Sonaecom's Remuneration Committee are disclosed in their curricula vitae and available for consultation in Appendix II of this report. These qualifications allow them to exercise their responsibilities competently and accurately, each having the appropriate skills to perform their duties.
During 2017, the Remuneration Committee held one meeting with a 100% attendance rate.
Sonaecom's remuneration policy is structured in order to find a balance between the performance of Executive Directors in relation to goals established for them, and the Company's positioning in the market and comparable situations. Proposals regarding the remuneration of members of the Statutory Governing Bodies are elaborated taking into account (i) overall market comparisons, (ii) practises of similar companies, including other segments of the Group with comparable situations and (iii) the individual assessments and performance.
Remuneration policy constitutes therefore a formal means of aligning the interests of the Company's management with those of shareholders, such that, among the various component parts of the remuneration package, the variable component, the value of which depends on the individual's and Sonae's performance, is given high importance. A management approach focusing on the long term interests of the Company in which business risks are carefully considered, is thus encouraged.
The remuneration policy includes control mechanisms, which consider the link between individual and group performance, in such a manner as to avoid behaviour which is likely to involve excessive risk. This goal is also achieved by limiting the maximum value of each KPI. The body responsible for approval of the remuneration of both executive and non-executive members of the Board of Directors and the other statutory governing bodies of the Company, is the Shareholders' Remuneration Committee, whose members are elected and remuneration decided upon at the Shareholders' General Meeting.
As part of the Company's principles of corporate governance, guidelines regarding remuneration policy have been established and reflected in the Remuneration and Compensation Policy, currently in operation (available for consultation at the website http://other.static.sonae.com/2017/03/27/4.SCOM\_Proposta4.0ENG/4.SCOM\_Proposta4.0ENG.pdf?download= and approved at the Shareholders' General Meeting held on 28 April 2017. The Remuneration and Compensation Policy is based on the following principles:
At Sonaecom, the remuneration policy is determined by comparison with the overall market and the practices of comparable companies. This information is obtained from the main remuneration surveys carried out independently for Portugal and the main European markets. Currently, the market surveys conducted by Mercer and the Hay Group are used as references.
The average value for top managers in Europe is used to determine the figures for the overall market. The companies that make up the pool of comparable companies, are those included in the Portuguese stock market index, the PSI-20.
The remuneration paid to Executive Directors is based on comparisons with the market, using market studies on top managers' remuneration packages in Portugal and across Europe, seeking to ensure that fixed remuneration is equal to the median market value and the total remuneration is close to the market third quartile.
A significant part of the remuneration of Sonae's executive directors is determined by the success of the Company. The variable component of remuneration is structured in such a way as to establish a link between the sums awarded and the level of performance, both at individual and group level. If predefined objectives are not achieved, measured through KPIs applicable to the business and to the individual performance, the value of short and medium term incentives will be partially or totally reduced.
Part of the variable remuneration of Executive Directors is paid in the form of shares and deferred for a period of 3 years.
Given that there is a link between the Company's share prices and its performance, the remuneration paid will be impacted by the manner in which the Executive Director has contributed towards this result. Hence, the interests of directors are aligned with those of Shareholders and with medium term performance.
All aspects of the remuneration structure are clear and openly disclosed internally and externally through documentation published on the Company's website. This communication process contributes towards promoting equal treatment and independence.
Executive Directors' remuneration at Sonaecom aims to be reasonable, ensuring the balance between the Company's interests and market positioning, the expectations and motivations of our employees and the need to retain talent.
The Remuneration and Compensation Policy currently in place, was approved at the Shareholders' General Meeting that took place on the 28 April 2017, and is based on the following principles:
· no compensation payments to Board Directors or members of Statutory Governing Bodies related to the cessation of their duties, whether their resignation occurs according to their original mandate or whether it is anticipated for whatever reason, without prejudice to the obligation of the Company to comply with any relevant legislation in force in this area;
· non-existence of any specific system of benefits, in particular relating to retirement, in favour of members of the Board of Directors and auditing bodies.
Sonaecom reviews its remuneration policy annually as part of its risk management process, in order to ensure that it is entirely consistent with its desired risk profile. During 2017, no problems relating to payment practice were found that posed significant risks to the Company.
In designing remuneration policy, care has been taken not to encourage excessive risk-taking behaviour, attributing significant importance, but at the same time a balanced approach, to the variable component, thus closely linking individual remuneration to group performance.
Sonaecom has in place internal control procedures concerning remuneration policy, which target the identification of potential risks. Firstly, the variable remuneration structure is designed in such a way as to discourage excessive risk-taking behaviour to the extent that remuneration is linked to the evaluation of performance. The existence of KPI goals constitutes an efficient control mechanism. Secondly, the Company does not allow contracts to be signed that would minimise the importance of the Medium Term Incentive Plan (MTIP). This policy includes forbidding any transaction that might eliminate or mitigate the risk of share price variations.
The remuneration of the members of the Statutory Audit Board is made up of fixed annual fees, based on the Company's financial situation and market practice, and does not include any variable remuneration.
The company's External Auditor is paid accordingly with the standard fees table for similar services, at market rates and under a proposal from the Statutory Audit Board.
70, 71, 72 and 73. Information regarding how remuneration is structured to align the interests of management body members with the company's long-term interests, as well as how it is based on performance evaluation and lack of incentives to take on excessive risk. Reference, if applicable, to the variable remuneration policy and how performance evaluation can potentially affect this component. Deferred payment of the variable remuneration component, specifying the deferral period. Criteria underpinning the attribution of variable remuneration in shares, as well as the executive directors' retention of these shares in the event of any contracts related to them, specifically hedging or risk transfer contracts, the respective limit, and their relationship with the total annual remuneration and the company's managers
The Remuneration and Compensation Policy applicable to statutory governing bodies complies with community guidelines, national legislation and the recommendations of the Securities Market Commission. It is based on the presumption that initiative, competence and commitment are the essential foundations for good performance and must be aligned with the company's medium and long-term interests, with the aim of sustainability.
The content of the performance indicators, on which the variable remuneration component depends, and its specific role in determining actual remuneration, ensures that the Executive Directors are aligned with the defined strategic objectives and the compliance with the legal standards that govern the company's activities.
Therefore, for each financial year, individual performances and contributions to collective success are assessed and the results will necessarily influence allocation of the fixed and variable component of each member's remuneration plan.
The remuneration of executive directors is determined according to the level of responsibility of the director involved. The salary is paid in 14 monthly amounts and is subjected to annual review.
Above and beyond the fixed remuneration, Executive Directors are also entitled to a variable remuneration, in accordance with the company's Remuneration Policy. The variable remuneration is divided into two equal parts:
The Executive Directors' variable remuneration is of a discretionary nature and, in view of the fact that it is dependent on the achievement of objectives, its payment is not guaranteed. Variable remuneration is determined annually with the value based on a predefined goal of between 30% and 60% of total annual remuneration (fixed remuneration, plus variable remuneration target values).
The variable part of the remuneration is checked by assessing the performance of a series of performance indicators from the various businesses that are mainly economic and financial – Key performance Indicators of Business Activity (Business KPIs). The content of the performance indicators and their specific weighting in determining the effective remuneration ensure the executive directors are aligned with the defined strategic objectives and compliance with legal standards that cover the company's activity.
The amount of each bonus is between 0% and 160% of the previously defied bonus objective.
The variable remuneration is paid in cash, but the Remunerations Committee may decide it should be paid, within the same period, in shares.
The payment of the variable bonus can be made by any of the means of extinguishing the obligation foreseen in the law and the articles of association.
The payment of at least 50% (fifty percent) of the variable component of the remuneration is deferred for 3 (three) years, under the terms described below.
The Medium Term Variable Bonus aims to compensate the Executive Board Administrator's loyalty, aligning their interests with those of the shareholders and increasing the awareness of their importance on the overall success of the Company.
Variable remuneration is awarded annually, according to the results of the previous year, and is then integrated into the MTVB plan. Payment of this component of variable remuneration is dependent on the director continuing to work with the Company for a period of three years after its award, as well as the overall continuing success of the company during this period, measured in accordance with the objectives set by the Shareholders' Remuneration Committee every three years.
If, subsequently to being awarded the right to this kind of remuneration and before exercising this rights, dividends are distributed, changes are made in the nominal value of shares or the company's share capital is changed, the number of shares on the plan will be adjusted to the number of shares that, considering the above modifications, are equivalent to the number of initial shares. This maintains an alignment with the total shareholder return. At the vesting date, shares are only delivered if the criterion for continuing positive performance of the company, mentioned above, is met. Payment is made by delivering shares at a discount that can vary between 90% and 100%, although Sonaecom retains an option to pay an equivalent value in cash.
The remuneration of Non-Executive directors, when applicable, will be exclusively composed of fixed values, according to market values. Therefore, for each Non-Executive director, approximately 15% of fixed remuneration will be dependent on the attendance rate of the meetings of the Board of Directors. In addition, a further annual responsibility allowance will be paid. The fixed remuneration can be increased by up to 6% for those nonexecutive directors who chair a Board of Directors' Committee. There will be no variable remuneration.
The main parameters and reasoning concerning the variable remuneration system are disclosed in the remuneration policy approved in the Shareholders General Meeting, held on 28 April 2017, which is available for consultation at the Company's website: http://other.static.sonae.com/2017/05/02/InformationResolutionsAGM\_Sonaecom\_28.04.2017\_ENG/InformationResolutionsAGM\_Sonaecom \_28.04. 2017\_ENG.pdf?download=1
Not applicable. The Company does not have any complementary pension or early retirement schemes for Directors, and there are no other significant benefits in kind.
77, 78 and 79. Indication of the annual remuneration earned, in aggregate and individual amount, by the Company's members of the Board of Directors, including fixed and variable remuneration. Related to this, reference to the different components that led to them, amounts of any kind paid by other controlled or Group companies, or those under shared control, and remuneration paid as profit sharing and/or bonus payments and the reasons why such bonuses and/or profit sharing payments were made
The remuneration for each Sonaecom director, awarded by the Company and Group Companies during the year 2017 and 2016, is summarized in the charts below.
Remuneration of each Sonaecom Board member awarded by the company in 2017 and 2016
| 2017 | 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Amounts in euros | Fixed Remuneration |
Short Term Variable Bonus * |
Medium Term Variable Bonus/MTIP |
Total | Fixed Remuneration |
Short Term Variable Bonus * |
Medium Term Variable Bonus/MTIP |
Total |
| Individual breakdown | ||||||||
| Executive Directors | ||||||||
| Ângelo Gabriel Ribeirinho dos Santos Paupério (CEO) | 183 900 | 142 100 | 142 100 | 468 100 | 183 900 | 136 200 | 136 200 | 456 300 |
| Maria Cláudia Teixeira de Azevedo | 146 100 | 79 400 | 79 400 | 304 900 | 141 480 | 69 200 | 69 200 | 279 880 |
| António Bernardo Aranha Gama Lobo Xavier (Note 1) | 28 011 | - | - | 28 011 | 153 320 | - | - | 153 320 |
| 358 011 | 221 500 | 221 500 | 801 011 | 478 700 | 205 400 | 205 400 | 889 500 | |
| Non-Executive Directors | ||||||||
| António Bernardo Aranha Gama Lobo Xavier (Note 1) | 115 990 | - | - | 115 990 | - | - | - | - |
| Total | 474 002 | 221 500 | 221 500 | 917 002 | 478 700 | 205 400 | 205 400 | 889 500 |
* Amount earned through the company and its subsidiaries
Note 1: António Bernardo Aranha Gama Lobo Xavier left his Executive Director role on 13 March 2017 and remained on the Board as a Non-Executive Director. His remuneration for 2017 has been split of a time proportional basis in the table above.
The short-term variable bonus of executive directors includes a participation in the profits of the company.
| Executive Directors | Plan (Performance Year) |
Award Date | Vesting Date | Value Vested and Paid in 2017* |
Open Plans Value at Awared Date* |
Open Plans Value at 31 December 2017 * ** |
|---|---|---|---|---|---|---|
| Ângelo Gabriel Ribeirinho dos Santos Paupério (CEO) | 2013 | Mar-14 | Mar-17 | 233 213 | ||
| 2014 | Apr-15 | Apr-18 | 125 100 | 122 489 | ||
| 2015 | Mar-16 | Mar-19 | 142 600 | 172 395 | ||
| 2016 | Mar-17 | Mar-20 | 136 200 | 176 289 | ||
| Total | 233 213 | 403 900 | 471 172 | |||
| Maria Claúdia Teixeira de Azevedo | 2013 | Mar-14 | Mar-17 | 51 834 | ||
| 2014 | Apr-15 | Apr-18 | 75 400 | 73 826 | ||
| 2015 | Mar-16 | Mar-19 | 78 100 | 94 417 | ||
| 2016 | Mar-17 | Mar-20 | 69 200 | 89 569 | ||
| Total | 51 834 | 222 700 | 257 812 | |||
| Total | 285,047*** | 626 600 | 728 984 |
* Values in Euros
** Calculated using the closing price of last trading day in 2017 (29-Dec-17).
*** The total value of plans that vested during 2017 was Euros 285,047
| 2017 | 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Amounts in euros | Fixed Remuneration |
Annual Performance Bonus |
Medium Term Incentive Plan |
Total remuneration |
Fixed Remuneration |
Annual Performance Bonus |
Medium Term Incentive Plan |
Total remuneration |
| Name | ||||||||
| Ângelo Gabriel Ribeirinho dos Santos Paupério | 276 800 | 219 800 | 219 800 | 716 400 | 276 800 | 203 900 | 203 900 | 684 600 |
No compensation was paid or is currently owed to former Executive Directors in relation to early loss of office during 2017.
The remuneration of the members of the Statutory Audit Board is made up of fixed annual fees, based on the Company's financial situation and market practice, and does not include any variable remuneration. Thus, the Chairman of the Statutory Audit Board earned 9,900 euros in 2017 and 2016 and the other members earned, in the same period, 7,900 euros. The alternate members of the Statutory Audit Board did not receive any remuneration.
The Chairman of the General Shareholders' Meeting Board earns a fixed annual remuneration of 5,000 euros and the Secretary earns a fixed annual remuneration of 2,500 euros.
There are no agreements in place with members of the Board of Directors that establish amounts to be paid in case of dismissal without due cause, without prejudice to the applicable legal provisions.
There are no agreements made between the company and members of the Board of Directors, that provide for compensation in cases of dismissal, unfair dismissal or termination of employment following a change in Company's control.
85 and 86. Identification of the plan and respective recipients. Plan features (assignment conditions, share transfer clauses, share price and option exercise price criteria, period during which options can be exercised, features of the shares or options to be assigned, incentives to acquire shares and/or exercise options).
The MTVB is designed to align the interests of the Executive Directors with the success of the company, reinforcing their engagement and the perception of the impact of their performance on the success of Sonaecom.
The MTVB is subjected to the Medium Term Incentive Plan eligibility rules described in this report.
The general terms of the MTIP and any significant amendments thereto are reviewed by the Remuneration Committee and then approved at the Shareholders' General Meeting. The participation of Sonaecom's Executive Committee's members is approved by the Remuneration Committee, in line with the Group's Remuneration Policy, which is also approved at the Shareholders' General Meeting.
All executive directors of Sonaecom are eligible to be awarded an MTVB.
The MTVB is valued at the award date, based on the listed share prices in Portugal of the shares that make up the respective share package. The most favourable of the following prices is used: the closing price on the first working day after the company's Shareholders' Annual General Meeting; or the average of the closing prices of the last 30 trading sessions, before the Annual General Meeting.
Those entitled to the MTVB shall have the right to acquire a number of shares calculated by the quotient between the value of the awarded medium-term variable bonus and the quotation value at the attribution date, determined in accordance with the previous paragraph. During the deferral period, the amount of the bonus, converted into shares, may additionally be adjusted to match the success degree in achieving a medium terms KPI, in order to ensure the continued alignment with the business long terms sustainability objectives.
In line with the policy for enhancing the alignment of Executive Directors with the company's medium term interests, the Shareholders' Remuneration Committee may, in its sole discretion, graduate the discount percentage to be granted to the Executive Directors for the acquisition of Company's shares, by determining that the Executive Directors contribute to the acquisition in an amount corresponding, at the maximum, to 5% of the share market price at the transfer date.
If, after awarding the MTVB, the company distributes dividends, the Company's share capital is changed or any other change is made to the Company's capital structure, then the number of shares, which the director has been awarded, will be adjusted to an equivalent number, taking into account the impact of these changes.
The MTVB plan is established annually, based on the variable remuneration awarded, and each plan has a three year term. As from the award date of the third consecutive plan, three tri-annual plans will be open.
On the vesting date of MTVB plans – three years after being awarded -, compensation can be paid in the form of shares or as a discount when purchasing shares. The company awarding the MTVB retains the right to pay the cash equivalent to the shares' value, rather than delivering actual shares.
The following Shareholding and Retention Policy ("SH&R Policy") is applicable to the members of Sonaecom's Board of Directors (Management Levels: GF1 and GF2):
Each GF1 or GF2 is required to retain 50% of the shares delivered on the vesting of each Plan until they hold, on an accumulated basis, a total number of shares that is equivalent to the value of two annual fixed salaries. The requirement to retain shares ends as soon as the respective manager holds, on an accumulated basis, a total number of shares that meets the agreed shareholding requirement, either by retaining MTPB shares awarded by Sonaecom or by acquiring shares in their individual name. The inclusion of the latter shares is optional and is of the exclusive decision of each manager, who, in this case, should inform Sonaecom. For this purpose, the annual fixed salary is the monthly base remuneration paid 14 times a year.
The Executive Directors shall not sign, nor will sign contracts with the Company or with any third parties that would have the effect of mitigating the risk inherent in the variability of the remuneration established by the company.
The right to MTVB ceases when an employee no longer shares a legal or administrative relationship with Sonae, or any company that represents the sub-holding where they work, nor any other company directly or indirectly affiliated with either of the above. In the event of death or permanent disability, the MTVB is valued at current market prices of the shares and the equivalent value will be paid, depending on the case, to the employee or to his or her legal heirs. In the event of retirement, rights to a MTVB are retained and vest on the normal vesting date.
The right to acquire shares attributed under the MTPB plan expires when the beneficiary no longer works with Sonae before the end of the vesting period, without prejudice to the provisions set forth in the following paragraphs. The right to receive payment may however remain in case of permanent disability or decease, with the due amount being paid to the member of the Board of Directors or to his/her heirs at the normal time for payment at the vesting period.
If the beneficiary retires, any right to awards can be exercised on the due date of payment.
There are no stock options to acquire the attributed shares.
There are no control mechanisms established to control employee participation in the Company's capital.
89. Mechanisms implemented by the Company to monitor transactions with related parties (for the purposes of the concept of IAS 24)
Sonaecom endeavours to carry out transactions with related parties based on principles of rigour and transparency, and in strict observance of the rules of market competition. Such transactions are subject to specific internal procedures based on mandatory standards, in particular transfer pricing rules, or on voluntarily adopted internal systems of checks and balances – for example, formal validation or reporting processes, depending on the value of the transaction in question.
In this regard, Sonaecom has adopted specific procedures in order to prevent conflicts of interest, such as promoting communication between the Board of Directors and the Statutory Audit Board, which provides the necessary clarifications to assure that transactions are concluded under normal market conditions.
As stated in section 10 above, there were not, during 2017, any significant relations, of a commercial nature or otherwise, between qualified shareholders and the Company. The executed transactions, without any significant relevance, fall within the Company's scope of activity, were executed on arm's length conditions and side-by-side with other equivalent transactions executed with national and international parties, in terms that conform to the preceding framework of Sonaecom's practice and under the supervision of the Statutory Audit Board, as described in point 92 below. The Company did not execute any transaction with any member of the management or audit bodies during 2017.
Transactions with owners of qualified shares or with entities related in any way with them, under the terms of article 20 of the Portuguese Securities Code, are subject to a formal prior opinion by the Statutory Audit Board, if their value exceeds 10 million euros. In addition, all transactions with related parties in excess of 1 million euro, are also submitted to quarterly reports by the Statutory Audit Board.
92. Location of accounting documents containing information regarding transactions with related parties, in accordance with IAS 24 or, alternatively, disclosure of this information
Information on transactions with related parties, in accordance with IAS 24, can be found in note 37 ofthe 2017 Consolidated Financial Statements' Appendix.
The Corporate Governance Report provides a description of the Corporate Governance structure, policies and practices followed by the Company under the terms of article 245-A of the Portuguese Securities Code and information duties required by CMVM Relation no. 4/2013, of 1 August. The Report additionally discloses, in light with the principle of comply or explain, the terms of compliance by the Company with the CMVM Recommendations contained in the CMVM Corporate Governance Code (2013), adopted by the Company.
The Report should be read as an integral part of the Annual Management Report and the Individual and Consolidated Financial Statements for the year 2017.
The requirements for the provision of information as per article 3 of Law no. 28/2009, of 19 June, article 447 of the Portuguese Companies Act, article 245-A of the Portuguese Securities Code and of CMVM Regulation no. 5/2008, have also been fulfilled.
All of the rules and regulations mentioned in the Report are publicly available at www.cmvm.pt.
Unless otherwise expressly stated, all remissions to be read as being made to the Report itself.
The governance model adopted by Sonaecom enabled the Board of Directors to operate normally, and none of the other statutory governing bodies have reported any constraints to their normal functioning.
The Statutory Audit Board exercised its supervisory function, having received appropriate support from the Board of Directors to this end, via regular provision of information.
The Statutory External Auditor monitored the company's activities and conducted the examinations and verifications deemed necessary to review and legally certify the accounts, interacting with the Statutory Audit Board, within the framework of their competences and responsibilities and with full cooperation from the Board of Directors.
The Board of Directors has been carrying out its duties and cooperating with the Statutory Audit Board and the Statutory External Auditor, when so requested, in a transparent and rigorous manner and in compliance with its Terms of Reference and best corporate governance practices.
The full text containing the corporate governance guidelines currently adopted by Sonaecom - whether published by specific regulation, recommendation or voluntarily, including the Code of Conduct, are made publicly available on our website www.sonae.com and also at the CMVM website: www.cmvm.pt.
The CMVM's recommendations on Corporate Governance (as issued in July 2013) and the respective level of compliance by Sonaecom at 31 December 2017, are listed below.
1.1. Companies shall encourage shareholders to attend and vote at general meetings, namely by not setting an excessively large number of shares required for the entitlement of one vote, and by implementing the means necessary to exercise the voting right by post and electronically.
RECOMMENDATION FULLY ADOPTED.
The Company encourages its shareholders to participate in general meetings, by assigning one vote to each share, not limiting the number of votes that may be held or exercised by each shareholder and making available to shareholders all the means necessary to exercise voting by post or electronically.
Additionally, the Company publishes on its website, from the date of notice of each General Meeting, standard documentation for participation at the General Meeting, thereby facilitating the shareholders' compliance with the applicable legal attendance requirements, and also provides a specific, dedicated e-mail address for communication between shareholders and the Chairman of the general meeting answer shareholders' enquiries and for the reception of all communications to participate in the General Meeting.
I.2. Companies shall not adopt mechanisms that hinder the passing of resolutions by shareholders, including setting a resolution-fixing quorum greater than that required by law.
RECOMMENDATION FULLY ADOPTED.
The Company's Articles of Association do not set a resolution-fixing quorum that exceeds that fixed by law.
I.3. Companies shall not establish mechanisms that might cause mismatching between the right to receive dividends or the subscription of new securities and the voting right of each common share, unless duly substantiated in terms of long-term interests of shareholders. RECOMMENDATION FULLY ADOPTED.
I.4. The company's articles of association that provide for a limitation to the number of votes that may be held or exercised by a sole shareholder, either individually or in agreement with other shareholders, shall also foresee that, at least every five years, the maintenance of such bylaw provision shall be subject to a resolution at the General Meeting – with no requirements for an aggravated quorum as compared to the legal one – and that in said resolution, all votes issued be counted, without applying said restriction.
RECOMMENDATION FULLY ADOPTED.
The Company's Articles of Association do not establish any limitation on the number of votes that may be held or exercised by a single shareholder.
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 are able to impair the free transfer of shares and the free assessment by shareholders of the performance of Board members, shall not be adopted.
__________________________________________________________________________________________________
RECOMMENDATION FULLY ADOPTED.
The Company does not adopt, unilaterally, policies that have the effect of any restrictions listed in this recommendation.
II. SUPERVISION, MANAGEMENT AND AUDIT
II.1.1. Within the limits established by law, and unless the company is of a reduced size, the board of directors shall delegate the daily management of the company, and the delegated duties should be identified in the Annual Report on Corporate Governance.
By a Board resolution take non the 28 April 2017, the Board of Directors has delegated the daily management of the Company to the Executive Committee, the role and competencies of which are described in the present Corporate Governance Report (please refer to sections 27 and 28).
II.1.2. The Board of Directors shall ensure that the company acts in accordance with its goals and should not delegate its duties, as regards the following: i) definition of the company's strategy and general policies; ii) definition of the corporate structure of the group; iii) decisions considered to be strategic due to the amount, risk and particular characteristics involved.
RECOMMENDATION FULLY ADOPTED. The powers not delegated by the Board of Directors are described in the present Report and comply with the rules contained in this recommendation (please refer to section 27.1).
II.1.3. In addition to its supervisory duties, the General and Supervisory Board shall take full responsibility at corporate governance level, hence, either through the statutory provision, or equivalent, it must be established, as a mandatory requirement, that 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 the company's key policies.
Sonaecom did not adopt said Corporate Governance model.
II.1.4. Unless the company is of a reduced size, and depending on the adopted model, the Board of Directors and the General and Supervisory Board shall create the necessary committees in order to:
a) Ensure that a competent and independent assessment of the Executive Directors' performance is carried out, as well as of its own overall performance. And further yet, the performance of all existing 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 a view to their improvement.
RECOMMENDATION FULLY ADOPTED.
The Board of Directors has decided that, considering the current dimension of the company, the existence of a specific Committee to ensure the effectiveness and the quality of the work performed by Executive Directors is not justified. Such responsibility is delegated to the Remuneration Committee.
The Company has a Corporate Governance Officer who reports hierarchically to the Board of Sonaecom and its main duties are to assess the system structure and governance practices adopted, verify its efficiency and propose to the competent bodies measures to be implemented with a view to their improvement (as detailed above in Part I, paragraph 29).
II.1.5. Depending on the applicable model, the Board of Directors or the General and Supervisory Board 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.
RECOMMENDATION FULLY ADOPTED.
The Board of Directors has established internal risk control systems (see points 50 to 55 of this report) which are monitored by the Statutory Audit Board.
II.1.6. The Board of Directors shall include a sufficient number of non-executive members, whose role is to ensure effective monitoring, supervision and assessment of the activity of the remaining members of the board.
The Board of Directors has a total number of three members, one of which is a non-executive member (please refer to section 18).
II.1.7. The non-executive members of the management body shall include a number of independent members as appropriate, taking into account the adopted corporate 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 under the terms of the legislation 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, namely due to:
a. Having been an employee of the company or of a company holding a controlling or group relationship with the latter, within the last three years;
b. Having, in the past three years, provided services or established a commercial relationship with the company or company which is in a control or group relationship with the latter, 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 the latter in a control or group relationship, other than the remuneration paid for the exercise of Board member functions;
d. Living with a partner or being spouse, relative or any next of kin relative, either direct or 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.
The company believes that its current dimension and respective shareholder structure and the reduced dispersion of its share capital do not justify the existence of independent directors.
II.1.8. When executive directors are requested by other Board members to supply information, the former shall do so in a timely and appropriate manner.
The company Directors fulfil this recommendation, disclosing its decisions in an expeditious, clear and complete manner.
II.1.9. The Chairman of the Executive Board or of the Executive Committee shall submit, as applicable, to the Chairman of the Board of Directors, the Chairman of the Statutory Audit Board, the Chairman of the Audit Committee, the Chairman of the General and Supervisory Board and the Chairman of the Financial Matters Committee, the convening notices and minutes of the relevant meetings.
The announcement of all the Board of Directors' meetings and its respective minutes are communicated to the Chairman of the Statutory Audit Board.
II.1.10. Should the Chairman of the Board of Directors carries out executive duties, said body shall appoint, from among its members, an independent member to ensure the coordination and the conditions of other non-executive members' work, so that said non-executive members can make independent and informed decisions or set up an equivalent mechanism to ensure such coordination.
Although the Chairman of the Board is an executive director, the company considers that in virtue of its current dimension and respective shareholding structure, the reduced dispersion of its share capital do not justify the existence of independent directors.
II.2.1. Depending on the applicable model, the Chairman 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 appropriate skills to carry out its duties. RECOMMENDATION FULLY ADOPTED.
The Chairman of the Statutory Audit Board, as well as all the members of this body, are independent under the terms of article 414, paragraph 5, of the Portuguese Companies Act, and possess the necessary skills and experience to perform their duties.
The assessment of the conditions of independence, pursuant to the legal criteria, is established at the time of election and repeated annually on an internal assessment and, apart from that, every member of the SAB is obliged to inform the company immediately if there are any circumstances that compromise their independence.
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 for proposing the relevant remuneration and ensuring that the proper conditions for the provision of services are provided within the company.
RECOMMENDATION FULLY ADOPTED.
The Statutory Audit Board is responsible for overseeing the work performed and verifying the Statutory External Auditor's independence. Also, primordially receiving its reports and interacting with it according to the role of the Statutory Audit Board and in compliance with its Regulation, available at the Company's website, at
II.2.3. The supervisory board shall assess annually the Statutory External Auditor and propose to the competent body its dismissal or termination of the contract as to the provision of their services, whenever justifiable grounds are present. RECOMMENDATION FULLY ADOPTED.
II.2.4. The supervisory board shall assess the functioning of the internal control systems and risk management, proposing adjustments if deemed necessary.
The Board of Directors proactively ensures the internal control system and risk management. The SAB assesses the effectiveness of these systems, proposing any optimisation measures that may be necessary and giving their opinion about them in the annual report opinion, made available together with the other documents and statements at http://www.sonae.com/investidores/informacao-financeira/relatorios/?l=en (2017 MR&A folder/Chapter V)
II.2.5. The Audit Committee, the General and Supervisory Board and the Statutory Audit Board should 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 potential irregularities.
The SAB supervises the internal auditing activity, receives activity reports, assesses the results and conclusions found, checks on the existence of any irregularities and issues the directives it believes are necessary.
II.3.1. All members of the Remuneration Committee or equivalent shall be independent from the members of the executive members of the board and shall include at least one member with knowledge and experience in remuneration policy.
The members of the Remuneration Committee, Duarte Paulo Teixeira de Azevedo and Francisco de la Fuente Sánchez, are independent in relation to the Board of Directors' members, acting in this capacity and with relevant knowledge and experience in the matter of remuneration policy. The curricula vitae of the Remuneration Committee's members are available for consultation in the Appendix II of this report.
II.3.2. Any individual or entity who, in the last three years, has rendered services to any structure under the direction of the Board of Directors to the company management body itself or who currently has a relationship with the company or with a consultant of the company, should not be hired to assist the Remunerations Committee in the performance of its duties. This recommendation is equally applicable to any individual or legal entity that has a relationship with such by means of an employment or service agreement.
It is the Shareholders' Remuneration Committee policy to hire internationally recognised consultants to provide support in the carrying out of its duties. The independence of such consultants is ensured by the fact that they are not in any way related to the Board of Directors, to the Company or to the Group, and by their self-evident broad experience and recognized market.
The company does not hire any entity that rendered services to any structure under the direction of the Board of Directors to assist the Remunerations Committee in the performance of its duties. The Remuneration Committee resorts to benchmark studies on remuneration practices annually disclosed by internationally renowned consultants, whose independence is assured either by the fact that they have no connection to the Board of Directors, or due to their broad experience and recognised status in the market.
II.3.3. The 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 contain, in addition to the content therein stated, adequate information on:
a) Identification and explanation of the criteria for determining the remuneration granted to the members of the governing bodies;
b) Information regarding the maximum potential amount, in individual terms, and the maximum potential amount, in aggregate terms, to be
paid to the members of the corporate bodies, and also the identification of the circumstances whereby these maximum amounts may be payable;
c) Information regarding the enforceability or unenforceability of payments for board members' dismissal or termination of appointment. RECOMMENDATION FULLY ADOPTED.
A statement on the Company's remuneration policy was presented to the Shareholders' General Meeting on 28 April 2017 and includes the information referred to in this recommendation. Payments for the dismissal or termination of appointment of directors are not required, subject to the applicable legal provisions.
A statement on the remuneration policy is available at http://www.sonae.com/investidores/assembleia-geral/?l=en in the following address: http://other.static.sonae.com/2017/05/02/InformationResolutionsAGM\_Sonaecom\_28.04.2017\_ENG/InformationResolutionsAGM\_Sonaecom \_28.04.2017\_ENG.pdf?download=1
II.3.4. A proposal for 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 information necessary for a proper appraisal of the plan. RECOMMENDATION FULLY ADOPTED.
In its proposal, the company includes the approval of the share allocation plan and always accompanies it with the respective regulation (available at http://other.static.sonae.com/2017/05/02/InformationResolutionsAGM\_Sonaecom\_28.04.2017\_ENG/InformationResolutionsAGM\_Sonaecom \_28.04.2017\_ENG.pdf?download=1
II.3.5. Approval of any retirement benefit scheme established for members of the statutory governing bodies must be submitted to the General Meeting's approval. The proposal shall contain all the information necessary for the correct assessment of the system. RECOMMENDATION NOT APPLICABLE.
__________________________________________________________________________________________________
Currently, the company has no retirement pension plans in force for the members of the corporate bodies.
III. REMUNERATION
III.1. The remuneration of the executive members of the board shall be based on actual performance and shall discourage excessive risk taking. RECOMMENDATION FULLY ADOPTED.
The remuneration of the members of the Board of Directors who perform executive duties is based on their effective performance, in accordance with pre-determinated criteria and is constructed in order to align its performance with the sustainability of the Company and the long-term interests of the shareholders, discouraging thus excessive risk taking.
III.2. The remuneration of the non-executive board members and the members of the supervisory board, shall not include any component whose value depends on the performance of the company or of its value.
RECOMMENDATION FULLY ADOPTED.
The remuneration policy approved at the Shareholders' General Meeting under proposal of the Remuneration Committee, states that the remuneration of non-executive members of the Board of Directors, when existing, and the remuneration of members of the Supervisory Board includes only one fixed component. As a result, these members do not receive variable remuneration nor do they participate in the MTIP.
III.3. The variable remuneration component shall be overall reasonable in relation to the fixed component of the remuneration and maximum limits should be set for all components.
The company's remuneration policy includes a fixed component and a variable component, as set forth in the main European reference indicators. In comparative terms, the fixed remuneration is close to the average and the total remuneration is close to the third quartile of the indicators. The variable component represents over 40% of the total income received. The minimum and maximum variable components are pre-established as a percentage of a fixed component and, thus, are objectively established.
III.4. A significant part of the variable remuneration should be deferred for a period of no less than three years and its payment should depend on the continued positive performance of the company during said period.
RECOMMENDATION FULLY ADOPTED.
The MTIP, an integral part of the remuneration of the management body's executive members, is based precisely on this deferral.
III.5. Members of the Board of Directors shall not enter into contracts with the company or third parties which intend to mitigate the risk inherent to remuneration variability set by the Company.
RECOMMENDATION FULLY ADOPTED.
The remuneration policy approved at the Shareholders' General Meeting, held on the 28 April 2017, under proposal of the Remuneration Committee, addresses the principle defined in this recommendation: that Executive Directors shall not sign contracts with the Company or with third parties that would have the effect of mitigating the risk inherent in the variability of the remuneration established by the company. The company did not identify any contracts of this nature.
The Remuneration policy is available for consultation at the website disclosed on paragraph II.3.3..
III.6. Until the end of their mandate, 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 overall annual remuneration, except for those that need to be sold for paying taxes on the gains of said shares.
RECOMMENDATION FULLY ADOPTED.
Since 2008, the company has implemented a share retention policy that fully complies with this recommendation.
III.7. If 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.
The variable component of the company remuneration does not include the allocation of options.
III.8. When the removal of the board member is not due to a serious breach of their duties, nor to their unfitness for the normal exercise of their functions, but is yet due to 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.
RECOMMENDATION FULLY ADOPTED. The company uses the appropriate legal instruments available in law for this situation. There are no individual contracts with the directors to establish how eventual compensations would be calculated. In addition, the company has never attributed or contemplated attributing compensation to the directors in the event of dismissal or cessation due to inadequate performance.
__________________________________________________________________________________________________
IV.1. The Statutory External Auditor shall, within the framework 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, reporting any deficiencies to the Company's supervisory body.
The External Auditor discloses the activities carried out during 2017 in its annual audit report, which is subject to approval at the Shareholders´ Annual General Meeting, and is available for consultation at the website: http://www.sonae.com/investidores/informacaofinanceira/relatorios/?l=en at the folder MR&A 2017/Chapter IV).
IV.2. The Company or any other entities with the latter in a control relationship, shall not engage the Statutory External Auditor or any entity with the latter in a group relationship or which is part of 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 – said value should not exceed more than 30% of the total value of services rendered to the company.
The services provided by the Statutory External Auditor were approved by the Statutory Audit Board within the recommended principles (please see points 46 and 47).
IV.3. Companies shall support auditor rotation at the end of two or three terms of office, depending on whether they last for 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 auditor's independence and the benefits and costs of its replacement.
PWC – Price Waterhouse Coopers & Associados, Sociedade de Revisores Oficiais de Contas, LDA., registered at OROC under the no. 183 and at the Portuguese Securities Market Commission under the no. 20161485, represented by Hermínio António Paulos Afonso or by António Joaquim Brochado Correia, was elected by the Shareholders' Annual General Meeting, through a proposal submitted by the Statutory Audit Board, for the first time, on 29 April 2016, integrating the mandate of 2016/2019.
The alternate Statutory External Auditor is Joaquim Miguel de Azevedo Barros (Statutory External Auditor no. 1426, registered at the Portuguese Securities Market Commission under the no. 20161036).
__________________________________________________________________________________________________
V.1. In relation to business conducted between the company and shareholders with qualified shareholdings, or entities with which these are related, in accordance with article 20 of the Portuguese Securities Code, such business should be conducted on an arm's length basis. RECOMMENDATION FULLY ADOPTED.
The Company endeavours to carry out transactions with related parties based on principles of rigour and transparency, and in strict observance of the rules of market competition. Such transactions are subject to specific internal procedures based on mandatory standards, in particular transfer pricing rules, or on voluntarily adopted internal systems of checks and balances – for example, formal validation or reporting processes, depending on the value of the transaction in question.
V.2. The supervisory or audit board shall establish procedures and criteria that are required to define the relevant level of significance of business with qualifying shareholders - or entities with which they are in any of the relationships described in paragraph 1 of article 20 of the Portuguese Securities Code – thus significant relevant business is dependent upon prior opinion of that body. RECOMMENDATION FULLY ADOPTED.
Transactions with owners of qualified shares or with entities related in any way with them, under the terms of article 20 of the Portuguese Securities Code, are subject to a formal prior opinion by the Statutory Audit Board, if their value exceeds 10 million euros. In addition, all transactions with related parties in excess of 1 million euro, are also submitted to quarterly reports by the Statutory Audit Board.
__________________________________________________________________________________________________
VI.1. Companies shall provide, via their websites in both Portuguese and English version, access to information on their progress as regards the economic, financial and governance standing.
RECOMMENDATION FULLY ADOPTED. The company's website, www.sonae.com, provides information that fulfils the requirements of this recommendation.
VI.2. Companies shall ensure the existence of an investor support and market liaison office, capable of responding to investors' requests in a timely manner. A record of the submitted requests and their processing shall be kept.
RECOMMENDATION FULLY ADOPTED.
The company has an Investor Relations Department, which fulfils the requirements of this recommendation.
Curricula Vitae and positions held by members of management and supervisory bodies.
- Board of Directors:
| Ângelo Gabriel Ribeirinho dos Santos Paupério |
|---|
| CEO of Sonaecom, SGPS, S.A. |
| Birth date |
| 14 September 1959 |
| Educational qualifications |
| Degree in Civil Engineering - University of Porto |
| MBA by Porto Business School |
| Professional experience |
| Co-CEO of Sonae - SGPS, S.A. |
| Member of the Board of Directors of Sonae Investimentos, SGPS, S.A. |
| Chairman of the Board of Directors MDS, SGPS, S.A. |
| Member of the Board of Directors of Sonae Sierra, SGPS, S.A. |
| Vice President of Sonae MC - Modelo Continente, SGPS, S.A. |
| Member of the Board of Directors of ZOPT, SGPS, S.A. |
| Member of the Board of Directors of NOS, SGPS, S.A. |
| Guest professor of Porto Business School |
| Member of High Council of Universidade Católica Portuguesa |
| Member of High Council of Porto Business School |
| Chairman of the Board of Directors of APGEI - Associação Portuguesa de Gestão e Engenharia Industrial |
| Offices held in companies in which Sonaecom is a shareholder |
Chairman of the Board of Directors of SONAE INVESTMENT MANAGEMENT - SOFTWARE AND TECHNOLOGY, SGPS, S.A.
Member of the Board of Directors of ZOPT, SGPS, S.A.
Chairman of the Board of Directors of Público - Comunicação Social, S.A.
Member of the Board of Directors of NOS, SGPS, S.A.
Chairman of the Remuneration Committee of NOS, SGPS, S.A.
Offices held in other entities
Co-CEO of Sonae, SGPS, S.A.
Member of the Board of Directors of Sonae Center Serviços II, S.A.
Member of the Board of Directors of Sonae Investimentos, SGPS, S.A.
Vice President of the Board of Directors of Sonae MC – Modelo Continente, SGPS, S.A.
Member of the Board of Directors of Sonae Sierra, SGPS, S.A.
Chairman of the Board of Directors of Sonae Financial Services, S.A.
Chairman of the Board of Directors of SFS - Serviços de Gestão e Marketing, S.A.
Chairman of the Board of Directors of MDS, SGPS, S.A.
Member of the Board of Directors of Love Letters – Galeria de Arte, S.A.
Member of the Board of Directors of Enxomil - Consultoria e Gestão, S.A.
Member of the Board of Directors of Enxomil - Sociedade Imobiliária, S.A.
Maria Cláudia Teixeira de Azevedo
Executive Member of the Board of Directors of Sonaecom, SGPS, S.A.
Birth date
13 January 1970
Educational qualifications
Degree in Management - Catholic University of Porto
MBA by INSEAD
Professional experience
Member of the Board of Directors of Efanor Investimentos, SGPS, S.A.
Executive Director of SONAE INVESTMENT MANAGEMENT - SOFTWARE AND TECHNOLOGY, SGPS, S.A.
Chairman of the Executive Board of Sonae Capital, SGPS, S.A.
Member of the Board of Directors of ZOPT, SGPS, S.A.
Offices held in companies in which Sonaecom is a shareholder
Member of the Board of Directors of ZOPT, SGPS, S.A.
Executive Director of SONAE INVESTMENT MANAGEMENT - SOFTWARE AND TECHNOLOGY, SGPS, S.A.
Chairman of the Board of Directors of Sonaecom – Serviços Partilhados, S.A.
Chairman of the Board of Directors of Sonaecom – Cyber Security and Intelligence, SGPS, S.A.
Chairman of the Board of Directors of S21SEC PORTUGAL - CYBERSECURITY SERVICES, S.A.
Chairman of the Board of Directors of WeDo Consulting, Sistemas de Informação, S.A.
Chairman of the Board of Directors of Saphety Level – Trusted Services, S.A.
Chairman of the Board of Directors of Digitmarket – Sistemas de Informação, S.A.
Member of the Board of Directors of Público - Comunicação Social, S.A.
Chairman of the Board of Directors of PCJ – Público, Comunicação, e Jornalismo, S.A.
Chairman of the Board of Directors of BRIGHT DEVELOPMENT STUDIO, S.A.
Chairman of the Board of Directors of INOVRETAIL, S.A.
Member of the Board of Directors of Armilar Venture Partners - Sociedade de Capital de Risco, S.A.
Director of We Do Technologies España – Sistemas de Información S.L. (previously designated Sonaecom - Sistemas de Información España, S.L.)
Chairman of the Board of Directors of Grupo S 21 SEC Gestión, S.A.
Member of the Board of Directors of WeDo Technologies (UK) Limited
Member of the Board of Directors of Praesidium Services Limited (UK)
Manager of WeDo Technologies México, S. De R.L. De C.V.
Chairman of the Board of Directors of WeDo Technologies Americas Inc.
General Manager of Saphety – Transacciones Electronicas, S.A.S
Director of WeDo Technologies Egypt
Member of the Board of Directors of WeDo Technologies Australia PTY Limited
Member of the Board of Directors of NOS, SGPS, S.A.
Offices held in other entities
Chief Executive Officer of Sonae Capital, SGPS, S.A.
Chairman of the Board of Directors of SC, SGPS, S.A.
Chairman of the Board of Directors of SC HOSPITALITY, SGPS, S.A.
Chairman of the Board of Directors of Troiaresort, SGPS, S.A.
Chairman of the Board of Directors of Capwatt, SGPS, S.A.
Chairman of the Board of Directors of RACE, SGPS, S.A. (previously designated Sistavac, SGPS, S.A.)
Chairman of the Board of Directors of Efanor - Serviços de Apoio à Gestão, S.A.
Member of the Board of Directors of Efanor - Investimentos, SGPS, S.A.
Member of the Board of Directors of IMPARFIN - Investimentos e Participações Financeiras, S.A.
Chairman of the Board of Directors of TLANTIC PORTUGAL - Sistemas de Informação, S.A.
Chairman of the Board of Directors of Linhacom, SGPS, S.A.
Member of the Board of Directors of SEKIWI, SGPS, S.A.
Member of the Board of Praça Foz - Sociedade Imobiliária, S.A.
Member of the Board of VISTAS DA FOZ - SOCIEDADE IMOBILIÁRIA S.A.
Member of the Board of SETIMANALE - SGPS S.A.
Member of the Board of BA - BUSINESS ANGELS, SGPS S.A.
Member of the Board of BA - CAPITAL, SGPS S.A.
António Bernardo Aranha da Gama Lobo Xavier
Non-Executive Member of the Board of Directors of Sonaecom, SGPS, S.A.
Birth date
16 October 1959
Educational qualifications
Degree in Law - University of Coimbra
Master in Economics Law - University of Coimbra
Professional experience
Partner and Member of the Board of Directors of MLGTS
Non-executive Director of the Board of Directors of Banco BPI, S.A.
Non-executive Director of the Board of Directors of Riopele, S.A.
Non-executive Director of Board of Directors of Mota-Engil, SGPS, S.A.
Member of the Board of Directors of Público - Comunicação Social, S.A.
Member of the Board of Directors of SONAE INVESTMENT MANAGEMENT - SOFTWARE AND TECHNOLOGY, SGPS, S.A.
Member of the Board of Directors of NOS, SGPS, S.A.
Member of Council of State (since 07.04.2016)
Offices held in companies in which Sonaecom is a shareholder
Member of the Board of Directors of NOS - SGPS, S.A.
Offices held in other entities
Partner and Member of the Board of Directors of MLGTS & Associados, Sociedade de Advogados
Member of the Board of Directors of Banco BPI, S.A.
Member of the Board of Directors of Mota-Engil, SGPS, S.A.
Member of the Board of Directors of Riopele, S.A.
Member of the Board of Directors of Vallis Capital Partners, SGPS, S.A.
Member of the Board of Directors of Fundação Casa da Música
Director of Fundação Francisco Manuel dos Santos
Member of the Curators Council of Fundação Belmiro de Azevedo
Chairman of the General Meeting of Ascendum, SA
Chairman of the General Meeting of Têxtil Manuel Goncalves, S.A.
Chairman of the General Meeting of AEM – Associação de Empresas Emitentes de Valores Cotados em Mercado
Chairman of the General Meeting of Berd Bridge Engineering Research & Design
Member of Council of State
| João Manuel Gonçalves Bastos | |||||
|---|---|---|---|---|---|
| Birth date | |||||
| 23 April 1958 | |||||
| Educational qualifications | |||||
| 1981 | Degree in Economics at Faculdade de Economia da Universidade do Porto | ||||
| Professional experience | |||||
| 1981-1984 | Teacher of Macroeconomics at Faculdade de Economia da Universidade do Porto | ||||
| 1982-1984 | Commercial department in Crédit Lyonnais | ||||
| 1984-1986 | Development and Planning department in Sonae Group | ||||
| 1986-1987 | Assistant of the Board in Focor Group | ||||
| 1987 – 1998 | CFO and member of the Board of several participated companies in Figest Group | ||||
| 1998 – 2007 | Senior Manager and member of the Board of several participated companies in Sonae Group | ||||
| Offices held in other entities | |||||
| Shareholder and President of the Board of Arcádia Group |
4 September 1957
| Educational qualifications | ||||||
|---|---|---|---|---|---|---|
| 1984 | Degree in Economics at Faculdade de Economia da Universidade do Porto - Doutor António José Sarmento Prize |
|||||
| 1987 | Post graduate Program in European Studies at the European Studies Center, Universidade Católica Portuguesa |
|||||
| 1992 | Participation in the Young Managers Programme at European Institute of Business Administration, Fontainebleau. |
|||||
| 2002 | Master in Business and Administration at Faculdade de Economia da Universidade do Porto | |||||
| 2015 | PhD in Business and Administration at Faculdade de Economia da Universidade do Porto | |||||
| Professional experience | ||||||
| 1984-1985 | Invited Assistant at Faculdade de Economia da Universidade do Porto - Microeconomics | |||||
| 1985-1990 | Technician in the Department of Economic Studies and Planning at BPI - Banco Português de Investimento, S.A. |
|||||
| 1990-1992 | Senior Analyst at the Corporate Banking Department at BPI - Banco Português de Investimento, S.A. |
|||||
| 1991-1999 | Invited Assistant at Faculdade de Economia da Universidade do Porto - Accounting area | |||||
| 1992-1996 | Vice-manager at the Corporate Banking Department at BPI - Banco Português de Investimento, S.A. |
|||||
| 1996-2006 | Cooperation with the Portuguese Institute of Statutory Auditors (OROC) as trainer for the External Auditor Preparatory Course |
|||||
| Since 1996 | Lecturer at Católica Porto Business School (Universidade Católica Portuguesa)- Accounting area, Director of the Master's Degree in Auditing and Taxation, since 2017 |
|||||
| 2002-2008 | Cooperation with the Certified Public Accountant Association (OTOC) in the field of professional formation |
|||||
| 2008-2009 | Cooperation with the Portuguese Institute of Statutory Auditors (OROC) in the field of professional formation |
|||||
| Since 2008 | Consulting activity through the Centro de Estudos de Gestão e Economia Aplicada (CEGEA) of Católica Porto Business School (Universidade Católica Portuguesa) |
|||||
| 2015 | Member of the Selection Board for the Oral Test for External Auditor (ROC) | |||||
| 2015-2017 | Cooperation with the Portuguese Institute of Statutory Auditors (OROC) as trainer for the External Auditor Preparatory Course |
|||||
| Offices held in other entities | ||||||
| Member of the Statutory Audit Committee of Sonae SGPS, S.A. | ||||||
| Member of the Statutory Audit Committee of Sonae Investimentos SGPS, S.A. |
Member of the Statutory Audit Committee of Ibersol SGPS, S.A.
President of the Statutory Audit Committee of AEGE - Associação para a Escola de Gestão Empresarial
Lecturer at Católica Porto Business School (Universidade Católica Portuguesa)
Óscar José Alçada da Quinta
Birth date
1 December 1957
Educational qualifications 1982 Degree in Economics at Faculdade de Economia da Universidade do Porto 1990 Statutory auditor Professional experience 1982-1986 Administrative and financial responsibilities in the area of textile companies, construction and office equipment Since 1986 Provision of services related to external audit for Statutory Auditors and for companies in the previous activities 1990-1992 Independent Statutory Auditor Since 1992 Statutory Auditor and Partner of Óscar Quinta, Canedo da Mota &Pires Fernandes, SROC Offices held in other entities Member of the Board of Directors of Óscar Quinta, Canedo da Mota &Pires Fernandes, SROC Member of the Fiscal Council of Sonae Indústria, SGPS, SA
Member of the Fiscal Council of Caetano-Baviera - Comércio de Automóveis, S.A.
Member of the Fiscal Council of BA GLASS I - Serviços de Gestão e Investimentos, S.A.
António Augusto Almeida Trabulo
Birth date
23 November 1954
Educational qualifications
Degree in Economics at Faculdade de Economia da Universidade do Porto
Attendance in a Post Graduate Course in Financial Analysis, in Economics Faculty of the University of Oporto
Attendance in a Post Graduate Course in International Financial Management, in Economics Faculty of the University of Oporto
Post Graduate Course in Accounting and Corporate Finance from Universidade Aberta
Sufficiency Researcher Diploma in Economia Financiera y Contabilidad area from Valladolid University
Student of the Doctorate Course in Management and Business Administration in Valladolid University
Statutory Auditor
| Professional experience | |
|---|---|
| 1980-1999 | Teacher of Secondary Education |
| 1986-1987 | Administrative Head of Guimar Footwear Factory |
| 1987-1988 | Administrative - Financial Director of Polystar Footwear Factory |
| 1989 | Administrative-Financial Director of Sociedade de Construções Alberto Leal, SA (SCAL), and administration advisory in new investments, tax and organization areas |
| 1990 -1993 | Responsible for the Management Control of the Real State Sector in Sonae Group |
| 1993 -1998 | Responsible by Management Control, Administrative Business and Tax Direction of Sonae Imobiliária, SGPS, S.A. |
| 1998 -1999 | Teaching the Subject of Financial Management of Cultural Management Course in Instituto Empresarial Português |
| 1998 -1999 | Teaching the Subject of Tax in Training Course for Statutory Auditors in the Statutory Auditors Chamber |
| 1998 - 2001 | Administrator responsible for the tax consultancy department of the Oporto Ernst & Young office |
| 1998 - 2001 | Teaching the Subject of Advanced Accounting Topics of Post Graduate Course in Corporate Finance of Lusíada University |
| 1999 - 2002 | Statutory Auditor and Partner of A. Santos, J. Alves e Associados, SROC |
| 2002 - 2012 | Statutory Auditor and Partner of UHY & Associados, SROC, Ltdª |
| 2006-2012 | Member of the Comissão Técnica dos Valores Mobiliários of Portuguese Institute of Statutory Auditors |
| 2007-2008 | Teaching Taxation Subject of Tax of Post Graduate Course of Management Oporto School of University of Oporto |
| 2007-2011 | Controller - reporter of the Quality Control Commission of Portuguese Institute of Statutory Auditors |
| Offices held in other entities |
Statutory Auditor and Partner of AAT – António Trabulo, SROC, Unipessoal, Lda.
Member of Fiscal Council of Sonae Investimentos, SGPS, S.A.
Member of Fiscal Council of Sonae Indústria, SGPS, S.A.
President of Fiscal Council of Fundação Visabeira – Instituição de Solidariedade Social
President of the Superior Council of Fundação João e Fernanda Garcia, IPSS
Curricula Vitae of the members of the Remuneration Committee.
| Duarte Paulo Teixeira de Azevedo | |
|---|---|
| Member of Remuneration Committee of Sonaecom, SGPS, S.A. | |
| Date of Birth | |
| 31 December 1965 | |
| Academic Curriculum | |
| 1986 | Degree in Chemical Engineering - École Polytechnique Féderále de Lausanne |
| 1989 | MBA - Porto Business School |
| Executive Education | |
| 1994 | Executive Retailing Program - Babson College |
| 1996 | Strategic Uses of Information Technology Program - Stanford Business School |
| 2002 | Breakthrough Program for Senior Executives - IMD |
| 2008 | Proteus Programme - London Business School |
| 2011 | Ariel Group - Leading with Presence immersion experience |
| 2012 | Corporate Level Strategy - Harvard Business School |
| Professional Experience | |
| 1988-1990 | Analyst and Manager of "Projeto Novos Investimentos" in Sonae Tecnologias de Informação |
| 1990-1993 | Manager of "Projeto de Desenvolvimento Organizativo" and Comercial Director in Portugal in New Business in Sonae Indústria (Painéis Derivados de Madeira) |
| 1989-1990 | Member of the Executive Committee of APGEI - Associação Portuguesa de Gestão e Engenharia Industrial |
| 1993-1996 | Director of Planning and Strategic Control and Organizational Development in Sonae Investimentos - SGPS, S.A. (currently Sonae - SGPS, S.A.) |
| 1996-1998 | Executive Director of Modelo Continente Hipermercados, SA (Merchandising, IT e Marketing Retalho) |
| 1998-2000 | Chairman of the Executive Committee of Optimus - Telecomunicações, S.A. (Operador Móvel) |
| 1998-2007 | Executive Director of Sonae - SGPS, S.A. |
| 2001-2002 | Chairman of Apritel - Associação dos Operadores de Telecomunicações |
| 2001-2008 | Member of the General Council of EGP - UPBS (now Porto Business School) |
| 2002-2007 | Chairman of the Executive Committee of Sonaecom, SGPS, S.A. |
| 2002-2007 | Chairman of the General Board of Público - Comunicação Social, S.A. |
| 2003 | Co-author of the book "Reformar Portugal" |
| 2003-2007 | Chairman of the General Board of Glunz, AG |
| 2004-2007 | Chairman of the Board of Directors of Tableros de Fibras, S.A. (Tafisa) |
| 2006-2013 | Member of the Board of Founders of Fundação Casa da Música |
| 2007-2014 | Chairman of the Board of Directors of Sonaecom, SGPS, S.A. |
| 2007-2015 | Vice President of the Board of Directors of Sonae Indústria, SGPS, S.A. |
|---|---|
| 2007-2015 | Chairman of the Executive Committee of Sonae - SGPS, S.A. |
| 2008-2009 | Member of the General Council of AEP - Associação Empresarial de Portugal |
| 2008-2014 | Chairman of the Board of Directors of MDS, SGPS, S.A. |
| 2009-2013 | Chairman of the Board of Directors of Sonaegest, Sociedade Gestora de Fundos e Investimentos |
| 2009-2014 | Member of the Board of Trustees of AEP - Associação Empresarial de Portugal |
| 2009-2015 | Chairman of the Board of Trustees of Universidade do Porto |
| 2010-2013 | Chairman of the Board of Directors of Sonae RP - Retail Properties |
| 2010-2016 | Chairman of the Board of Directors of Sonae - Sprecialized Retail , SGPS, S.A. |
| 2012-2015 | Member of the Board of COTEC |
| 2012-2017 | Member of the Board of Trustees of Fundação Belmiro de Azevedo |
| Offices held in other entities | |
| Since April 2015 | Chairman of the Board of Directors and Co-CEO of Sonae - SGPS, S.A. |
| Since March 2015 | Chairman of the Board of Directors of Sonae Indústria, SGPS, S.A. |
| Since March 2015 | Chairman of the Board of Directors of Sonae Capital, SGPS, S.A. |
| Since May 2007 | Chairman of the Board of Directors of Sonae Investimentos, SGPS, S.A. |
| Since April 2010 | Chairman of the Board of Directors of Sonae MC - Modelo Continente , SGPS, S.A. |
| Since May 2013 | Chairman of the Board of Directors of Sonae Center Serviços II, SGPS, S.A. |
| Since May 2007 | Chairman of the Board of Directors of Sonae Sierra, SGPS, S.A. |
| Since May 2016 | Chairman of the Board of Directors of Sonae Arauco, S.A. |
| Since July 1990 | Member of the Board of Directors of Imparfin, SGPS, S.A. |
| Since December 2010 | Member of the Board of Directors of Efanor Investimentos, SGPS, S.A. |
| Since December 2010 | Chairman of the Board of Directors of Migracom, SGPS, S.A. |
| Since 2008 | Member of ERT - European Round Table of Industrialists |
| Since 2013 | Membrer of International Advisory Board of Allianz SE |
| Since 2015 | Member of Consejo Iberoamericano para La Productividad y la Competitividad |
| Since 2017 | Member of the Board of Trustees of Espaço-T |
| Since 2017 | Member of the Board of EFANOR - Serviços de Apoio à Gestão, S.A. |
Member of Remuneration Committee of Sonaecom, SGPS, S.A.
Birth date
2 January 1942
Educational qualifications
| 1965 | Degree in Electrical Engineering - Technical University | |||||
|---|---|---|---|---|---|---|
| Professional Experience | ||||||
| 2000-2010 | Non-Executive Director of Fundação Portugal-África | |||||
| 2004-2010 | Member of Advisory Council of Instituto Português de Corporate Governance | |||||
| 2005-2012 | Member of Advisory Council of Fórum para a Competitividade | |||||
| 2007-2012 | Guest vowel of Conselho Nacional da Água | |||||
| 2007-2012 | Vice-president and Non-Executive Chairman of Directors of EFACEC Capital | |||||
| 2007-2013 | Chairman of the General Board of PROFORUM | |||||
| 2007-2013 | Chairman of Conselho Nacional do Colégio de Engenharia Eletrotécnica da Ordem dos Engenheiros | |||||
| 2010-2015 | Chairman of the General Meeting of Iberwind - Desenvolvimento e Projetos, S.A. | |||||
| 2009-2016 | Member co-opted of the Conselho de Escola do Instituto Superior Técnico | |||||
| 2012-2016 | Chairman of Direction of AAAIST - Associação de Antigos Alunos do Instituto Superior Técnico | |||||
| Since 2002 | Member of the Board of Trustees of Fundação Luso-Espanhola | |||||
| Since 2004 | Member of the Board of Trustees of Fundação Luso-Brasileira | |||||
| Since 2005 | Member of Employers of Fundação Hidroelétrica del Cantábrico | |||||
| Offices held in other entities | ||||||
| Non-Executive Director of Sonae Capital S.G.P.S., S.A. | ||||||
| Member of Remuneration Committee of Sonae, SGPS, S.A. |
Chairman of the General Meeting of APEDS - Associação Portuguesa de Engenheiros para o Desenvolvimento Social
Chairman of the General Meeting of AAAIST - Associação de Antigos Alunos do Instituto Superior Técnico
President of honor of Hidroelétrica del Cantábrico, S.A.
Member of Employers of Fundação Hidroelétrica del Cantábrico
Member of the Board of Trustees of Fundação Luso-Brasileira
Member of the Board of Trustees of Fundação Luso-Espanhola
| (Amounts expressed in Euro) | Notes | December 2017 | December 2016 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Tangible assets | 1.c, 1.h and 5 | 3,211,795 | 3,289,758 |
| Intangible assets | 1.d, 1.e, 1.x and 6 | 25,019,894 | 26,793,457 |
| Goodwill | 1.f, 1.x and 7 | 23,351,829 | 23,683,622 |
| Investments in associated companies and companies jointly controlled | 1.b and 8 | 771,735,367 | 746,061,735 |
| Investments available for sale | 1.g, 4 and 10 | 5,480,963 | 539,614 |
| Other non-current assets | 1.g, 1.r, 1.y, 4, 12 and 37 | 3,812,536 | 3,123,287 |
| Deferred tax assets | 1.p, 1.t and 11 | 7,324,057 | 9,314,972 |
| Total non-current assets | 839,936,441 | 812,806,445 | |
| Current assets | |||
| Inventories | 1.i, 13 | 232,706 | 285,311 |
| Trade debtors | 1.g, 1.j, 4, 14, 23 and 37 | 47,170,847 | 47,143,492 |
| Other current debtors | 1.g, 1.j, 4, 15, 23 and 37 | 2,942,113 | 20,632,559 |
| Income tax receivable | 1.p, 4 and 28 | 3,315,918 | 3,055,627 |
| Other current assets | 1.g, 1.r, 1.x, 4, 16 and 37 | 9,985,136 | 10,281,066 |
| Cash and cash equivalents | 1.g, 1.k, 4 ,17 and 37 | 202,025,688 | 210,256,338 |
| Total current assets | 265,672,408 | 291,654,393 | |
| Total assets | 1,105,608,849 | 1,104,460,838 | |
| Shareholders' funds and liabilities | |||
| Shareholders' funds | |||
| Share capital | 18 | 230,391,627 | 230,391,627 |
| Own shares | 1.v and 19 | (7,686,952) | (7,686,952) |
| Reserves | 1.u | 784,781,832 | 762,449,012 |
| Consolidated net income/(loss) for the year | 22,765,966 | 48,131,541 | |
| 1,030,252,473 | 1,033,285,228 | ||
| Non-controlling interests | 20 | 1,625,044 | (155,054) |
| Total Shareholders' funds | 1,031,877,517 | 1,033,130,174 | |
| Liabilities | |||
| Non-current liabilities | |||
| Non-current loans net of short term position | 1 g, 1.l, 1.m, 1q, 4 and 21.a | 2,389,738 | 3,756,781 |
| Other non-current financial liabilities | 1.h, 4 and 22 | 173,478 | 509,530 |
| Provisions for other liabilities and charges | 1.o, 1.t and 23 | 3,603,145 | 4,919,669 |
| Deferred tax liabilities | 1.p, 1.t and 11 | 10,243,448 | 8,263,418 |
| Other non-current liabilities | 1g, 1.r, 1y, 4, 24, 37 and 41 | 2,093,069 | 2,282,297 |
| Total non-current liabilities | 18,502,878 | 19,731,695 | |
| Current liabilities | |||
| Current loans and other loans | 1 g, 1.l, 1.m, 1q 4 and 21.b | 1,203,639 | 1,241,107 |
| Trade creditors | 1g, 4, 25 and 37 | 16,019,197 | 15,615,754 |
| Other current financial liabilities | 1g, 1.h, 4 and 26 | 341,479 | 519,787 |
| Other creditors | 1g, 4 and 27 | 5,293,896 | 4,533,307 |
| Income tax payable | 1.p, 4 and 28 | 112,690 | 170,502 |
| Other current liabilities | 1g, 1q, 1.r, 1y, 4, 29, 37 and 41 | 32,257,553 | 29,518,512 |
| Total current liabilities | 55,228,454 | 51,598,969 | |
| Total Liabilities | 73,731,332 | 71,330,664 | |
| Total Shareholders' funds and liabilities | 1,105,608,849 | 1,104,460,838 | |
The notes are an integral part of the consolidated financial statements.
The Chief Accountant
| (Amounts expressed in Euro) | Notes | December 2017 | September to December 2017 (not audited) |
December 2016 | September to December 2016 (not audited) |
|---|---|---|---|---|---|
| Sales | 1.s, 30 and 37 | 52,044,191 | 11,077,882 | 40,039,841 | 8,637,804 |
| Services rendered | 1.s, 29 and 37 | 87,515,371 | 23,378,683 | 90,492,931 | 23,787,563 |
| Other operating revenues | 1.q,23, 31 and 37 | 2,661,389 | 851,538 | 1,511,994 | 590,924 |
| 142,220,951 | 35,308,103 | 132,044,766 | 33,016,291 | ||
| Cost of sales | 1.i, 13 | (44,493,096) | (9,186,503) | (32,429,804) | (6,770,703) |
| External supplies and services | 1.h, 32 and 37 | (37,524,704) | (9,575,537) | (45,560,452) | (11,225,185) |
| Staff expenses | 1q, 1.y, 41, 42 and 44 | (57,279,014) | (14,757,509) | (51,547,363) | (13,703,749) |
| Depreciation and amortisation | 1.c, 1.d, 1.f, 5, 6 and 7 | (9,407,071) | (2,127,140) | (15,463,247) | (7,474,744) |
| Provisions and impairment losses | 1.j, 1.o, 1.x and 23 | (1,977,534) | (1,483,959) | (886,873) | (693,971) |
| Other operating costs | 33 | (630,639) | (216,794) | (817,034) | (415,668) |
| (151,312,058) | (37,347,442) | (146,704,773) | (40,284,020) | ||
| Gains and losses in associated companies and companies jointly controlled | 1.b, 8 and 35 | 35,779,065 | 3,242,570 | 53,850,309 | 37,911,377 |
| Gains and losses on financial assets at fair value through profit or loss | 1.g, 9 and 35 | - | - | (4,554,534) | 158 |
| Other financial expenses | 1.h, 1.m, 1.w, 1.x, 21 and 34 | (5,665,134) | (2,349,175) | (4,487,309) | (715,303) |
| Other financial income | 1.w, 21 and 34 | 4,624,204 | 1,795,362 | 3,734,563 | 639,913 |
| Current income / (loss) | 25,647,028 | 649,418 | 33,883,022 | 30,568,416 | |
| Income taxation | 1.p, 11, 36 and 37 | (2,742,817) | (2,704,228) | 13,894,133 | 11,550,208 |
| Consolidated net income/(loss) for the period | 39 | 22,904,211 | (2,054,810) | 47,777,155 | 42,118,624 |
| Attributed to: | |||||
| Shareholders of parent company | 39 and 40 | 22,765,966 | (2,118,778) | 48,131,541 | 42,128,981 |
| Non-controlling interests | 20 and 39 | 138,245 | 63,968 | (354,386) | (10,357) |
| Earnings per share | 40 | ||||
| Basic | 0.07 | (0.01) | 0.16 | 0.14 | |
| Diluted | 0.07 | (0.01) | 0.16 | 0.14 | |
The notes are an integral part of the consolidated financial statements.
The Chief Accountant
| (Amounts expressed in Euro) | Notes | December 2017 | September to December 2017 (not audited) |
December 2016 | September to December 2016 (not audited) |
|---|---|---|---|---|---|
| Consolidated net income / (loss) for the period | 22,904,211 | (2,054,810) | 47,777,155 | 42,118,624 | |
| Components of other consolidated comprehensive income, net of tax, that will be reclassified subsequently to profit or loss: Changes in reserves resulting from the application of equity method Changes in currency translation reserve and other Components of other consolidated comprehensive income, net of tax, that will not be reclassified subsequently to profit or loss: |
8 1.w |
653,663 (2,420,494) |
481,203 (247,204) |
(11,615,452) 1,046,814 |
256,979 1,032,653 |
| Changes in reserves resulting from the application of equity method | 8 | 19,899 | (165,494) | (11,436,702) | 971 |
| Consolidated comprehensive income for the period | 21,157,279 | (1,986,305) | 25,771,815 | 43,409,227 | |
| Attributed to: | |||||
| Shareholders of parent company | 21,019,034 | (2,050,273) | 26,126,201 | 43,419,583 | |
| Non-controlling interests | 138,245 | 63,968 | (354,386) | (10,357) |
The notes are an integral part of the consolidated financial statements.
For the years ended at 31 December 2017 and 2016
| Reserves | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts expressed in Euro) | Notes | Share capital (note 18) |
Own shares (note 19) |
Share premium Legal reserves | Reserves of own shares |
Other reserves | Total reserves | Non-controlling | interests (note 19) Net income / (loss) | Total | |
| 2017 | |||||||||||
| Balance at 31 December 2016 | 230,391,627 | (7,686,952) | 775,290,377 | 15,163,177 | 7,686,952 | (35,691,494) | 762,449,012 | (155,054) | 48,131,541 | 1,033,130,174 | |
| Appropriation of the consolidated net result of 2016 | |||||||||||
| Transfers to other reserves | - | - | - | 1,750,185 | - | 46,381,356 | 48,131,541 | - | (48,131,541) | - | |
| Dividend Distribution | 37 | - | - | - | - | - | (23,544,214) | (23,544,214) | (79,680) | - | (23,623,894) |
| Percentage change in subsidiaries | - | - | - | - | - | (507,575) | (507,575) | 507,575 | - | - | |
| Increase in share capital in subsidiaries | - | - | - | - | - | - | - | 1,207,700 | - | 1,207,700 | |
| Consolidated comprehensive income for the year ended at 31 December 2017 | - | - | - | - | - | (1,746,932) | (1,746,932) | 138,245 | 22,765,966 | 21,157,279 | |
| Other changes | - | - | - | - | - | - | - | 6,258 | - | 6,258 | |
| Balance at 31 December 2017 | 230,391,627 | (7,686,952) | 775,290,377 | 16,913,362 | 7,686,952 | (15,108,859) | 784,781,832 | 1,625,044 | 22,765,966 | 1,031,877,517 | |
| - | - | ||||||||||
| Reserves | |||||||||||
| (Amounts expressed in Euro) | Notes | Share capital (note 18) |
Own shares (note 19) |
Share premium Legal reserves | Reserves of own shares |
Other reserves | Total reserves | Non-controlling | interests (note 19) Net income / (loss) | Total | |
| 2016 | |||||||||||
| Balance at 31 December 2015 | 230,391,627 | (7,686,952) | 775,290,377 | 13,443,724 | 7,686,952 | (26,811,749) | 769,609,304 | (1,706,447) | 34,610,042 | 1,025,217,574 | |
| Appropriation of the consolidated net result of 2015 | |||||||||||
| Transfers to other reserves | - | - | - | 1,719,453 | - | 32,890,589 | 34,610,042 | - | (34,610,042) | - | |
| Dividend Distribution | 37 | - | - | - | - | - | (17,734,603) | (17,734,603) | (29,880) | - | (17,764,483) |
| Percentage change in subsidiaries | - | - | - | - | - | (2,030,391) | (2,030,391) | 2,030,391 | - | - | |
| Consolidated comprehensive income for the year ended at 31 December 2016 | - | - | - | - | - | (22,005,340) | (22,005,340) | (354,386) | 48,131,541 | 25,771,815 | |
| Other changes | - | - | - | - | - | - | - | (94,732) | - | (94,732) | |
| Balance at 31 December 2016 | 230,391,627 | (7,686,952) | 775,290,377 | 15,163,177 | 7,686,952 | (35,691,494) | 762,449,012 | (155,054) | 48,131,541 | 1,033,130,174 |
The notes are an integral part of the consolidated financial statement.
The Chief Accountant
For the years ended at 31 December 2017 and 2016
| (Amounts expressed in Euro) | Notes | December 2017 | December 2016 | ||
|---|---|---|---|---|---|
| Operating activities | |||||
| Receipts from trade debtors | 136,904,072 | 128,472,158 | |||
| Payments to trade creditors | (80,293,772) | (80,985,801) | |||
| Payments to employees | (61,061,614) | (61,374,751) | |||
| Cash flows generated by operations | (4,451,314) | (13,888,394) | |||
| Payments / receipts relating to income taxes | 17,542,785 | 3,493,553 | |||
| Other receipts / payments relating to operating activities | (457,281) | 77,604 | |||
| Cash flows from operating activities (1) | 12,634,190 | (10,317,237) | |||
| Investing activities | |||||
| Receipts from: | |||||
| Financial investmens | - | 361 | |||
| Tangible assets | 22,765 | 31,517 | |||
| Intangible assets | 351,263 | 62,042 | |||
| Dividends | 8 and 37 | 16,512,303 | 20,074,110 | ||
| Interest and similar income | 830,602 | 1,223,315 | |||
| Disposals of investments at fair value | 8 | - | 82,840,847 | ||
| Payments for: | |||||
| Financial investmens | (11,440,620) | (33,197,646) | |||
| Tangible assets | (917,373) | (1,260,665) | |||
| Intangible assets | (1,043,639) | (2,945,635) | |||
| Others | - | (2,778,027) | |||
| Cash flows from investing activities (2) | 4,315,301 | 64,050,219 | |||
| Financing activities | |||||
| Receipts from: | |||||
| Capital increases, supplementary capital and share premium | 947,500 | - | |||
| Payments for: | |||||
| Leasing | 17 | (514,353) | (593,102) | ||
| Interest and similar expenses | (563,904) | (487,255) | |||
| Dividends | 37 | (23,623,894) | (17,764,483) | ||
| Loans obtained | 17 | (1,276,636) | (5,853,317) | ||
| Cash flows from financing activities (3) | (25,031,287) | (24,698,157) | |||
| Net cash flows (4)=(1)+(2)+(3) Effect of the foreign exchanges |
(8,081,796) (148,510) |
29,034,825 132,883 |
|||
| Cash and cash equivalents at the beginning of the year | 17 | 210,255,685 | 181,087,977 | ||
| Cash and cash equivalents at the end of the year | 17 | 202,025,379 | 210,255,685 | ||
The notes are an integral part of the consolidated financial statements.
For the years ended at 31 December 2017 and 2016
| Notes | December 2017 | December 2016 | |
|---|---|---|---|
| a) Bank credit obtained and not used | 21 | 1,000,000 | 1,000,000 |
| b) Purchase of company through the issue of shares | Not applicable | Not applicable | |
| c) Conversion of loans into shares | Not applicable | Not applicable |
| Notes | December 2017 | December 2016 | |
|---|---|---|---|
| a) Amounts paid of acquisitions | |||
| Secucloud | 3.c and 8 | 4,000,000 | - |
| Artic Wolf | 3.c and 10 | 3,830,113 | - |
| Ometria | 3.c and 10 | 854,165 | - |
| Continuum Security, SL | 3.c and 10 | 299,802 | - |
| Probe.ly | 3.c and 8 | 515,000 | - |
| Food Orchestrator | 3.c and 10 | 104,933 | - |
| Sirs | 3.c and 8 | 10,000 | - |
| Armilar; Armilar II; Armilar III and ESVIINT | 3.c and 8 | 1,409,697 | 31,749,338 |
| Style Sage | 3.c and 10 | 416,910 | 448,834 |
| Sysvalue purchase | 3.c | - | 346,128 |
| Inovretail purchase | 3.c | - | 653,346 |
| 11,440,620 | 33,197,646 | ||
| b) Amounts received of dividends | |||
| ZOPT | 8 | 16,512,005 | 18,311,947 |
| NOS SGPS | 37 | - | 1,762,005 |
| CAIXA BANK | 298 | 158 | |
| 16,512,303 | 20,074,110 |
| Activity | Cash flow from operating activities |
Cash flow from investing activities |
Cash flow from financing activities |
Net cash flows |
|---|---|---|---|---|
| 2017 | ||||
| Media | 282,432 | (273,999) | (14,962) | (6,529) |
| Information Systems | (255,020) | (12,550,939) | (1,214,802) | (14,020,761) |
| Holding | 12,629,353 | 17,140,239 | (23,824,098) | 5,945,494 |
| 12,656,765 | 4,315,301 | (25,053,862) | (8,081,796) | |
| Activity | Cash flow from operating activities |
Cash flow from investing activities |
Cash flow from financing activities |
Net cash flows |
| 2016 | ||||
| Media | (4,542,120) | (478,360) | (27,135) | (5,047,615) |
| Information Systems | 1,004,550 | (39,398,899) | (6,765,501) | (45,159,850) |
| Holding | (6,779,667) | 103,927,478 | (17,905,521) | 79,242,290 |
| (10,317,237) | 64,050,219 | (24,698,157) | 29,034,825 |
The notes are an integral part of the consolidated financial statements.
SONAECOM, SGPS, S.A. (hereinafter referred to as 'the Company' or 'Sonaecom') was established on 6 June 1988, under the name Sonae – Tecnologias de Informação, S.A. and has its head office at Lugar de Espido, Via Norte, Maia – Portugal. It is the parent company of the Group of companies listed in notes 2 and 3 ('the Group').
Sonaecom SGPS, S.A. is owned directly by Sontel BV and Sonae SGPS, SA and Efanor Investimentos SGPS, S.A. is the ultimate controlling company.
Pargeste, SGPS, S.A.'s subsidiaries in the communications and information technology area were transferred to the Company through a demerger-merger process, executed by public deed dated 30 September 1997.
On 3 November 1999 the Company's share capital was increased, its Articles of Association were modified and its name was changed to Sonae.com, SGPS, S.A.. Since then the Company's corporate object has been the management of investments in other companies. Also on 3 November 1999, the Company's share capital was re-denominated to Euro, being represented by one hundred and fifty million shares with a nominal value of 1 Euro each.
On 1 June 2000, the Company carried out a Combined Share Offer, involving the following:
In addition to the Combined Share Offer, the Company's share capital was increased under the terms explained below. The new shares were fully subscribed for and paid up by Sonae, SGPS, S.A. (a Shareholder of Sonaecom, hereinafter referred to as 'Sonae'). The capital increase was subscribed for and paid up on the date the price of the Combined Share Offer was determined, and paid up in cash, 31,000,000 new ordinary shares of 1 Euro each being issued. The subscription price for the new shares was the same as that fixed for the sale of shares in the aforementioned Combined Share Offer, which was Euro 10.
In addition, in this year, Sonae sold 4,721,739 Sonaecom shares under an option granted to the banks leading the Institutional Offer for Sale and 1,507,865 shares to Sonae Group managers and to the former owners of the companies acquired by Sonaecom.
By decision of the Shareholders' General Meeting held on 17 June 2002, Sonaecom's share capital was increased from Euro 181,000,000 to Euro 226,250,000 by public subscription reserved for the existing Shareholders, 45,250,000 new shares of 1 euro each having been fully subscribed for and paid up at the price of Euro 2.25 per share.
On 30 April 2003, the Company's name was changed by public deed to SONAECOM, SGPS, S.A..
By decision of the Shareholders' General Meeting held on 12 September 2005, Sonaecom's share capital was increased by Euro 70,276,868, from Euro 226,250,000 to Euro 296,526,868, by the issuance of 70,276,868 new shares of 1 euro each and with a share premium of Euro 242,455,195, fully subscribed by France Télécom. The corresponding public deed was executed on 15 November 2005.
By decision of the Shareholders General Meeting held on 18 September 2006, Sonaecom's share capital was increased by Euro 69,720,000, from Euro 296,526,868 to Euro 366,246,868, by the issuance of 69,720,000 new shares of 1 euro each and with a share premium of Euro 275,657,217, subscribed by 093X – Telecomunicações Celulares, S.A. ('EDP') and Parpública – Participações Públicas, SGPS, S.A. ('Parpública'). The corresponding public deed was executed on 18 October 2006.
By decision of the Shareholders General Meeting held on 16 April 2008, bearer shares were converted into registered shares.
During the year ended on 31 December 2013, the merger between Zon Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A. ('Zon') and Optimus SGPS, SA (note 8) was closed. Accordingly, the telecommunications segment was classified, for presentation purposes, as a discontinued operation and the Group's business became of, rather than the holding activity:
Consequently, since the merger mentioned above, the telecommunications segment became jointly controlled (note 8).
On 5 February 2014, Sonaecom made public the decision to launch a general and voluntary tender offer for the acquisition of shares representing the share capital of Sonaecom.
The offer was general and voluntary, with the offered obliged to acquire all the shares that were the object of the offer and were, until the end of the respective period, subject to valid acceptance by the recipients.
The period of the offer, during which sales orders were received, ran for two weeks, beginning on 6 February and ending on 19 February 2014. On 20 February 2014, the results of the offer were released. The level of acceptance reached 62%, corresponding to 54,906,831 Sonaecom shares (notes 9 and 18).
In 2014 Sonaecom reduced its share capital to Euro 230,391,627.
Euronext Lisbon announced Sonaecom exclusion from the PSI-20 from 24 February 2014 forward.
The Group operates in Portugal and has subsidiaries (from the information systems consultancy segment) operating in about 12 countries.
The consolidated financial statements are also presented in euro, rounded at unit, and the transactions in foreign currencies are included in accordance with the accounting policies detailed below.
The accompanying financial statements relate to the consolidated financial statements of the Sonaecom Group and have been prepared on a going concern basis, based on the accounting records of the companies included in the consolidation through full consolidation method (note 2) in accordance with the International Financial Reporting Standards (IFRS) as adopted and effective in the European Union on 1 January 2017. These financial statements were prepared based on the historical cost, except for the revaluation of some financial instruments.
Sonaecom adopted IFRS for the first time according to SIC 8 (First-time adoption of IAS) on 1 January 2003.
The following standards, interpretations, amendments and revisions have been approved (endorsed) by the European Union, and have mandatory application to financial years beginning on or after 1 January 2017 and were first adopted in the year ended on 31 December 2017:
| Standard/Information | Effective date (annual |
|---|---|
| periods beginning on | |
| or after) | |
| Amendments to IAS 7 - Disclosure initiative | 1-Jan-17 |
| Amendments to AS 7 - Disclosure Initiative intended to clarify IAS 7 to improve | |
| information provided to users of financial statements about an entity's financing | |
| activities. | |
| Amendments to IAS 12 - Recognition of deferred tax | 1-Jan-17 |
| assets for unrealised losses | |
| Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised | |
| Losses is to clarify the accounting for deferred tax assets for unrealised losses |
The application of these standards and interpretations had no material effect on the financial statements of the Group.
on debt instruments measured at fair value.
The following standards, interpretations, amendments and revisions, whose application is mandatory in future financial years, have been at the date of approval of these financial statements, approved (endorsed) by the European Union:
| Standard / Interpretation | Effective date (annual periods beginning on or after) |
|---|---|
| IFRS 15 - Revenue from Contracts with Customers | 1-Jan-18 |
| IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. |
|
| Amendments to IFRS 15 - Revenue from contracts with | 1-Jan-18 |
| customers Review of accounting treatment for license revenue, definition of agency and transitory regime. |
|
| IFRS 9 Financial instruments | 1-Jan-18 |
| This standard introduces new requirements for classifying and measuring | |
| financial assets. | |
| Amendments to IFRS 4 - Applying IFRS 9 Financial | 1-Jan-18 |
| instruments with IFRS 4 Insurance contracts The amendments are intended to address concerns about the different |
|
| effective dates of IFRS 9 and the forthcoming new insurance contracts standard, allowing an exemption regime in the recognition of changes in the fair value of financial investments. |
|
| IFRS 16 - Leases | 1-Jan-19 |
leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor IAS 17.
The Group has not yet implemented any of these standards in the financial statements for the year ended on 31 December 2017.
With respect to the new standards that became effective in the fiscal year beginning on January 1, 2018, the group performed an analysis of the changes introduced and their potential impact on the financial statements.
IFRS 15 is based on the principle that revenue is recognized on the date of transfer of control to the customer, with the transaction value being allocated to the different performance obligations assumed to the client and subject to adjustment in the measurement whenever the consideration is variable or subject to a significant financial effect.
Management reviewed the recognition impact of adopting IFRS 15 on the revenue in terms of amount and period. From the analysis carried out, the following differences between the current accounting policies of situations applicable to the Group and the policies resulting from the application of IFRS 15 were identified:
Recognition for Software as a Service (SaaS) contracts - IFRS 15 requires that if a service is not distinct, the entity shall combine such service with other services until it identifies a distinct service package. This will result in the record of all services in a contract as a unique performance obligation. In some SaaS agreements, software implementation services do not constitute a distinct performance obligation, but a performance obligation combined with the SaaS service. In these cases, implementation and initial configuration activities mainly consist on administrative tasks required to perform the primary SaaS service, but do not provide an incremental benefit to the customer alone. Thus, in these contracts, the group should identify only one performance obligation (implementation and SaaS) and recognise the revenue from this performance obligation on a monthly basis over-the-time, over the contract period. Currently the Group recognises the revenue associated with the implementation over it period, so the introduction of IFRS 15 will generate a deferral of recognition of revenue over the SaaS contract period.
Recognition for certain costs incurred in the fulfillment of a contract (fulfillment costs) - The costs related to the implementation phase are considered fulfillment costs. Costs associated with performance of a contract must be capitalised in accordance with IFRS15 if (i) it is related to an existing contract or a specific future contract; ii) if they create the resources that will be used to satisfy a performance obligation in the future; (iii) whether costs are expected to be recovered; (iv) are not already covered by another accounting standard. These costs will be capitalised and recognised in profit and losses according to the estimated period of permanence of cleint or over the contract period. These costs are currently recognised in results when incurred.
Recognition for IT Audit Contracts - In accordance with IFRS 15, recognition of audit revenue must be "over-the-time" at the time that the benefits of the performance obligation are transferred to the customer, that is, in accordance with the milestones reports delivery to the client. Currently revenue is recognised taking into account the percentage completion of each audit, so the introduction of IFRS 15 will generate a deferral of recognition of revenue to the time of delivery of the report.
Recognition for the sale of newspapers and associated products through the distributor- In accordance with the definitions of IFRS 15, the revenue from these contracts must be recognised at the total amount. The conditions previse in IFRS 15 are verified in order for the Group to perform the role of Principal in these contracts. In this way, revenue must be recognised by the total value of sales of newspapers and associated products and the discount attributed to the distributor should be recognised as cost of distribution. Currently the recognised revenue is the total amount net cover amount of the discount attributed to the distributor.
Presentation of contractual assets and contractual liabilities in the balance sheet - IFRS 15 requires the separate presentation of contractual assets and contractual liabilities in the balance sheet. This will result in some reclassifications as of January 1, 2018 in respect of service agreements.
From this analysis it is concluded that the adoption of IFRS 15 in the Group's financial statements will have an estimated net impact of circa Euro 400,000.
In adopting IFRS 15, the Group decided to adopt the transitional regime of the retrospective application with the initial cumulative effect recognised in retained earnings as of 1 January 2018, with the use of the following practical records:
a) Application only for contracts not completed on 01/01/2018
b) Non-restatement of modified contracts before 01/01/2017
IFRS 9 addresses the classification, measurement and derecognition of financial instruments, introducing changes at the level of: i) classification of financial assets; ii) calculation of the impairment of financial assets; and iii) designation of hedging relationships.
In assessing the impacts of adopting IFRS 9, the group assessed the nature of the financial assets recorded in order to identify the measurement impacts. The group's financial
assets refer mainly to accounts receivable and treasury applications.
Regarding the measurement and classification, the Group does not expect a significant impact on its balance sheet or Equity in applying the classification and measurement requirements of IFRS 9.
At 31 December 2017, the Group has investments in nonlisted companies classified as available-for-sale at fair value, adjusted whenever applicable by the related impairment losses, which are held for a long-term purpose. In accordance with IFRS 9, the group elected to present subsequent changes in fair value through other comprehensive income, through capital, that would otherwise be measured at fair value through profit or loss. Consequently, the fair value gains and losses are recorded under "Other comprehensive income" and no impairment is recognized in the income statement.
With regard to the calculation of impairment, the new model requires the recognition of impairment losses based on expected credit losses rather than credit losses incurred as in IAS 39. Based on the assessments made until now, the Group does not expect to have material impacts on impairment losses.
The new standard also introduces expanded disclosure requirements and changes in presentation. They are expected to change the nature and extent of the group disclosures about its financial instruments particularly in the year of adoption of the new standard.
In adopting IFRS 9, the Group decided to adopt the transitional regime of the retrospective application with the initial cumulative effect recognised in retained earnings as of January 1, 2018.
The following standards, interpretations, amendments and revisions have not yet been approved (endorsed) by the European Union, at the date of approval of these financial statements:
| Standard / Interpretation | Effective date (annual |
|---|---|
| periods beginning on | |
| or after) | |
| IFRIC 23 - Uncertainty over income tax treatments | 1-Jan-19 |
| The interpretation is to be applied to the determination of taxable profit (tax | |
| loss), tax bases, unused tax losses, unused tax credits and tax rates, when there | |
| is uncertainty over income tax treatments under IAS 12. | |
| Amendments to IFRS 2 - Share-based payment | 1-Jan-18 |
| The objective of clarifications to IFRS 2 Share-based Payment was to clarify the |
classification and measurement of share-based payment transactions..
| Standard / Interpretation | Effective date (annual periods beginning on |
|---|---|
| or after) | |
| Annual Improvements to IFRS Standards 2014-2016 Cycle |
1-Jan-18 |
| Annual Improvements to IFRSs 2014–2016 Cycle is a collection of amendments to IFRSs in response to issues addressed during the 2014–2016 cycle for annual improvements to IFRSs. |
|
| IFRIC Interpretation 22 - Foreign currency transactions and advance consideration |
1-Jan-18 |
| IFRIC 22 clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. |
|
| Amendments to IAS 40 - Transfers of investmenty | 1-Jan-18 |
| property Amendments to IAS 40 clarifIes the application of paragraph 57 of IAS 40 Investment Property, which provides guidance on transfers to, or from, investment properties. |
|
| Amendments to IFRS 9 - Prepayment features with | 1-jan-19 |
| negative compensation The objective of the amendments to IFRS 9 is examine whether amortized cost measurement would provide relevant and useful information for instruments that contain symmetric prepayment options and otherwise have contractual cash flows that are solely payments of principal and interest. |
|
| Amendments to IAS 28 - Long-term interests in associates and joint ventures |
1-jan-19 |
| The objective of the amendments is clarify that an entity applies IFRS 9 'Financial Instruments' to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. |
|
| Annual Improvements to IFRS Standards 2015-2017 | 1-Jan-19 |
| Cycle Annual Improvements to IFRSs 2015–2017 Cycle is a collection of amendments to IFRSs in response to issues addressed during the 2015–2017 cycle for annual improvements to IFRSs. |
|
| IFRS 17 - Insurance contracts | 1-Jan-21 |
| IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. |
These standards have not yet been approved ('endorsed') by the European Union and, as such, were not adopted by the Group for the year ended on 31 December 2017. Their application is not yet mandatory.
The accounting policies and measurement criteria adopted by the Group on 31 December 2017 are comparable with those used in the preparation of 31 December 2016 financial statements.
The main accounting policies used in the preparation of the accompanying consolidated financial statements are as follows:
Sonaecom has control of the subsidiary when the company cumulatively fulfils the following conditions: i) has power over the subsidiary; ii) is exposed to, or has rights over, variable results from its involvement with the subsidiary; and iii) the ability to use its power to affect its returns. These Investments were fully consolidated in the accompanying consolidated financial statements. Third party participations in the Shareholders' equity and net results of those companies are recorded separately in the consolidated statement of financial position and in the consolidated profit and loss statement, respectively, under the caption 'Non-controlling interests'.
Total comprehensive income is attributed to the owners of the Shareholders of parent company and the non-controlling interests even if this results in a deficit balance of noncontrolling interests.
In the acquisition of subsidiaries, the purchase method is applied. The results of subsidiaries bought or sold during the year are included in the profit and loss statement as from the date of acquisition (or of control acquisition) or up to the date of sale (or of control cession). Intra-Group transactions, balances and dividends are eliminated.
The fully consolidated companies are listed in note 2.
The acquisition cost is the amount of cash or cash equivalents paid or the fair value of other consideration transferred to acquire an asset at the time of its acquisition or constitution or, where applicable, the amount attributed to that asset upon initial recognition in accordance with the specific requirements of IFRS 3.
The transferred consideration may include assets or liabilities of the acquirer that have carrying amounts that differ from their fair value at the acquisition date (for example, non-cash assets or a business of the acquirer). If so, the acquirer shall remeasure the assets or liabilities transferred at their fair value at the acquisition date and recognise any gains or losses arising, if any, on the statement of income. However, sometimes the transferred assets or liabilities remain in the entity acquired after the business is carried out, and therefore, the acquirer retains control over them. In such situation, the acquirer shall measure those assets and liabilities at their carrying amounts immediately before the acquisition date and shall not recognise any gain or loss in the statement of profit and loss on assets or liabilities that it controls both before and after the business.
The expenses incurred with the acquisition of investments in Group companies are recorded as cost when they are incurred.
Investments in associated companies correspond to investments in which the Group has significant influence (generally investments representing between 20% and 50% of a company's share capital) and are recorded using the equity method.
The investments in companies jointly controlled are also recorded using the equity method. The classification of these investments is determinate based on Shareholders Agreements, which regulate the shared control.
In accordance with the equity method, investments are adjusted annually by the amount corresponding to the Group's share of the net results of associated companies, against a corresponding entry to gain or loss for the year, and by the amount of dividends received, as well as by other changes in the equity of the associated companies, which are recorded by a corresponding entry under the caption 'Other reserves'. These equity variations, excluding the cost related to NOS's own share plans, are recorded under the caption 'Other Comprehensive Income'. An assessment of the investments in associated companies and companies jointly controlled is performed annually, with the aim of detecting possible impairment situations.
When the Group's share of accumulated losses of an associated company or a company jointly controlled exceeds the book value of the investment, the investment is recorded at nil value, except when the Group has assumed commitments to the associated company or a company jointly controlled, a situation when a provision is recorded under the caption 'Provisions for other liabilities and charges'.
The difference between the acquisition price of the investments in associated companies and companies jointly controlled and the fair value of identifiable assets and liabilities at the time of their acquisition, when positive, is recorded as Goodwill, included in the investment value and, when negative, after a reassessment, is recorded, directly, in the profit and loss statement under the caption 'Gains and losses in companies in associated companies and companies jointly controlled'.
The description of the associated companies and companies jointly controlled is disclosed in note 8.
Tangible assets are recorded at their acquisition cost less accumulated depreciation and less estimated accumulated impairment losses.
Depreciations are calculated on a straight-line monthly basis as from the date the assets are available for use in the necessary conditions to operate as intended by the management, by a corresponding charge under the profit and loss statement caption 'Depreciation and amortisation'.
The annual depreciation rates used correspond to the estimated useful life of the assets, which are as follows:
| Years of | |
|---|---|
| useful life | |
| Buildings and other constructions | 3 - 20 |
| Plant and machinery | 3 - 15 |
| Vehicles | 4 |
| Fixtures and fittings | 1 - 10 |
| Tools and utensils | 4-5 |
Impairment losses detected in the realisation value of tangible assets are recorded in the year in which they arise, by a corresponding charge under the caption 'Depreciation and amortisation' in the profit and loss statement.
Current maintenance and repair expenses of tangible assets are recorded as costs in the year in which they occur. Improvements of significant amount, which increase the estimated useful life of the assets, are capitalised and depreciated in accordance with the remaining estimated useful life of the corresponding assets.
The estimated costs related with the mandatory dismantling and removal of tangible assets, incurred by the Group, are capitalised and depreciated in accordance with the estimated useful life of the corresponding assets.
Work in progress corresponds to tangible assets still in the construction/development stage which are recorded at their acquisition cost. These assets are depreciated as from the moment they are in condition to be used and when they are ready to start operating as intended by the management.
Intangible assets are recorded at their acquisition cost less accumulated amortisation and less estimated accumulated impairment losses. Intangible assets are only recognised if they were identifiable and if it is likely that they will bring future economic benefits to the Group, if the Group controls them and if their cost can be reasonably measured.
Intangible assets comprise, essentially, software, industrial property, costs incurred with the acquisition of customers' portfolios (value attributed under the purchase price allocation in business combinations) and know-how.
Amortisations of intangible assets are calculated on a straightline monthly basis, over the estimated useful life of the assets, as from the month in which the corresponding expenses are incurred. The amortisation of the customer's portfolios is provided on a straight-line basis over the estimated average retention period of the customers (six years).
Expenditures with internally-generated intangible assets, namely research and development expenditures, are recognised in the profit and loss statement when incurred. Development expenditures can only be recognised as an intangible asset if the Group demonstrates the ability to complete the project and is able to put it in use or available for sale.
Amortisation for the year is recorded in the profit and loss statement under the caption 'Depreciation and amortisation'.
Impairment losses detected in the realisation value of intangible assets are recorded in the year in which they arise, by a corresponding charge under the caption 'Depreciation and amortisation' in the profit and loss statement.
The annual depreciation rates used correspond to the estimated useful life of the assets, which are as follows:
| Years of | |
|---|---|
| useful life | |
| Brands and patents | 1 - 15 |
| Customers' portfolios | 6 |
| Contratuals rights | 3 - 6 |
| Software | 1 - 15 |
Brands and patents are recorded at their acquisition cost and are amortised on a straight-line basis over their respective estimated useful life. When the estimated useful life is undetermined, they are not depreciated but are subject to annual impairment tests.
Sonaecom Group does not hold any brands or patents with undetermined useful life, therefore the second half of the above referred paragraph is not applicable.
The differences between the acquisition price of investments in Group companies, companies jointly controlled and associated companies added the value of non-controlling interests (in the case of subsidiaries), the fair value of any interests previously held at the date and the fair value of the identifiable assets, liabilities and contingent liabilities of these
companies at the date of business combination, when positive, are considered 'Goodwill'. If related to subsidiaries are recorded under the caption "Goodwill" (note 7), if related to jointly controlled and associated companies are included in the value of the investment in the caption "Investments in associated companies and companies jointly controlled" (note 8). The differences between the price of investments in foreign subsidiaries whose functional currency is not the Euro, the value of non-controlling interests (in case of subsidiaries) and the fair value of the identifiable assets and liabilities of these companies at the acquisition date are recorded in the functional currency of those subsidiaries. The reporting currency of Sonaecom (EUR) at the exchange rate on the date of the statement of financial position. The exchanges rate differences that arise upon conversion are recorded in the caption "Reserves".
Contingent consideration is recognised as a liability, at the acquisition-date, according to its fair value, and any changes to its value are recorded as a change in the 'Goodwill', but only as long as they occur during the 'measurement period' (until 12 months after the acquisition-date) and as long as they relate to facts and circumstances that existed at the acquisition date, otherwise these changes must be recognised in profit or loss.
Transactions regarding the acquisition of additional interests in a subsidiary after control is obtained, or the partial disposal of an investment in a subsidiary while control is retained, are accounted for as equity transactions impacting the shareholders' funds captions, and without giving rise to any additional 'Goodwill' and without any gain or loss recognised.
In the moment that a sales transaction generate a loss of control, should be derecognised assets and liabilities of the entity and any interest retained in the entity sold should be remeasured at fair value and any gain or loss calculated on the sale is recorded in profit and loss.
The Goodwill amount is not amortized, being tested annually or whenever there are impairment indices, to verify if there are any impairment losses to be recognized. The recoverable amount is determined based on the business plans used by Sonaecom's management. Goodwill impairment losses of the year are recorded in the profit and loss statement of the year under the caption 'Depreciation and amortization'.
Goodwill impairment losses can not be reversed.
Goodwill, if negative, is recognized as income on the acquisition date after reconfirmation of the fair value of identifiable assets, liabilities and contingent liabilities.
The Group classifies its financial instruments in the following categories: 'Financial assets at fair value through profit or loss', 'Held-to-maturity investments', 'Available-for-sale financial assets', 'Loans and receivables', 'Cash and cash equivalents' (note 1.k)) and 'Derivates' (note 1.n)).
Financial assets at fair value through profit or loss include financial assets held for trading that the Group acquires with the purpose of trading in the short term. This category also includes derivatives that do not qualify for hedging purposes. Assets in this category are classified as current assets if they are either held for trading or are expected to mature within 12 months of the date of the statement of financial position.
Gains or losses, realized or not, arising from a change in fair value of 'Financial assets at fair value through profit or loss' are recorded under the caption 'Gains and losses on financial assets at fair value through profit and loss'.
Aat 31 December 2017, the Group did not hold any investments recorded at fair value through profit or loss.
Held-to-maturity investments are classified as non-current assets unless they mature within 12 months of the statement of financial position date, being recorded under this caption investments with defined maturity and for which it is the intention of the Board of Directors to hold them until the maturity date.
On 31 December 2017 the Group did not hold any 'Held-tomaturity investment'.
Financial assets available for sale are non-derivative financial assets which:
They are recognized as non-current assets except where there is an intention to sell them within 12 months following the date of the statement of financial position.
Equity holdings other than participations in Group companies, jointly controlled companies or associated companies are classified as financial investments available for sale and are recorded in the statement of financial position as non-current assets.
Investments are initially recorded at their acquisition cost. After initial recognition, the investments available for sale are revalued at their fair value by reference to their market value
at the date of the statement of financial position, without any deduction regarding transaction costs that may occur until their sale. The available-for-sale financial assets not listed on regulated markets and for which it is not possible to reliably estimate their fair value, they are maintained at acquisition cost less any impairment losses.
Gains or losses arising from a change in the fair value of available-for-sale investments are recorded in equity until the investment is sold , received or otherwise disposed of, or until it is determined to be impaired, at which time the accumulated gain or loss is recorded in the profit and loss statement. These impairment losses are not reversible in subsequent periods.
A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.
In the case of equity investments classified as available for sale, an investment is considered to be impaired when there is a significant or prolonged decline in its fair value below its cost acquisition.
Loans and receivables are non-derivative financial assets with fixed or variable refunds that are not quoted in an active market and they are carried at amortised cost using the effective interest method, deducted from any impairment losses.
These financial investments arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable.
Loans and receivables are recorded as current assets, except when their maturity is greater than 12 months from the balance sheet date, a situation in which they are classified as non-current assets. Loans and receivables are included in the captions 'Trade debtors', 'Other current debtors', 'Other noncurrent assets' and 'Cash and cash equivalents' in the balance sheet.
Assets and liabilities due in more than one year from the balance sheet date are classified, respectively, as non-current assets and liabilities.
Purchases and sales of investments are recognised on tradedate – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs, being the only exception the financial assets at fair value through profit or loss. In this case, the investments are initially recognised at fair value and the transaction costs are recorded in the profit and loss statement. Investments are derecognised when the rights to receive cash flows from the investments have expired or all substantial risks and rewards of their ownership have been transferred.
Lease contracts are classified as financial leases, if, in substance, all risks and rewards associated with the detention of the leased asset are transferred by the lease contract or as operational leases, if, in substance, there is no transfer of risks and rewards associated with the detention of the leased assets.
The lease contracts are classified as financial or operational in accordance with the substance and not with the form of the respective contracts.
Tangible 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 and the related liability are recorded in accordance with the contractual financial plan at fair value or, if less, at the present value of payments. In addition, interests included in lease payments and the depreciation of the tangible assets are recognised as expenses in the profit and loss statement for the period 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 recognised as an expense, over the rental period.
Inventories are stated at their acquisition cost, net of any impairment losses, which reflects their estimated net realisable value.
Accumulated inventory impairment losses reflect the difference between the acquisition cost and the realisable amount of inventories, as well as the estimated impairment losses due to low turnover, obsolescence and deterioration, and are registered in profit and loss statement, in 'Cost of sales'.
Trade and other current debtors are recorded at their net realisable value and do not include interests, since the discount effect is not significant.
These financial instruments arise when the Group provides money, supplies goods or provides services directly to a debtor with no intention of trading the receivable.
The amounts of these captions are presented net of any impairment losses and are registered in profit and loss statement in heading 'Provisions and impairment losses'. Future reversals of impairment losses are recorded in the
profit and loss statement under the caption other operating revenue.
Amounts included under the caption 'Cash and cash equivalents' correspond to amounts held in cash and term bank deposits and other treasury applications, with less than three months' maturity, where the risk of change in value is insignificant.
The consolidated cash flow statement has been prepared in accordance with IAS 7, using the direct method. The Group classifies, under the caption 'Cash and cash equivalents', investments that mature in less than three months, for which the risk of change in value is insignificant. The caption 'Cash and cash equivalents' in the cash flow statement also includes bank overdrafts, which are reflected in the balance sheet caption 'Current loans and other loans'.
The cash flow statement is classified by operating, financing and investing activities. Operating activities include collections from customers, payments to suppliers, payments to personnel and other flows related to operating activities. Cash flows from investing activities include the acquisition and sale of investments in associated, subsidiary companies and companies jointly controlled as well as receipts and payments resulting from the purchase and sale of fixed assets. Cash flows from financing activities include payments and receipts relating to loans obtained and finance lease contracts, as well as cash flows from the shareholders' transactions, in quality of shareholders.
All amounts included under this caption are likely to be realised in the short term and there are no amounts given or pledged as guarantee.
Loans are recorded as liabilities by the 'amortised cost'. Any expenses incurred in setting up loans are recorded as a deduction to the nominal debt and recognised during the period of the loan, based on the effective interest rate method. The interests incurred but not yet due are added to the loans caption until their payment.
Financial expenses relating to loans obtained are generally recognised as expenses at the time they are incurred. Financial expenses related to loans obtained for the acquisition, construction or production of assets are capitalised as part of the cost of the assets. These expenses are capitalised starting from the time of preparation for the construction or development of the asset and are interrupted when the assets are ready to operate, at the end of the production or construction phases or when the associated project is suspended.
The Group only uses derivatives in the management of its financial risks to hedge against such risks. The Group does not use derivatives for trading purposes.
The cash flow hedges used by the Group are related to:
(i) Forward's exchange rate for hedging foreign exchange risk, particularly from receipts from customers of subsidiary Wedo Consulting. The values and times periods involved are identical to the amounts invoiced and their maturities.
In cases where the hedge instrument is not effective, the amounts that arise from the adjustments to fair value are recorded directly in the profit and loss statement.
On 31 December 2017, the Group had foreign exchange forwards in amount to USD 930,000 (USD 520,000 on 31 December 2016), fixing the exchange rate for EUR , which have an average maturity of 2.5 months (1.5 months on 31 December 2016).
Provisions are recognised when, and only when, the Group has a present obligation (either legal or implicit) resulting from a past event, the resolution of which is likely to involve the disbursement of funds by an amount that can be reasonably estimated. Provisions are reviewed at the balance sheet date and adjusted to reflect the best estimate at that date.
Provisions for restructurings are only registered if the Group has a detailed plan and if that plan has already been communicated to the parties involved.
Contingent liabilities are not recognised in the consolidated financial statements but are disclosed in the notes, if the possibility of a cash outflow affecting future economic benefits is remote.
Contingent assets are not recognised in the consolidated financial statements but are disclosed in the notes when future economic benefits are likely to occur.
'Income tax' expense represents the sum of the tax currently payable and deferred tax. Income tax is recognised in accordance with IAS 12 – 'Income Taxes'.
Sonaecom was covered, since January 2008, the special regime for the taxation of groups of companies, under which, the provision for income tax is determined on the basis of the estimated taxable income of all the companies covered by that regime, in accordance with such rules, however, for the
year ended on 31 December 2015, the Sonaecom Group, no longer has an independent group of companies covered by the special regime for taxation due to of having passed to integrate the special regime for taxation of groups of Sonae SGPS companies.
Therefore, since 1 January 2015, Sonaecom is under the special regime for the taxation of groups of companies, from which Sonae, SGPS is the dominant company. The tax losses generated by the companies controlled in the tax group (RETGS) determine their allocation to the tax losses of the group, so that, since 2017, only the parent company has recognized the amounts corresponding to such tax losses, without giving rise to any financial , and until fiscal year 2016 these tax losses generated by the companies controlled within the group were offset by the group's dominant entity. The special regime for the taxation of groups of companies covers all direct or indirect subsidiaries, and even through companies resident in another Member State of the European Union or the European Economic Area, only if, in the last case, there is an obligation of administrative cooperation, on which the Group holds at least 75% of their share capital, where such participation confers more than 50% of voting rights, if meet certain requirements. The subsidiaries Digitmarket, Inovretail and S21sec Portugal are not part of the special regime for the taxation of groups of companies, since Sonae SGPS's indirect shareholding in Digitmarket is less than 75% and once Sonae SGPS's indirect participation in more than 75 % in Inovretail and S21sec Portugal has not yet completed one year.
Deferred taxes are calculated using the liability method and reflect the timing differences between the amount of assets and liabilities for accounting purposes and the respective amounts for tax purposes.
Deferred tax assets are only recognised when there is reasonable expectation that sufficient taxable profits shall arise in the future to allow such deferred tax assets to be used. At the end of each year the recorded and unrecorded deferred tax assets are revised and they are reduced whenever their realisation ceases to be probable, or increased if future taxable profits are, likely, enabling the recovery of such assets (note 11).
Deferred taxes are calculated with the tax rate that is expected to be in force at the time the asset or liability will be used based on decreed tax rate or substantially decreed tax rate at balance sheet date.
Whenever deferred taxes derive from assets or liabilities directly registered in Shareholders' funds, its recording is also made under the Shareholders' funds caption. In all other situations, deferred taxes are always recorded in the profit and loss statement.
Subsidies awarded to finance staff expenses are recognised as less cost during the period in which the Group incurs in its costs and are included in the profit and loss statement under the caption 'Staff expenses'.
Subsidies awarded to finance investments are recorded as deferred income on the Balance Sheet and are included in the profit and loss statement under the caption 'Other operating revenues'. Subsidies are recognized during the estimated useful life of the corresponding assets.
For businesses in the digital security area, non-repayable subsidies are recognized in the balance sheet as deferred income and are recognized in the profit and loss statement in 'Other operating income'. The incentive is recognized during the project development period. The reimbursable subsidies are recognized in the balance sheet as liabilities in 'Medium and long-term loans – net of short-term portion ' and 'Shortterm loans and other loans' and are depreciated in accordance with the established payment plans. These subsidies are recorded at amortized cost in accordance with the method of effective interest rate.
Expenses and income are recorded in the period to which they relate, regardless of their date of payment or receipt. Estimated amounts are used when actual amounts are not known.
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, 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. The latter shall be included by the corresponding amounts in the results of the periods that they relate to.
The costs attributable to current year and whose expenses will only occur in future years are estimated and recorded under the caption 'Other current liabilities' and 'Other non-current liabilities', when it is possible to estimate reliably the amount and the timing of occurrence of the expense. If there is uncertainty regarding both the date of disbursement of funds, and the amount of the obligation, the value is classified as Provisions (paragraph o).
Revenue should be measured at the fair value of the consideration received or receivable for the sale or rendering of services resulting from the normal activity of the company. The revenue is recognized net from taxes and taking into
account the amount of any trade discounts and volume rebates allowed by the entity.
Revenue from the sale of goods should be recognised in the profit and loss statement when all the following conditions have been satisfied:
The revenues and costs of the consultancy projects are recognised in each year, according to the percentage of completion method, which is obtained by the percebtage of costs incurred over the total estimated costs of the transaction.
Revenue from rendering of services should be recognised in the profit and loss statement when all the following conditions have been satisfied:
Dividends are recognised when the Shareholders' rights to receive such amounts are appropriately established and communicated.
The measurement of fair value presumes that an asset or liability is changed in an orderly transaction between market participants to see the asset or transfer the liabilitie at the measurement date, under current market conditions.
The measurement of fair value is based on the assumption that the transaction of sell the asset or transfer the liability may occur:
(i) In the main asset and liability market, or
(ii) The principal (or most advantageous) market in which an orderly transaction would take place for the asset or liability
The Group uses valuation techniques appropriate to the circumstances and for which there is sufficient data to measure fair value, maximizing the use of observable relevant data and minimizing the use of unobservable data.
All assets and liabilities measured at fair value or for which disclosure is mandatory are classified according to a fair value hierarchy, which classifies into three levels the data to be used in the fair value measurement, detailed below:
Level 1 - unadjusted quoted prices for identical assets and liabilities in active markets, which the entity can access at the measurement date;
Level 2 - Valuation techniques that use inputs that are not quoted are directly or indirectly observable;
Level 3 - Valuation techniques that use inputs not based on observable market data, ie, based on unobservable data.
The measurement of fair value is classified fully at the lowest level of the input that is significant for the measurement as a whole.
Portuguese commercial legislation requires that at least 5% of the annual net profit must be appropriated to a 'Legal reserve', until such reserve reaches at least 20% of the share capital. This reserve is not distributable, except in case of liquidation of the Company, but may be used to absorb losses, after all the other reserves are exhausted, or to increase the share capital.
The share premiums relate to premiums generated in the issuance of capital or in capital increases. According to Portuguese Commercial law, share premiums follow the same requirements of 'Legal reserves', i.e., they are not distributable, except in case of liquidation, but they can be used to absorb losses, after all the other reserves are exhausted or to increase share capital.
The own shares reserve reflects the acquisition value of the own shares and deducted in equity, being unavailable for distribution in the amount of Euro 433,625.
This caption includes retained earnings from previous years and accumulated exchange differences.
Under Portuguese law, the amount of distributable reserves is determined in accordance with the individual financial
statements of the Company, presented in accordance with IFRS. Additionally, the increments resulting from the application of fair value through equity components, including its implementation through net results, shall be distributed only when the elements that gave rise to them are sold, liquidated or exercised or when they finish their use, in the case of tangible or intangible assets. Therefore, on 31 December 2017, Sonaecom have free reserves distributable amounting approximately Euro 58.7 million. To this effect were considered as distributable increments resulting from the application of fair value through equity components already exercised during the year ended 31 December 2017.
Own shares are recorded as a deduction of Shareholders' funds. Gains or losses arising from the sale of own shares are recorded under the heading 'Other reserves'.
Euro is the functional currency of presentation. All transactions in foreign currency are translated for the functional currency at the exchange rate of the transaction date. At each closing date, the exchange restatement of outstanding balances is carried out, applying the exchange rate in effect at that date.
Favourable and unfavourable foreign exchange differences resulting from changes in the rates in force at transaction date and those in force at the date of collection, payment or at the balance sheet date are recorded as income and expenses in the consolidated profit and loss statement of the year, in financial results.
Assets and liabilities of the financial statements of foreign entities are translated for the functional currency of the Group (EUR) using the exchange rates in force at the statement of financial position date, while expenses and income in such financial statements are translated into euro using the average exchange rate for the period. The resulting exchange differences were recorded under the Shareholders' funds caption 'Other reserves'.
Entities operating abroad with organisational, economic and financial autonomy are treated as foreign entities.
Goodwill and adjustments to fair value generated in the acquisitions of foreign entities reporting in a functional currency other than Euro are translated at the statement of financial position.
The following rates were used to translate into Euro the financial statements of foreign subsidiaries and the balances in foreign currency:
| 2017 | 2016 | |||
|---|---|---|---|---|
| 31 December | Average | 31 December | Average | |
| Pounds Sterling | 1.1271 | 1.1414 | 1.1680 | 1.2239 |
| Brazilian Real | 0.2517 | 0.2783 | 0.2915 | 0.2611 |
| American Dollar | 0.8338 | 0.8872 | 0.9487 | 0.9041 |
| Mozambique Metical | 0.0141 | 0.1399 | 0.0133 | 0.0149 |
| Australian Dollar | 0.6516 | 0.6799 | 0.6851 | 0.6726 |
| Mexican Peso | 0.0423 | 0.0470 | 0.0459 | 0.0485 |
| Egyptian Pound | 0.0469 | 0.0498 | 0.0524 | 0.0905 |
| Malaysian Ringgit | 0.2060 | 0.2062 | 0.2115 | 0.2183 |
| Swiss Franc | 0.8546 | 0.9006 | 0.9312 | 0.9175 |
| South African Rand | 0.0675 | 0.0667 | 0.0692 | 0.0618 |
| Canadian Dollar | 0.6649 | 0.6835 | 0.7048 | 0.6827 |
| Turkish Lira | 0.2200 | 0.2434 | 0.2698 | 0.2996 |
| Colombian Peso | 0.0003 | 0.0003 | 0.0003 | 0.0003 |
Whenever the book value of an asset is greater than the amount recoverable, an impairment loss is recognised and recorded in the profit and loss statement under the caption 'Depreciation and amortisation' in the case of tangible assets and Goodwill and for the other assets under the caption 'Provisions and impairment losses', in relation to the other assets.
Impairment tests are performed for assets with undefined useful life and Goodwill at the date of each statement of financial position and whenever an event or change of circumstances indicates that the recorded amount of an asset may not be recoverable.
Impairment tests are performed for assets with defined useful lives and investments in associated whenever there is evidence that their book value is higher than the recoverable value.
The recoverable amount is the greater of the net selling price and the value in use. Net selling price is the amount obtainable upon the sale of an asset in a transaction within the capability of the parties involved, less the costs directly related to the sale. The value in use is the present value of the estimated future cash flows expected to result from the continued use of the asset and of its sale at the end of its useful life.
The recoverable amount is estimated for each asset individually or, if this is not possible, for the cash-generating unit to which the asset belongs.
For the value of Goodwill and Investments in associated companies, the recoverable amount, calculated in terms of value in use, is determined based on the most recent business plans duly approved by the Group's Board of Directors. For Goodwill and Investments in companies jointly controlled, the recoverable amount is determined taking into account various information such as the most recent business plans duly approved by the Group's Board of Directors and the average of evaluations made by external analysts (researches).
Non-financial assets, except goodwill, for which impairment losses have been recorded, are reviewed at each reporting date for reversal of these losses.
The group evaluate at each reporting date the existence of impairment in financial assets at amortized cost.
A financial asset is impaired if events occurring after initial recognition have an impact on estimated cash flows of the asset that can be reasonably estimated.
Evidence of the existence of impairment in accounts receivables appears when:
For certain categories of financial assets for which it is not possible to determine the impairment for each asset individually, the analysis is made for a group of assets. Evidence of an impairment loss in a portfolio of accounts receivable may include past experience in terms of collections, increasing number of delays in collections, as well as changes in national or local economic conditions that are related with the collections capacity
For Accounts receivables, the Group uses historical and statistical information to estimate the amounts in impairment. For inventories, impairments are calculated on the basis of market values and various stock rotation indicators.
The accounting treatment of Medium Term Incentive Plans is based on IFRS 2 – 'Share-based Payments'.
Under IFRS 2, when the settlement of plans established by the company involves the delivery of Sonaecom's own shares, the estimated responsibility is recorded, as a credit entry, under the caption 'Medium Term Incentive Plans Reserve', within the heading 'Shareholders' funds' and is charged as an expense under the caption 'Staff expenses' in the profit and loss statement.
The quantification of this responsibility is based on fair value and is recognised over the vesting period of each plan (from the award date of the plan until its vesting or settlement date). The total responsibility, at any point of time, is calculated based on the proportion of the vesting period that has 'elapsed' up to the respective accounting date.
When the responsibilities associated with any plan are covered by a hedging contract, i.e., when those responsibilities are replaced by a fixed amount payable to a third party and when Sonaecom is no longer the party that will deliver the Sonaecom shares, at the settlement date of each plann, the above accounting treatment is subject to the following changes:
For plans settled in cash, the estimated liability is recorded under the balance sheet captions 'Other non-current liabilities' and 'Other current liabilities' by a corresponding entry under the profit and loss statement caption 'Staff expenses', for the cost relating to the vesting period that has 'elapsed' up to the respective accounting date. The liability is quantified based on the fair value of the shares as of each statement of financial position date.
When the liability is covered by a hedging contract, recognition is made in the same way as described above, but with the liability being quantified based on the contractually fixed amount.
Equity-settled plans to be liquidated through the delivery of shares of Sonae SGPS are recorded as if they were settled in cash, which means that the estimated liability is recorded under the balance sheet captions 'Other non-current liabilities' and 'Other current liabilities' by a corresponding entry under the profit and loss statement caption 'Staff expenses', for the cost relating to the deferred period elapsed. The liability is quantified based on the fair value of the shares as of each statement of financial position date.
On 31 December 2017, the plans allovates during the years 2015, 2016 and 2017 are not covered by the contract being recorded liability at fair value. The responsibility of all plans is recorded in the captions 'Other non-current liabilities' and 'Other current liabilities'. The cost is recognized on the income statement under the caption 'Staff expenses'.
Events occurring after the date of the balance sheet which provide additional information about conditions prevailing at the time of the balance sheet (adjusting events) are reflected in the consolidated financial statements. Events occurring after the balance sheet date that provide information on postbalance sheet conditions (non-adjusting events), when material, are disclosed in the notes to the consolidated financial statements.
The most significant accounting estimates reflected in the consolidated financial statements of the years ended on 31 December 2017 and 2016 are as follows:
Estimates used are based on the best information available during the preparation of the consolidated financial statements and are based on the best knowledge of past and present events. Although future events are neither foreseeable nor controlled by the Group, some could occur and have impact on such estimates. Changes to the estimates used by the management that occur after the approval date of these consolidated financial statements, will be recognised in net income, in accordance with IAS 8 – 'Accounting Policies, Changes in Accounting Estimates and Errors', using a prospective methodology.
The main estimates and assumptions in relation to future events included in the preparation of these consolidated financial statements are disclosed in the corresponding notes, when applicable.
To determine the entities to be included in the consolidation perimeter, the Group assesses the extent to which it is exposed, or has rights, to variability in returns from its involvement with that entity and can take possession of them through the power it holds over this entity.
The decision that an entity must be consolidated by the Group requires the use of judgment, estimates and assumptions to determine the extent to which the Group is exposed to return variability and the ability to take possession of them through its power.
Other assumptions and estimates could lead to the Group's consolidation perimeter being different, with direct impact on the consolidated financial statements.
Due to its activities, the Group is exposed to a variety of financial risks such as market risk, liquidity risk and credit risk. These risks arise from the unpredictability of financial markets, which affect the capacity of project cash flows and profits. The Group financial risk management, subject to a long-term ongoing perspective, seeks to minimise potential adverse effects that derive from that uncertainty, using, whenever it is possible and advisable, derivative financial instruments to hedge the exposure to such risks (note 1.n).
The Group is also exposed to equity price risks arising from equity investments, although they are usually maintained for strategic purposes.
The Group operates internationally, having subsidiaries that operate in countries with a different currency than Euro namely Brazil, United Kingdom, United States of America, Mexico, Australia, Egypt, Colombia and Malaysia (branch) and so it is exposed to foreign exchange rate risk.
Foreign exchange risk management seeks to minimise the volatility of investments and transactions made in foreign currencies and contributes to reduce the sensitivity of Group results to changes in foreign exchange rates.
Whenever possible, the Group uses natural hedges to manage exposure, by offsetting credits granted and credits received expressed in the same currency. When such a procedure is not possible, the Group adopts derivative financial hedging instruments (note 1.n).
The Group's exposure to foreign exchange rate risk, results essentially from the fact that some of its subsidiaries report in a currency different from euro, making the risk of operational activity immaterial.
The amount of assets and liabilities (in Euro) belonging to the Group and recorded in a different currency is as follows:
| Assets | Liabilities | |||
|---|---|---|---|---|
| 31 December 2017 31 December 2016 31 December 2017 31 December 2016 | ||||
| American Dollar | 37,582,423 | 40,875,357 | 22,885,337 | 23,257,732 |
| Australian Dollar | 26,966 | 30,899 | 922,656 | 704,413 |
| Egyptian Pound | 201,038 | 230,568 | 2,930 | – |
| Pounds Sterling | 4,107,398 | 3,373,743 | 4,149,614 | 4,545,831 |
| Mexican Peso | 3,729,306 | 2,751,383 | 6,879,735 | 6,259,551 |
| Brazilian Real | 7,639,799 | 7,507,947 | 5,028,524 | 5,421,566 |
| Malaysian Ringgit | 334,981 | 888,070 | 978,647 | 663,246 |
| Swiss Franc | 10,655 | 3,193 | - | – |
| Canadian Dollar | 20,594 | 46,021 | - | – |
| Pesos Colombianos | 1,812,274 | 804,481 | 866,413 | 682,788 |
| Mozambique Metical | 7,886 | - | - | - |
| Kuwaiti dinar | - | - | 2,389 | - |
| Singapore dollar | - | - | (514) | - |
| Russian ruble | - | - | (188) | - |
| South African Rand | - | – | - | (67) |
| Turkish Lira | - | – | - | 165 |
| Chilean peso | - | - | 3 | - |
The Group's sensitivity to the variations of the exchange rate is as follows (increases/(decreases)):
| 2017 | 2016 | ||||
|---|---|---|---|---|---|
| Change in | Shareholders' | Shareholders' | |||
| exchange rates | Income | funds | Income | funds | |
| American Dollar | 5% | 1,125,777 | (390,923) | 1,101,271 | (220,389) |
| Australian Dollar | 5% | - | (44,785) | - | (33,676) |
| Egyptian Pound | 5% | 9,905 | - | 11,528 | - |
| Pounds Sterling | 5% | 63,249 | (65,360) | 72,494 | (131,099) |
| Mexican Peso | 5% | 34,889 | (192,410) | 586 | (175,994) |
| Brazilian Real | 5% | (15,182) | 145,745 | (51,709) | 156,028 |
| Malaysian Ringgit | 5% | 2,181 | (34,364) | 35,310 | (24,068) |
| Swiss Franc | 5% | 533 | - | 160 | - |
| Canadian Dollar | 5% | 1,030 | - | 2,301 | - |
| South African Rand | 5% | - | - | 3 | - |
| Pesos Colombianos | 5% | 38,193 | 9,100 | 85 | 6,000 |
| Singapore dollar | 5% | 26 | - | - | - |
| Kuwaiti dinar | 5% | (119) | - | - | - |
| Russian ruble | 5% | 9 | - | - | - |
| Mozambique Metical | 5% | 394 | - | - | - |
| 1,260,885 | (572,996) | 1,172,029 | (423,198) |
Sonaecom's total debt is indexed to variable rates, exposing the total cost of debt to a high risk of volatility. The impact of this volatility on the Group results or on its Shareholders' funds is mitigated by the effect of the following factors (i) relatively low level of financial leverage; (ii) possibility to use derivative financial instruments that hedge the interest rate risk, as mentioned below; (iii) possible correlation between the level of market interest rates and economic growth having the latter a positive effect in other lines of the Group's consolidated results (particularly operational), and in this way partially offsetting the increase of financial costs ('natural hedge'); and (iv) the existence of stand alone or consolidated liquidity which is also bearing interest at a variable rate.
The Group only uses derivatives or similar transactions to hedge interest rate risks considered significant. Three main principles are followed in all instruments selected and used to hedge interest rate risk:
As all Sonaecom's borrowings (note 21) are at variable rates, interest rate are used swaps and other derivatives, when it is deemed necessary, to hedge future changes in cash flow relating to interest payments. Interest rate swaps have the financial effect of converting the respective borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with third parties (banks) to exchange, in predetermined periods, the difference between the amount of interest calculated at the fixed contract rate and the floating rate at the time of re-fixing, by reference to the respective agreed notional amounts.
The counterparties of the derivative hedging instruments are limited to highly rated financial institutions, being the Group's policy, when contracting such instruments, to give preference to financial institutions that form part of its financing transactions. In order to select the counterparty for occasional operations, Sonaecom requests proposals and indicative prices from a representative number of banks in order to ensure adequate competitiveness of these operations.
In determining the fair value of hedging operations, the Group uses certain methods, such as option valuation and discounted future cash flow models, using assumptions based on market interest rates prevailing at the balance sheet date.
Comparative financial institution quotes for the specific or similar instruments are used as a benchmark for the valuation.
The fair value of the derivatives contracted, that are not considered as fair value hedges or the ones that are considered not sufficiently effective for cash flow hedge (in accordance with the provisions established in IAS 39), are recognised under statement financial position and changes in the fair value of such derivatives are recognised directly in the profit and loss statement for the year.
Sonaecom's Board of Directors approves the terms and conditions of the financing with significant impact in the Group, based on the analysis of the debt structure, the risks and the different options in the market, particularly as to the type of interest rate (fixed / variable). Under the policy defined above, the Executive Committee is responsible for the decision on the occasional interest rate hedging contracts, through the monitoring of the conditions and alternatives existing in the market.
On 31 December 2017, are not contracted any derivatives of interest rate hedging.
The existence of liquidity in the Group requires the definition of some policies for an efficient and secure management of the liquidity, allowing us to maximise the profitability and to minimise the opportunity costs related to that liquidity.
The liquidity risk management has a threefold objective: (i) Liquidity, i.e., to ensure the permanent access in the most efficient way to obtain sufficient funds to settle current payments within the respective dates of maturity as well as any eventual not forecasted requests for funds, within the deadlines set for this; (ii) Safety, i.e. to minimise the probability of default in any reimbursement of application of funds; and (iii) Financial Efficiency, i.e., to ensure that the Group maximises the value / minimises the opportunity cost of holding excess liquidity in the short term.
The main underlying policies correspond to the variety of instruments allowed, the maximum acceptable level of risk, the maximum amount of exposure by counterparty and the maximum periods for investments.
The existing liquidity in the Group should be applied to the alternatives and by the order described below:
The applications in the market are limited to eligible counterparties, with ratings previously established by the Board and limited to certain maximum amounts by counterparty.
The definition of maximum amounts intends to ensure that the application of liquidity in excess is made in a prudent way and taking into consideration the best practices in terms of bank relationships.
The maturity of applications should equal the forecasted payments (or the applications should be easily convertible, in the case of asset investments, to allow urgent and not estimated payments), considering a threshold for eventual deviations on the estimates. The threshold depends on the accuracy level of treasury estimates and would be determined by the business. The accuracy of the estimates is an important variable to quantify the amounts and the maturity of the applications in the market.
The maturity analysis for the loans obtained is presented in note 21, the maturity of Trade creditors and Other creditors is present in note 25 and 27, and the maturity of Other financial liabilities is presented in note 22.
Taking into account the low value of the liabilities and the high value of the cash and cash equivalents of the Company is understood that the liquidity risk is very low.
duration in time.
The Group's exposure to credit risk is mainly associated with the accounts receivable related to current operational activities and cash investments.
The management of this risk seeks to guarantee that the amounts owing are effectively collected within the periods negotiated without affecting the financial health of the Group. The Group uses credit rating agencies and has specific departments responsible for risk control, collections and management of processes in litigation, as well as credit insurances, which all contribute to the mitigation of credit risk. The amounts included in the financial statements related to trade debtors, other non-current assets, other current debtors and cash and cash equivalents, net of impairment losses, represent the maximum exposure of the Group to credit risk. Sonaecom holds financial assets resulting from its relationship with its financial institutions (Note 17. There is a credit risk associated with the potential pecuniary default of the Financial Institutions that are counterparts in these relationships, however, in general, the exposure related to this type of financial assets is widely diversified and of limited
The credit risk associated to financial institutions is limited by the management of risks concentration and a rigorous selection of counterparties that presents a high prestige and international recognition and based on their ratings, taking into account the nature, maturity and size of operations.
Taking into account the above mentioned policies, the Administration does not anticipate the possibility of any occurrence of any immaterial non-compliance with contractual obligations.
Sonaecom's capital structure, determined by the ratio of equity and net debt, is managed in a way that ensures the continuity and development of its operating activities, maximizes shareholder returns and optimizes the cost of financing.
Risks, opportunities and necessary adjustment measures in order to achieve the referred objectives are periodically monotirized by Sonaecom.
In 2017, Sonaecom reported an average gearing (accounting) of -18.7%. The average gearing in market values in 2017 was negative in 24.4%.
Group companies included in the consolidation through full consolidation method, their head offices, main activities, shareholders and percentage of share capital held on 31 December 2017 and 2016, are as follows:
| Percentage of share capital held | |||||||
|---|---|---|---|---|---|---|---|
| 2017 | 2016 | ||||||
| Company (Commercial brand) | Head office | Main activity | Shareholder | Direct | Effective* | Direct | Effective* |
| Parent company SONAECOM, S.G.P.S., S.A. ('Sonaecom') Subsidiaries |
Maia | Management of shareholdings. | - - |
- | - | - | |
| Bright Developement Studio, S.A. ('Bright') | Lisbon | Research, development and commercialization of projects and service solutions in the area of information technology, communications and retail, and consulting activities for business and management. |
Sonae IM | 100% | 100% | 100% | 100% |
| Bright Ventures Capital, SCR, S.A. | Lisbon | Realization of investment in venture capital, management of venture capital funds and investment in venture capital fund units. |
Bright | 100% | 100% | 100% | 100% |
| Cape Technologies Limited ('Cape Technologies') | Dublin | Rendering of consultancy services in the area of information systems. |
We Do | 100% | 100% | 100% | 100% |
| Digitmarket – Sistemas de Informação, S.A. ('Digitmarket' – using the brand 'Bizdirect') |
Maia | Development of management platforms and commercialisation of products, services and information, with the internet as its main support. |
Sonae IM | 75.10% | 75.10% | 75.10% | 75.10% |
| Inovretail, S.A. | OPorto | Industry and coméricio of electronic equipment and software; development, installation, implementation, training and maintenance of systems and software products; rental equipment, sale of software use license; consulting business, advisory in retail segments, industry and services. |
Sonae IM | 100% | 100% | 100% | 100% |
| Fundo Bright Vector I ('Bright Vector I') (a) |
Lisbon | Venture Capital Fund | Sonae IM | 50.13% | 50.13% | - | - |
| PCJ - Público, Comunicação e Jornalismo, S.A. ('PCJ') Maia | Editing, composition and publication of periodical and non-periodical material and the exploration of radio and TV stations and studios. |
Sonaecom | 100% | 100% | 100% | 100% | |
| Praesidium Services Limited ('Praesidium Services') (d) |
Berkshire | Rendering of consultancy services in the area of information systems. |
Sonae IM | 100% | 100% | 100% | 100% |
| Público – Comunicação Social, S.A. ('Público') | Oporto | Editing, composition and publication of periodical and non-periodical material. |
Sonaecom | 100% | 100% | 100% | 100% |
| S21Sec Portugal Cybersecurity Services, S.A.('S21 Sec Portugal') |
Maia | Commercialization of products and management services, implementation and consulting in information systems and technologies areas. |
S21 Sec Gestion 100% |
100% | 100% | 100% | |
| S21 Sec Brasil, Ltda ('S21 Sec Brasil') | São Paulo | Consulting in information technology. Development and licensing of customizable computer programs. Development of custom computer programs. Technical support, maintenance and other services in information technology. |
S21 Sec Gestion | 99.99% | 100% | 99.99% | 100% |
| S21 Sec Ciberseguridad S.A. de CV (b) | Mexico City | Computer consulting services | S21 Sec Gestion S21 Sec México |
Merged into S21 Sec, S.A. de CV |
50% 50% |
100% | |
| S21 Sec Gestion, S.A. ('S21 Sec Gestion') | Guipuzcoa | Consulting, advisory, audit and maintenance of all types of facilities and advanced communications services and security systems. Purchase and installation of advanced communications and security systems produced by others. |
Sonaecom CSI | 100% | 100% | 100% | 100% |
| S21 Sec Information Security Labs, S.L. ('S21 Sec Labs') |
Navarra | Research, development and innovation, as well as consulting, maintenance and audit for products, systems, facilities and communication and security services. |
S21 Sec Gestion | 100% | 100% | 100% | 100% |
| S21 Sec México, S.A. de CV ('S21 Sec México') (b) | Mexico City | Computer consulting services | S21 Sec Gestion | Merged into S21 Sec, S.A. de CV |
99.87% | 100% | |
| S21 Sec, S.A. de CV ('S21 Sec, S.A. de CV') | Mexico City | Computer consulting services | S21 Sec Gestion S21 Sec Labs |
99,9996% 0,0004% |
100% | 99,9999% 0,0001% |
100% |
| Saphety Level – Trusted Services, S.A. ('Saphety') | Maia | Rendering services, training, consultancy services in the area of communication, process and electronic certification of data; trade, development and representation of software. |
Sonae IM | 86.995% | 86.995% | 86.995% | 86.995% |
| Saphety Brasil Transações Eletrônicas Ltda. ('Saphety Brasil') |
São Paulo | Rendering services, training, consultancy services in the area of communication, process and electronic certification of data; electronic identification, storage and availability of databases and electronic payments; trade, development and representation of software related with these services. |
Saphety | 99.99% | 86.986% | 99.99% | 86.986% |
| Saphety – Transacciones Electronicas SAS ('Saphety Colômbia') |
Bogotá | Rendering services, training, consultancy services in the area of communication, process and electronic certification of data; electronic identification, storage and availability of databases and electronic payments; trade, development and representation of software related with these services. |
Saphety | 100% | 86.995% | 100% | 86.995% |
* Sonaecom effective participation
| Percentage of share capital held | |||||||
|---|---|---|---|---|---|---|---|
| 2017 | 2016 | ||||||
| Company (Commercial brand) | Head office | Main activity | Shareholder | Direct | Effective* | Direct | Effective* |
| Sonaecom – Cyber Security and Intelligence, SGPS, S.A. ('Sonaecom CSI') |
Maia | Management of shareholdings. | Sonae IM | 100% | 100% | 100% | 100% |
| Sonaecom - Serviços Partilhados, S.A. ('Sonaecom SP') |
Maia | Support, management consulting and administration, particularly in the areas of accounting, taxation, administrative procedures, logistics, human resources and training. |
Sonaecom | 100% | 100% | 100% | 100% |
| Sonae Investment Management – Software and Technology, SGPS, S.A. ('SonaeIM') |
Maia | Management of shareholdings in the area of corporate ventures and joint ventures. |
Sonaecom | 100% | 100% | 100% | 100% |
| Sonaecom - Sistemas de Información Espanã, S.L. ('SSI Espanã') (c) |
Madrid | Rendering of consultancy services in the area of information systems. |
We Do Sonae IM |
100% - |
100% - |
- 100% |
- 100% |
| Tecnológica Telecomunicações, LTDA. ('Tecnológica') |
Rio de Janeiro | Rendering of consultancy and technical assistance in the area of IT systems and telecommunications. |
We Do Brasil | 99.99% | 99.90% | 99.99% | 99.90% |
| We Do Consulting – Sistemas de Informação, S.A. ('We Do') |
Maia | Rendering of consultancy services in the area of information systems. |
Sonae IM | 100% | 100% | 100% | 100% |
| Wedo do Brasil Soluções Informáticas, Ltda. ('We Do Brasil') |
Rio de Janeiro | Commercialisation of software and hardware; rendering of consultancy and technical assistance related to information technology and data processing. |
We Do | 99.91% | 99.91% | 99.91% | 99.91% |
| We Do Technologies Americas, Inc ('We Do USA') | Delaware | Rendering of consultancy services in the area of information systems. |
Cape Technologies | 100% | 100% | 100% | 100% |
| We Do Technologies Australia PTY Limited ('We Do Asia') |
Sydney | Rendering of consultancy services in the area of information systems. |
Cape Technologies | 100% | 100% | 100% | 100% |
| We Do Technologies BV ('We Do BV') | Amsterdam | Management of shareholdings. | We Do | 100% | 100% | 100% | 100% |
| We Do Technologies BV – Malaysian Branch ('We Do Malásia') |
Kuala Lumpur | Rendering of consultancy services in the area of information systems. |
We Do BV | 100% | 100% | 100% | 100% |
| We Do Technologies Egypt LLC ('We Do Egypt') | Cairo | Rendering of consultancy services in the area of information systems. |
We Do BV We Do |
90% 10% |
100% | 90% 10% |
100% |
| We Do Technologies (UK) Limited ('We Do UK') (d) | Berkshire | Rendering of consultancy services in the area of information systems. |
We Do | 100% | 100% | 100% | 100% |
| We Do Technologies Mexico, S de R.L. ('We Do Mexico') |
Mexico City | Rendering of consultancy services in the area of information systems. |
We Do We Do BV |
0.001% 99.999% |
100% | 0.001% 99.999% |
100% |
* Sonaecom effective participation
(a) Fund constituted in September 2017
(b) Companies merged in S21 Sec, S.A. De CV in April 2017
(c) In June 2017 the particpation held by Sonae Investment Management - Software and Technology, SGPS, S.A. was sold to We Do Consulting - Sistemas de Informação, S.A.
(d) Companies exempt from audit of financial accounts for the year ended at 31 December 2017 under local law (479 A of companies ACT 2006 relating to subsidiary companies.
All the above companies were included in the consolidation in accordance with the full consolidation method under the terms of IFRS 10 – 'Consolidated Financial Statements'.
During the years ended on 31 December 2017 and 2016, the following changes occurred in the composition of the Group:
| Buyer | Subsidiary | Date | % Direct Participation | % Effective Participation |
|---|---|---|---|---|
| 2017 | ||||
| Bright | Probe.ly | May-17 | 22.88% | 22.88% |
| Sonae IM | Bright Vector I | Sep-17 | 50.13% | 50.13% |
| Buyer | Subsidiary | Date | % Direct Participation | % Effective Participation |
|---|---|---|---|---|
| 2016 | ||||
| Sonae IM | Bright | Mar-16 | 100% | 100% |
| Bright | Bright Ventures | Jul-16 | 100% | 100% |
During 2017, Sonae IM together with the Fundo de Capital e Quase Capital (FC & QC) constituted the Bright Vector I Fund, with 25% of the total amount subscribed, amounting to Euro 952,500 and Euro 947,500, respectively. As Sonae IM holds control over the Fund, the participation was included in the consolidation in accordance with the full consolidation method as established by IFRS 10. The Fund's main objective is to create added value for investors with long-term capital appreciation through acquisition, exploration, distribution or temporary disposal of holdings in companies. During the 2017 financial year, the fund did not realise any investment.
| Shareholder | Subsidiary | Date | % Direct Participation | % Effective Participation |
|---|---|---|---|---|
| 2016 | ||||
| Cape Technologies | We Do Poland | Mar-16 | 100% | 100% |
| Shareholder | Subsidiary | Date | % Direct Participation | % Effective Participation |
|---|---|---|---|---|
| 2017 | ||||
| Bright | Food Orchestrator, Lda (note 10) | Mar-17 | 0.17% | 0.17% |
| Mar-17 | ||||
| Sonae IM | Fundo de Capital de Risco Armilar Venture Partners | Jul-17 | 0.65% | 0.65% |
| III ('Armilar III') (note 8) | Nov-17 | |||
| Sirs, Soc. Independente de Rádiodifusão Sonora, | ||||
| Publico | S.A (Rádio Nova) (note 8) | Jun-17 | 5% | 5% |
| Sonae IM | Ometria, Ltd. (note 10) | Jun-17 | 4.54% | 4.54% |
| Sonae IM | Secucloud Network GmbH ('Secucloud') (note 8) | Oct-17 | 27.45% | 27.45% |
| Sonae IM | Continuum Security SL ('Continuum') (note 10) | Nov-17 | 6.66% | 6.66% |
| Sonae IM | ArcticWolf Networks, Inc ('ArcticWolf') (note 10) | Nov-17 | 4.68% | 4.68% |
| Shareholder | Subsidiary | Date | % Direct Participation | % Effective Participation |
|---|---|---|---|---|
| 2016 | ||||
| S21 Sec Portugal | Sysvalue | Apr-16 | 100% | 100% |
| Sonae IM | Inovretail, Lda | Jul-16 | 100% | 100% |
| Sonae IM | StyleSage, Inc. (Nota 10) | Oct-16 | 5% | 5% |
| Sonae IM | Armilar Venture Partners - Sociedade de Capital de Risco, SA ('Armilar') (note 8) |
Dec-16 | 35.00% | 35.00% |
| Sonae IM | Fundo de Capital de Risco Armilar Venture Partners II ('Armilar II') (note 8) |
Dec-16 | 50.21% | 50.21% |
| Sonae IM | Fundo de Capital de Risco Armilar Venture Partners III ('Armilar III') (note 8) |
Dec-16 | 41.99% | 41.99% |
| Sonae IM | Fundo de Capital de Risco Armilar Venture Partners Inovação e Internacionalização ('AVP I+I') (note 8) |
Dec-16 | 37.54% | 37.54% |
As a result of the exit of one of the participants of Armillary Fund II, in July 2017 there was a change in the number of units of participation in this fund, thus giving SonaeIM the holding in the year ended at 31 December 2017 of 50.74%.
In April 2016 the company carried out an operation, which proceeded to reduce its capital to cover losses, followed by an increase in the fully subscribed capital and paid by the subsidary Sonaecom CSI and this, from that date, holds 100% of the share capital of its subsidiary.
The subsidiary Sysvalue was acquired by the group in April 2016 and its main activity is the development and marketing of professional consulting, integration, management and operation of information systems and electronic security. In August 2016, the merger of Sysvalue into S21 Sec Portugal (previously called as Itrust) occurred through the global transfer of Sysvalue's assets to S21 Sec Portugal, with the consequent extinction of the incorporated company.
This merger had no impact on the consolidated accounts of Sonaecom in the year ended at 31 December 2017.
The subsiduary Inovretail, Lda was acquired by the group in July 2016 and its main activity is the development and investigation of technology solutions, consulting business, advisory in retail segments, industry and services.
The allocation of the purchase price can be detailed as follows:
| Sysvalue | Inovretail | ||||||
|---|---|---|---|---|---|---|---|
| (Amounts expressed in thousand Euro) | Notes | Balance value before acquisition |
Adjustments to Fair value |
Fair value Balance value before acquisition |
Adjustments to Fair value |
Fair value | |
| Acquired assets | |||||||
| Tangible assets | 5 | 3,578 | 3,578 | 8,916 | 8,916 | ||
| Intangible assets | 6 | 111 | 155,726 | 155,837 | 550,521 | 288,307 | 838,828 |
| Other financial assets | 1,581 | 1,581 | - | - | |||
| Investments available for sale | 750 | 750 | - | - | |||
| Other non-current assets | 9 | 9 | 1,746 | 1,746 | |||
| Financial assets at fair value through profit or loss | - | - | 3,100 | 3,100 | |||
| Trade debtors | 537,053 | 537,053 | 201,026 | 201,026 | |||
| Other current debtors | 27,588 | 27,588 | 115,884 | 115,884 | |||
| Other current assets | 74,594 | 74,594 | 3,116 | 3,116 | |||
| Cash and cash equivalents | 64,312 | 64,312 | 48,654 | 48,654 | |||
| 709,576 | 155,726 | 865,302 | 932,963 | 288,307 | 1,221,270 | ||
| Acquired liabilities | |||||||
| Loans obtained | 100,000 | 100,000 | 272,865 | 272,865 | |||
| Trade creditors | 330,797 | 330,797 | 7,139 | 7,139 | |||
| Other creditors | 72,166 | 72,166 | 80,005 | 80,005 | |||
| Other current liabilities | 203,369 | 203,369 | 412,227 | 412,227 | |||
| 706,332 | - | 706,332 | 772,236 | - | 772,236 | ||
| Total net assets acquired | 3,244 | 158,970 | 160,727 | 449,034 | |||
| Acquisition price | 941,640 | 941,640 | 1,713,771 | 1,713,771 | |||
| Financial actualisation | (40,578) | (99,015) | |||||
| Final Goodwill | 7 | 742,092 | 1,165,722 |
Following the acquisition of Sysvalue and Inovretail, the company made an valuation of the fair value of the assets acquired and the liabilities assumed, which in resulted the recognition of software and customers' portfolio in the amount of Euro 155,726 and Euro 288,307, respectively
As usual on business combinations, also in the acquisition of this two subsidiaries there was a part of the acquisition price which was not possible to be allocated to the fair value of some identified assets and liabilities, was considered as Goodwill in the year ended at 31 December 2016, the amount fo Euro 742,092 to Sysvalue and Euro 1,165,722 to Inovretail. This Goodwill is related to a number of different elements, which cannot be individually quantified and isolated in a viable way and include, for example, synergies, qualified workforce, technical skills and market power.
The acquisition price of subsidiary Sysvalue includes a contigent amount (Euro 531,200) to be annually paid, over 3 years, depending on the company's revenues performance.
In turn, the acquisition price of subsidiary Inovretail, includes the phased payment of Euro 571,771 payable annually until 2020 and a contingent amount to be paid annually for 5 years, depending on the company's revenue performance, which was estimated at Euro 440,000.
In the year ended at 31 December 2017, no changes were identified in the allocation of the purchase price of Sysvalue and Inovretail to the allocation granted in the year ended at 31 December 2016.
The contribution of Inovretail to the consolidated net income attributed to Sonaecom's Shareholders, in the period ended on 31 December 2017, was positive in Euro 17,472. In the case of Sysvalue, it was not possible to calculate its contribution in the year ended at 31 December 2017, because since August 2016 it has been merged into S21 Sec Portugal, being presented the contribution in the period prior to the merger. The detail of the referred contribution is as follows:
| Sysvalue | Inovretail | |
|---|---|---|
| (Amounts expressed in Euro) | Contribution at 31 July 2016 (*) |
Contribution at 31 December 2017 |
| Total Revenues | 381,387 | 1,148,340 |
| Costs and losses | ||
| Cost of sales | (157,559) | (115,343) |
| External supplies and services | (51,312) | (434,675) |
| Staff expenses | (188,297) | (799,851) |
| Depreciations and amortisations | (225) | (158,134) |
| Provisions | - | (25,369) |
| Other operating costs | (676) | (6,498) |
| (16,682) | (391,530) | |
| Financial results | (1,458) | (760) |
| Income tax | (81) | 409,762 |
| Net income for the year before non-controlling interests | (18,221) | 17,472 |
| Net income attributed to non-controlling interests | - | - |
| Net income attributed to shareholders of parent company | (18,221) | 17,472 |
(*) In August 2016 the company was merged into S21 Sec Portugal (previously called as Itrust) and its contribution, from that date, entered in this company.
The contributions in the consolidated balance sheet of Sonaecom on 31 December 2017 is as follows:
| Sysvalue | Inovretail | |
|---|---|---|
| (Amounts expressed in Euro) | Contribution at 31 July 2016 (*) |
Contribution at 31 December 2017 |
| Assets | ||
| Tangible assets | 3,436 | 13,767 |
| Intangible assets | 28 | 795,199 |
| Other non-current assets | 9 | 4,376 |
| Financial assets at fair value through profit or loss | - | 421,851 |
| Trade debtors | 320,144 | 133,525 |
| Other current debtors | 27,583 | 236,878 |
| Cash and cash equivalents | 14,441 | 11,512 |
| Other assets | 257,082 | 145,599 |
| Total assets | 622,723 | 1,762,707 |
| Liabilities | ||
| Current liabilities | 445,158 | 634,351 |
| Total liabilities | 445,158 | 634,351 |
| Net assets | 177,565 | 1,128,356 |
(*) In August 2016 the company was merged into S21 Sec Portugal (previously called as Itrust) and its contribution, from that date, entered in this company.
Following the announcement made on 5 August 2016, Sonae IM together with a group of investors celebrated a contract with NOVO BANCO, S.A. and his subsidiary, ES TECH VENTURES, SGPS, S.A, for the acquisition to Novo Banco, of participation units in three venture capital funds: Espirito Santo Ventures Innovation and Internationalization (currently called to FCR Armilar Venture Partners Innovation and Internationalization ('AVP I+I')); Espírito Santo Ventures II (currently called to Ventures Capital Fund Armilar Venture Partners II, 'Armilar II') and Venture Capital Fund Espírito Santo Ventures III (currently called to Ventures Capital Fund Armilar Venture Partners III, 'Armilar III') and the total capital of Espírito Santo Ventures - Sociedade de Capital de Risco (currently called Armilar
Venture Partners – Sociedade de Capital de Risco. S.A. 'Armilar'), held by its subsidiar ES TECH VENTURES, SGPS, S.A.. After approval by Banco de Portugal, the transaction was completed on 13 December 2016.
Armilar II, Armilar III and AVP I+I have the purpose of investing their assets in minority interests, in companies with high potential for growth and appreciation, and which have technological base or innovate business concept subjacent their activity, being privileged projects in phase of start-up, early-stage and expansion in Portugal and internationally.
The allocation of the purchase price of the 3 funds can be detailed as follows:
| (Amounts expressed in Euro) | Armilar II | Armilar III | AVP I+I | Total |
|---|---|---|---|---|
| Assets | ||||
| Financial investments | 80,587,398 | 69,452,246 | 18,585,117 | 168,624,761 |
| Other current assets | 1,172,000 | 2,682,053 | 109,180 | 3,963,233 |
| Cash and cash equivalents | 1,761,897 | 613,065 | 92 | 2,375,054 |
| 83,521,295 | 72,747,364 | 18,694,389 | 174,963,048 | |
| Liabilities | ||||
| Loans obtained | 8,965,340 | 7,111,940 | - | 16,077,280 |
| Trade creditors | 1,479,656 | 1,533,153 | 23,767 | 3,036,576 |
| Other creditors | 2,535,468 | 1,771,881 | 328,446 | 4,635,795 |
| 12,980,464 | 10,416,974 | 352,213 | 23,749,651 | |
| Total net assets | 70,540,831 | 62,330,390 | 18,342,176 | 151,213,397 |
| % Acquired | 50.21% | 41.99% | 37.54% | |
| Total net assets acquired | 35,416,004 | 26,173,814 | 6,885,820 | 68,475,638 |
| Acquisition price | 31,749,338 | |||
| Negative goodwill (Nota 8) | 36,726,300 |
In the year ended at 31 December 2017, no material changes were identified in the allocation of the purchase price of the funds against the allocation granted in the year ended at 31 December 2016. Negative goodwill was determined in each of the Funds.
During 2017, Sonae IM acquired a 27.45% stake in Secucloud for the amount of Euro 4,000,000 (Note 8). Secucloud is a company that provides cloud-based IT security services.
The allocation of the purchase price can be detailed as follows:
| Secucloud | ||||
|---|---|---|---|---|
| (Amounts expressed in Euro) | Notes | Balance value before acquisition |
Adjustments to fair value |
Fair value |
| Acquired assets | ||||
| Tangible assets | 175,693 | - | 175,693 | |
| Intangible assets | 1,477,540 | 120,724 | 1,598,264 | |
| Other financial assets | 3,674 | (3,674) | - | |
| Trade debtors | 81,033 | - | 81,033 | |
| Other current assets | 245,436 | - | 245,436 | |
| Cash and cash equivalents | 661,180 | - | 661,180 | |
| 2,644,556 | 117,050 | 2,761,606 | ||
| Acquired liabilities | ||||
| Loans obtained | 3,920,776 | - | 3,920,776 | |
| Trade creditors | 117,443 | - | 117,443 | |
| Other creditors | 65,835 | - | 65,835 | |
| Other current liabilities | 107,916 | 78,750 | 186,666 | |
| 4,211,970 | 78,750 | 4,290,720 | ||
| Total net assets | (1,567,414) | (1,529,114) | ||
| % Acquired | 27.45% | |||
| Total net assets acquired | (419,742) | |||
| Acquisition price | 4,000,000 | 4,000,000 | ||
| Goodwill | 8 | (4,419,742) |
In April 2017 the merger of S21Sec Ciberseguridad and S21Sec México occurred in S21 Sec, S.A. de CV.
The merger by incorporation of Sysvalue into S21SEC Portugal, with accounting effects retroactive to 1 July 2016, occurred in August 2016.
This merger has no impact on Sonaecom's consolidated accounts for the years ended on 31 December 2017 and 2016.
On 31 December 2017 and 2016, the breakdown of financial instruments was as follows:
| 2017 | ||||||
|---|---|---|---|---|---|---|
| Loans and | Investments | Other financial | Others not covered | |||
| receivables | available for sale | assets | Subtotal | by IAS 39 | Total | |
| Non-current assets | ||||||
| Investments available for sale (note 10) | - | 5,480,963 | - | 5,480,963 | - | 5,480,963 |
| Other non-current assets | 3,812,536 | - | - | 3,812,536 | - | 3,812,536 |
| 3,812,536 | 5,480,963 | - | 9,293,499 | - | 9,293,499 | |
| Trade debtors (note 14) | 47,170,847 | - | - | 47,170,847 | - | 47,170,847 |
| Other current debtors (note 15) | 1,726,510 | - | - | 1,726,510 | 1,215,603 | 2,942,113 |
| Income taxa receivable (note 28) | - | - | - | - | 3,315,918 | 3,315,918 |
| Other current assets (note 16) | - | - | 7,946,826 | 7,946,826 | 2,038,310 | 9,985,136 |
| Cash and cash equivalents (note 17) | 202,025,688 | - | - | 202,025,688 | - | 202,025,688 |
| 250,923,045 | - | 7,946,826 | 258,869,871 | 6,569,831 | 265,439,702 |
| 2016 | ||||||
|---|---|---|---|---|---|---|
| Loans and receivables |
Investments available for sale |
Other financial assets |
Subtotal | Others not covered by IAS 39 |
Total | |
| Non-current assets | ||||||
| Investments available for sale (note 10) | - | 539,614 | - | 539,614 | - | 539,614 |
| Other non-current assets | 3,123,287 | - | - | 3,123,287 | - | 3,123,287 |
| 3,123,287 | 539,614 | - | 3,662,901 | - | 3,662,901 | |
| Trade debtors (note 14) | 47,143,492 | - | - | 47,143,492 | - | 47,143,492 |
| Other current debtors (note 15) | 19,734,397 | - | - | 19,734,397 | 898,162 | 20,632,559 |
| Income taxa receivable (note 28) | - | - | - | - | 3,055,627 | 3,055,627 |
| Other current assets (note 16) | - | - | 8,519,901 | 8,519,901 | 1,761,165 | 10,281,066 |
| Cash and cash equivalents (note 17) | 210,256,338 | - | - | 210,256,338 | - | 210,256,338 |
| 277,134,227 | - | 8,519,901 | 285,654,128 | 5,714,954 | 291,369,082 |
| 2017 | |||||
|---|---|---|---|---|---|
| Liabilities recorded at | Others not covered by | ||||
| amortised cost | Other financial liabilities | Subtotal | IAS 39 | Total | |
| Non-current liabilities | |||||
| Non-current loans net of short term position (note 21) | 2,389,738 | - | 2,389,738 | - | 2,389,738 |
| Other non-current financial liabilities (note 22) | 173,478 | - | 173,478 | - | 173,478 |
| Other non-current liabilities (note 24) | 875,582 | - | 875,582 | 1,217,487 | 2,093,069 |
| 3,438,798 | - | 3,438,798 | 1,217,487 | 4,656,285 | |
| Current liabilities | |||||
| Current loans and other loans (note 21) | 1,203,639 | - | 1,203,639 | - | 1,203,639 |
| Trade creditors (note 25) | - | 16,019,197 | 16,019,197 | - | 16,019,197 |
| Other current financial liabilities (note 26) | - | 341,479 | 341,479 | - | 341,479 |
| Other creditors (note 27) | - | 1,057,086 | 1,057,086 | 4,236,810 | 5,293,896 |
| Income tax payable (note 28) | - | - | - | 112,690 | 112,690 |
| Other current liabilities (note 29) | - | 19,836,818 | 19,836,818 | 12,420,735 | 32,257,553 |
| 1,203,639 | 37,254,580 | 38,458,219 | 16,770,235 | 55,228,454 |
| 2016 | |||||
|---|---|---|---|---|---|
| Liabilities recorded at | Others not covered by | ||||
| amortised cost | Other financial liabilities | Subtotal | IAS 39 | Total | |
| Non-current liabilities | |||||
| Non-current loans net of short term position (note 21) | 3,756,781 | - | 3,756,781 | - | 3,756,781 |
| Other non-current financial liabilities (note 22) | 509,530 | - | 509,530 | - | 509,530 |
| Other non-current liabilities (note 24) | 1,162,090 | - | 1,162,090 | 1,120,207 | 2,282,297 |
| 5,428,401 | - | 5,428,401 | 1,120,207 | 6,548,608 | |
| Current liabilities | |||||
| Current loans and other loans (note 21) | 1,241,107 | - | 1,241,107 | - | 1,241,107 |
| Trade creditors (note 25) | - | 15,615,754 | 15,615,754 | - | 15,615,754 |
| Other current financial liabilities (note 26) | - | 519,787 | 519,787 | - | 519,787 |
| Other creditors (note 27) | - | 687,165 | 687,165 | 3,846,142 | 4,533,307 |
| Income tax payable (note 28) | - | - | - | 170,502 | 170,502 |
| Other current liabilities (note 29) | - | 16,725,696 | 16,725,696 | 12,792,816 | 29,518,512 |
| 1,241,107 | 33,548,402 | 34,789,509 | 16,809,460 | 51,598,969 |
Considering the nature of the balances, the amounts to be paid and received to/from 'State and other public entities' as well as specialized costs related to the share based plans were considered outside the scope of IAS 39. On the other hand, the deferred costs/profits recorded in the captions other current and non-current assets/liabilitie were considered non-financial instruments.
The Board of Directors believes that, the fair value of the breakdown of financial instruments recorded at amortised cost or registered at the present value of the payments does not differ significantly from their book value. This decision is based in the contractual terms of each financial instrument. In addition, other financial assets and other current financial liabilities correspond to assets and liabilities measured at amortized cost that will be satisfied in the short term. Additionally, investments held for sale correspond mostly to transactions of the year.
The movement in tangible assets and in the corresponding accumulated depreciation and impairment losses in the years ended on 31 December 2017 and 2016 was as follows:
| 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Land, Buildings and other constructions |
Plant and machinery |
Vehicles | Fixtures and fittings | Other tangible assets |
Work in progress | Total | |
| Gross assets | |||||||
| Balance at 31 December 2016 | 4,059,411 | 10,054,035 | 72,116 | 9,705,401 | 447,759 | 68,388 | 24,407,110 |
| Additions | 176,252 | 64,026 | - | 257,027 | 5,469 | 459,107 | 961,881 |
| Disposals | - | - | (44,718) | (33,751) | - | - | (78,469) |
| Effect of currency translation | (64,309) | (34,682) | - | (291,455) | (98) | - | (390,544) |
| Transfers and write-offs | 90,012 | 53,299 | - | 126,220 | 691 | (300,030) | (29,808) |
| Balance at 31 December 2017 | 4,261,366 | 10,136,678 | 27,398 | 9,763,442 | 453,821 | 227,465 | 24,870,170 |
| Accumulated depreciation and impairment losses | |||||||
| Balance at 31 December 2016 | 2,438,690 | 9,777,774 | 57,453 | 8,476,182 | 367,253 | - | 21,117,352 |
| Depreciation for the year | 219,616 | 132,450 | 5,761 | 567,214 | 5,704 | - | 930,745 |
| Disposals | - | - | (35,816) | (25,968) | - | - | (61,784) |
| Effect of currency translation | (48,249) | (21,934) | - | (256,805) | (86) | - | (327,074) |
| Transfers and write-offs | (3,171) | 288 | - | 2,019 | - | - | (864) |
| Balance at 31 December 2017 | 2,606,886 | 9,888,578 | 27,398 | 8,762,642 | 372,871 | - | 21,658,375 |
| Net value | 1,654,480 | 248,100 | - | 1,000,800 | 80,950 | 227,465 | 3,211,795 |
| 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Land, Buildings and other constructions |
Plant and machinery |
Vehicles | Fixtures and fittings | Other tangible assets |
Work in progress | Total | |
| Gross assets Balance at 31 December 2015 New companies (note 3. c) |
3,418,910 - |
9,756,011 168,392 |
72,116 - |
9,002,845 28,664 |
422,547 16,479 |
18,218 - |
22,690,647 213,535 |
| Additions | 67,347 | 87,506 | - | 286,069 | 7,200 | 898,493 | 1,346,615 |
| Disposals Effect of currency translation |
- 54,602 |
(25,162) 8,489 |
- - |
(5,727) 151,368 |
- 146 |
- 977 |
(30,889) 215,582 |
| Transfers and write-offs | 518,552 | 58,799 | - | 242,182 | 1,387 | (849,300) | (28,380) |
| Balance at 31 December 2016 | 4,059,411 | 10,054,035 | 72,116 | 9,705,401 | 447,759 | 68,388 | 24,407,110 |
| Accumulated depreciation and impairment losses Balance at 31 December 2015 New companies (note 3. c) |
2,174,077 - |
9,507,187 164,908 |
44,306 - |
7,785,240 20,610 |
342,058 15,522 |
- - |
19,852,868 201,040 |
| Depreciation for the year | 206,930 | 113,396 | 13,147 | 558,565 | 9,233 | - | 901,271 |
| Disposals | - | (11,882) | - | (3,796) | - | - | (15,678) |
| Effect of currency translation | 57,337 | 3,816 | - | 115,262 | 94 | - | 176,509 |
| Transfers and write-offs | 346 | 349 | - | 301 | 346 | - | 1,342 |
| Balance at 31 December 2016 | 2,438,690 | 9,777,774 | 57,453 | 8,476,182 | 367,253 | - | 21,117,352 |
| Net value | 1,620,721 | 276,261 | 14,663 | 1,229,219 | 80,506 | 68,388 | 3,289,758 |
Depreciation and amortization for the year ended on 31 December 2017 and 2016 can be detailed as follows:
| 2017 | 2016 | |
|---|---|---|
| Total | Total | |
| Tangible assets | 930,745 | 901,271 |
| Intangible assets (note 6) | 8,476,326 | 9,599,359 |
| Goodwill (note 7) | - | 4,962,617 |
| 9,407,071 | 15,463,247 |
The acquisition cost of 'Tangible assets' and 'Intangible assets' held by the Group under finance lease contracts, amounted to Euro 2,422,072 and Euro 1,890,698 as of 31 December 2017 and 2016, and their net book value as of those dates amounted to Euro 583,630 and Euro 675,209 respectively.
On 31 December 2017 and 2016, the heading 'Tangible assets' does not include any asset pledged or given as a guarantee for loans obtained.
'Tangible assets in progress' on 31 Decemeber 2017 and 2016 were made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Information systems / IT equipment | 21,727 | 33,820 |
| Other projects in progress | 205,738 | 34,568 |
| 227,465 | 68,388 |
During the year ended on 31 December 2017 and 2016, there are no commitments to third parties relating to investments to be made.
In the years ended on 31 December 2017 and 2016, the movement occurred in intangible assets and in the corresponding accumulated amortisation and impairment losses, was as follows:
| 2017 | ||||
|---|---|---|---|---|
| Brands and patents | Intangible assets in | |||
| and other rights | Software | progress | Total | |
| Gross assets | ||||
| Balance at 31 December 2016 | 12,172,469 | 82,785,488 | 4,224,640 | 99,182,597 |
| Additions | 19,210 | 774,894 | 6,795,337 | 7,589,441 |
| Disposals | - | (9,443) | (341,821) | (351,264) |
| Effect of currency translation | (860,472) | (1,248,197) | (42,150) | (2,150,819) |
| Transfers and write-offs | 102,529 | 5,219,900 | (5,180,811) | 141,618 |
| Balance at 31 December 2017 | 11,433,736 | 87,522,642 | 5,455,195 | 104,411,573 |
| Accumulated amortisation and impairment losses | ||||
| Balance at 31 December 2016 | 11,413,562 | 60,975,578 | - | 72,389,140 |
| Amortisation and impairment for the year (note 5) | 426,909 | 8,049,417 | - | 8,476,326 |
| Effect of currency translation | (807,022) | (786,631) | - | (1,593,653) |
| Disposals | - | - | - | - |
| Transfers and write-offs | 96,629 | 23,237 | - | 119,866 |
| Balance at 31 December 2017 | 11,130,078 | 68,261,601 | - | 79,391,679 |
| Net value | 303,658 | 19,261,041 | 5,455,195 | 25,019,894 |
| Brands and patents Intangible assets in Software and other rights progress Total Gross assets Balance at 31 December 2015 11,630,222 69,480,822 6,755,183 87,866,227 New companies (note 3.c) 288,307 859,339 92,784 1,240,430 Additions 30,341 1,826,760 7,338,731 9,195,832 Disposals - (38,067) - (38,067) Effect of currency translation 223,599 576,612 (12,671) 787,540 Transfers and write-offs - 10,080,022 (9,949,387) 130,635 Balance at 31 December 2016 12,172,469 82,785,488 4,224,640 99,182,597 Accumulated amortisation and impairment losses Balance at 31 December 2015 10,797,665 51,019,958 - 61,817,623 New companies (note 3.c) - 245,765 - 245,765 Amortisation and impairment for the year (note 5) 402,207 9,197,152 - 9,599,359 Disposals - 1,727 - 1,727 Effect of currency translation 213,690 453,699 - 667,389 Transfers and write-offs - 57,277 - 57,277 Balance at 31 December 2016 11,413,562 60,975,578 - 72,389,140 Net value 758,907 21,809,910 4,224,640 26,793,457 |
2016 | ||
|---|---|---|---|
In the year ended on 31 December 2016, were recorded impairment losses in the amount of Euro 1,141,736 and reversed in 2017 in the amount of Euro 704,097, with impairment losses being recognised in intangible assets amounting to Euro 437,639 in the Media segment.
On 31 December 2017, the additions related with intangible assets in progress include about Euro 5.5 million of capitalizations of personnel costs related to own work (note 42), mainly related to IT software development and RAID, NetClarus products and Lookwise.
The assessment of impairment for the main tangible and intangible assets, in the various segments, is carried out as described in note 7 ('Goodwill'), to the extent that such assets are closely related to the overall activity of the segment and consequently cannot be analysed separately.
For the sensitivity analyses made, required in the IAS 36 - Impairment of Assets, have not lead to material changes of the recoveries, so not result material additional impairments.
For the years ended on 31 December 2017 and 2016, the movements occurred in Goodwill were as follows:
| 2017 | 2016 | |
|---|---|---|
| Opening balance | 23,683,622 | 26,893,310 |
| Acquisition of Sysvalue (Note 3.c) | - | 742,093 |
| Acquisition of Inovretail (Note 3.c) | - | 1,165,722 |
| Other movements of the period | (331,793) | (154,886) |
| Impairment losses (note 5) | - | (4,962,617) |
| Closing balance | 23,351,829 | 23,683,622 |
For the years ended on 31 December 2017 and 2016, the caption 'Other movements of the year' includes the effect of the exchange rate update of the Goodwill.
On 31 December 2017 and 2016, Goodwill by business area was made up as follows:
| 2017 | Technologies | |||||
|---|---|---|---|---|---|---|
| Telecomunications | Retail | Retail | ||||
| Goodwill | 21,444,015 | 1,165,721 | 742,093 | |||
| 2016 | Technologies | |||||
| Telecomunications | Retail | Cybersecurity | ||||
| Goodwill | 21,775,808 | 1,165,721 | 742,093 |
Goodwill impairment is tested annually. Impairment tests were performed on intangible assets, including Goodwill, which were to determine the recoverable amount using the discounted cash flow method. The measurement of the existence or not of impairment of the main amounts of interests in group companies recorded in the accompanying financial statements is made taking into account the cash generating units, based on the last business plans approved by the Group's Board of Directors made on an annual basis unless there are indications of impairment, which are prepared using cash flows projected for periods of 5 years.
At 31 December 2017 and 2016, the assumptions used are based on the group's various businesses and the growth in the various geographic areas where the group operates:
| Media | |||||
|---|---|---|---|---|---|
| Pressupostos | Telecomunications | Retail | Cybersecurity | Others | |
| Basis of recoverable amount | Value in use | Value in use | Value in use | Value in use | Value in use |
| Discount rate | 6.75%-16.75% | 10.5% | 7.5%- 10.75% | 9%-13.5% | 8.5% |
| Growth rate in perpetuity | 1.0% | 3.0% | 3.0% | 1%-2% | 0.01% |
The average growth rate considered for the 5-year turnover was 9.2% for the Technology sector. For the Media sector, the average growth rate of turnover considered was around 2.4%.
The discount rates used are based on the weighted average capital costs estimated based on the segments and geographies where the companies are inserted. In Europe, discount rates are used between 6.8% and 9%, in Asia between 9% and 10.3%, in Latin America rates are used between 11% and 13.5% and in Africa 16.75%.
The analyses of the impairment indices and the review of the impairment projections and tests have not lead to clearance losses, during the year ended on 31 December 2017. For the sensitivity analyses made, required in the IAS 36 - Impairment of Assets, varying the discount rate by 0.5 pp in the media sector and in the technology sector by varying the discount rate by 0.5 pp and 0, 5 pp in the perpetuity growth rate, did not lead to material changes in the recovery amounts, and therefore no additional material impairment would result.
The associated companies and the companies jointly controlled, their head offices, percentage of ownership and value in profit and loss statement on 31 December 2017 and 2016, are as follows:
| Percentage of ownership | Value in profit and loss statement | ||||||
|---|---|---|---|---|---|---|---|
| 31 December 2017 | 31 December 2016 | ||||||
| Head Office | Direct | Total | Direct | Total | 31 December 2017 | 31 December 2016 | |
| ZOPT, SGPS, S.A. ('ZOPT') (a) | Oporto | 50.00% | 50.00% | 50.00% | 50.00% | 27,234,000 | 17,075,644 |
| Unipress – Centro Gráfico, Lda. ('Unipress') | Vila Nova de Gaia | 50.00% | 50.00% | 50.00% | 50.00% | 45,449 | 21,862 |
| Rádio Nova (e) | Oporto | 50.00% | 50.00% | 45.00% | 45.00% | 25,923 | 27,192 |
| Intelligent Big Data, S.L. ('Big Data') (b) | Gipuzcoa | 50.00% | 50.00% | 50.00% | 50.00% | (372) | (690) |
| Armilar (c) | Lisboa | 35.00% | 35.00% | 35.00% | 35.00% | - | 1 |
| Armilar II (c ) (f) | Lisboa | 50.74% | 50.74% | 50.21% | 50.21% | 8,917,715 | 19,085,969 |
| Armilar III (c ) (d) | Lisboa | 42.64% | 42.64% | 41.99% | 41.99% | (2,663,005) | 13,145,011 |
| AVP I+I (c) | Lisboa | 37.54% | 37.54% | 37.54% | 37.54% | 2,545,424 | 4,495,320 |
| Secucloud (g) | Hamburg | 27.45% | 27.45% | - | - | (282,834) | - |
| Probe.ly (h) | Lisbon | 22.88% | 22.88% | - | - | (43,235) | - |
| Total (note 35) | 35,779,065 | 53,850,309 |
(a) Includes the incorporation of the results of the subsidiaries in proportion to the capital held.
(b) Company directly owned by S21 Sec Gestion
(c) Company acquired in December 2016
(d) In March 2017, July 2017 and November 2017 an aditional participation of 0.41% and 0.20% and 0,04% was acquired respectively
(e) In June 2017 an aditional participation of 5% was acquired
(f) Change in the share capital held by Sonae IM following the exit of one of the participants og the Fund in July 2017
(g) Participation acquired in October 2017
(h) Company incorporated in June 2017
Following the announcement made on 5 August 2016, the subsidiary Sonae IM together with a group of investors entered into an agreement with NOVO BANCO, SA and its subsidiary, ES TECH VENTURES, SGPS, SA for the acquisition, to the New Bank, of units in three venture capital funds (Note 3.c))and of the entire share capital of Armilar held by its subsidiary ES TECH VENTURES, SGPS, SA After approval by Banco de Portugal, the transaction was completed on 13 December 2016.
The management of the funds, according to the applicable legislation, is the responsibility of the management company. The management company has autonomy in relation to the management and investment policies of the funds, and this is not a competence of the holders of units. The participation of the subsidiary Sonae IM in the management company is 35%, not exercising control over it, in accordance with the legal framework and, in accordance with the context and specificity of the transaction, a fair value of 1 euro was assumed. As described, under this operation, the acquired participations were classified as 'Investments in associated companies'.
In March 2017, an increase in participation in Armilar III fund was approved, and Sonae IM subscribed and paid the amount of Euro 622,996, corresponding to 0.41%, in July 2017 a new increase of Armilar III fund, with Sonae IM subscribed and paid in the amount of Euro 302,598, corresponding to 0.20% and in November 2017, another increase of participation in the Armilar III fund was approved and Sonae IM subscribed and paid the amount of Euro 484,103, corresponding to 0.04%, and in the year ended at 31 December 2017 held a participation of 42.64% in the Armilar III fund. Also in July 2017, there was a change in the number of shares of Armilar II fund due
to the exit of one of the Shareholders, thus giving SonaeIM a participation of 50.74% in the fund in the year ended at 31 December 2017.
As part of this transaction, debt of the Armilar II and Armilar III funds to Armilar was also acquired, in the amount of Euro 1,503,670 and Euro 1,274,357, respectively, which is recorded under the caption 'Other non-current assets' (Note 12) .
IAS 28 contains the option to keep the investments at fair value in situations of investments in associates that are held through venture capital funds. Sonaecom made this option in applying the equity method to Armilar I, Armilar II and ESVIINT funds, and maintained the fair value recognised by the funds in its subsidiaries. Associated companies and companies jointly controlled are included in the consolidation under the equity method.
In October 2017 Sonae IM invested Euro 4,000,000 in the company Secucloud, representing this investment 27.45% of the company's capital.
Probe.ly was incorporated on 11 May 2017. In the year ended at 31 December 2017, Bright subsidiary holds a 22.88% stake in this company, which corresponds to an investment of Euro 375,000. In addition, during this year, the subsidiary Bright made a loan to this company in the amount of Euro 140,000 recorded in the caption 'Other non-current assets'.
During the years ended on 31 December 2017 and 2016, the movement occurred in investments in associated companies and companies jointly controlled, were as follows:
| 31 December 2017 | ||||||
|---|---|---|---|---|---|---|
| Ownership value | Goodwill | Total investment | Ownership value | Goodwill | Total investment | |
| Investments in associated companies and companies jointly controlled |
||||||
| Balance at 1 January | 658,212,535 | 87,849,200 | 746,061,735 | 623,385,393 | 87,849,200 | 711,234,593 |
| Increases | 989,578 | 4,795,119 | 5,784,697 | 68,475,639 | - | 68,475,639 |
| Equity method | - | |||||
| Effect on gains and losses (note 35) | 35,753,514 | - | 35,753,514 | 17,097,474 | - | 17,097,474 |
| Effect on reserves | 673,562 | - | 673,562 | (32,415,097) | - | (32,415,097) |
| Dividends | (16,538,141) | - | (16,538,141) | (18,330,874) | - | (18,330,874) |
| 679,091,048 | 92,644,319 | 771,735,367 | 658,212,535 | 87,849,200 | 746,061,735 | |
| Registered in Provisions for other liabilities and charges (note 23) | - | |||||
| Balance at 1 January | (119,250) | - | (119,250) | (145,784) | - | (145,784) |
| Increases | (12,705) | - | (12,705) | - | - | - |
| Equity method | ||||||
| Effect on gains and losses (note 22 and 35) | 25,551 | - | 25,551 | 26,534 | - | 26,534 |
| (106,404) | - | (106,404) | (119,250) | - | (119,250) | |
| Total investment in associated companies and companies jointly controlled net of impairment losses |
678,984,644 | 92,644,319 | 771,628,963 | 658,093,285 | 87,849,200 | 745,942,485 |
At the year ended at 31 December 2017, the increase of Euro 5,784,697 in associates and jointly controlled companies corresponds to increases in the participation of the Armilar III fund in the amount of Euro 1,409,697, to the investment in Secucloud in the value of Euro 4,000,000 and the investment in Probe.ly of Euro 375,000.
In the period ended at 31 December 2017, a provision was also recorded in the amount of Euro 12,705 resulting from the acquisition of a further 5% interest in S.I.R.S. in June 2017 for the amount of its capital at that date.
During the years ended at 31 December 2017 and 2016 the company received the amount of Euro 16,512,005 and Euro 18,311,947 respectively, referring to dividends received from Zopt SGPS.
As established in the shareholders agreement between Sonaecom, Kento Holding Limited and Jadeium BV (currently named Unitel International Holdings, BV), on 14 June 2016, Sonaecom sold all its direct participation in NOS (2.14%) to ZOPT by the amount of Euro 82,840,847. This transaction generated a capital gain of 18,725,887 (note 9), being 50% of the capital gain annulled through Reserves and the other 50% registered in Gains and losses on financial assets at fair value through profit or loss (Note 35). In addition, the transaction also gave impact on equity equivalence recorded through reserves by reducing the fair value of 2.14% of non-controlling interests. These impacts on Reserves were presented by the net in the Consolidated movements in shareholders' funds.
In accordance with the IFRS 11, the classification of investments in companies jointly controlled is determined based on the existence of an agreement that clearly demonstrate and regulate the joint control. Thus, on 31 December 2017 the group held associated and jointly controlled companies, as decomposition below.
The division by company of the amount included on the investments in associated companies and join controlled is as follows:
| 31 December 2017 | 31 December 2016 | |||||
|---|---|---|---|---|---|---|
| Ownership value | Goodwill | Total investment | Ownership value | Goodwill | Total investment | |
| Investments in companies jointly controlled | ||||||
| Zopt | 600,667,267 | 87,527,500 | 688,194,767 | 589,271,710 | 87,527,500 | 676,799,210 |
| Unipress | 484,500 | 321,700 | 806,200 | 465,187 | 321,700 | 786,887 |
| SIRS | (105,373) | - | (105,373) | (118,591) | - | (118,591) |
| Big Data | (1,031) | - | (1,031) | (659) | - | (659) |
| 601,045,363 | 87,849,200 | 688,894,563 | 589,617,647 | 87,849,200 | 677,466,847 | |
| Investments in associated companies | ||||||
| Armilar | 1 | - | 1 | 1 | - | 1 |
| Armilar II | 44,333,718 | - | 44,333,718 | 35,416,004 | - | 35,416,004 |
| Armilar III | 24,920,506 | - | 24,920,506 | 26,173,814 | - | 26,173,814 |
| AVP I+I | 9,431,244 | - | 9,431,244 | 6,885,820 | - | 6,885,820 |
| Secucloud | (702,576) | 4,419,742 | 3,717,166 | - | - | - |
| Probe.ly | (43,612) | 375,377 | 331,765 | - | - | - |
| 77,939,281 | 4,795,119 | 82,734,400 | 68,475,639 | - | 68,475,639 | |
| Total | 678,984,644 | 92,644,319 | 771,628,963 | 658,093,285 | 87,849,200 | 745,942,485 |
The aggregated amounts of the main financial indicators of the entities can be resumed as follows:
| (Amounts expressed in thounsand Euro) | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Entity | % holding | Asset | Liability | Equity | Revenue | Operational results | Net result | Comprehensive income |
| ZOPT* | 50.00% | 4,378,070 | 1,994,389 | 2,383,681 | 1,561,781 | 124,349 | 108,143 | 111,506 |
| Unipress | 50.00% | 1,990 | 1,021 | 969 | 2,701 | 503 | 91 | 91 |
| SIRS | 50.00% | 502 | 712 | (211) | 1,106 | 90 | 53 | 53 |
| Big Data | 50.00% | 1 | 4 | (4) | - | - | (1) | (1) |
| Armilar | 35.00% | 4,909 | 678 | 4,231 | 2,245 | 426 | 284 | 284 |
| Armilar II | 50.74% | 92,742 | 5,361 | 87,381 | 18,622 | 17,959 | 17,869 | 17,869 |
| Armilar III | 42.64% | 69,695 | 11,350 | 58,344 | (5,330) | (6,652) | (6,353) | (6,353) |
| AVP I+I | 37.54% | 32,059 | 6,937 | 25,123 | 12,412 | 5,828 | 5,894 | 5,894 |
| Secucloud | 27.45% | 5,707 | 4,251 | 1,456 | 1,493 | (2,592) | (3,448) | (3,448) |
| Probe.ly | 22.88% | 311 | 502 | (191) | 1 | (531) | (531) | (531) |
*The consolidated accounts audited of Group ZOPT, prepared in accordance with the International Financial Report Statements ('IFRS') as adopted by the European Union. The value of the shareholder funds includes non-controlling interests in amount of Euro 1,165 million and on 31 December 2017 the NOS' market capitalization amount to Euro 2,824 million.
The financial participations of Armilar II, Armilar III and AVP I+I are valued at fair value and classified in the corresponding hierarchy of fair value definided in IFRS 13 – Fair value, as shown in the table bellow:
| (Amounts expressed in thounsand Euro) | |||||||
|---|---|---|---|---|---|---|---|
| Fair value hierarchy | Armilar II | Armilar III | AVP I+I | ||||
| Level 2 | - | 25,762 | 29,830 | ||||
| Level 3 | 90,745 | 37,370 | 1,813 |
Level 2 valuation techniques are essentially related to valuations resulting from the last transaction or firm acquisition offers, from significant percentages of holdings occurring in non-active markets.
Level 3 valuation techniques are essentially supported by:
(i) Business plans of the subsidiaries, in which discount rates ranging from 6.10% to 25.0% were used, revenue growth rates over the projection period (CAGR) ranging between 2.3% and 134.6% and where the terminal value was estimated by a mix of multiples applied mainly on Revenue and EBITDA. It should be noted that the implied appreciation of the investments held by the Fund results from a set of sensitivities applied to the original parameters of the Business Plans made available by the management of the Subsidiaries; and
(ii) Market Multiples in similar transactions applied to Revenues, Free Cash Flow, EBITDA, Recurring Revenues and other financial data of the Subsidiary.
Armilar III and AVP I + I include a level 2 share with an accounting value of approximately Euro 20 million and Euro 26 million, respectively, which was valued based on the last non-active transaction in July 2017. It should be noted that these values are perfectly fit in those that would be obtained if the valuation methodology adopted was the use of market multiples.
Level 3 includes a subsidiary with a book value of approximately Euro 88 million in the AVP II, which was valued using market multiples, namely using the most relevant metric for this type of company, the ARR (Annual Recurring Revenue). Given that this multiple increased approximately 60% compared to 2016, valuation, for prudential reasons, was based on an intermediate value resulting from the application of the multiple on the entity's financial data for 2016 and 2017. In addition, other multiples which revised the amount appreciated at December 31, 2017. It should be noted that this investee was classified in level 2 of fair value in 2016 since its valuation was based on a transaction that occurred in January of the same year.
Regarding the area of telecommunications (Zopt), the assessment of whether or not the impairment is determinate taking into account with several information as business plans approved by the Board of Directors of NOS for five years, which implied average growth rate of operating margin amounts to 3.4% and its associated, and the average rating of external reviewers (researches).
| NOS SGPS | |
|---|---|
| Assumptions | |
| Basis of recoverable amount | Value in use |
| Discount rate | 7.4% |
| Growth rate in perpetuity | 1.4% |
For other business sectors, the assessment of whether or not impairment to the goodwill value is determined based on the considerations presented in Note 7.
The analyses of the impairment indices and the review of the impairment projections and tests have not lead to clearance losses, during the years ended on 31 December 2017 and 2016.
For the sensitivity analyses made, have not lead to material changes of the recoveries, so not result material additional impairments.
The consolidated financial statements of Zopt, on 31 December 2017 and 2016 can be resumed as follows:
| (Amounts expressed in thousands of Euro) | December 2017 | December 2016 |
|---|---|---|
| Assets | ||
| Tangible assets | 1,181,572 | 1,205,070 |
| Intangible assets | 2,314,324 | 2,350,493 |
| Deferred tax assets | 110,916 | 128,824 |
| Other non-current assets | 223,794 | 205,021 |
| Non-current assets | 3,830,606 | 3,889,408 |
| Trade debtors | 406,904 | 348,926 |
| Cash and cash equivalents | 5,493 | 7,094 |
| Other current assets | 135,067 | 178,415 |
| Current assets | 547,464 | 534,435 |
| Total asseis | 4,378,070 | 4,423,843 |
| Liabilities | ||
| Loans | 997,423 | 1,035,508 |
| Provisions | 174,546 | 190,152 |
| Other non-current liabilities | 69,067 | 85,748 |
| Non-current liabilities | 1,241,036 | 1,311,408 |
| Loans | 210,175 | 224,692 |
| Trade creditors | 224,917 | 238,851 |
| Other current liabilities | 318,261 | 298,337 |
| Current liabilities | 753,353 | 761,880 |
| Total liabilities | 1,994,389 | 2,073,288 |
| Shareholders' funds excluding non-controlling interests | 1,218,544 | 1,192,361 |
| Non-controlling interests | 1,165,137 | 1,158,194 |
| Total Shareholders' funds | 2,383,681 | 2,350,555 |
| Total Shareholders' funds and liabilities | 4,378,070 | 4,423,843 |
| (Amounts expressed in thousands of Euro) | December 2017 | December 2016 |
|---|---|---|
| Total revenue | 1,561,781 | 1,514,969 |
| Costs and losses | ||
| Direct costs and External supplies and services | (672,773) | (642,138) |
| Depreciation, amortisation and impairment losses | (443,229) | (414,384) |
| Other operating costs | (321,430) | (338,042) |
| (1,437,432) | (1,394,564) | |
| Gains/ (losses) in associated companies | 20,251 | (10,991) |
| Financial results | (25,528) | (25,352) |
| Income taxation | (10,929) | (15,802) |
| Consolidated net income/(loss) for the year | 108,143 | 68,260 |
| Consolidated net income/(loss) for the year attributed to non-controlling interests | 52,585 | 34,090 |
| Attributed to shareholders of parent company | 55,558 | 34,170 |
The value on the income statement related to Zopt results from net income of NOS, the net income of Zopt and the impact on results of the process of allocating the fair value to the assets and liabilities acquired by Zopt.
The consolidated financial statements of ZOPT have a significant exposure to the African market, particularly through financial holdings that Group holds in associated companies operating in the Angolan and Mozambican markets, which are engaged in providing satellite and fiber television services. The net book value of the associates in the financial statements of ZOPT on 31 December 2017 amounts to approximately Euro 195 million.
During the last quarter of 2017, Angola was considered a hyperinflationary economy, and the individual financial statements of the investees in Angola were restated (for consolidation purposes) in accordance with IAS 29 - Financial Reporting in Hyperinflationary Economies. Effective at 1 January 2017, the financial participation (including implicit goodwill of Euro 171.1 million) on the Angolan associates was adjusted by the effect of hyperinflation by a total of Euro 140.5 million and reduced by 138.5 million of impairment losses on the holding. The net amount of approximately Euro 2 million was recorded under 'Other reserves'. The effect of hyperinflation during this year was again adjusted by the effect of hyperinflation, with a net impact of approximately Euro 3.2 million (including Euro 38.6 million of impairment losses) under 'Losses / gains) in investees'.
The Group made impairment tests for those assets, which are denominated in the currencies of those countries, Kwanzas and Meticals, respectively, considering the business plans (internal valuation using the discounted cash flow method, compared to researches) approved by the Board of Directors for a five years period, which include average growth rates of revenue for that period of 14.5% (Angola) and 8.1% (Mozambique). These revenue growth rates reflects: (i) the best estimate for the growth of the customer base, reflecting an expectation of new clients and chum estimated rates, when considered prudent, and (ii) an annual price increase which corresponds, over the period 2017 to 2021, to an average of 75% of the inflation rate, since, considering the nature of the activity carried out by the companies, especially in Angola and in line with the price increases in previous years, it is not expected that companies will be able to reflect in their prices the total inflation in the country.
The business plans consider yet a growth rate in perpetuity of 9.5% (Angola) and 5.5% (Mozambique) and a discount rate ('wacc') in perpetuity of 20.1% (Angola) and 21% (Mozambique). The discount rate, over the period 2018 to 2022 ranged from a maximum of 43.8% to a minimum of 20.1% (in 2022), for Angola, and from a maximum of 35% to a minimum of 21% (2022) in Mozambique, in line with the most appropriate inflation forecasts (source: International Monetary Fund (FMI)).
The impairment tests carried out, based on the assumptions above, disregarding the effect of the adjustment to the effects of hyperinflation in the amount of financial investment, support the value of the assets, so not result in additional impairments was recorded in relation to the effect of the hyperinflationary economy. However, that the current economic conditions of uncertainty in these markets, particularly in the foreign exchange market and the limitation of currency transfer, particularly in Angola, introduces an additional degree of variability to the assumptions, which could significantly impact of the estimates considered, in terms of of the rate of inflation and the ability to reflect the rate in price increases.
With respect to the Angolan associates were used intervals above the usual in the sensivity analyses, in wich variations of 2pp in WACC and 0.5 pp in the perpetuity growth rate allow us to conclude that in extreme situations, with a high rate of inflation and a lower capacity of the company to reflect a higher price increase (analyzed scenarios of price repercussion between 50% and 100% of the inflation rate, being this the most critical variable with impacts in variation of 65% and 139% of the book value), the valuation would't support the assets' value, varying between 61% and 156% of the book value.
The Board of Directors' conviction is that the assumptions used in the business plans are the most prudent and appropriate, and that the situations of high inflation and lower capacity of the company to reflect a higher price increase correspond to extreme situations.
The processes described below are provisioned in the consolidated accounts of Zopt, given the level of risk identified.
For the year ended at 31 December 2010, the subsidiary NOS SA was notified of the Report of Tax Inspection, where it is considered that the increase, when calculating the taxable profit for the year 2008, of the amount of Euro 100 million, with respect to initial price of future credits transferred to securitization, is inappropriate. Given the principle of periodisation of taxable income, NOS SA was subsequently notified of the improper deduction of the amount of Euro 20 million in the calculation of taxable income between 2009 and 2013. Given that the increase made in 2008 was not accepted due to not complying with Article 18 of the CIRC, also in the years following, the deduction corresponding to credits generated in that years, will eliminate the calculation of taxable income, to meet the annual amortisation hired as part of the operation (20 million per year during 5 years). NOS SA challenged the decisions regarding the 2008 to 2013 fiscal year. Regarding the year 2008, the Administrative and Fiscal Court of Porto has already decided unfavorably, in March 2014. The company has appealed.
Infringement proceedings due to an alleged failure, by NOS SA, to apply the resolutions taken by ANACOM on 26 October 2005, concerning termination rates for fixed calls. Following a deliberation of Board of Directors of the regulator, in April 2012, a fine of approximately Euro 6.5 million was applied to NOS SA; NOS SA has appealed for the judicial review of the decision and the court has declared the process's nullity on January 2014 (based on violation of NOS, SA's right of defense). Subsequently, in April 2014 ANACOM has notified NOS SA of a new judicial process, based on the same accusations. This process is a repetition of the initial one, taking into consideration the same facts. In September 2014, ANACOM applied a new fine to NOS SA in the amount of Euro 6.5 million. This decision was contested by NOS SA. In May 2015, it was acquitted, which revoked the decision by ANACOM and the fine which applied. ANACOM subsequently lodged an appeal against the judgment in May 2015, which, by summary decision of May 2017, was dismissed in its entirety by the Lisbon Court of Appeal, thus confirming the total acquittal of NOS SA. Neither ANACOM nor the Public Prosecution Service appealed the decision, and the case became final by May 2017. During the 2017 financial year, the total provision amounting to Euro 6.5 million was reversed.
The fiscal authorities are of the opinion that NOS SA has broken the principle of full competition under the terms of (1) of article 58 of the Corporate Tax Code (CIRC), (actual article 63), by granting supplementary capital to its subsidiary NOS Towering, without having been remunerated at a market interest rate. In consequence, it has been notified, with regard to the years 2004, 2005, 2006 and 2007, of corrections to the determination of its taxable income in the total amount of Euro 20.5 million. NOS SA contested the decision with regard to all the above mentioned years. As for the year 2004, the Court has decided favorably. This decision is concluded (favorably), originating a reversal of provisions, in 2016, in the amount of Euro 1.3 million plus interest. As for the years 2006 and 2007, the Oporto Fiscal and Administrative Court has already decided unfavorably. The company has contested this decision and the final decision of the processes is still pending.
The Extraordinary contribution toward the fund for the compensation of the net costs of the universal service of electronic communications (CLSU) is legislated in Articles 17 to 22 of Law nr 35/2012, of 23 August. From 1995 until June 2014, MEO, SA (ex-PTC) was the sole provider for the universal service of electronic communications, having been designated administratively by the government, i.e without a tender procedure, which constitutes an illegality, as acknowledged by the European Court of Justice who, through its decision taken in June 2014, condemned the Portuguese State to pay a fine of Euro 3 million for illegally designating MEO. In accordance with Article 18 of the abovementioned Law number 35/2012, the net costs incurred by the operator responsible for providing the universal service, approved by ANACOM, must be shared between other companies who provide, in national territory public communication networks and publicly accessible electronic communications services. NOS is therefore within the scope of this extraordinary contribution given that MEO has being requesting the payment of CLSU to the compensation fund of the several periods during which it was responsible for providing the services. Indeed, in accordance with the law, the compensation fund can be activated to compensate the net costs of the electronic communications universal service, relative to the period before the designation of the provider by tender, whenever, cumulatively (i) there are net costs, considered excessive, the amount of which is approved by ANACOM, following an audit to their preliminary calculation and support documents, which are provided by the universal service provider, and (ii) the universal service provider requester the Government compensation for the net costs approved under the terms previously mentioned.
In 2013, ANACOM deliberated to approve the final results of the CLSU audit presented by MEO, relative to the period from 2007 to 2009, in a total amount of about Euro 66.8 million, decision contested by the Company. In January 2015, ANACOM issued the settlement notes in the amount of Euro 18.6 million, which were contested by NOS and for which bail were presented by NOS SGPS to avoid Tax Execution Proceedings, guarantees that have been accepted by ANACOM.
In 2014, ANACOM deliberated to approve the final results of the CLSU audit by MEO, relative to the period from 2010 to 2011, in a total amount of about Euro 47.1 million, a decision also contested by NOS. In February 2016, ANACOM issued the settlement notes to the Company in amount of Euro 13 million wich will be contested by NOS and for which it was before also presented bail by NOS SGPS in order to avoid the promotion of respective tax enforcement processes, guarantees that have been accepted by ANACOM.
In 2015, ANACOM deliberated to approve the final results of the audit to CLSU presented by MEO for the year of 2012 and 2013, in the amount of about Euro 26 million and Euro 20 milion, respectively, decision which was contested by the companie In December 2016, the liquidation notes relating to NOS, SA, NOS Madeira and NOS Azores, relating to that period, amounting to Euro 13.6 million, were
challenged by NOS and to which guarantees have also been presented by NOS SGPS in order to avoid the promotion of the respective tax enforcement procedures. The guarantees were also accepted by ANACOM.
At October 2016, ANACOM approved the results of the audit to the CLSU presented by MEO related with the period between January and June 2014, in the amount of Euro 7.7 million, which NOS challenged in its usual terms in January 2017. In December 2017, NOS, SA, NOS Madeira and NOS Azores were notified of ANACOM's draft decision on entities required to contribute to the compensation fund and to the setting of the contributions to the CLSU to be offset for 2014, which provides for a contribution of Euro 2,4 million for all these companies.
It is the opinion of the Board of Directors of NOS that these extraordinary contributions to CLSU of service providing by MEO violates the Directive of Universal Service. Moreover, considering the existing legal framework since NOS began its activity, the request of payment of the extraordinary contribution violates the principle of the protection of confidence, recognised on a legal and constitutional level in Portuguese domestic law. For these reasons, NOS will continue judicially challenge either the approval of the audit results to the net costs of the universal service for the pre-competitive period or the liquidation of each extraordinary contributions, once the Board of Directors is convinced it will be successful in all challenges, both future and already undertaken.
NOS SA, NOS Açores and NOS Madeira brought actions for judicial review of ANACOM's decisions in respect of the payment of the Annual Fee (for 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016) for carrying on the business of Electronic Communications Services Networks Supplier, and furthermore, it is requested to pay back the sums paid in the course of the execution of said liquidation acts. The settlements for the year 2017 are in the period of challenge.
The settlement amounts are as follows:
This fee is a percentage decided annually by ANACOM (in 2009 it was 0.5826%) of operators' electronic communications revenues. NOS SA, NOS Açores and NOS Madeira invoke, in particular, i) flaws of unconstitutionality and illegality related to the inclusion, in the accounting of ANACOM's costs, of the accrued provisions, due to the legal proceedings brought against it (including these same challenges of the activity rate) and ii) that only revenues from the electronic communications business per se, subject to regulation by ANACOM, should be considered for the purposes of the application of the percentage and the calculation of the fee payable, and that revenues from television content should be excluded.
On 18 December 2012 and 29 September 2017, two single judgments were passed on the proceedings instigated by NOS SA for the annual rate of 2009 and 2012, respectively. The first judgment upheld the respective challenge, but based only on the defect of the previous hearing and condemning ANACOM to pay interest. The remaining proceedings are awaiting trial and/or decision. The second judgment also considered, and in turn, the corresponding challenge, but this time for substantive reasons, annulling the contested act for illegality, with the legal consequences, namely imposing the return to the NOS of the tax paid yet not returned and condemning ANACOM in the payment of compensatory interest. This decision was appealed by ANACOM to the Central Administrative Court - South.
The remaining cases are awaiting judgment and / or decision.
During the first quarter of 2017, NOS was notified by ANACOM of the initiation of a process of mismanagement related to price update communications, at the end of 2016. At the time, it is not possible to determine the scope of the process of mismanagement .
During the course of the 2003 to 2016 financial years, some companies of the NOS Group were the subject of tax inspections for the 2001 to 2014 financial years. Following these inspections, NOS SGPS, as the controlling company of the Tax Group, and companies not covered by Tax Group, were notified of the corrections made to the Corporate Income Tax, to VAT and stamp tax and to make the payments related to the corrections made to the above exercises. The total amount of the notifications unpaid is about Euro 19 million, plus interest and charges. Note that the Group considered that the corrections were unfounded, and contested the corrections and the amounts mentioned. The Group provided the bank guarantees demanded by the Tax Authorities in connection with these proceedings.
At end of year 2013 and taking advantage of the extraordinary settlement scheme of tax debts, the Group settled Euro 7.7 million. This amount was recorded as "taxes receivable" non-current net of the provision recorded.
As belief of the Board of Directors of the NOS Group, supported by our lawyers and tax advisors, the risk of loss of these proceedings is not likely and the outcome thereof will not affect materially the consolidated position.
MEO doesn't indicate in all notifications the amounts in which it wants to be financially compensated, specifying only part of these, in the case of NOS SA, in the amount of Euro 26 million (from August 2011 and May 2014), in the case of NOS Açores, in the amount of Euro 195 thousand and NOS Madeira, amounting to Euro 817 thousand.
• In 2011, NOS SA brought an action in the Lisbon Judicial Court against MEO (PT), claiming payment of Euro 22.4 million, for damages suffered by NOS SA, arising from violations of the Portability Regulation by MEO, in particular, the large number of unjustified refusals of portability requests by MEO in the period between February 2008 and February 2011. The court declared the compulsory performance of expert evidence, which is currently underway, the expert report having been notified to the parties and the parties have submitted their requests for clarification to the experts. At the same time, it was requested by the NOS and accepted by the Court to carry out economic and financial expertise, which has already begun.
It is the understanding of the Board of Directors of NOS, supported by lawyers who monitor the process, that there is, in substance, a good possibility of NOS SA winning the action, due to the fact that MEO has already been convicted for the same offense, by ANACOM. However, it is impossible to determine the outcome of the action. In the event of action be judged totally unfounded, the court costs, which are the responsibility of NOS could amount to over Euro 1,150 million.
In 2014, a NOS SGPS providers of marketing services has brought a civil lawsuit seeking a payment of about Euro 1,243 thousand, by the alleged early termination of contract and for compensation. This instance was acquitted due to passive illegitimacy of NOS SGPS, decision confirmed by superior Courts and that, meanwhile, was concluded. Afterwards, the same company brought a new civil lawsuit based on the same facts, but this time, against NOS Comunicações. An objection was filed in September 2016 and a preliminary hearing was held in May 2017, in which two objections raised by the NOS were dismissed, rejections of which NOS appealed. The final hearing is scheduled for February 2018.
As to the substance of the matter, it is the opinion of the Board of Directors of NOS that the arguments used by the author are not pertinent, which is why it is believed that the outcome of the proceeding should not have a material impact on the Group's financial statements.
The general conditions that affect the agreement and termination of this contract between NOS and its clients, establish that if the products and services provided by the client can no longer be used prior to the end of the binding period, the client is obliged to immediately pay damages.
Until 31 December 2014, revenue from penalties, due to inherent uncertainties was recorded only at the moment when it was received, so at 31 December 2017, the receivables by NOS SA, NOS Madeira and NOS Açores amount to a total of Euro 71,799 thousand. During the year ended on 31 December 2017 Euro 1,540 thousand related to 2014 receivables were received and recorded in the income statement.
From 1 January 2015, revenue from penalties is recognised taking into account an estimated collectability rate taking into account the Group's collection history. The penalties invoiced are recorded as accounts receivable and amounts determined as uncollectible are recorded as impairment by deducting revenue recognized upon invoicing.
At 31 December 2017, accounts receivable and accounts payable include Euro 37,139,253 and Euro 29,913,608, respectively, resulting from a dispute between the subsidiary NOS SA and, essentially, the operator MEO – Serviços de Comunicação e Multimédia, S.A. (previously named TMN – Telecomunicações Móveis Nacionais, S.A.), in relation to the indefinition of interconnection tariffs, recorded in the year ended at 31 December 2001. In the first and second instance, the decision was favorable to NOS SA. Nevertheless, MEO again appealed this decision, first to the Supreme Court of Justice and then, in two different appeals to the Constitutional Court. All appeals have been dismissed, and the deadline for final and unappealable final decisions is in progress.
The Sonaecom Board of Directors believes that the above processes may result in contingencies that affect the ZOPT group's accounts are properly provisioned, given the degree of risk in the consolidated accounts of Sonaecom.
In December 2015, NOS Group signed a contract with Sport Lisboa e Benfica - Futebol SAD and Benfica TV, S.A. of television rights of home football games of football NOS' league, broadcasting rights and distribution of Benfica TV Channel. The contract will begin in 2016/2017 sports season and has an initial duration of three years and may be renewed by decision of either party to a total of 10 sports seasons, with the overall financial consideration reaching the amount of Euro 400 million, divided into progressive annual amounts.
Also in December 2015, the NOS Group signed a contract with Sporting Clube de Portugal - Futebol SAD and Sporting Comunicação e Plataformas, S.A. for the assignment of the following rights:
The contract will last 10 seasons as regards the rights indicated in 1) and 2) above, starting in July 2018, 12 seasons in the case of the rights mentioned in 3) starting in July 2017 and 12 and a half seasons in the case of the rights mentioned in 4) beginning in January 2016, amounting to overall financial contribution to the amount of 446 million euro, divided into progressive annual amounts.
Also in December 2015, the NOS Group signed contracts of assignment of television rights credits of Senior home football games with the following sports clubs:
The contracts wil begin in the 2019/2020 sports season and last up to 7 seasons, with the exception of the contract with Sporting Clube de Braga - Futebol, SAD which lasts 9 seasons.
During the year of 2016, has signed contracts regarding the television rights of home senior team football games with the following sports clubs:
The contracts wil begin in the 2019/2020 sport season and last up to 3 seasons.
In May 2016, NOS and Vodafone have agreed on reciprocal availability, for several sports seasons, of sports content (national and international) owned by the companies, in order to assure to both companies the availability of broadcasting rights of the sports clubs home football games, as well as the broadcasting and distribution rights of sports and sports clubs channels, whose rights are owned by each of the companies in each moment. The agreement came into force from the beginning of the sports season 2016/2017, assuring access to Benfica's channel and Benfica's home football games to NOS' and Vodafone's clients, independent from the channel where these football games are broadcast.
Considering that the contract signed allowed for the possibility of extending the agreement to the other operators, in July 2016 MEO and Cabovisão joined the agreement, ending the lack of availability of Porto Canal in the NOS's channel grid, assuring that every pay-tv client can have access to every relevant sports content, regardless of which operator they use.
Following the agreement signed with the remaining operators, as a counterpart of the reciprocal provision of rights, the global costs are shared according with retailer telecommunications revenues and Pay TV market shares.
The estimated cash flows are estimated as follows:
| Seasons | 2017/18 | following |
|---|---|---|
| Estimated cash flows with the contracts signed by NOS with the sports entities* | Euro 50.1 million | Euro 1,098 million |
| NOS estimated cash flows for the contracts signed by NOS (net of the amounts charged to the operators) and for the contracts signed by the remaining operators |
Euro 22.5 million | Euro 624 million |
*Includes games and channels broadcasting rights, advertising and othes.
NOS and Vodafone Portugal celebrated on 29 September 2017 an agreement for the development and sharing of infrastructure with a national scope. This partnership allows the two Operators to make their commercial offers available under the shared network from the beginning of 2018. The agreement covers the reciprocal sharing of dark fiber in about 2.6 million houses, in which each entity sharing with the other an equivalent amount of investment, that is, sharing similar goods, assuming that the two companies maintain full autonomy, independence and confidentiality in the design of commercial offers and management of the database of customers and in the choice of technological solutions that have no effect on the Group's financial statements (in accordance with IAS 16, this exchange of similar non-cash assets will be presented by the net).
The partnership was also extended to the sharing of mobile infrastructure, where it is agreed the minimum sharing of 200 mobile towers.
Sonaecom Group began to hold NOS shares recorded at fair value through profit or loss, as a result of the merger between Optimus SGPS and Zon, since it is the initial classification of an asset held for a sale purpose in a short-time. In accordance with the 'Shareholders Agreement', these shares neither concedes any additional vote right or affect the shared control situation with ZOPT. Some of these shares were used as part of the General Public and Voluntary Offer acquisition of own shares.
In the years ended at December 2017 and 2016, Sonaecom did not hold NOS shares, since it sold the entire NOS interest (2.14%) to ZOPT in June 2016 as described in Note 8, "Investments in jointly controlled companies ". For the determination of the fair value of the NOS shares at the date of sale, the closing price of June 14, 2016 (5.822) was used for the 11,012,532 shares in the portfolio at the time of sale. The fair value calculation resulted in a loss of Euro 15,681,846 (recorded in "Gains and losses on investments recorded at fair value through profit and loss") (note 35).
In the year ended December 2017, Sonaecom did not hold Sonae shares in the portfolio.
The movements occurred in financial assets at fair value through profit or loss, on 31 December 2016 were as follows:
| 2016 | |||||
|---|---|---|---|---|---|
| Financial assets at fair value through profit or loss | Opening balance | Decreases | Fair value adjustments (note 34) |
Increase and decrease in fair value of shares intended to cover MTIP* |
Closing balance |
| NOS | 79,796,807 | (64,114,961) | (15,681,846) | - | - |
| Sonae SGPS | 144,477 | (146,683) | 2,206 | - | - |
| 79,941,284 | (64,261,644) | (15,679,640) | - | - |
*Incentive medium-term plans
The increases and decreases in the fair value adjustments are recorded under the caption 'Gains and losses on Group companies' in Profit and Loss Statement (note 35). With the exception of the increases and decreases in the fair value of shares allocated to cover the medium-term incentive plans whose value is recorded under "Other operating expenses" and "Other financial expenses" in the income statement.
The decreases on 31 December 2016 in the investment in Sonae SGPS shares correspond essentially to the payment of the mediumterm incentive plan that expired in the year ended on 31 December 2016.
On 31 December 2016, the decreases of the investment in NOS shares correspond to the sold of all the direct participation of Sonaecom in NOS (2.14%) to ZOPT, as described above.
On 31 December 2017 and 2016, this caption included investments classified as available-for-sale and was made up as follows:
| % | 2017 | 2016 | |
|---|---|---|---|
| Lusa – Agência de Notícias e Portugal, S.A. | 1.38% | 197,344 | 197,344 |
| VISAPRESS - Gestão de Conteúdos dos Média, CRL | 10.00% | 5,000 | 5,000 |
| Arctic wolf | 4.68% | 3,830,113 | - |
| StyleSage | 5.00% | 448,834 | 448,835 |
| Ometria | 4.54% | 854,165 | - |
| Continuum Security | 6.66% | 299,802 | - |
| Food Orchestrator | 0.17% | 1 | - |
| Others | 7,586 | 10,710 | |
| Impairment losses | (161,882) | (122,275) | |
| 5,480,963 | 539,614 |
On 31 December 2017, these investments correspond to shareholdings, in unlisted companies, in which the Group has no significant influence, and in which the acquisition cost of such investments is a reasonable estimation of their fair value, adjusted where applicable, by the respective impairment losses.
According to IAS 39, these investments are an 'Available-for-Sale Investment' and are recorded at the acquisition cost representing the fair value at that date.
During 2017, Sonae IM acquired a participation of 4.68% in Arctic Wolf for the amount of USD 4,499,999 (Euro 3,830,113). Arctic Wolf is a North American technology specialist in cybersecurity.
During 2016, Sonae IM acquired preferred shares of Style Sage representing 5% of its share capital for USD 500,000 (Euro 448,835). During the year ended at 31 December 2017, Sonae IM also granted a convertible loan in the amount of USD 500,000 (Euro 416,910), recorded under 'Other non-current assets' (note 12). This loan is remunerated at market interest rates.
During 2017, Sonae IM acquired a participation of 4.54% in Ometria for GBP 750,000 (Euro 854,165). The company is a cross-channel and customer disclosure platform that enables retailers to send personalized marketing messages along the customer's lifecycle.
During 2017, Sonae IM acquired a participation of 6.66% in Continuum Security for Euro 299,802. The main activity of the company is to build tools to manage the security of customers' software.
In March 2017 the subsidiary Bright acquired a 0.17% stake in the company Food Orchestrator for a value of Euro 1, whose main activity is the provision of technological support services for the sale of meals at home.
In addition, Bright granted a loan to this company amounting to Euro 99,999, recorded under 'Other non-current assets' (note 12). This loan is remunerated at market interest rates.
The assessment existence or not of impairments for the investments described above is made through comparisons with the share of the value of equity owned by the group and with sales and EBITDA multiples of companies in the same industry.
Deferred tax assets on 31 December 2017 and 2016, amounted to Euro 7,324,057 and Euro 9,314,972 respectively, and arose, mainly, from tax losses carried forward, from tax benefits, from differences between the accounting and tax amount of some fixed assets and from others temporary differences.
The balance of deferred tax assets by nature at 31 December 2017 and 2016 is as follows:
| 2017 | 2016 | |
|---|---|---|
| Tax losses | 4,172,738 | 5,909,936 |
| Temporary differences (provisions not accepted for tax purposes and other temporary diferences) | 2,379,824 | 2,899,182 |
| Tax Benefits | 771,496 | 505,853 |
| 7,324,057 | 9,314,971 |
The movements in deferred tax assets in the years ended on 31 December 2017 and 2016 were as follows:
| 2017 | 2016 | |
|---|---|---|
| Opening balance | 9,314,972 | 6,098,375 |
| Impact on results: | ||
| Record of deferred tax assets related to tax losses of the year | 107,764 | 2,059,781 |
| Record/(reverse) of deferred tax assets related to tax losses from previous years | (522,649) | 250,630 |
| Record/(reverse)/use of tax benefits | 280,998 | (578,032) |
| Record/(reverse) of tax provisions not accepted and other temporary differences of the year | (228,253) | 901,812 |
| Record/(reverse) of temporary differences from previous years | (99,285) | 488,802 |
| Tax rate change effect | (933,955) | - |
| (1,395,380) | 3,122,993 | |
| Impact on reserves: | ||
| Exchange variations | (595,535) | 93,604 |
| (1,990,915) | 3,216,597 | |
| Closing balance | 7,324,057 | 9,314,972 |
On 31 December 2017 and 2016, assessments of the deferred tax assets to be recovered and recognised were made. Potential deferred tax assets were recorded to the extent that future taxable profits were expected to be generated against which the tax losses and deductible tax differences could be used. These assessments were made based on the most recent business plans duly approved by the Board of Directors of the Group companies, which are periodically reviewed and updated. The main criteria used in those business plans are described in note 7.
On 31 December 2017, the caption tax benefits item includes mainly amounts related to the incentive associated with the Conventional Remuneration of Capital in the amount of Euro 315,000 and SIFIDE in the amount of Euro 345,030. The 'tax rate change effect' caption refers to the impact of the change of the tax rate in United States from 39% in 2016 to 28.5% in 2017.
The rate used on 31 December 2017 and 2016, in Portuguese companies, to calculate the deferred tax assets relating to tax losses carried forward was 21%. The rate used in 2017 and 2016 to calculate the temporary differences in Portuguese companies, including provisions not accepted and impairment losses, was 22.5%. It wasn't considered the state surcharge, as it was understood to be unlikely the taxation of temporary differences during the estimated period when the referred rate will be applicable. Tax benefits, related to deductions from taxable income, are considered at 100%, and in some cases, their full acceptance is dependent on the approval of the authorities that concede such tax benefits. For foreign companies was used the rate in force in each country: Brazil 34%, Mexico 30%, USA 28.5%, Spain 25%, Egypt 22.5%.
In accordance with the tax returns and other information prepared by the companies that have registered deferred tax assets, the detail of such deferred tax assets, by nature, on 31 December 2017 was as follows:
| 2017 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nature | Companies included in the tax group* |
Digitmarket | S21Sec Portugal |
Inovretail | We Do Brasil | We Do USA | We Do Egipto | SSI Espanã We Do Mexico | S21 Sec Gestion |
S21 Sec Labs | S21 Sec SA CV |
Total | Total Sonaecom Group |
|
| Tax losses: | ||||||||||||||
| To be used until 2018 | 125,646 | - | - | - | - | - | - | - | - | - | - | - | - | 125,646 |
| To be used until 2021 | - | - | - | - | - | - | - | - | 26,499 | - | - | - | 26,499 | 26,499 |
| To be used until 2022 | - | - | - | - | - | - | - | - | 26,517 | - | - | - | 26,517 | 26,517 |
| To be used until 2023 | - | - | - | - | - | - | - | - | 183,770 | - | - | - | 183,770 | 183,770 |
| To be used until 2025 | - | - | - | - | - | - | - | - | 71,135 | - | - | - | 71,135 | 71,135 |
| To be used until 2026 | - | - | - | - | - | - | - | - | 334,525 | - | - | - | 334,525 | 334,525 |
| To be used until 2027 | - | - | - | - | - | - | - | - | 107,764 | - | 45,833 | - | 153,597 | 153,597 |
| To be used until 2028 | - | - | - | - | - | - | - | - | - | 612,877 | 12,017 | - | 624,894 | 624,894 |
| To be used until 2029 | - | - | - | - | - | - | - | - | - | 253,352 | - | - | 253,352 | 253,352 |
| To be used until 2030 | - | - | - | - | - | 125,598 | - | - | - | - | 54,052 | - | 179,650 | 179,650 |
| To be used until 2033 | - | - | - | - | - | 96,635 | - | - | - | - | - | - | 96,635 | 96,635 |
| To be used until 2034 | - | - | - | - | - | 532,766 | - | - | - | - | - | - | 532,766 | 532,766 |
| To be used until 2035 | - | - | - | - | - | 649,416 | - | - | - | - | - | - | 649,416 | 649,416 |
| To be used until 2036 | - | - | - | - | - | 1,132,816 | - | - | - | - | - | - | 1,132,816 | 1,132,816 |
| Unlimited | - | - | - | - | - | - | - | 185,787 | - | - | - | - | 185,787 | 185,787 |
| Tax losses | 125,646 | - | - | - | - | 2,537,230 | - | 185,787 | 750,210 | 866,229 | 111,902 | - | 4,451,358 | 4,577,004 |
| Tax provisions not accepted and other temporary differences |
1,552,888 | 19,716 | 886 | 422,096 | 270,281 | 15,693 | - | 147,103 | - | - | - | 875,775 | 2,428,663 | |
| Tax benefits | 157,499 | 37,258 | 200,921 | 264,352 | - | 126,216 | - | - | - | - | - | - | 628,747 | 786,246 |
| Others | - | - | - | - | (50,592) | (287,239) | - | - | (130,025) | - | - | - | (467,856) | (467,856) |
| Total | 1,836,033 | 56,974 | 201,807 | 264,352 | 371,504 | 2,646,488 | 15,693 | 185,787 | 767,288 | 866,229 | 111,902 | - | 5,488,024 | 7,324,057 |
On 31 December 2017 and 2016, the Group has other situations where potential deferred tax assets could be recognised, but since it is not expected that sufficient taxable profits will be generated in the future to cover those losses, such deferred tax assets were not recorded:
| 2017 | 2016 | |
|---|---|---|
| Tax losses | 9,007,281 | 6,897,978 |
| Temporary differences (provisions not accepted for tax purposes and other temporary diferences) | 24,370,354 | 27,840,084 |
| Others | 13,319,569 | 12,403,119 |
| 46,697,204 | 47,141,181 |
At 31 December 2017 and 2016, the caption "Temporary differences" includes deferred taxes related to impairment of financial investments that can not be recorded.
On 31 December 2017 and 2016, tax losses for which deferred tax assets were not recognised have the following due dates:
| Due date | 2017 | 2016 |
|---|---|---|
| 2017 | 26,920 | 1,019 |
| 2018 | 129,777 | 78,209 |
| 2019 | 30,186 | 30,468 |
| 2020 | 122,679 | 123,013 |
| 2021 | 212,911 | 89,127 |
| 2022 | 403,723 | 68,615 |
| 2023 | 179,262 | 114,036 |
| 2024 | 78,923 | 58,418 |
| 2025 | 181,933 | 318,078 |
| 2026 | 894,269 | 988,584 |
| 2027 | 405,433 | 339,180 |
| 2028 | 49,973 | 39,603 |
| 2029 | 878,680 | 878,680 |
| 2030 | 50,704 | 74,473 |
| 2031 | - | 120,896 |
| 2037 | 624,918 | - |
| Unlimited | 4,736,990 | 3,575,579 |
| 9,007,281 | 6,897,978 |
The years 2029 and following are applicable to the subsidiaries incorporated in countries in which the reporting period of tax losses is greater than twelve years.
The movement that occurred in deferred tax liabilities in the years ended on 31 december 2017 and 2016 were as follows:
| 2017 | 2016 | |
|---|---|---|
| Opening balance | (8,263,418) | - |
| Temporary differences between accounting and tax result | (1,980,030) | (8,263,418) |
| Sub-total effect on results (note 36) | (1,980,030) | (8,263,418) |
| Closing balance | (10,243,448) | (8,263,418) |
In the year ended at 31 December 2017, deferred tax liabilities arose from the application of the equity method and in the year ended at 31 December 2016 the negative Goodwill related to the participation in the capital stock of Armilar, Armilar II, Armilar III and AVP I+I (notes 8 and 36).
The reconciliation between the earnings before taxes and the taxes recorded for the years ended on 31 December 2017 and 2016 is as follows:
| 2017 | 2016 | |
|---|---|---|
| Earnings before tax | 25,647,028 | 33,883,022 |
| Income tax rate (21%) | (5,385,876) | (7,115,435) |
| Autonomous taxation and surchage | (414,246) | (217,971) |
| Tax provision | (581,439) | 978,851 |
| Accounting adjustments not accepted | 308,744 | 957,093 |
| Temporary differences and tax losses of the year without record of deferred tax assets | (3,465,797) | (218,891) |
| Use of tax losses and tax benefits without record of deferred tax assets in previous years | 946,700 | 30,944 |
| Deffered tax assets of temporary differences of previous years | (99,285) | 488,802 |
| Effect of the existence of different tax rates from those in force in Portugal | 579,192 | 697,049 |
| Effect of the untaxed equity method | 5,650,666 | 3,585,938 |
| Consolidation adjustments | 894,130 | (2,512,575) |
| Deffered tax assets from tax losses of previous years | (522,649) | 250,630 |
| Record/(reverse)/use of deffered tax assets related to tax benefits | 280,998 | (578,032) |
| Impact of companies liquidation | - | 17,547,730 |
| Tax rate change | (933,955) | - |
| Income taxation recorded in the year (note 36) | (2,742,817) | 13,894,133.35 |
In the year ended at 31 December 2017, the caption 'Tax rate change' refers to the impact of the change in the tax rate in the United States of America impacting Wedo USA in 2017.
In addition, in the year ended on 31 December 2016, the caption 'Consolidation adjustments' includes the amount of Euro 1,966,218 related to the 50% of the capital gain generated by the sale of the direct participation of Sonaecom in NOS (2.14%) to Zopt (note 8), an adjustment that does not contribute to the formation of taxable income for the year.
In the year ended on 31 December 2016, the caption 'Impact of companies' liquidation' refers to the tax impact of the liquidation of the subsidiaries SonaecomBV and SonaetelecomBV.
The tax rate used to reconcile the tax expense and the accounting profit is 21% in 2017 and 2016 because it is the standard rate of the corporate income tax in Portugal, country where almost all of the income of Sonaecom group are taxed.
Portuguese Tax Authorities can review the income tax returns of the Company and of its subsidiaries with head office in Portugal for a period of four years (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, in which circumstances, the periods are extended or suspended. The Board of Directors believes that any correction that may arise as a result of such review would not have a significant impact on the accompanying consolidated financial statements.
Supported by the Company's lawyers and Tax consultants, the Board of Directors believes that there are no liabilities not provisioned in the consolidated financial statements, associated to probable tax contingencies that should have been registered or disclosed in the accompanying financial statements, on 31 December 2017.
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Convertible loans | 661,842 | - |
| Others | 3,150,694 | 3,123,287 |
| 3,812,536 | 3,123,287 |
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Raw materials | 229,645 | 227,177 |
| Goods | 43,061 | 93,134 |
| 272,706 | 320,311 | |
| Accumulated impairment losses on inventories (note 23) | (40,000) | (35,000) |
| 232,706 | 285,311 |
The cost of goods sold in the years ended on 31 December 2017 and 2016 amounted to Euro 44,493,096 and Euro 32,429,804 respectively and was determined as follows:
| 2017 | 2016 | |
|---|---|---|
| Opening inventories | 320,311 | 433,911 |
| Purchases | 44,506,119 | 32,258,218 |
| Increase of accumulated impairment losses on inventories (note 23) | 5,000 | - |
| Inventory adjustments | (65,628) | 57,986 |
| Closing inventories | (272,706) | (320,311) |
| 44,493,096 | 32,429,804 |
The accumulated impairment losses on inventories reflect the difference between the acquisition cost and market net realisable value of the inventory, as well as the estimate of impairment losses due to low stock turnover, obsolescence and deterioration. The accumulated impairment losses are registered in the caption 'Cost of sales' (note 1.i).
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Trade debtors: | ||
| Information Systems | 44,305,755 | 41,843,682 |
| Multimedia and others | 2,865,092 | 5,299,810 |
| 47,170,847 | 47,143,492 | |
| Doubtful debtors | 4,156,097 | 2,713,099 |
| 51,326,944 | 49,856,591 | |
| Impairment losses in accounts receivable (note 23) | ||
| Information Systems | (2,515,339) | (1,879,612) |
| Media and others | (1,640,758) | (833,487) |
| (4,156,097) | (2,713,099) | |
| 47,170,847 | 47,143,492 | |
Trade debtors by age on 31 December 2017 and 2016 were as follows:
| Due without impairment | Due with impairment | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| From 30 to 90 | More than 90 | From 90 to 180 | From 180 to 360 | More than 360 | |||||
| Total | Not due | Until 30 days | days | days | Until 90 days | days | days | days | |
| 2017 | |||||||||
| Trade debtors | 51,326,944 | 26,977,878 | 6,253,658 | 3,223,516 | 10,715,795 | 10,699 | 38,502 | 441,360 | 3,665,536 |
| 2016 | |||||||||
| Trade debtors | 49,856,591 | 27,148,577 | 5,629,412 | 4,688,396 | 9,677,107 | - | - | 56,867 | 2,656,232 |
On 31 December 2017 and 2016, where applicable, of the total amount of accounts receivable impaired are net of VAT, that the Group expects and makes efforts to recover.
Credit risk monitoring, which is performed on a continuous basis, can be resumed as follows:
(i) In the case of regular customers, impairment adjustment is calculated by applying an uncollectibility percentage based on historical data regarding collections, to the accounts receivables overdue.
(ii) In the case of the remaining accounts receivable, impairment adjustments are determined on a stand-alone basis, based on the age of the receivables, net of the amounts payable and the information of the financial situation of the debtor.
The Group's exposure to credit risk is mainly related to accounts receivable arising from its operational activity. The existence of debt matured for more than 90 days without impairment is essentially due to the group's business typology, essentially related to the technologies that also add to the geographic dispersion of performance and the size of the clients. Notwithstanding some extension of the receipt periods, the history of losses recorded for non-payment is low. The amounts presented in the statement of financial position are net of accumulated impairment losses for doubtful collections that were estimated by the group, according to an analysis based on their experience and on the assessment of the economic environment and surroundings. It was concluded that although the amounts were in debt for more than 90 days, there was no expectation of losses in these amounts. The Board of Directors believes that the book value of the accounts receivable does not differ significantly from its fair value.
On 31 December 2017 and 2016, the caption 'Other current debtors' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| State and other public entities | 868,294 | 603,350 |
| Advances to suppliers | 347,309 | 294,812 |
| Other debtors | 1,857,929 | 19,864,753 |
| Accumulated impairment losses in accounts receivable (note 23) | (131,419) | (130,356) |
| 2,942,113 | 20,632,559 |
On 31 December 2016, the caption "Other debtors" includes the amount of Euro 17,285,277 to be received from Sonae SGPS, in relation to income tax rate from companies that include in the special regime for the taxation of groups of companies, whose this company is leader. The amount receivable for 2016 is associated to the tax effect of Sonaecom BV and SonaetelecomBV liquidation's ( Euro 17,547,730).
On 31 December 2017 and 2016 the caption 'State and other public entities' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Value-added tax | 369,331 | 410,953 |
| Cocial security contributions | 1,211 | 2,686 |
| Withheld Taxes ( IRRF, INSS ans several contributions) | 134,286 | 127,492 |
| Taxes on invoicing (ISS/PIS/COFINS) | 13,466 | - |
| Other taxes | 350,000 | 62,219 |
| 868,294 | 603,350 |
Other debtors and advances to suppliers by age on 31 December 2017 and 2016 are as follows:
| Due without impairment | Due with impairment | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Total | Not due | Until 30 days | From 30 to 90 days |
More than 90 days |
Until 90 days | From 90 to 180 days |
From 180 to 360 days |
More than 360 days |
|
| 2017 Advances to suppliers |
347,309 | 21,788 | 37,133 | 95,136 | 193,252 | - | - | - | - |
| Other debtors | 1,857,929 | 611,737 | 31,301 | 191,233 | 892,239 | - | - | - | 131,419 |
| 2,205,238 | 633,525 | 68,434 | 286,369 | 1,085,491 | - | - | - | 131,419 | |
| 2016 | |||||||||
| Advances to suppliers | 294,812 | 65,011 | 60,416 | 94,106 | 75,279 | - | - | - | - |
| Other debtors | 19,864,753 | 17,356,117 | 411,917 | 95,298 | 1,672,556 | - | - | 256,454 | 72,411 |
| 20,159,565 | 17,421,128 | 472,333 | 189,404 | 1,747,835 | - | - | 256,454 | 72,411 |
The amounts due and without impairment correspond, mostly, to debts with companies of the Sonae group and with other entities, for which there is no credit risk.
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Invoices to be issued to clients for services rendered (note 30) | 7,125,522 | 8,053,359 |
| Specialised work paid in advance | 1,367,695 | 1,051,771 |
| Other costs paid in advance | 433,365 | 470,934 |
| Prepaid rents | 237,250 | 238,460 |
| Other accrued income | 418,269 | 297,120 |
| Other current assets | 396,862 | 163,249 |
| Rappel discounts | 6,173 | 6,173 |
| 9,985,136 | 10,281,066 |
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Cash in hand | 23,565 | 22,336 |
| Bank deposits repayable on demand | 131,452,333 | 87,131,132 |
| Treasury applications | 70,549,790 | 123,102,870 |
| Cash and cash equivalents | 202,025,688 | 210,256,338 |
| Bank overdrafts (note 21) | (309) | (653) |
| 202,025,379 | 210,255,685 |
In years ended on 31 December 2017 and 2016, Sonaecom entered into financial transaction contracts with Sonae, SGPS of which obtained the financial income referred to in Note 37. On 31 December 2017 and 2016, the caption "Treasury Applications" matched only bank applications.
The above mentioned applications were paid and, during the year ended on 31 December 2017, the interest tax rate in force was 0.29% (0.664% in 2016) being, in the referred date, distributed by two financial institutions.
On 31 December 2017 the reconciliation of liabilities whose flows affect financing activities is as follows:
| Non-cash changes | |||||||
|---|---|---|---|---|---|---|---|
| Conversion of loans | |||||||
| in supplementary | Foreing exchange | Financial | |||||
| 31.12.2016 | Cash Flows | capital | movement | actualization | Others | 31.12.2017 | |
| Long-term borrowing (note 21) | 3,756,781 | (1,245,320) | (260,200) | - | 136,502 | 1,975 | 2,389,738 |
| Short-term borrowing (note 21) | 1,202,324 | (31,316) | - | - | 1,173 | 31,458 | 1,203,639 |
| Lease liabilities | 1,029,317 | (514,353) | - | - | - | - | 514,964 |
| Total liabilities from financiag activities | 5,988,422 | (1,790,989) | (260,200) | - | 137,675 | 33,433 | 4,108,341 |
On 31 December 2017 and 2016, the share capital of Sonaecom was comprised by 311,340,037 ordinary registered shares, of Euro 0.74 each.
At those dates, the Shareholder structure was as follows:
| 2017 | 2016 | |||
|---|---|---|---|---|
| Number of shares | % | Number of shares | % | |
| Sontel BV | 194,063,119 | 62.33% | 194,063,119 | 62.33% |
| Sonae SGPS | 81,022,964 | 26.02% | 81,022,964 | 26.02% |
| Shares traded on the Portuguese Stock Exchange ('Free Float') | 30,682,940 | 9.86% | 30,682,940 | 9.86% |
| Own shares (note 19) | 5,571,014 | 1.79% | 5,571,014 | 1.79% |
| 311,340,037 | 100.00% | 311,340,037 | 100.00% |
All shares that comprise the share capital of Sonaecom, are authorized, subscribed and paid. All shares have the same rights and each share corresponds to one vote.
During the year ended on 31 December 2017, Sonaecom did not acquire, sold or delivered own actions, whereby the amount held to date, is of 5,571,014 own shares representing 1.79% of its share capital, at an average price of Euro 1.380.
Non-controlling interests on 31 December 2017 and 2016 are made up as follows:
| 2017 | Movement during the year | ||||||
|---|---|---|---|---|---|---|---|
| % held | Shareholders' funds | Net Result | Book value of uncontrolled interests 2016 |
Proportion of attributable result |
Others | Book value of uncontrolled interests 2017 |
|
| Digitmarket | 24.90% | 3,583,924 | 692,853 | 177,916 | 172,520 | (79,680) | 270,756 |
| Saphety Colômbia | 13.01% | 182,005 | (281,130) | (82,679) | (33,532) | 41,401 | (74,810) |
| Saphety | 13.01% | 4,176,537 | (189,200) | 343,999 | 24,045 | 229,511 | 597,555 |
| Saphety Brasil | 13.02% | (852,612) | (333,922) | (90,408) | (24,505) | (3,754) | (118,667) |
| Tecnológica | 0.102% | 117,928 | 11,524 | (2,479) | (15) | (10) | (2,504) |
| Wedo Brasil | 0.09% | 4,158,762 | 667,713 | 6,172 | 627 | (690) | 6,109 |
| Bright Vector I | 49.87% | 1,898,205 | (1,795) | - | (895) | 947,500 | 946,605 |
| Others | (507,575) | - | 507,575 | - | |||
| (155,054) | 138,245 | 1,641,853 | 1,625,044 |
| 2016 | Movement during the year | |||||||
|---|---|---|---|---|---|---|---|---|
| Book value of uncontrolled |
Proportion of | Book value of uncontrolled |
||||||
| % held | Shareholders' funds | Net Result | interests 2015 | attributable result | Others | interests 2016 | ||
| Digitmarket | 24.90% | 3,211,072 | 307,807 | 447,035 | 76,712 | (345,831) | 177,916 | |
| Saphety Colômbia | 13.01% | 250,689 | (137,034) | (55,467) | (20,411) | (6,801) | (82,679) | |
| Saphety | 13.01% | 2,178,838 | 682,240 | (5,323) | 113,255 | 236,067 | 343,999 | |
| Saphety Brasil | 13.02% | (637,682) | (78,774) | (64,410) | (28,270) | 2,272 | (90,408) | |
| S21 Sec Brasil | 0% | (507,279) | 70,114 | (65,308) | 8,391 | 65,308 | 8,391 | |
| S21 Sec Labs | 0% | 378,133 | (411,697) | (293,422) | (293) | 293,422 | (293) | |
| S21 Sec Gestion (Note 3.c)) | 0% | 1,542,114 | (4,004,718) | (1,639,672) | (539,538) | 1,628,473 | (550,737) | |
| Tecnológica | 0.102% | 148,639 | 10,435 | (2,489) | (7) | 17 | (2,479) | |
| Wedo Brasil | 0.09% | 4,116,891 | 750,365 | 4,598 | 711 | 863 | 6,172 | |
| Sec S. A. de CV | 0% | (1,776,428) | 348,353 | 6,413 | 55,288 | (6,413) | 55,288 | |
| Sec Mexico | 0% | (2,222) | (257) | 2,222 | (257) | |||
| Ciberseguridad | 0% | (36,180) | (19,967) | 36,180 | (19,967) | |||
| (1,706,447) | (354,386) | 1,905,779 | (155,054) |
In the year ended at 31 December 2017, the amount reflected in the 'Othera' column of the Bright Vector Fund is related to the investment in capital and quasi-equity funds (FC & QC) in the amount of Euro 947,500 (note 3.a).
In April 2016, the company S21 Sec Gestion carried out a capital reduction to cover losses, immediately followed by an increase in the share capital fully subscribed and paid by Sonaecom CSI, which to holds 100% of the share capital of its subsidiary. On 31 December 2016, there are no minority interests in S21Sec Gestión and, therefore, in all its subsidiaries (S21 Sec Brasil, S21 Sec Labs, Sec SA de CV, Sec Mexico and Ciberseguridad), movement reflected in the "Others".
On 31 December 2017 and 2016, the caption loans had the following breakdown:
| Amount outstanding | |||||
|---|---|---|---|---|---|
| Type of | |||||
| Company | Issue denomination | Maturity | reimbursement | 2017 | 2016 |
| S21 Sec Labs | Reimbursable grants | Jun-24 | Parcel | 1,071,729 | 1,482,164 |
| S21 Sec Gestion | Reimbursable grants | Jun-25 | Parcel | 1,161,033 | 1,859,416 |
| Saphety | Minority Shareholder loans | - | - | 152,122 | 412,322 |
| Interests incurred but not yet due | - | - | 4,854 | 2,879 | |
| 2,389,738 | 3,756,781 |
| Amount outstanding |
|||||
|---|---|---|---|---|---|
| Type of | |||||
| Company | Issue denomination | Maturity | reimbursement | 2017 | 2016 |
| S21 Sec Labs | Reimbursable grants | Nov-18 | Parcel | 456,029 | 445,129 |
| S21 Sec Gestion | Reimbursable grants | Oct-18 | Parcel | 715,499 | 756,542 |
| Several | Bank overdrafts (note 17) | - | - | 309 | 653 |
| Several | Interests incurred but not yet due | - | - | 31,802 | 38,783 |
| 1,203,639 | 1,241,107 |
On 31 December 2017 the Group had grants obtained from dependent entities of the Government of Navarra, CDTI and 'Ministerio de Ciencia y Tecnología'. These subsidies are recorded at amortized cost in accordance with the method of effective interest rate and have the following repayment plan:
| 2017 | |
|---|---|
| 2018 | 1,171,528 |
| 2019 | 806,221 |
| 2020 | 631,015 |
| 2021 | 366,104 |
| 2022 and follows | 429,422 |
| 3,404,290 |
These subsidies bear interest at rates between 0% and 4%.
Given the nature of debts, there are no financial covenants.
Sonaecom has also a short term bank credit line, in the form of current or overdraft account commitment, in the amount of Euro 1 million.
All these bank credit lines of short-term portion bear interest at market rates, indexed to the Euribor for the respective term, and were all contracted in Euro.
On 31 December 2017 and 2016, the available bank credit lines of the Group were as follows:
| Maturity | ||||||
|---|---|---|---|---|---|---|
| Amount | More than 12 | |||||
| Company | Credit | Limit | outstanding | Amount available | Until 12 months | months |
| 2017 | ||||||
| Sonaecom | Authorised overdrafts | 1,000,000 | - | 1,000,000 | x | |
| 1,000,000 | - | 1,000,000 | ||||
| 2016 | ||||||
| Sonaecom | Authorised overdrafts | 1,000,000 | - | 1,000,000 | x | |
| 1,000,000 | - | 1,000,000 |
On 31 December 2017 and 2016, there is no interest rate hedging instruments therefore the total gross debit is exposed to changes in market interest rates.
Based on the debt exposed to variable rates at the end of 2017, including the debt on finance lease, and considering the applications and bank balances at the same date, if market interest rates has rised (fallen), in average, 25bp during the year 2017, the interest paid that year would be decreased (increased) in an amount of approximately Euro 166,000 (Euro 293,000 in 2016).
On 31 December 2017 and 2016, this caption was made up of accounts payable to tangible and intangible assets suppliers related to lease contracts which are due in more than one year in the amount of Euro 173,478 and Euro 509,530, respectively.
On 31 December 2017 and 2016, the payment of these amounts was due as follows:
| 2017 | 2016 | ||
|---|---|---|---|
| Present value of | Present value of | ||
| Lease payments | lease payments | Lease payments | lease payments |
| - | - | 559,443 | 519,787 |
| 358,863 | 343,878 | 368,598 | 358,045 |
| 160,472 | 156,932 | 154,223 | 151,485 |
| 11,609 | 11,178 | - | - |
| 3,002 | 2,969 | - | - |
| 533,946 | 514,957 | 1,082,264 | 1,029,317 |
| (18,989) | - | (52,946) | - |
| 514,957 | 514,957 | 1,029,318 | 1,029,317 |
| - | (341,479) | - | (519,787) |
| 514,957 | 173,478 | 1,029,318 | 509,530 |
The movements in provisions and in accumulated impairment losses in the years ended on 31 December 2017 and 2016 were as follows:
| Opening balance | Companies included in the consolidation perimeter (note 3.c) |
Increases | Decreases | Utilisations and Transfers |
Closing balance | |
|---|---|---|---|---|---|---|
| 2017 | ||||||
| Accumulated impairment losses on trade debtors (note 14) | 2,713,099 | - | 1,826,955 | (177,019) | (206,938) | 4,156,097 |
| Accumulated impairment losses on other current debtors (note 15) | 130,356 | - | 1,063 | - | - | 131,419 |
| Accumulated impairment losses on inventories (note 13) | 35,000 | - | 5,000 | - | - | 40,000 |
| Provisions for other liabilities and charges | 4,919,669 | - | 923,126 | (1,544,283) | (695,367) | 3,603,145 |
| 7,798,124 | - | 2,756,144 | (1,721,302) | (902,305) | 7,930,661 | |
| 2016 | ||||||
| Accumulated impairment losses on trade debtors (note 14) | 2,625,442 | 40,456 | 322,185 | (45,420) | (229,564) | 2,713,099 |
| Accumulated impairment losses on other current debtors (note 15) | 94,422 | - | 44,042 | - | (8,108) | 130,356 |
| Accumulated impairment losses on inventories (note 13) | 35,000 | - | - | - | - | 35,000 |
| Provisions for other liabilities and charges | 4,292,553 | - | 2,989,014 | (494,297) | (1,867,601) | 4,919,669 |
| 7,047,417 | 40,456 | 3,355,241 | (539,717) | (2,105,273) | 7,798,124 |
Reinforcements and reductions values of the accumulated impairment losses on receivable accounts and provisions for liabilities and charges, on 31 December 2017 and 2016, are detailed as follows:
| 2017 | 2016 | |||
|---|---|---|---|---|
| Accumulated impairment losses on accounts receivables | Increases | Decreases | Increases | Decreases |
| Registed in the line 'Provisions and accumulated impairment losses' (increases) and in 'Other operating costs' (decreases) |
1,828,018 | (177,019) | 322,185 | (45,420) |
| Total increases/(decreases) of accumulated impairment losses on accounts receivables | 1,828,018 | (177,019) | 322,185 | (45,420) |
| Provisions for other liabilities and charges | Increases | Decreases | Increases | Decreases |
| Recorded in the income statement, under the caption 'Income Tax ' (note 36) | 427,922 | (1,009,361) | 1,192,744 | (213,893) |
| Recorded in balance sheet, under the caption Taxes (note 15) | - | (31,744) | 523,548 | - |
| Recorded in 'Fixed Assets' regard to the provision for dismantling and abandonment of offices net value recorded in 'Other financial expenses' related to the financial actualization of the provision for dismantling as foreseen in IAS 16 - 'Fixed Assets' (note 1.c) |
1,525 | - | 1,753 | - |
| Recorded in the income statement in 'Gains and losses of associates and jointly controlled entities' related to the registration of the provision resulting from the application of the equity method (note 8) |
- | (25,551) | 10,568 | (37,102) |
| Recorded in the income statement 'Staff expenses' related to the provisions for redundancy paments | 344,163 | (165,533) | 739,755 | (206,502) |
| Other increses and decreases - recorded in 'Provisions and impairment losses' (increases) and in 'Other operating costs' (decreases) |
149,516 | (312,094) | 520,646 | (36,800) |
| Total increases/(decreases) of provisions for other liabilities and charges | 923,126 | (1,544,283) | 2,989,014 | (494,297) |
| Total recorded in the income statement in 'Provisions and impairment losses' (increases) and in 'Other operating revenue' (decreases) (note 31) |
1,977,534 | (489,113) | 842,831 | (82,220) |
On 31 December 2017 and 2016, the breakdown of the provisions for other liabilities and charges is as follows:
| 2017 | 2016 | |
|---|---|---|
| Several contingencies | 2,591,315 | 3,270,741 |
| Legal processes in progress | 86,870 | 137,350 |
| Dismantling | 53,468 | 51,944 |
| Other responsibilities | 871,492 | 1,459,634 |
| 3,603,145 | 4,919,669 |
On 31 December 2017 and 2016, the value of provisions for the dismantling is recorded at its present value, accordingly with the dates of its utilization in accordance with IAS 37 – 'Provisions, Contingent Liabilities and Contingent Assets'.
The heading 'Several contingencies' relates to contingent liabilities arising from transactions carried out in previous years and for which an outflow of funds is probable.
In relation to the provisions recorded for legal processes in progress and other responsabilities, given the uncertainty of such proceedings, the Board of Directors is unable to estimate, with reliability, the moment when such provisions will be used and therefore no financial actualisation was carried out.
In the caption "Other responsabilities" are included provisions for restructuring an amount of Euro 356,010 associated with severance payment (Euro 733,040 in 2016).
On 31 December 2017 and 2016, the caption 'Other non-current liabilities' is as follows:
| 2017 | 2016 | |
|---|---|---|
| Medium Term Incentive Plan (note 41) | 1,217,487 | 1,120,207 |
| Others | 875,582 | 1,162,090 |
| 2,093,069 | 2,282,297 |
The "Others" caption includes the medium and long-term phased price payable by Inovretail and Sysvalue in the amount of Euro 608,103 and Euro 228,822, respectively, which was measured using the amortized cost method (note 3.c ).
On 31 December 2017 and 2016, this caption had the following composition and maturity plans:
| Total | Till 90 days | From 90 to 180 days | More than 180 days | |
|---|---|---|---|---|
| 2017 | ||||
| Suppliers – current account | 13,914,618 | 13,914,618 | - | - |
| Intangible and tangible assets suppliers | 143,184 | 143,184 | - | - |
| Suppliers – invoices pending approval | 1,961,395 | 1,961,395 | - | - |
| 16,019,197 | 16,019,197 | - | - | |
| 2016 | ||||
| Suppliers – current account | 12,626,016 | 12,626,016 | - | - |
| Intangible and tangible assets suppliers | 387,471 | 387,471 | - | - |
| Suppliers – invoices pending approval | 2,602,267 | 2,602,267 | - | - |
| 15,615,754 | 15,615,754 | - | - |
On 31 December 2017 and 2016, this caption included balances payable to suppliers resulting from the Group's operations and the acquisition of intangible and tangible assets. The Board of Directors believes that the difference between the fair value of these balances and its book value is not significant.
On 31 December 2017, this heading "Other finantial liabilities" includes the amount of Euro 341,479 (Euro 519,787 in 2016) related to the short term portion of lease contracts (note 22).
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| State and other public entities | 4,236,810 | 3,846,142 |
| Other creditors | 1,057,086 | 687,165 |
| 5,293,896 | 4,533,307 |
The liability to other creditors matures as follows:
| Total | Till 90 days | From 90 to 180 days | More than 180 days | |
|---|---|---|---|---|
| 2017 | ||||
| Other creditors | 1,057,086 | 1,057,086 | - | - |
| 2016 | ||||
| Other creditors | 687,165 | 687,165 | – | – |
At 31 December 2017, the caption 'other creditors' consisted of advances of customers amounting to Euro 483,285 (Euro 13,278 in 2016) and other liabilities of Euro 543,370 (Euro 673,887 in 2016).
The liability to other creditors does not incorporate any interest. The Board of Directors believes that the difference between the fair value of these balances and its book value is not significant.
On 31 December 2017 and 2016, the caption 'State and other public entities' can be detailed as follow:
| 2017 | 2016 | |
|---|---|---|
| Value-added tax | 2,486,816 | 2,152,158 |
| Social security contributions | 952,743 | 890,782 |
| Personal Income Tax (IRS) | 658,037 | 676,692 |
| Withheld Taxes ( IRRF, INSS ans several contributions) | 104,657 | 72,542 |
| Other taxes | 34,557 | 53,968 |
| 4,236,810 | 3,846,142 |
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Special account payment | 1,625,208 | 1,600,139 |
| Payments on account | 246,470 | 213,116 |
| Corporate income tax | 1,444,240 | 1,242,372 |
| 3,315,918 | 3,055,627 |
On 31 December 2017 and 2016, this caption was only constituted by corporate income tax of Euro 112,690 and Euro 170,502, respectively.
On 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Costs: | ||
| Personnel costs | 11,572,976 | 10,110,785 |
| Medium Term Incentive Plans (note 41) | 1,503,459 | 1,245,853 |
| Specialised works | 1,416,144 | 1,173,578 |
| Other costs | 1,164,771 | 700,531 |
| Advertising and promotion | 637,381 | 453,671 |
| Tangible and intangible assets | 338,750 | 144,320 |
| Rents | 110,649 | 133,189 |
| Rappel discounts (annual quantity discounts) | 130,137 | 113,155 |
| Other external suppliers and services | 2,962,550 | 2,650,613 |
| 19,836,817 | 16,725,695 | |
| Deferred income: | ||
| Customer advance payments related projects in progress (note 30) | 9,408,561 | 9,345,096 |
| Other customer advance payments | 1,680,686 | 2,143,827 |
| Other deferred income | 1,331,489 | 1,303,894 |
| 12,420,736 | 12,792,817 | |
| 32,257,553 | 29,518,512 |
On 31 December 2017 and 2016, the caption 'Sales and services rendered' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Technologies | 125,046,765 | 116,086,895 |
| Media and others | 14,512,797 | 14,445,877 |
| 139,559,562 | 130,532,772 |
The results related to projects carried out by the area of technologies are recognized based on the percentage of completion of the same.
On 31 December 2017 and 2016, projects in progress can be summarized as follows:
| 2017 | 2016 | |
|---|---|---|
| Number of projects in progress | 1,537 | 1172 |
| Total costs recognised in the year | 44,808,312 | 42,388,920 |
| Total revenues recognised in the year | 83,620,660 | 78,920,956 |
| Total deferred revenues (note 29) | 9,408,561 | 9,345,096 |
| Total accrued revenues (note 16) | 7,125,522 | 8,053,359 |
Bank guarantees were provided for "Good execution of work to be performed" (note 38).
On 31 December 2017 and 2016, the caption 'Other operating revenues' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Supplementary income | 792,872 | 522,753 |
| Reversal of provisions (note 23) | 489,113 | 82,220 |
| Allowances | 670,607 | 68,595 |
| Others | 708,797 | 838,426 |
| 2,661,389 | 1,511,994 |
The change in 'Allowances' relates mainly to the projects of the subsidiary Público financed by Google in the amount of Euro 428,474.
'External supplies and services' for the years ended on 31 December 2017 and 2016 had the following composition:
| 2017 | 2016 | |
|---|---|---|
| Subcontracts | 12,764,997 | 20,308,320 |
| Specialised works | 5,911,853 | 6,237,938 |
| Rents | 5,330,246 | 5,235,610 |
| Travelling costs | 4,331,560 | 4,687,650 |
| Advertising and promotion | 3,974,890 | 3,799,481 |
| Fees | 1,214,199 | 1,238,772 |
| Communications | 1,188,968 | 1,158,313 |
| Fuel | 443,183 | 429,825 |
| Energy | 398,250 | 405,130 |
| Maintenance and repairs | 331,871 | 206,603 |
| Commissions | 370,890 | 294,363 |
| Security | 143,614 | 136,004 |
| Others | 1,120,183 | 1,422,443 |
| 37,524,704 | 45,560,452 |
The changes in "subcontracts" are mainly due to reclassifications between the cost of goods sold (note 13) and subcontracts.
At 31 December 2017, "Specialised works" includes approximately Euro 1.3 million in consulting services (Euro 1.9 million in 2016) and Euro 1.2 million in computer services (Euro 880 thousand in 2016).
The commitments assumed by the Group on 31 December 2017 and 2016 related to operational leases are as follows:
| 2017 | 2016 | |
|---|---|---|
| Minimum payments of operational lease: | ||
| 2017 | 3,573,295 | 3,649,239 |
| 2018 | 2,017,365 | 2,799,418 |
| 2019 | 1,247,822 | 1,301,194 |
| 2020 | 657,740 | 696,518 |
| 2021 onwards | 255,317 | 350,567 |
| Renewable by periods of one year | 950,982 | 872,825 |
| 8,702,521 | 9,669,761 | |
During the years ended on 31 December 2017, an amount of Euro 4,910,476 (Euro 4,985,961 on 31 December 2016) was recorded in the caption 'External supplies and services' related with operational leasing rents, recorded in 'Rents'. The operating leases essentially relate to vehicles, rental of buildings and equipment rentals.
On 31 December 2017 and 2016, the caption 'Other operating costs' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Taxes | 254,053 | 209,159 |
| Others | 376,585 | 607,875 |
| 630,638 | 817,034 |
Net financial results for the years ended on 31 December 2017 and 2016 were made up as follows ((costs) / gains):
| 2017 | 2016 | |
|---|---|---|
| Financial expenses: | ||
| Interest expenses: | ||
| Bank loans | (1,245) | (49,154) |
| Leasing | (33,559) | (53,357) |
| Other interests | (152,948) | (269,401) |
| Foreign exchange losses | (5,030,286) | (3,722,161) |
| Other financial expenses | (447,096) | (393,236) |
| (5,665,134) | (4,487,309) | |
| Financial income: | ||
| Interest income | 543,651 | 1,288,056 |
| Foreign exchange gains | 4,049,611 | 2,331,145 |
| Others financial gains | 30,942 | 115,362 |
| 4,624,204 | 3,734,563 |
During the years ended on 31 December 2017 and 2016, the caption 'Financial income: Interest income' includes, mainly, interests earned on treasury applications (note 17 and 37).
Gains and losses on investments for the years ended on 31 December 2017 and 2016 are as follows ((expenses) / revenues):
| 2017 | 2016 | |
|---|---|---|
| Financial results of associates and jointly controlled companies: | ||
| Gains and losses related with the aplication of the equity method (note 8) | 35,779,065 | 17,124,008 |
| Gains on acquisitions of associates companies (note 8) | - | 36,726,301 |
| 35,779,065 | 53,850,309 | |
| Gains and losses on financial assets at fair value through profit or loss | ||
| Gains and losses on financial assets at fair value through profit or loss (note 9) | - | (15,679,640) |
| Gains on disposal of financial assets at fair value through profit or loss (note 8) | - | 9,362,943 |
| Dividends obtained | - | 1,762,163 |
| - | (4,554,534) |
During the period on 31 December 2016 the caption "Gains on disposal of financial assets at fair value through profit or loss" includes the gain generated from the sale of the NOS shares (Euro 9,362,943) as described in note 8 "Investments in associated companies and companies jointly controlled".
Income taxes recognised during the years ended on 31 December 2017 and 2016 were made up as follows ((costs) / gains):
| 2017 | 2016 | |
|---|---|---|
| Current tax | 1,214,032 | 18,055,707 |
| Tax provision net of reduction (note 23) | (581,439) | 978,851 |
| Deferred tax assets (note 11) | (1,395,380) | 3,122,993 |
| Deferred tax liabilites (note 11) | (1,980,030) | (8,263,418) |
| (2,742,817) | 13,894,133 |
The amount of current tax for the year 2016 is mainly due to the impact of liquidation's subsidiaries (note 11).
During the years ended on 31 December 2017 and 2016, the balances and transactions maintained with related parties were mainly associated with the normal operational activity of the Group and to the concession and obtainment of loans.
The most significant balances and transactions with related parties, which are listed in the appendix to this report, during the years ended on 31 December 2017 and 2016 were as follows:
| Balances at 31 December 2017 | ||||||
|---|---|---|---|---|---|---|
| Accounts receivable | Accounts payable | Other assets | Other liabilities | Treasury applications | Loans Obtained | |
| (note 14 and 15) | (note 25 and 26) | (note 12 and 16) | (note 24 and 29) | (note 17) | (note 21) | |
| Parent company | 337,063 | 116,938 | - | 128,872 | - | - |
| Companies jointly controlled | 393,717 | 556,672 | 11 | (4,276) | 3,700 | - |
| Associated companies | - | - | 2,918,027 | - | - | - |
| Other related parties | 11,077,991 | 657,035 | 499,580 | 5,365,585 | - | 156,916 |
| 11,808,771 | 1,330,645 | 3,417,618 | 5,490,182 | 3,700 | 156,916 |
| Balances at 31 December 2016 | ||||||
|---|---|---|---|---|---|---|
| Accounts receivable | Accounts payable | Other assets | Other liabilities | Treasury applications | Loans Obtained | |
| (note 14 and 15) | (note 25 and 26) | (note 12 and 16) | (note 24 and 29) | (note 17) | (note 21) | |
| Parent company | 18,454,597 | 129,615 | - | 153 | - | - |
| Companies jointly controlled | 1,024,602 | 584,554 | - | 23,250 | 2,200 | - |
| Associated companies | - | - | 2,778,027 | - | - | - |
| Other related parties | 12,397,109 | 527,511 | - | 6,968,089 | - | 412,322 |
| 31,876,308 | 1,241,680 | 2,778,027 | 6,991,492 | 2,200 | 412,322 |
| Transactions at 31 December 2017 | |||||
|---|---|---|---|---|---|
| Sales and services | Supplies and services | Interest and similar | Interest and similar | ||
| rendered | received | income | expense | Supplementary income | |
| (note 30) | (note 32) | (note 34) | (note 34) | (note 31) | |
| Parent company | 21,641 | 100,000 | 490,442 | - | - |
| Companies jointly controlled | 17,220 | 405,517 | 215 | - | 196,985 |
| Other related parties | 32,538,920 | 2,711,067 | - | 14,073 | 184,692 |
| 32,577,781 | 3,216,584 | 490,657 | 14,073 | 381,677 |
| Transactions at 31 December 2016 | |||||
|---|---|---|---|---|---|
| Sales and services | Supplies and services | Interest and similar | Interest and similar | ||
| rendered | received | income | expense | Supplementary income | |
| (note 30) | (note 32) | (note 34) | (note 34) | (note 31) | |
| Parent company | 2,871 | - | 1,192,276 | - | (26) |
| Companies jointly controlled | 15,383 | 493,804 | 6,842 | - | 310,784 |
| Other related parties | 29,998,921 | 2,227,190 | - | 13,337 | 51,317 |
| 30,017,175 | 2,720,994 | 1,199,118 | 13,337 | 362,075 |
During the years ended on 31 December 2017, the company distributed as dividends the amount of Euro 6,238,768 to Sonae SGPS (Euro 4,699,332 on 31 December 2016) and Euro 14,942,860 to Sontel BV (Euro 11,255,661 on 31 December 2016). In 2017 each issued share corresponded to a gross dividend of Euro 0.077 (Euro 0.058 in 2016).
During the year ended at 31 December 2017 and 2016, the company recognized the amount of Euro 16,512,005 and Euro 18,311,947, respectively, referring to dividends of Zopt.
In the year ended at 31 December 2016, the company recognized the amount of Euro 1,762,005 related to NOS dividends (note 8).
During the year ended on 31 December 2016, Sonaecom sold its all direct participation in NOS (2.14%) to Zopt. This transaction generated a capital gain of 18,725,887 being 50% of the capital gain annulled through Reserves and the other 50% registered in Gains and losses on financial assets at fair value through profit or loss (note 9).
The transactions between Group companies were eliminated in consolidation, and therefore are not disclosed in this note.
All the above transactions were made at market prices.
Both income and outcome will be paid in cash and have no guaranties attached.
During the years ended on 31 December 2017 and 2016, no imparity losses have been recognized on the income to be made by other entities.
Remuneration attributed to "key personnel" is disclosed in note 42.
| Company | Beneficiary | Description | 2017 | 2016 |
|---|---|---|---|---|
| Saphety, S21 Sec Gestion; WeDo and WeDo Egypt |
Administrador de Infraestructuras Ferroviarias; Arrow Ecs Internet Security, S.L.; Asiacell Communications; Barcelona Serveis Municipals; Comunidade Intermunicipal do Médio Tejo; CTT Correios de Portugal, S.A.; Digi Tecommunications; Emirates Telecom. Corp.; Empresa de Telecommunicaciones Nuevatel; Etihad Etisalat Company; ETISALAT UAE; Gobierno Vasco; Instituto Nacional de Ciberseguridad de España, SA; Oficina de Control Económico del Departamento de Hacienda y Finanzas; Omani Qatari Telecommunications Company S.A.O.G; Red Nacional de los Ferrocarriles Españoles; Renfe Operadora; REPSOL; Tech Mahindra India; Tunisie Telecom; U Mobile and Zain Jordan |
Completion of work to be done | 503,160 | 1,636,069 |
| Inovretail, S21 Sec Gestion and S21 Sec Labs |
Agencia para o Desenvolvimento e Coesao, I.P.; Centro para Desarrollo Tecnológico Industrial; ICT; Ingenieria de Sistemas para la Defensa de España and Ministerio de Indústria |
Grants | 774,839 | 791,869 |
| Sonaecom and Público | Direção de Contribuições e Impostos and Autoridade Tributária e Aduaneira (Portuguese tax authorities) |
IRC, IS, IVA – Tax assessment | 1,558,985 | 240,622 |
| Several | Others | 547,420 | 665,020 | |
| 3,384,405 | 3,333,580 |
Guarantees provided to third parties on 31 December 2017 and 2016 were as follows:
In addition to these guarantees were set up sureties for the current fiscal processes. The Sonae SGPS consisted of Sonaecom SGPS surety to the amount of Euro 27,546,999 and Sonaecom SGPS consisted of Público for the amount of Euro 564,900.
On 31 December 2017 and 2016, the contingencies for which guarantees and sureties are considered as remote.
On 31 December 2017, the Board of Directors of the Group believes that the decision of the court proceedings and ongoing tax assessments in progress will not have significant impacts on the consolidated financial statements.
During the years ended on 31 December 2017 and 2016 were identified the following business segments:
– Media;
These segments were identified taking into consideration the following criteria/conditions: the fact of being group units that develop activities where we can separately identify revenues and expenses, for which financial information is separately developed and their operating results are regularly reviewed by management and over which decisions are made. For example, decisions about allocation of resources, for having similar products/services and also taking into consideration the quantitative threshold (in accordance with IFRS 8).
The segment 'Holding activities' includes the operations of the Group companies that have as their main activity the management of shareholdings.
Excluding the ones mentioned above, the remaining activities of the Group have been classified as unallocated.
Inter-segment transactions during the years ended on 31 December 2017 and 2016 were eliminated in the consolidation process. All these transactions were made at market prices.
Inter-segment transfers or transactions were entered under the normal commercial terms and conditions that would also be available to unrelated third parties and were mainly related to interest on treasury applications and management fees.
Overall information by business segment on 31 December 2017 and 2016, prepared in accordance with the same accounting policies and measurement criteria adopted in the preparation of the consolidated financial statements, can be summarised as follows:
| Multimedia | Information Systems | Holding Activities | Subtotal | Eliminations and others | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| dec-17 | dec-16 | dec-17 | dec-16 | dec-17 | dec-16 | dec-17 | dec-16 | dec-17 | dec-16 | dec-17 | dec-16 | |
| Revenues: | ||||||||||||
| Sales and services rendered | 14,486,444 | 14,444,550 | 125,929,752 | 116,708,126 | 514,483 | 253,325 | 140,930,679 | 131,406,001 | (1,371,117) | (659,935) | 139,559,562 | 130,532,772 |
| Reversal of provisions | - | - | 433,551 | 82,135 | - | 1,800 | 433,551 | 83,935 | - | - | 433,551 | 83,935 |
| Other operating revenues | 740,735 | 369,920 | 1,372,933 | 914,665 | 92,873 | 118,777 | 2,206,540 | 1,403,362 | 21,297 | (70,807) | 2,227,838 | 1,428,059 |
| Total revenues | 15,227,179 | 14,814,470 | 127,736,236 | 117,704,926 | 607,356 | 373,902 | 143,570,770 | 132,893,298 | (1,349,819) | (730,742) | 142,220,951 | 132,044,766 |
| Depreciation and amortisation | (307,710) | (677,171) | (9,189,558) | (25,224,049) | (10,456) | (13,726) | (9,507,724) | (25,914,946) | 100,653 | (2,645,721) | (9,407,071) | (15,463,247) |
| Provisions and impairment losses | (789,950) | (370,221) | (1,108,196) | (459,985) | (54,888) | (36,505) | (1,953,034) | (866,711) | (24,500) | - | (1,977,534) | (886,873) |
| Net operating income / (loss) for the segment | (3,383,303) | (4,733,105) | (4,523,120) | (20,560,324) | (1,331,331) | (1,286,592) | (9,237,754) | (26,580,021) | 146,647 | (2,331,059) | (9,091,107) | (14,660,007) |
| Interest income | 1,449 | 476 | 38,131 | 44,439 | 1,585,101 | 2,188,901 | 1,624,681 | 2,233,816 | (1,063,325) | (740,306) | 561,356 | 1,288,056 |
| Interest expenses | (138,618) | (265,798) | (1,099,897) | (975,632) | (4,098) | (6,998) | (1,242,613) | (1,248,428) | 1,055,640 | 695,285 | (186,973) | (356,448) |
| Gains and losses on financial assets at fair value through profit or loss |
(57,312) | - | - | - | - | (4,554,534) | (57,312) | (4,554,534) | 57,312 | - | - | (4,554,534) |
| Investment Entities – Applying the Consolidation | 71,372 | 49,054 | 8,473,692 | 36,725,611 | 27,234,001 | 17,075,644 | 35,779,065 | 53,850,309 | - | - | 35,779,065 | 53,850,309 |
| Other financial results | (14,973) | (1,918) | (1,263,451) | (1,671,253) | (158,397) | (7,287,579) | (1,436,821) | (8,960,750) | 21,508 | 6,564,094 | (1,415,313) | (1,684,354) |
| Income taxation | (364,713) | 1,656,092 | (2,301,042) | 2,332,886 | (68,215) | 18,161,790 | (2,733,970) | 22,150,768 | (8,847) | (43,999) | (2,742,817) | 13,894,133 |
| Consolidated net income/(loss) for the period excluding discontinued operations |
(3,886,098) | (3,295,199) | (675,687) | 15,895,727 | 27,257,061 | 24,290,632 | 22,695,276 | 36,891,160 | 208,935 | 4,144,015 | 22,904,211 | 47,777,155 |
| Attributable to: | ||||||||||||
| Shareholders of parent company | (3,886,098) | (3,295,199) | (813,892) | 16,227,370 | 27,257,061 | 24,290,632 | 22,557,071 | 37,222,803 | 208,895 | 4,178,062 | 22,765,966 | 48,131,541 |
| Non-controlling interests | - | - | 138,205 | (331,643) | - | - | 138,205 | (331,643) | 40 | (34,047) | 138,245 | (354,386) |
| Assets: | ||||||||||||
| Tangible and intangible assets and goodwill | 1,276,407 | 276,937 | 62,225,108 | 65,397,974 | 12,078 | 15,620 | 63,513,593 | 65,690,531 | (11,930,075) | (27,236,395) | 51,583,518 | 53,766,837 |
| Inventories | 189,648 | 192,177 | 43,058 | 93,134 | - | - | 232,706 | 285,311 | - | - | 232,706 | 285,311 |
| Investments in associated and jointly controlled | 753,255 | 733,942 | 83,976,494 | 68,475,639 | 688,194,766 | 676,799,210 | 772,924,515 | 746,008,791 | (1,189,148) | 52,944 | 771,735,367 | 746,061,735 |
| Other investments | 47,947 | 90,679 | 5,293,016 | 448,935 | 49,294,593 | 46,241,587 | 54,635,556 | 46,781,201 | (49,154,593) | (46,241,587) | 5,480,963 | 539,614 |
| Other non-current assets | 14,736 | 346,271 | 10,782,727 | 11,980,583 | 130,982,520 | 103,611,830 | 141,779,983 | 115,938,684 | (130,643,390) | (103,500,425) | 11,136,593 | 12,438,259 |
| Other current assets of the segment | 6,651,889 | 6,903,049 | 64,806,908 | 59,228,435 | 192,749,468 | 230,027,029 | 264,208,265 | 296,158,513 | 1,231,437 | (3,708,834) | 265,439,702 | 291,369,082 |
| Liabilities: | - | - | - | |||||||||
| Liabilities of the segment | 8,084,032 | 10,977,387 | 98,331,502 | 92,341,767 | 2,289,567 | 1,373,266 | 108,705,101 | 104,692,420 | (34,973,769) | (24,925,216) | 73,731,332 | 71,330,664 |
| CAPEX | 1,081,328 | 682,286 | 19,393,038 | 44,573,095 | 34,606,880 | 461 | 55,081,246 | 45,255,842 | (34,438,567) | 198,656 | 20,642,679 | 45,454,498 |
During the years ended on 31 December 2017 and 2016, the inter-segments sales and services were as follows:
| Media | Technologies | Holding Activities | |
|---|---|---|---|
| 2017 | |||
| Media | - | 504,163 | - |
| Information Systems | 767 | - | 425,000 |
| Holding Activities | 327 | 7,314 | - |
| External trade debtors | 14,485,350 | 125,418,275 | 89,483 |
| 14,486,444 | 125,929,752 | 514,483 | |
| 2016 | |||
| Media | - | 361,661 | - |
| Information Systems | - | - | 253,325 |
| Holding Activities | - | 67,568 | - |
| External trade debtors | 14,444,550 | 116,278,897 | - |
| 14,444,550 | 116,708,126 | 253,325 |
During the years ended on 31 December 2017 and 2016, sales and services rendered of the segments of Multimedia and Activities Holding were obtained predominantly in the Portuguese market, this market represents more than 100% of revenue.
During the years ended on 31 December 2017, for the Technologies segment, also the Portuguese market is dominant, accounting for 49.7% of revenue (47.1% in 2016) followed by the Spanish and Brazilian markets, representing 12.3% of revenue (11.6% in 2016).
During the years ended on 31 December 2017 and 2016, inter-segment sales and services by geographic market can be detailed as follows:
| Media | Technologies | Holding activities | ||||
|---|---|---|---|---|---|---|
| Country | dec-17 | dec-16 | dec-17 | dec-16 | dec-17 | dec-16 |
| Portugal | 14,312,280 | 14,308,389 | 62,558,084 | 54,098,957 | 464,483 | 253,325 |
| Spain | 20,111 | 5,546 | 15,440,474 | 13,786,336 | 50,000 | - |
| Brazil | 2,988 | 4,503 | 6,303,331 | 5,877,317 | - | - |
| United States of America | 618 | 9,331 | 4,847,290 | 4,850,191 | - | - |
| South America | - | - | 2,757,302 | 4,382,309 | - | - |
| Angola | - | - | 3,372,912 | 3,715,752 | - | - |
| Germany | 381 | 28 | 2,678,037 | 2,721,221 | - | - |
| Malasya | - | - | 901,162 | 2,032,920 | - | - |
| United Kingdom | 3,292 | 16,931 | 1,868,038 | 1,884,404 | - | - |
| Sweden | - | (1) | 819,240 | 1,690,745 | - | - |
| Mexico | - | - | 3,869,166 | 1,652,458 | - | - |
| Luxembourg | 92,386 | 83,679 | 2,414,475 | 1,084,490 | - | - |
| Turkey | - | - | 402,845 | 1,036,734 | - | - |
| Malta | - | - | 28,350 | - | - | - |
| Egypt | - | - | 722,049 | 1,018,757 | - | - |
| Rest of the world | 15,257 | 4,936 | 12,278,421 | 11,048,143 | - | - |
| Remaining European countries | 39,131 | 11,208 | 4,668,576 | 5,827,392 | - | - |
| Total | 14,486,444 | 14,444,550 | 125,929,752 | 116,708,126 | 514,483 | 253,325 |
During the years ended on 31 December 2017 and 2016, non-current inter-segment assets by geographic market may be broken down as follows:
| Media | Technologies | Holding activities | ||||
|---|---|---|---|---|---|---|
| Country | Dec-17 | Dec-16 | Dec-17 | Dec-16 | Dec-17 | Dec-16 |
| Portugal | 1,291,143 | 287,690 | 56,812,270 | 56,428,820 | 130,879,892 | 103,532,976 |
| United States of America | - | - | 5,404,682 | 7,577,547 | - | - |
| Spain | - | - | 3,178,642 | 4,094,415 | - | - |
| Brazil | - | - | 152,393 | 272,933 | - | - |
| Mexico | - | - | 91,513 | 126,848 | - | - |
| United Kingdom | - | - | 2,419 | 3,638 | - | - |
| Egypt | - | - | 7,437 | 3,443 | - | - |
| Colombia | - | - | 142,174 | 3,063 | - | - |
| Netherlands | - | - | 3,420 | - | - | - |
| Ireland | - | - | 2,645 | 323 | - | - |
| Australia | - | - | 889 | 271 | - | - |
| Total | 1,291,143 | 287,690 | 65,798,484 | 68,512,209 | 130,879,892 | 103,532,976 |
The consolidated financial statements of NOS on 31 December 2017 and 2016 incorporated in the consolidated financial statements of Sonaecom through ZOPT by the equity method (note 8), can be summarized as follows:
| (Amounts expressed in of Euro) | December 2017 | December 2016 |
|---|---|---|
| Assets | ||
| Tangible assets | 1,137,209 | 1,158,181 |
| Intangible assets | 1,141,104 | 1,158,779 |
| Deferred tax assets | 99,538 | 117,302 |
| Other non-current assets | 44,306 | 18,740 |
| Non-current assets | 2,422,157 | 2,453,002 |
| Trade debtors | 406,904 | 348,926 |
| Cash and cash equivalents | 2,977 | 2,313 |
| Other current assets | 135,030 | 178,400 |
| Current assets | 544,911 | 529,639 |
| Total assets | 2,967,068 | 2,982,641 |
| Liabilities | ||
| Loans | 954,658 | 972,003 |
| Provisions for other liabilities and charges | 133,262 | 146,287 |
| Other non-current liabilities | 39,758 | 50,406 |
| Non-current liabilities | 1,127,678 | 1,168,696 |
| Loans | 210,136 | 224,692 |
| Trade creditors | 224,864 | 238,828 |
| Other current liabilities | 318,021 | 297,327 |
| Current liabilities | 753,021 | 760,847 |
| Total liabilities | 1,880,699 | 1,929,543 |
| Shareholders' funds excluding non-controlling interests | 1,077,302 | 1,044,057 |
| Non-controlling interests | 9,067 | 9,041 |
| Total Shareholders' funds | 1,086,369 | 1,053,098 |
| Total Shareholders' funds and liabilities | 2,967,068 | 2,982,641 |
| (Amounts expressed in of Euro) | December 2017 | December 2016 |
|---|---|---|
| Total revenue | 1,561,783 | 1,514,969 |
| Costs and losses | ||
| Direct costs and External supplies and services | (672,811) | (642,190) |
| Depreciation and amortisation | (422,211) | (391,555) |
| Other operating costs | (323,999) | (338,452) |
| (1,419,021) | (1,372,197) | |
| Financial results | (1,061) | (30,549) |
| Income taxation | (17,480) | (22,226) |
| Consolidated net income/(loss) for the year | 124,221 | 89,997 |
| Consolidated net income/(loss) for the year attributed to non-controlling interests | 128 | (385) |
| Attributed to shareholders of parent company | 124,093 | 90,382 |
Earnings per share, basic and diluted, are calculated by dividing the consolidated net income attributable to the Group (Euro 27,765,966 in 2017 and Euro 48,131,541 in 2016) by the average number of shares outstanding during the year ended 31 December 2017 and 2016, net of own shares (305,769,023 in 2017 and 2016).
In June 2000, Sonaecom Group created a discretionary Medium Term Incentive Plan, for more senior employees, based on Sonaecom options and shares and Sonae-SGPS, S.A. shares, being on 10 March 2014, Sonaecom shares plans were fully converted into Sonae SGPS shares. The exercise of the rights occurs three years after their attribution, provided that the employee stays in the company during that period.
The 2012 plan was delivered in March 2016 to all companies.
The 2013 plan was delivered in April 2017 to all companies with the Sonaecom exemption that was delivered in March 2017.
Accordingly, the plans outstanding on 31 December 2017 are as follows:
| Vesting period | 31 December 2017 | ||||
|---|---|---|---|---|---|
| Share price 31 December 2017 |
Award date | Vesting date | Aggregate number of participations |
Number of shares | |
| Sonae SGPS shares | |||||
| 2014 Plan | 1.126 | 10-Mar-15 | 10-Mar-18 | 166 | 1,415,160 |
| 2015 Plan | 1.126 | 10-Mar-16 | 10-Mar-19 | 177 | 1,719,067 |
| 2016 Plan | 1.126 | 10-Mar-17 | 10-Mar-20 | 5 | 370,017 |
During the year ended on 31 December 2017, the movements that occurred in the plans can be summarised as follows:
| Sonae SGPS shares | ||
|---|---|---|
| Number of participants | Number of shares | |
| Outstanding at 31 December 2016: | ||
| Unvested | 537 | 4,731,159 |
| Total | 537 | 4,731,159 |
| Movements in the period: | ||
| Award | 5 | 355,290 |
| Vested | (134) | (1,353,460) |
| Cancelled / corrected / transfers (1) | (60) | (228,745) |
| Outstanding at 31 December 2017: | ||
| Unvested | 348 | 3,504,244 |
| Total | 348 | 3,504,244 |
(1) Corrections are made for dividends paid and departures of employees during the plan period.
The responsibility of the plans was recognized under the caption 'Other current liabilities' and 'Other non-current liabilities'.
Share plans costs are recognised in the accounts over the year between the award and the vesting date of those shares. The costs recognised for the open plans and for the plans vested in previous years and in the year ended on 31 December 2017, were as follows:
| Value | |
|---|---|
| Costs recognised in previous years | 2,195,675 |
| Costs recognised in the period | 1,782,274 |
| Costs of plans vested in the year | (1,257,003) |
| Total cost of the plans | 2,720,946 |
| Recorded in 'Other current liabilities' (note 29) | 1,503,459 |
| Recorded in 'Other non-current liabilities (note 24) | 1,217,487 |
For the years ended on 31 December 2017 and 2016, the caption 'Staff expenses' was as follows:
| 2017 | 2016 | |
|---|---|---|
| Remunerações | 50,012,833 | 46,175,519 |
| Encargos sobre remunerações | 9,314,263 | 8,663,195 |
| Planos de Incentivo de Médio Prazo (Nota 41) | 1,782,274 | 1,034,844 |
| Trabalhos para a própria empresa | (5,503,141) | (5,484,595) |
| Outros | 1,672,785 | 1,158,400 |
| 57,279,014 | 51,547,363 |
During 2017 and 2016, the remunerations paid to Directors and other members of key management in functions (9 managers in 2017 and 10 managers in 2016) were as follows:
| 2017 | 2016 | |
|---|---|---|
| Short-term employee benefits | 1,577,806 | 1,497,764 |
| Share-based payments | 365,083 | 355,214 |
| 1,942,889 | 1,852,978 |
The amounts included in the line of Benefits of short-term employees include Fixed Remuneration and the Performance Premium, the latter calculated on an accrual basis. The value of Share-based Payments for 2017 and 2016 corresponds to the value of the medium-term incentive plan to be awarded in 2018 and relative to the performance of 2017 (and attributed in 2017 relative to the performance of 2016, to the value of 2016) , whose shares, or the corresponding cash value, will be delivered in March 2021 and March 2020, respectively, and for which the expense is recorded during the period from 2018 to 2021 (2017 to 2020 for the value of 2016). Corporate Governance Report includes more detailed information on Sonaecom's compensation policy.
During the year ended on 31 December 2017, the Group paid as fees to ROC, PricewaterhouseCoopers SROC the amount of Euro 165,529 (Euro 131,273 in 2016).
The details of the services provided during the year in 2017 are as follows:
| Sonaecom | Other companies in the group | ||||
|---|---|---|---|---|---|
| PwC SROC | Other companies in the network |
PwC SROC | Other companies in the network |
Total | |
| Statutory audit | 18,926 | - | 88,778 | 54,253 | 161,957 |
| Other assurance services | - | - | - | 3,572 | 3,572 |
| Total | 18,926 | - | 88,778 | 57,825 | 165,529 |
The other services provided in 2017 refer to participation of employees of the group in generic formations
During the years ended on 31 December 2017 and 2016, the companies included in the consolidation employed an average number of 1,239 and 1,286 respectively. On 31 December 2017, the number of employees was 1,355.
The foreign exchange restatement of foreign currency assets and liabilities in associates in Angola (owned by ZOPT) and the conversion of these companies' financial statements to Euro were made using the exchange rate published by the National Bank of Angola on 31 December 2017. During the first quarter of 2018, the kwanza depreciated by approximately 30% against the Euro. As a result of the aforementioned devaluation and based on the position of assets and liabilities denominated in foreign currency in the referred companies and the net assets value thereof, Sonaecom will record in the caption 'Gains and losses on associated companies and jointly controlled entities' a loss of approximately Euro 2 million and the caption 'Exchange translation reserves' included under 'Reserves' will be reduced by approximately Euro 15 million.
These financial consolidated presentations have been approved by the Executive Board and authorized to be issued on 12 March 2018.
| (Amounts expressed in Euro) | Notes | December 2017 | December 2016 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Tangible assets | 1.a, 1.f, 1.t and 2 | 8,891 | 13,416 |
| Intangible assets | 1.b, 1.t and 3 | 3,187 | 2,204 |
| Investments in Group companies | 1.c and 5 | 58,271,587 | 52,291,587 |
| Companies jointly controlled | 1.d and 6 | 597,666,944 | 597,666,944 |
| Other non-current assets | 1.c, 1.n, 4, 8 and 27 | 236,890,820 | 212,467,355 |
| Deferred tax assets | 1.m, 9 | 114,706 | 94,475 |
| Total non-current assets | 892,956,135 | 862,535,981 | |
| Current assets | |||
| Income tax receivable | 1 m, 4 and 10 | 737,633 | 803,609 |
| Other current debtors | 1.e, 1.g, 4, 11 and 27 | 709,433 | 17,797,134 |
| Other current assets | 1.e, 1.n, 4, 12 and 27 | 441,565 | 478,861 |
| Cash and cash equivalents | 1.e, 1.h, 4, 13 and 27 | 190,901,170 | 210,933,723 |
| Total current assets | 192,789,801 | 230,013,327 | |
| Total assets | 1,085,745,936 | 1,092,549,308 | |
| Shareholder' funds and liabilities | |||
| Shareholders' funds | |||
| Share capital | 14 | 230,391,627 | 230,391,627 |
| Own shares | 1.r and 15 | (8,441,804) | (8,441,804) |
| Reserves | 1.q | 845,695,705 | 834,236,219 |
| Net income / (loss) for the year | 15,770,507 | 35,003,700 | |
| Total Shareholders' funds | 1,083,416,035 | 1,091,189,742 | |
| Liabilities | |||
| Non-current liabilities | |||
| Provisions for other liabilities and charges | 1.l and 17 | 269,665 | 214,777 |
| Other non-current liabilities | 1.e, 1.n, 1.u, 4 and 18 | 224,758 | 133,633 |
| Total non-current liabilities | 494,423 | 348,410 | |
| Current liabilities | |||
| Other creditors | 1.e, 4, 19 and 27 | 1,122,256 | 359,423 |
| Other current liabilities | 1.e, 1.n, 1.u, 4, 20 and 27 | 713,222 | 651,733 |
| Total current liabilities | 1,835,478 | 1,011,156 | |
| Total liabilities | 2,329,901 | 1,359,566 | |
| Total Shareholders' funds and liabilities | 1,085,745,936 | 1,092,549,308 |
The notes are an integral part of the financial statements.
| (Amounts expressed in Euro) | Notes | December 2017 September to December 2017 (not audited) |
December 2016 | September to December 2016 (not audited) |
|
|---|---|---|---|---|---|
| Services rendered | 1.o, 21 and 27 | 514,483 | 130,655 | 253,325 | 41,641 |
| Other operating revenues | 1.o, 22 and 27 | 92,873 | 21,110 | 139,001 | 19,052 |
| 607,356 | 151,765 | 392,326 | 60,693 | ||
| External supplies and services | 1.f, 23 and 27 | (541,225) | (55,275) | (777,902) | (200,052) |
| Staff expenses | 1.u, 30, 31 and 32 | (1,285,953) | (370,603) | (696,471) | (191,343) |
| Depreciation and amortisation | 1.a, 1.b, 2 and 3 | (10,456) | (1,376) | (13,726) | (3,440) |
| Provisions and impairment losses | 1.l, 1.t e 17 | (54,888) | - | (36,505) | 12,004 |
| Other operating costs | (46,164) | (27,241) | (129,417) | (8,807) | |
| (1,938,686) | (454,495) | (1,654,021) | (391,638) | ||
| Gains and losses on Group companies and companies jointly controlled Gains and losses on financial assets at fair value through profit or loss |
1.p, 5 and 24 1.p, 7 and 24 |
15,667,446 - |
923,357 - |
11,119,809 4,808,250 |
(2,747,138) - |
| Other financial expenses | 1.c, 1.i, 1.j, 1.s, 1.t, 16 and 25 | (82,495) | (17,446) | (98,457) | (36,330) |
| Other financial income | 1.s, 5 and 25 | 1,585,101 | 374,553 | 2,274,003 | 514,116 |
| Earnings before taxes | 15,838,722 | 977,734 | 16,841,910 | (2,600,297) | |
| Income taxation | 1.m, 9 and 26 | (68,215) | (17,968) | 18,161,790 | 17,447,788 |
| Net income / (loss) for the year | 15,770,507 | 959,766 | 35,003,700 | 14,847,491 | |
| Earnings per share | 29 | ||||
| Basic | 0.05 | 0.00 | 0.11 | 0.05 | |
| Diluted | 0.05 | 0.00 | 0.11 | 0.05 |
The notes are an integral part of the financial statements.
| (Amounts expressed in Euro) | Notes | December 2017 | September to December 2017 (not audited) |
December 2016 | September to December 2016 (not audited) |
|---|---|---|---|---|---|
| Net income / (loss) for the year | 15,770,507 | 959,766 | 35,003,700 | 14,847,491 | |
| Components of other comprehensive income, net of tax | - | - | - | - | |
| Comprehensive income for the year | 15,770,507 | 959,766 | 35,003,700 | 14,847,491 |
The notes are an integral part of the financial statements.
The Chief Accountant
| (Amounts expressed in Euro) | Reserves | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Share capital (Note 14) |
Own shares (note 15) |
Share premium | Legal reserves Own shares reserves | Other reserves | Total reserves | Net income / (loss) | Total | ||
| 2017 | |||||||||
| Balance at 31 December 2016 | 230,391,627 | (8,441,804) | 775,290,377 | 15,163,177 | 8,441,804 | 35,340,861 | 834,236,219 | 35,003,700 | 1,091,189,742 |
| Appropriation of result of 2016 | |||||||||
| Transfer to legal reserves and other reserves | - | - | - | 1,750,185 | - | 33,253,515 | 35,003,700 | (35,003,700) | - |
| Dividend Distribution | - | - | - | - | - | (23,544,214) | (23,544,214) | - | (23,544,214) |
| Comprehensive income for the year ended at 31 December 2017 | - | - | - | - | - | - | - | 15,770,507 | 15,770,507 |
| Balance at 31 December 2017 | 230,391,627 | (8,441,804) | 775,290,377 | 16,913,362 | 8,441,804 | 45,050,162 | 845,695,705 | 15,770,507 | 1,083,416,035 |
| (Amounts expressed in Euro) | Reserves | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Share capital (Note 14) |
Own shares (note 15) |
Share premium | Legal reserves Own shares reserves | Other reserves | Total reserves | Net income / (loss) | Total | ||
| 2016 | |||||||||
| Balance at 31 December 2015 | 230,391,627 | (8,441,804) | 775,290,377 | 13,443,724 | 8,441,804 | 20,405,855 | 817,581,760 | 34,389,062 | 1,073,920,645 |
| Appropriation of result of 2015 | |||||||||
| Transfer to legal reserves and other reserves | - | - | - | 1,719,453 | - | 32,669,609 | 34,389,062 | (34,389,062) | - |
| Dividend Distribution | - | - | - | - | - | (17,734,603) | (17,734,603) | - | (17,734,603) |
| Comprehensive income for the year at 31 December 2016 | - | - | - | - | - | - | - | 35,003,700 | 35,003,700 |
| Balance at 31 December 2016 | 230,391,627 | (8,441,804) | 775,290,377 | 15,163,177 | 8,441,804 | 35,340,861 | 834,236,219 | 35,003,700 | 1,091,189,742 |
The notes are an integral part of the financial statements.
The Chief Accountant
For the years ended at 31 December 2017 and 2016
| (Amounts expresses in Euro) | Notes | December 2017 | December 2016 | ||
|---|---|---|---|---|---|
| Operating activities | |||||
| Receipts from trade debtors | 514,483 | - | |||
| Payments to trade creditors | (507,919) | - | |||
| Payments to employees | (1,117,225) | (1,391,746) | |||
| Cash flows from operating activities | (1,110,661) | (1,391,746) | |||
| Payments / receipts relating to income taxes | 17,319,208 | 1,651,059 | |||
| Other payments / receipts relating to operating activities | 215,778 | 1,137,598 | |||
| Cash flows from operating activities (1) | 16,424,324 | 1,396,911 | |||
| Investing activities | |||||
| Receipts from: | |||||
| Financial Investments | 8 | 300,000 | 12,929,540 | ||
| Interest and similar income | 1,733,155 | 1,669,675 | |||
| Loans granted | 8 | 2,725,000 | - | ||
| Dividends | 24 | 16,512,005 | 20,073,952 | ||
| Disposals of investments at fair value | 7 | - | 82,840,847 | ||
| Other Revenues | - | 92,607 | |||
| Payments for: | |||||
| Tangible assets | (1,475) | (225) | |||
| Intangible assets | (2,822) | (461) | |||
| Financial Investments | 5 and 8 | (33,986,827) | (50,466,850) | ||
| Loans granted | 8 | (70,000) | (19,310,000) | ||
| Cash flows from investing activities (2) | (12,790,966) | 47,829,085 | |||
| Financing activities | |||||
| Payments for: | |||||
| Interest and similar expenses | (121,696) | (5,984) | |||
| Dividends | 27 | (23,544,214) | (17,734,603) | ||
| Cash flows from financing activities (3) | (23,665,910) | (17,740,587) | |||
| Net cash flows (4)=(1)+(2)+(3) | (20,032,553) | 31,485,409 | |||
| Cash and cash equivalents at the beginning of the year | 4 and 13 | 210,933,723 | 179,448,314 | ||
| Cash and cash equivalents at year end | 4 and 13 | 190,901,170 | 210,933,723 |
The notes are an integral part of the financial statements.
The Chief Accountant
| Notes | December 2017 | December 2016 | |
|---|---|---|---|
| 1. Acquisition or sale of subsidiaries or other businesses | |||
| a) Receipts from other business activities | |||
| Loan repayment from Público - Comunicação Social, S.A. | 8 | 2,335,000 | - |
| Loan repayment from Sonae Investment Management - Software and Technology, SGPS, S.A. | 8 | 390,000 | - |
| Reimbursement of supplementary capital from PCJ - Público, Comunicação e Jornalismo, S.A. | 8 | 300,000 | 1,839,445 |
| Reimbursement of supplementary capital from Público - Comunicação Social, S.A. | 8 | - | 11,077,405 |
| Liquidation of Sonaetelecom BV | - | 12,690 | |
| 3,025,000 | 12,929,540 | ||
| b) Payments from other business activities | |||
| Supplementary capital to Sonae Investment Management - Software and Technology, SGPS, S.A. | 8 | 24,486,827 | 34,530,000 |
| Supplementary capital to Público - Comunicação Social, S.A. | 8 | 3,500,000 | 2,900,000 |
| Share capital increase of Público - Comunicação Social, S.A. | 5 | 2,000,000 | - |
| Share capital increase of PCJ - Público, Comunicação e Jornalismo, S.A. | 5 | 2,000,000 | - |
| Share capital increase of Sonaecom Serviços Partilhados, S.A. | 5 | 2,000,000 | - |
| Loan granted to PCJ - Público, Comunicação e Jornalismo, S.A. | 8 | 70,000 | - |
| Cash outflow to coverage losses of Público - Comunicação Social, S.A. | 5 | - | 11,077,405 |
| Cash outflow to coverage losses of PCJ - Público, Comunicação e Jornalismo, S.A. | 5 | - | 1,839,445 |
| Supplementary capital to PCJ - Público, Comunicação e Jornalismo, S.A. Supplementary capital to Sonaetelecom BV |
8 | - - |
100,000 20,000 |
| 34,056,827 | 50,466,850 | ||
| c) Dividends received | |||
| ZOPT, SGPS, S.A. | 27 | 16,512,004 | 18,311,947 |
| NOS, SGPS, S.A. | 27 | - | 1,762,005 |
| 16,512,004 | 20,073,952 | ||
| Notes | December 2017 | December 2016 | |
| 2. Description of non-monetary financing activities | |||
| a) Bank credit obtained and not used | 1,000,000 | 1,000,000 | |
| b) Purchase of company through the issue of shares | Not applicable | Not applicable |
c) Conversion of loans into shares Not applicable Not applicable
The notes are an integral part of the financial statements.
SONAECOM, SGPS, S.A., (hereinafter referred to as 'the Company' or 'Sonaecom') was established on 6 June 1988, under the name Sonae – Tecnologias de Informação, S.A. and has its head office at Lugar de Espido, Via Norte, Maia – Portugal.
Sonaecom is owned directly by Sontel BV and Sonae SGPS, SA, being Efanor Investimentos SGPS, S.A. the ultimate controlling company.
Pargeste, SGPS, S.A.'s subsidiaries in the communications and information technology area were transferred to the Company through a demerger - merger process, executed by public deed dated 30 September 1997.
On 3 November 1999, the Company's share capital was increased, its Articles of Association were modified and its name was changed to Sonae.com, SGPS, S.A.. Since then the Company's corporate object has been the management of investments in other companies. Also on 3 November 1999, the Company's share capital was re-denominated to euro, being represented by one hundred and fifty million shares with a nominal value of 1 Euro each.
On 1 June 2000, the Company carried out a Combined Share Offer, involving the following:
• A Retail Share Offer of 5,430,000 shares, representing 3.62% of the share capital, made in the domestic market and aimed at: (i) employees of the Sonae Group; (ii) customers of the companies controlled by Sonaecom; and (iii) the general public;
• An Institutional Offering for sale of 26,048,261 shares, representing 17.37% of the share capital, aimed at domestic and foreign institutional investors.
In addition to the Combined Share Offer, the Company's share capital was increased under the terms explained below. The new shares were fully subscribed for and paid up by Sonae-, SGPS, S.A. (a Shareholder of Sonaecom, hereinafter referred to as 'Sonae'). The capital increase was subscribed for and paid up on the date the price of the Combined Share Offer was determined, and paid up in cash, 31,000,000 new ordinary shares of 1 Euro each being issued. The subscription price for the new shares was the same as that fixed for the sale of shares in the aforementioned Combined Share Offer, which was Euro 10.
In addition, in this year, Sonae sold 4,721,739 Sonaecom shares under an option granted to the banks leading the Institutional Offer for Sale and 1,507,865 shares to Sonae Group managers and to the former owners of the companies acquired by Sonaecom.
By decision of the Shareholders' General Meeting held on 17 June 2002, Sonaecom's share capital was increased from Euro 181,000,000 to Euro 226,250,000 by public subscription reserved for the existing Shareholders, 45,250,000 new shares of 1 Euro each having been fully subscribed for and paid up at the price of Euro 2.25 per share.
On 30 April 2003, the company's name was changed by public deed to Sonaecom, SGPS, S.A..
By decision of the Shareholders' General Meeting held on 12 September 2005, Sonaecom's share capital was increased by Euro 70,276,868, from Euro 226,250,000 to Euro 296,526,868, by the issuance of 70,276,868 new shares of 1 Euro each and with a share premium of Euro 242,455,195, fully subscribed by France Telecom. The corresponding public deed was executed on 15 November 2005.
By decision of the Shareholders' General Meeting held on 18 September 2006, Sonaecom's share capital was increased by Euro 69,720,000, to Euro 366,246,868, by the issuance of 69,720,000 new shares of 1 Euro each and with a share premium of Euro 275,657,217, subscribed by 093X – Telecomunicações Celulares, S.A. (EDP) and Parpública – Participações Públicas, SGPS, S.A. (Parpública). The corresponding public deed was executed on 18 October 2006.
By decision of the Shareholders General Meeting held on 16 April 2008, bearer shares were converted into registered shares.
On 5 February 2014, Sonaecom made public the decision to launch a general and voluntary tender offer for the acquisition of shares representing the share capital.
The offer was general and voluntary, with the offered obliged to acquire all the shares that were the object of the offer and were, until the end of the respective period, subject to valid acceptance by the recipients.
The period of the offer, during which sales orders were received, ran for two weeks, beginning on 6 February and ending on 19 February 2014. On 20 February 2014, the results of the offer were released. The level of acceptance reached 62%, corresponding to 54,906,831 Sonaecom shares.
In 2014 Sonaecom reduced its share capital to Euro 230,391,627.
Euronext Lisbon announced Sonaecom exclusion from the PSI-20 from 24 February 2014 forward.
The financial statements are presented in euro, rounded at unit.
The accompanying financial statements have been prepared on a going concern basis, based on the Company's accounting records in accordance with International Financial Reporting Standards (IFRS), as adopted and effective in the European Union on 1 January 2017. These financial statements were prepared based on historical cost, except for the revaluation of certain financial instruments.
Sonaecom adopted IFRS for the first time according to SIC 8 (First-time adoption of IAS) on 1 January 2003.
The following standards, interpretations, amendments and revisions have been approved (endorsed) by the European Union, and have mandatory application to financial years beginning on or after 1 January 2017 and were first adopted in the year ended at 31 December 2017:
| Standard/Information | Effective date (annual | ||||
|---|---|---|---|---|---|
| periods beginning on | |||||
| or after) | |||||
| Amendments to IAS 7 - Disclosure initiative | 1-Jan-17 | ||||
| Amendments to AS 7 - Disclosure Initiative intended to clarify IAS 7 to improve | |||||
| information provided to users of financial statements about an entity's financing | |||||
| activities. | |||||
| Amendments to IAS 12 - Recognition of deferred tax | 1-Jan-17 | ||||
| assets for unrealised losses | |||||
| Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised | |||||
| Losses is to clarify the accounting for deferred tax assets for unrealised losses |
on debt instruments measured at fair value.
The application of these standards and interpretations had no material effect on the financial statements of the group.
The following standards, interpretations, amendments and revisions, whose application is mandatory in future financial years, have been at the date of approval of these financial statements, approved (endorsed) by the European Union:
| Standard / Interpretation | Effective date (annual periods beginning on or after) |
|---|---|
| IFRS 15 - Revenue from Contracts with Customers | 1-Jan-18 |
| IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more |
|
informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers.
| Standard / Interpretation | Effective date (annual periods beginning on or after) |
|---|---|
| Amendments to IFRS 15 - Revenue from contracts with customers |
1-Jan-18 |
| Review of accounting treatment for license revenue, definition of agency and transitory regime. |
|
| IFRS 9 Financial instruments | 1-Jan-18 |
| This standard introduces new requirements for classifying and measuring financial assets. |
|
| Amendments to IFRS 4 - Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts The amendments are intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard, allowing an exemption regime in the recognition of changes in the fair value of financial investments. |
1-Jan-18 |
| IFRS 16 - Leases | 1-Jan-19 |
| IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases, replacing IAS 17. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all |
leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor IAS 17.
The Company did not apply any of these standards in the financial statements for the year ended at 31 December 2017.
With respect to the new standards that became effective in the fiscal year beginning on January 1, 2018, the Company performed an analysis of the changes introduced and their potential impact on the financial statements.
IFRS 15 is based on the principle that revenue is recognized on the date of transfer of control to the customer, with the transaction value being allocated to the different performance obligations assumed to the client and subject to adjustment in the measurement whenever the consideration is variable or subject to a significant financial effect.
In adopting IFRS 15, the Company decided to adopt the transitional regime of the retrospective application with the initial cumulative effect recognised in retained earnings as of January 1, 2018, with the adoption of the following practical records:
a) Application only for contracts not completed on 01/01/2018;
b) Non-restatement of modified contracts before 01/01/2017.
The management reviewed the effects of this standard and concludes the adoption of IFRS 15 will not impact the
Company's financial statements when applied on January 1, 2018.
IFRS 9 addresses the classification, measurement and derecognition of financial instruments, introducing changes at the level of: i) the classification of financial assets; ii) calculation of the impairment of financial assets; and iii) designation of hedging relationships.
In assessing the impacts of adopting IFRS 9, Sonaecom assessed the nature of the financial assets recorded in order to identify the measurement impacts. The company's financial assets refer mainly to accounts receivable and treasury applications.
With regard to the calculation of impairment, the new model requires the recognition of impairment losses based on expected credit losses rather than credit losses incurred as in the case of IAS 39. Based on the assessments made so far, the Company does not expect to have impacts on impairment losses.
In adopting IFRS 9, the Company decided to adopt the transitional regime of the retrospective application with the initial cumulative effect recognised in retained earnings as of 1 January 2018.
The following standards, interpretations, amendments and revisions have not yet been approved (endorsed) by the European Union, at the date of approval of these financial statements:
| Standard / Interpretation | Effective date (annual |
|---|---|
| periods beginning on | |
| or after) | |
| IFRIC 23 - Uncertainty over income tax treatments | 1-Jan-19 |
| The interpretation is to be applied to the determination of taxable profit (tax | |
| loss), tax bases, unused tax losses, unused tax credits and tax rates, when there | |
| is uncertainty over income tax treatments under IAS 12. | |
| Amendments to IFRS 2 - Share-based payment | 1-Jan-18 |
| The objective of clarifications to IFRS 2 Share-based Payment was to clarify the | |
| classification and measurement of share-based payment transactions | |
| Annual Improvements to IFRS Standards 2014-2016 | 1-Jan-18 |
| Cycle | |
| Annual Improvements to IFRSs 2014–2016 Cycle is a collection of amendments to IFRSs in response to issues addressed during the 2014–2016 cycle for annual improvements to IFRSs. |
|
| IFRIC Interpretation 22 - Foreign currency transactions and advance consideration |
1-Jan-18 |
| IFRIC 22 clarifies the accounting for transactions that include the receipt or |
payment of advance consideration in a foreign currency.
| Standard / Interpretation | Effective date (annual periods beginning on or after) |
||||
|---|---|---|---|---|---|
| Amendments to IAS 40 - Transfers of investmenty property |
1-Jan-18 | ||||
| Amendments to IAS 40 clarifIes the application of paragraph 57 of IAS 40 Investment Property, which provides guidance on transfers to, or from, investment properties. |
|||||
| Amendments to IFRS 9 - Prepayment features with negative compensation |
1-jan-19 | ||||
| The objective of the amendments to IFRS 9 is examine whether amortized cost measurement would provide relevant and useful information for instruments that contain symmetric prepayment options and otherwise have contractual cash flows that are solely payments of principal and interest. |
|||||
| Amendments to IAS 28 - Long-term interests in | 1-jan-19 | ||||
| associates and joint ventures The objective of the amendments is clarify that an entity applies IFRS 9 |
|||||
| 'Financial Instruments' to long-term interests in an associate or joint venture | |||||
| that form part of the net investment in the associate or joint venture but to which the equity method is not applied. |
|||||
| Annual Improvements to IFRS Standards 2015-2017 Cycle |
1-Jan-19 | ||||
| Annual Improvements to IFRSs 2015–2017 Cycle is a collection of amendments to IFRSs in response to issues addressed during the 2015–2017 cycle for annual improvements to IFRSs. |
|||||
| IFRS 17 - Insurance contracts | 1-Jan-21 |
These standards have not yet been approved ('endorsed') by the European Union and, as such, were not adopted by the company for the period ended at 31 December 2017, since their application is not yet mandatory.
The accounting policies and measurement criteria adopted by the Group on 31 December 2017 are comparable with those used in the preparation of 31 December 2016 financial statements.
The main accounting policies used in the preparation of the accompanying financial statements are as follows:
Tangible assets are recorded at their acquisition cost less accumulated depreciation and less estimated accumulated impairment losses.
Depreciations are calculated on a straight-line monthly basis as from the date the assets are available for use in the necessary conditions to operate as intended by the management, by a corresponding charge to the profit and loss statement caption 'Depreciation and amortisation'.
Impairment losses detected in the realisation value of tangible assets are recorded in the period in which they arise, by a corresponding charge to the caption 'Depreciation and amortisation' of the profit and loss statement.
The annual depreciation rates used correspond to the estimated useful life of the assets, which are as follows:
| Years of useful life | |
|---|---|
| Buildings and others constructions | 10-20 |
| Vehicles | 4 |
| Fixtures and fittings | 4-8 |
Current maintenance and repair costs of tangible assets are recorded as costs in the period in which they occur. Improvements of significant amount, which increase the estimated useful life of the assets, are capitalised and depreciated in accordance with the estimated useful life of the corresponding assets.
Intangible assets are recorded at their acquisition cost less accumulated amortisation and less estimated accumulated impairment losses. Intangible assets are only recognised, if they were identifiable and if it is likely that they will bring future economic benefits to the Company, if the Company controls them and if their cost can be reliably measured.
Intangible assets correspond, essentially, to software and industrial property.
Amortisations are calculated on a straight-line monthly basis, over the estimated useful life of the assets (one to five years) as from the month in which the corresponding expenses are incurred.
Amortisation for the period is recorded in the profit and loss statement under the caption 'Depreciation and amortisation'.
Impairment losses detected in the realisation value of intangible assets are recorded in the year in which they arise, by a corresponding charge under the caption 'Depreciation and amortisation' in the profit and loss statement.
Sonaecom has control of subsidiaries in situations that cumulatively fulfils the following conditions: i) has power over the subsidiary; ii) is exposed to, or has rights to, variable results via its relationship with the subsidiary; and iii) is able to use its power over the investee to affect the amount of your results. Financial investments in equity investments in group companies, are recorded under "Investments in group companies', at cost of acquisition.
The acquisition cost is the amount of cash and cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of acquisition or establishment or, where applicable, the amount attributed to that asset when initially recognized in accordance with the specific requirements of IFRS 3.
The consideration transferred may include assets or liabilities of the acquirer that have carrying amounts that differ from their fair value at the acquisition date (for example, nonmonetary assets or a business of the acquirer). If so, the acquirer must re-measure the assets and liabilities transferred at their fair value at the acquisition date and recognize the resulting gains or losses, if any, in the income statement.
However, sometimes the transferred assets or liabilities remain in the entity acquired after the completion of the business and therefore the buyer retains control over them. In this situation, the acquirer shall measure those assets and liabilities at their carrying amounts immediately before the acquisition date and shall not recognize any gain or loss in the income statement for assets or liabilities it controls both before and after the completion of the deal.
Loans and supplementary capital granted to affiliated companies with maturities, estimated or defined contractually, greater than one year, are recorded, at their nominal value, under the caption 'Other non-current assets'.
Investments and loans granted to Group companies are evaluated whenever an event or change of circumstances indicates that the recorded amount may not be recoverable or impairment losses recorded in previous years no longer exist.
Impairment losses estimated for investments and loans granted to Group companies are recorded, in the period that they are estimated, under the caption 'Other financial expenses' in the profit and loss statement.
The expenses incurred with the acquisition of investments in Group companies are recorded as cost when they are incurred.
Investments in companies jointly controlled (companies in which the Company has, direct or indirect, 50% of the voting rights in the Shareholders' General Meeting of or in which it has the control over the financial and operating policies), are recorded under the caption 'Investments in companies jointly controlled, at acquisition cost in accordance with IAS 27, as such, Sonaecom presents, separately, consolidated financial statements in accordance with IAS / IFRS.
Loans and supplementary capital granted to companies jointly controlled, with maturities, estimated or defined contractually,
greater than one year, are recorded, at their nominal value, under the caption 'Other non-current assets'.
Investments and loans granted to companies jointly controlled are evaluated whenever an event or change of circumstances indicates that the recorded amount may not be recoverable or impairment losses recorded in previous years no longer exist.
Impairment losses estimated for investments and loans granted to companies jointly controlled are recorded, in the period that they are estimated, under the caption 'Other financial expenses' in the profit and loss statement.
The expenses incurred with the acquisition of investments in companies jointly controlled are recorded as cost when they are incurred.
The Company classifies its financial instruments in the following categories: 'financial assets at fair value through profit or loss', 'loans and receivables', 'held-to-maturity investments', 'available-for-sale financial assets', 'Cash and cash equivalents' (Note 1.h)), 'Derivative financial instruments' (Note 1.k)) .
Financial assets at fair value through profit or loss include financial assets held for trading that the Group acquires with the purpose of trading in the short term. This category also includes derivatives that do not qualify for hedging purposes.
Assets in this category are classified as current assets if they are either held for trading or are expected to mature within 12 months of the date of the statement of financial position.
Gains or losses, realized or not, arising from a change in fair value of 'Financial assets at fair value through profit or loss' are recorded under the caption 'Gains and losses on financial assets at fair value through profit and loss'.
At 31 December 2017, the company did not hold any investments recorded at fair value through profit or loss.
Held-to-maturity investments are classified as non-current assets unless they mature within 12 months of the statement of financial position date, being recorded under this caption investments with defined maturity and for which it is the intention of the Board of Directors to hold them until the maturity date.
On 31 December 2017, the company did not hold any 'Held-tomaturity investment'.
Financial assets available for sale are non-derivative financial assets which:
They are recognized as non-current assets except where there is an intention to sell them within 12 months following the date of the statement of financial position. Equity holdings other than participations in Group companies, associates or joint ventures are classified as financial investments available for sale and are recorded in the statement of financial position as non-current assets.
Investments are initially recorded at their acquisition cost. After initial recognition, the investments available for sale are revalued at their fair value by reference to their market value at the date of the statement of financial position, without any deduction regarding transaction costs that may occur until their sale. The available-for-sale financial assets not listed on regulated markets and for which it is not possible to reliably estimate their fair value, they are maintained at acquisition cost less any impairment losses.
Gains or losses arising from a change in the fair value of available-for-sale investments are recorded in equity until the investment is sold , received or otherwise disposed of, or until it is determined to be impaired, at which time the accumulated gain or loss is recorded in the profit and loss statement.
A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.
In the case of equity investments classified as available for sale, an investment is considered to be impaired when there is a significant or prolonged decline in its fair value below its cost acquisition.
Loans and receivables are non-derivative financial assets with fixed or variable refunds that are not quoted in an active market and they are carried at amortised cost using the effective interest method, deducted from any impairment losses.
These financial investments arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivable.
Loans and receivables are recorded as current assets, except when their maturity is greater than 12 months of the statement of financial position date, a situation in which they
are classified as non-current assets. Loans and receivables are included in the captions 'Other non-current assets', 'Other current debtors' and 'Cash and cash equivalents' in the statement of financial position.
Assets and liabilities due in more than one year from the statement of financial position date are classified, respectively, as non-current assets and liabilities.
Purchases and sales of investments are recognised on tradedate – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs, being the only exception the financial assets at fair value through profit or loss. In this case, the investments are initially recognised at fair value and the transaction costs are recorded in the profit and loss statement. Investments are derecognised when the rights to receive cash flows from the investments have expired or all substantial risks and rewards of their ownership have been transferred.
Lease contracts are classified as financial leases, if, in substance, all risks and rewards associated with the detention of the leased asset are transferred by the lease contract or as operational leases, if, in substance, there is no transfer of risks and rewards associated with the detention of the leased assets.
The lease contracts are classified as financial or operational in accordance with the substance and not with the form of the respective contracts.
Tangible 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 and the related liability are recorded in accordance with the contractual financial plan at fair value or, if less, at the present value of payments. In addition, interest included in lease payments and depreciation of the tangible assets are recognised as expenses in the profit and loss statement for the period 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 recognised as an expense, over the rental period.
Other current debtors are recorded at their net realisable value and do not include interests, since the discount effect is not significant.
These financial investments arise when the Company provides money or services directly to a debtor with no intention of trading the receivable.
The amount relating to this caption is presented net of any impairment losses and are registered in profit and loss statement in heading 'Provisions and impairment losses'. Future reversals of impairment losses are recorded in the profit and loss statement under the caption in other operating revenue.
Amounts included under the caption 'Cash and cash equivalents' correspond to amounts held in cash and term bank deposits and other treasury applications with a maturity of less than 3 months, where the risk of any change in value is insignificant.
The cash flow statement has been prepared in accordance with IAS 7 –'Statement of Cash Flow', using the direct method. The Company classifies, under the caption 'Cash and cash equivalents', investments that mature in less than three months, for which the risk of change in value is insignificant. The caption 'Cash and cash equivalents' in the cash flow statement also includes bank overdrafts, which are reflected in the statement of financial position caption 'Short-term loans and other loans'.
The cash flow statement is classified by operating, financing and investing activities. Operating activities include collections from customers, payments to suppliers, payments to personnel and other flows related to operating activities. Cash flows from investing activities include the acquisition and sale of investments in associated, subsidiary companies and companies jointly controlled as well as receipts and payments resulting from the purchase and sale of fixed assets. Cash flows from financing activities include payments and receipts relating to loans obtained and finance lease contracts, as well as cash flows from the shareholders' transactions in quality of shareholders.
All amounts included under this caption are likely to be realised in the short term and there are no amounts given or pledged as guarantee.
Loans are recorded as liabilities by the 'amortised cost'. Any expenses incurred in setting up loans are recorded as a deduction to the nominal debt and recognised during the period of the financing, based on the effective interest rate method. The interests incurred but not yet due are added to the loans caption until their payment.
Financial expenses relating to loans obtained are generally recognised as expenses at the time they are incurred. Financial expenses related to loans obtained for the acquisition, construction or production of assets are capitalised as part of the cost of the assets. These expenses are capitalised starting from the time of preparation for the construction or development of the asset and are interrupted when the assets are ready to operate, at the end of the production or construction phases or when the associated project is suspended.
The Company only uses derivatives in the management of its financial risks to hedge against such risks. The Company does not use derivatives for trading purposes.
The cash flow hedges used by the Company are related to:
(i) Interest rate swaps operations to hedge against interest rate risks on loans obtained. The amounts, interest payment dates and repayment dates of the underlying interest rate swaps are similar in all respects to the conditions established for the contracted loans. Changes in the fair value of cash flow hedges are recorded in assets or liabilities, against a corresponding entry under the caption 'Hedging reserves' in Shareholders' funds.
(ii) Forward's exchange rate for hedging foreign exchange risk. The values and times periods involved are identical to the amounts invoiced and their maturities.
In cases where the hedge instrument is not effective, the amounts that arise from the adjustments to fair value are recorded directly in the profit and loss statement.
At 31 of December 2017 and 2016, the Company did not have any derivative.
Provisions are recognised when, and only when, the Company has a present obligation (either legal or implicit) resulting from a past event, the resolution of which is likely to involve the disbursement of funds by an amount that can be reasonably estimated.
Provisions are reviewed at the statement of financial position date and adjusted to reflect the best estimate at that date.
Provisions for restructurings are only registered if the Company has a detailed plan and if that plan has already been communicated to the parties involved.
Contingent liabilities are not recognised in the financial statements but are disclosed in the notes, except if the possibility of a cash outflow affecting future economic benefits is remote.
Contingent assets are not recognised in the financial statements but are disclosed in the notes when future economic benefits are likely to occur.
'Income tax' expense represents the sum of the tax currently payable and deferred tax. Income tax is recognised in accordance with IAS 12 – 'Income Taxes'.
Sonaecom has adopted, since January 2008, the special regime for the taxation of groups of companies, under which, the provision for income tax is determined on the basis of the estimated taxable income of all the companies covered by that regime, in accordance with such rules. However, for the year ended at 31 December 2015, the Sonaecom Group, stopped having an independent group of companies covered by the special regime for taxation due to of having passed to integrate the special regime for taxation of groups of Sonae companies.
Therefore, since 1 January 2015, Sonaecom is under the special regime for the taxation of groups of companies, from which Sonae is the dominant company. Each company records the income tax on their individual accounts and the tax calculated is record under the caption of group companies. The tax losses generated by the companies controlled in the tax group (RETGS) determine their allocation to the tax losses of the group, so that, since 2017, only the parent company has recognized the amounts corresponding to such tax losses, without giving rise to any financial , and until fiscal year 2016 these tax losses generated by the companies controlled within the group were offset by the group's dominant entity.The special regime for the taxation of groups of companies covers all direct or indirect subsidiaries, and even through companies resident in another Member State of the European Union or the European Economic Area, only if, in the last case, there is an obligation of administrative cooperation, on which the Group holds at least 75% of their share capital, where such participation confers more than 50% of voting rights, if meet certain requirements. The subsidiaries Digitmarket, Inovretail and S21sec Portugal are not part of the special regime for the taxation of groups of companies, since Sonae SGPS's indirect shareholding in Digitmarket is less than 75% and once Sonae SGPS's indirect participation in more than 75 % in Inovretail and S21sec Portugal has not yet completed one year.
Deferred taxes are calculated using the liability method and reflect the timing differences between the amount of assets and liabilities for accounting purposes and the respective amounts for tax purposes.
Deferred tax assets are only recognised when there is reasonable expectation that sufficient taxable profits shall arise in the future to allow such deferred tax assets to be used. At the end of each period, the recorded and unrecorded deferred tax assets are revised and they are reduced whenever their realisation ceases to be probable, or increased if future taxable profits are likely enabling the recovery of such assets (note 9).
Deferred taxes are calculated with the tax rate that is expected to be in effect at the time the asset or liability is realized, based on the rates that have been enacted or substantially enacted at the statement of financial position date.
Whenever deferred taxes derive from assets or liabilities directly registered in Shareholders' funds, its recording is also made under the Shareholders' funds caption. In all other situations, deferred taxes are always registered in the profit and loss statement.
Expenses and income are recorded in the period to which they relate, regardless of their date of payment or receipt. Estimated amounts are used when actual amounts are not known.
The captions 'Other non-current assets', 'Other current assets', 'Other non-current liabilities' and 'Other current liabilities' 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. The latter shall be included by the corresponding amount in the results of the periods to which they relate to.
The costs attributable to current period and whose expenses will only occur in future periods are estimated and recorded under the caption 'Other current liabilities' and 'Other noncurrent liabilities', when it is possible to estimate reliably the amount and the timing of occurrence of the expense. If there is uncertainty regarding both the date of disbursement of funds, and the amount of the obligation, the value is classified as Provisions (note 1.l).
Revenue should be measured at the fair value of the consideration received or receivable for the sale or rendering of services resulting from the normal activity of the company. The revenue is recognized net from taxes and taking into account the amount of any trade discounts and volume rebates allowed by the entity.
Dividends are recognised when the Shareholders' rights to receive such amounts are appropriately established and communicated.
The measurement of fair value presumes that an asset or liability is changed in an orderly transaction between market participants to see the asset or transfer the liability at the measurement date, under current market conditions.
The measurement of fair value is based on the assumption that the transaction of sell the asset or transfer the liability may occur:
The Company use valuation techniques appropriate to the circumstances and for which there is sufficient data to measure fair value, maximizing the use of observable relevant data and minimizing the use of unobservable data.
All assets and liabilities measured at fair value or for which disclosure is mandatory are classified according to a fair value hierarchy, which classifies into three levels the data to be used in the fair value measurement, detailed below:
Level 1 - unadjusted quoted prices for identical assets and liabilities in active markets, which the entity can access at the measurement date;
Level 2 - Valuation techniques that use inputs that are not quoted are directly or indirectly observable;
Level 3 - Valuation techniques that use inputs not based on observable market data, ie, based on unobservable data;
The measurement of fair value is classified fully at the lowest level of the input that is significant for the measurement as a whole.
Portuguese commercial legislation requires that at least 5% of the annual net profit must be appropriated to a legal reserve, until such reserve reaches at least 20% of the share capital. This reserve is not distributable, except in case of liquidation of the Company, but may be used to absorb losses, after all the other reserves are exhausted, or to increase the share capital.
The own shares reserve reflects the acquisition value of the own shares and follows the same requirements of legal reserve.
This caption includes retained earnings from previous years and accumulated exchange differences.
Additionally, the increments resulting from the application of fair value through equity components, including its implementation through net results, shall be distributed only when the elements that gave rise to them are sold, liquidated or exercised or when they finish their use, in the case of tangible or intangible assets. Therefore, at 31 December 2017, Sonaecom, have free reserves distributable amounting approximately Euro 58.7 million. To this effect were considered as distributable increments resulting from the application of fair value through equity components already exercised during the year ended 31 December 2017.
Own shares are recorded as a deduction of Shareholders' funds. Gains or losses related to the sale of own shares are recorded under the caption 'Other reserves'.
Euro is the functional currency of presentation. All transactions in foreign currency are translated for the functional currency at the exchange rate of the transaction date. At each closing date, the exchange restatement of outstanding balances is carried out, applying the exchange rate in effect at that date.
Favourable and unfavourable foreign exchange differences resulting from changes in the rates in force at transaction date and those in force at the date of collection, payment or at the statement financial position date are recorded as income and expenses in the profit and loss statement in financial results.
The following rates were used for the translation into Euro:
| 2017 | 2016 | |||
|---|---|---|---|---|
| 31 December | Average | 31 December | Average | |
| Pounds Sterling | 1.1271 | 1.1414 | 1.1680 | 1.2239 |
| Swiss franc | 0.8546 | 0.9006 | 0.9312 | 0.9175 |
| Swedish krona | 0.1016 | 0.1038 | 0.1047 | 0.1057 |
| American Dollar | 0.8338 | 0.8872 | 0.9487 | 0.9041 |
Whenever the book value of an asset is greater than the amount recoverable, an impairment loss is recognised and recorded in the profit and loss statement under the caption 'Depreciation and amortisation' in the case of tangible assets and intangible assets for the other assets under the caption 'Provisions and impairment losses', in relation to the other assets.
Impairment tests are performed for assets with undefined useful life at the date of each statement of financial position and whenever an event or change of circumstances indicates that the recorded amount of an asset may not be recoverable.
Impairment tests are performed for assets with defined useful lives and investments in associated whenever there is evidence that their book value is higher than the recoverable value.
The amount recoverable is the greater of the net selling price and the value of use. Net selling price is the amount obtained upon the sale of an asset in a transaction within the capability of the parties involved, less the costs directly related to the sale. The value of use is the present amount of the estimated future cash flows expected to result from the continued use of the asset and of its sale at the end of its useful life.
The recoverable amount is estimated for each asset individually or, if this is not possible, for the cash-generating unit to which the asset belongs.
For the value of Investments in group companies and for assets with defined useful lives, the recoverable amount, calculated in terms of value in use, is determined based on the most recent business plans duly approved by the Company's Board of Directors. For Investments in companies jointly controlled, the recoverable amount is determined taking into account various information such as the most recent business plans duly approved by the Company's Board of Directors and the average of evaluations made by external analysts (researches).
Non-financial assets, for which impairment losses have been recorded, are reviewed at each reporting date for reversal of these losses.
The company evaluate at each reporting date the existence of impairment in financial assets at amortized cost.
A financial asset is impaired if events occurring after initial recognition have an impact on estimated cash flows of the assets that can be reasonably estimated.
Evidence of the existence of impairment in accounts receivables appears when:
(iii) it is possible that the debtor goes into liquidation or into a financial restructuring.
For certain categories of financial assets for which it is not possible to determine the impairment for each asset individually, the analysis is made for a group of assets. Evidence of an impairment loss in a portfolio of accounts receivable may include past experience in terms of collections, increasing number of delays in collections, as well as changes in national or local economic conditions that are related with the collections capacity.
For Accounts receivables, the Company uses historical and statistical information to estimate the amounts in impairment.
The accounting treatment of Medium Term Incentive Plans is based on IFRS 2 – 'Share-based Payments'.
Under IFRS 2, when the settlement of plans established by the Company involves the delivery of Sonaecom's own shares, the estimated responsibility is recorded, as a credit entry, under the caption 'Reserves – Medium Term Incentive Plans', within the caption 'Shareholders' funds' and is charged as an expense under the caption 'Staff expenses' in the profit and loss statement.
The quantification of this responsibility is based on its fair value at the attribution date and is recognised over the vesting period of each plan (from the award date of the plan until its vesting or settlement date). The total responsibility, at any point in time, is calculated based on the proportion of the vesting period that has 'elapsed' up to the respective accounting date.
When the responsibilities associated with any plan are covered by a hedging contract, i.e., when those responsibilities are replaced by a fixed amount payable to a third party and when Sonaecom is no longer the party that will deliver the Sonaecom shares, at the settlement date of each plan, the above accounting treatment is subject to the following changes:
(iv) In the profit and loss statement, the 'elapsed' proportion continues to be charged as an expense under the caption 'Staff expenses'.
At 31 December 2017 there are no outstanding hedge agreements.
For plans settled in cash, the estimated liability is recorded under the statement of financial position captions 'Other noncurrent liabilities' and 'Other current liabilities' by a corresponding entry under the profit and loss statement caption 'Staff expenses', for the cost relating to the vesting period that has 'elapsed' up to the respective accounting date. The liability is quantified based on the fair value of the shares as of each statement of financial position date.
When the liability is covered by a hedging contract, recognition is made in the same way as described above, but with the liability being quantified based on the contractually fixed amount.
Equity-settled plans to be liquidated through the delivery of shares of Sonae SGPS are recorded as if they were settled in cash, which means that the estimated liability is recorded under the statement of financial position captions 'Other noncurrent liabilities' and 'Other current liabilities' by a corresponding entry under the profit and loss statement caption 'Staff expenses', for the cost relating to the deferred period elapsed. The liability is quantified based on the fair value of the shares as of each statement of financial position date.
At 31 December 2017, the plans granted during the year 2015, 2016 and 2017 are not covered, and the liability is recorded at fair value. The liability of all plans is recorded under the captions 'Other non-current liabilities' and 'Other current liabilities' (Notes 17 and 19).The cost is recognized on the income statement under the caption 'Staff expenses'.
Events occurring after the date of the statement of financial position which provide additional information about conditions prevailing at the time of the statement of financial position (adjusting events) are reflected in the financial statements. Events occurring after the statement of financial position date that provide information on post- statement of financial position conditions (non-adjusting events), when material, are disclosed in the notes to the financial statements.
The most significant accounting estimates reflected in the consolidated financial statements of the years ended on 31 December 2017 and 2016 are as follows:
Estimates used are based on the best information available during the preparation of the financial statements and are based on the best knowledge of past and present events. Although future events are neither foreseeable nor controlled by the Group, some could occur and have impact on such estimates. Changes to the estimates used by the management that occur after the approval date of these consolidated financial statements, will be recognised in net income, in accordance with IAS 8 – 'Accounting Policies, Changes in Accounting Estimates and Errors', using a prospective methodology.
The main estimates and assumptions in relation to future events included in the preparation of these consolidated financial statements are disclosed in the corresponding notes.
The Company's activities expose it to a variety of financial risks such as market risk, liquidity risk and credit risk.
These risks arise from the unpredictability of financial markets, which affect the capacity to project cash flows and profits. The Company's financial risk management, subject to a long-term ongoing perspective, seeks to minimise potential adverse effects that derive from that uncertainty, using, every time it is possible and advisable, derivative financial instruments to hedge the exposure to such risks (note 1.k).
The Company is also exposed to equity price risks arising from equity investments, although they are usually maintained for strategic purposes.
Foreign exchange risk management seeks to minimise the volatility of investments and transactions made in foreign currency and contributes to reduce the sensitivity of results to changes in foreign exchange rates.
Whenever possible, the Company uses natural hedges to manage exposure, by offsetting credits granted and credits received expressed in the same currency. When such procedure is not possible, the Company adopts derivative financial hedging instruments (note 1. k).
Considering the reduced values of assets and liabilities in foreign currency, the impact of a change in exchange rate will not have significant impacts on the financial statements.
Sonaecom's total debt is indexed to variable rates, exposing the total cost of debt to a high risk of volatility. The impact of this volatility in the Company results or in its Shareholders´ funds is mitigated by the effect of the following factors: (i) relatively low level of financial leverage; (ii) possibility to use derivative instruments that hedge the interest rate risk, as mentioned below; (iii) possible correlation between the level of market interest rates and economic growth the latter having a positive effect in other lines of the Company's results, and in this way partially offsetting the increase of financial costs ('natural hedge'); and (iv) the existence of stand alone or consolidated liquidity which is also bearing interest at a variable rate.
The Company only uses derivatives or similar transactions to hedge interest rate risks considered significant. Three main principles are followed in all instruments selected and used to hedge interest rate risk:
In 2017, Sonaecom has no indebtedness. However, as all Sonaecom's borrowings (note 15) are at variable rates, interest rate swaps and other derivatives are used to hedge future changes in cash flow relating to interest payments, when it is considered necessary. Interest rate swaps have the financial effect of converting the respective borrowings from floating rates to fixed rates. Under the interest rate swaps, the Company agrees with third parties (banks) to exchange, in predetermined periods, the difference between the amount of interest calculated at the fixed contract rate and the floating rate at the time of re-fixing, by reference to the respective agreed notional amounts.
The counterparties of the derivative hedging instruments are limited to highly rated financial institutions, being the Company's policy, when contracting such instruments, to give preference to financial institutions that form part of its financing transactions.
In order to select the counterparty for occasional operations, Sonaecom requests proposals and indicative prices from a representative number of banks in order to ensure adequate competitiveness of these operations.
In determining the fair value of hedging operations, the Company uses certain methods, such as option valuation and discounted future cash flow models, using assumptions based on market interest rates prevailing at the statement of financial position date. Comparative financial institution quotes for the specific or similar instruments are used as a benchmark for the valuation.
The fair value of the derivatives contracted, that are not considered as fair value hedges or the ones that are considered not sufficiently effective for cash flow hedge (in accordance with the provisions established in IAS 39), are recognised under statement financial position and changes in the fair value of such derivatives are recognised directly in the profit and loss statement for the year.
Sonaecom's Board of Directors approves the terms and conditions of the financing with significant impact in the Company, based on the analysis of the debt structure, the risks and the different options in the market, particularly as to the type of interest rate (fixed / variable). Under the policy defined above, the Executive Committee is responsible for the decision on the occasional interest rate hedging contracts, through the monitoring of the conditions and alternatives existing in the market.
At 31 December 2017, are not contracted any derivatives instruments of hedging of the interest rate changes.
The existence of liquidity in the Company requires the definition of some policies for an efficient and secure management of the liquidity, allowing us to maximise the profitability and to minimise the opportunity costs related with that liquidity.
The liquidity risk management has a threefold objective: (i) Liquidity, i.e., to ensure the permanent access in the most efficient way to obtain sufficient funds to settle current payments in the respective dates of maturity as well as any eventual not forecasted requests for funds, in the deadlines set for this; (ii) Safety, i.e., to minimise the probability of default in any reimbursement of application of funds; and (iii) Financial efficiency, i.e., to ensure that the Company maximises the value / minimise the opportunity cost of holding excess liquidity in the short term.
The main underlying policies correspond to the variety of instruments allowed, the maximum acceptable level of risk, the maximum amount of exposure by counterparty and the maximum periods for investments.
The existing liquidity should be applied to the alternatives and by the order described below:
The applications in the market are limited to eligible counterparties, with ratings previously established by the Board of Directors and limited to certain maximum amounts by counterparty.
The definition of maximum amounts intends to assure that the application of liquidity in excess is made in a prudent way and taking into consideration the best practices in terms of bank relationships.
The maturity of applications should equalise the forecasted payments (or the applications should be easily convertible, in case of asset investments, to allow urgent and not estimated payments), considering a threshold for eventual deviations on the estimates. The threshold depends on the accuracy level of treasury estimates and would be determined by the business. The accuracy of the treasury estimates is an important variable to quantify the amounts and the maturity of the applications in the market.
The maturity of each class of financial liabilities is presented in note 10 and 18.
Taking into account the low value of the liabilities of the Company is understood that the liquidity risk is very low.
Sonaecom's capital structure, determined by the ratio of equity and net debt, is managed in a manner that ensures the continuity and development of its operating activities, maximizes shareholder returns and optimizes the cost of financing.
Sonaecom periodically monitors its capital structure, identifying risks, opportunities and necessary adjustment measures in order to achieve the referred objectives.
In 2017, Sonaecom had an average gearing (accounting) of -18.5%. The average gearing in market values in 2017 was -25.2%.
The Companys's exposure to credit risk is mainly associated with the accounts receivable related to current operational activities , cash investments and other non -current assets supplies .
The management of this risk seeks to guarantee that the amounts owing are effectively collected within the periods negotiated without affecting the financial health of the Group. The Group uses credit rating agencies and has specific departments responsible for risk control, collections and management of processes in litigation, as well as credit insurances, which all contribute to the mitigation of credit risk.
The amounts included in the financial statements related to cash and equivalents and other non -current assets (supplies) and other curre nt debtors, represent the maximum exposure of the Company to credit risk.
Sonaecom holds financial assets resulting from its relationship with its subsidiaries (Note 5) and with financial institutions (Note 13). There is a credit risk associated with the potential pecuniary default of the Financial Institutions that are counterparts in these relationships, however, in general, the exposure related to this type of financial assets is widely diversified and of limited duration in time.
Credit risk associated with relations with financial institutions is limited by the management of risk concentration and a rigorous selection of counterparties that have a high prestige and national and international recognition and based on their respective ratings, taking into account the nature, maturity and size of operations.
Taking into account the above mentioned policies, the Administration does not anticipate the possibility of any occurrence of any immaterial non -compliance with contractual obligations.
The movement in tangible assets and in the corresponding accumulated depreciation and impairment losses in the years ended at 31 December 2017 and 2016 was as follows:
| 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Buildings and other | Plant and | Other tangible | |||||
| constructions | machinery | Vehicles | Tools | Fixtures and fittings | assets | Total | |
| Gross assets | |||||||
| Balance at 31 December 2016 | 347,208 | 43,858 | 22,060 | 171 | 243,696 | 104 | 657,097 |
| Additions | - | - | - | - | 4,092 | - | 4,092 |
| Balance at 31 December 2017 | 347,208 | 43,858 | 22,060 | 171 | 247,788 | 104 | 661,189 |
| Accumulated depreciation and impairment | |||||||
| Balance at 31 December 2016 | 338,235 | 43,858 | 18,844 | 171 | 242,469 | 104 | 643,681 |
| Depreciation for the year | 3,718 | - | 3,216 | 1,683 | 8,617 | ||
| Balance at 31 December 2017 | 341,953 | 43,858 | 22,060 | 171 | 244,152 | 104 | 652,298 |
| Net value | 5,255 | - | - | - | 3,636 | - | 8,891 |
| 2016 | |||||||
| Buildings and other | Plant and | Other tangible | |||||
| constructions | machinery | Vehicles | Tools | Fixtures and fittings | assets | Total | |
| Gross assets | |||||||
| Balance at 31 December 2015 | 347,208 | 43,858 | 22,060 | 171 | 243,696 | 104 | 657,097 |
| Additions | - | - | - | - | - | - | - |
| Disposals | - | - | - | - | - | - | - |
| Balance at 31 December 2016 | 347,208 | 43,858 | 22,060 | 171 | 243,696 | 104 | 657,097 |
| Accumulated depreciation and impairment | |||||||
| Balance at 31 December 2015 | 334,022 | 43,787 | 13,328 | 171 | 240,708 | 104 | 632,120 |
| Depreciation for the year | 4,213 | 71 | 5,516 | - | 1,761 | - | 11,561 |
| Balance at 31 December 2016 | 338,235 | 43,858 | 18,844 | 171 | 242,469 | 104 | 643,681 |
| Net value | 8,973 | - | 3,216 | - | 1,227 | - | 13,416 |
The movement in intangible assets and in the corresponding accumulated amortisation and impairment losses in the years ended at 31 December 2017 and 2016 was as follows:
| 2017 | ||||
|---|---|---|---|---|
| Brands patents and other | ||||
| rights | Software | Intangible assets in progress | Total | |
| Gross assets | ||||
| Balance at 31 December 2016 | 9,789 | 193,127 | - | 202,916 |
| Adictions | 70 | - | 2,752 | 2,822 |
| Transfers | - | 2,752 | (2,752) | - |
| Balance at 31 December 2017 | 9,859 | 195,879 | - | 205,738 |
| Accumulated amortisation and impairment losses | ||||
| Balance at 31 December 2016 | 9,783 | 190,929 | - | 200,712 |
| Amortisation for the year | 29 | 1,810 | - | 1,839 |
| Balance at 31 December 2017 | 9,812 | 192,739 | - | 202,551 |
| Net value | 47 | 3,140 | - | 3,187 |
| 2016 | ||||
| Brands patents and other | ||||
| rights | Software | Intangible assets in progress | Total | |
| Gross assets | ||||
| Balance at 31 December 2015 | 9,719 | 192,552 | 183 | 202,454 |
| Adictions | 70 | 168 | 224 | 462 |
| Transfers | - | 407 | (407) | - |
| Balance at 31 December 2016 | 9,789 | 193,127 | - | 202,916 |
| Accumulated amortisation and impairment losses | ||||
| Balance at 31 December 2015 | 9,719 | 188,828 | - | 198,547 |
| Amortisation for the year | 64 | 2,101 | - | 2,165 |
| Balance at 31 December 2016 | 9,783 | 190,929 | - | 200,712 |
| Net value | 6 | 2,198 | - | 2,204 |
At 31 December 2017 and 2016, the breakdown of financial instruments was as follows:
| 2017 | ||||||
|---|---|---|---|---|---|---|
| Loans and | Other financial | Others not covered | ||||
| receivables | assets | Subtotal | by IAS 39 | Total | ||
| Non-current assets | ||||||
| Other non-current assets (note 8) | 23,264,201 | - | 23,264,201 | 213,626,619 | 236,890,820 | |
| 23,264,201 | - | 23,264,201 | 213,626,619 | 236,890,820 | ||
| Current assets | ||||||
| Income tax receivable | - | - | - | 737,633 | 737,633 | |
| Other trade debtors (note 11) Other current assets (note 12) |
599,242 - |
- 406,158 |
599,242 406,158 |
110,191 35,407 |
709,433 441,565 |
|
| Cash and cash equivalents (note 13) | 190,901,170 | - | 190,901,170 | - 190,901,170 |
||
| 191,500,412 | 406,158 | 191,906,570 | 883,231 | 192,789,801 | ||
| 2016 | ||||||
| Loans and | Other financial | Others not covered | ||||
| receivables | assets | Subtotal | by IAS 39 | Total | ||
| Non-current assets | ||||||
| Other non-current assets (note 8) | 26,527,564 | - | 26,527,564 | 185,939,791 | 212,467,355 | |
| Current assets | 26,527,564 | - | 26,527,564 | 185,939,791 | 212,467,355 | |
| Income tax receivable | - | - | - | 803,609 | 803,609 | |
| Other trade debtors (note 11) | 17,681,309 | - | 17,681,309 | 115,825 | 17,797,134 | |
| Other current assets (note 12) | - | 440,356 | 440,356 | 38,505 | 478,861 | |
| Cash and cash equivalents (note 13) | 210,933,723 | - | 210,933,723 | - 210,933,723 |
||
| 228,615,032 | 440,356 | 229,055,388 | 957,939 | 230,013,327 | ||
| 2017 | ||||||
| Other financial | Others not covered by | |||||
| liabilities | Subtotal | IAS 39 | Total | |||
| Non-current liabilities | ||||||
| Other non-current liabilities (note 18) | - | - | 224,758 | 224,758 | ||
| - | - | 224,758 | 224,758 | |||
| Current liabilities | ||||||
| Other creditors (note 19) | 1,090,052 | 1,090,052 | 32,204 | 1,122,256 | ||
| Other current liabilities (note 20) | 713,222 | 713,222 | - | 713,222 |
| 1,803,274 | 1,803,274 | 32,204 | 3,638,752 | |
|---|---|---|---|---|
| 2016 | ||||
| Other financial | Others not covered by | |||
| liabilities | Subtotal | IAS 39 | Total | |
| Non-current liabilities | ||||
| Other non-current liabilities (note 18) | - | - | 133,633 | 133,633 |
| - | - | 133,633 | 133,633 | |
| Current liabilities | ||||
| Other creditors (note 19) | 332,169 | 332,169 | 27,254 | 359,423 |
| Other current liabilities (note 20) | 405,501 | 405,501 | 246,232 | 651,733 |
| 737,670 | 737,670 | 273,486 | 1,011,156 |
The receivable and payable balances from the State and other public entities, as well as the specialized costs with the action plan, given its nature, were considered as financial instruments not covered by IAS 39. In turn, deferred costs and income, recorded under other current and non-current assets and liabilities, were considered as non-financial instruments.
The Sonaecom's Board of Directors believes that, the fair value of the breakdown of financial instruments recorded at amortised cost or registered at the present value of the payments does not differ significantly from their book value. This decision is based in the contractual terms of each financial instrument.
At 31 December 2017 and 2016, this caption included the following investments in Group companies was as follows:
| Company | 2017 | 2016 |
|---|---|---|
| Sonae Investment Management Software and Technology, SGPS, S.A. ('Sonae IM') | 52,241,587 | 52,241,587 |
| Público - Comunicação Social S.A. ('Público') | 23,305,000 | 21,305,000 |
| PCJ - Público Comunicação e Jornalismo S.A. ('PCJ') | 15,690,000 | 13,690,000 |
| Sonaecom - Serviços Partilhados S.A. ('Sonaecom SP') | 2,050,000 | 50,000 |
| 93,286,587 | 87,286,587 | |
| Impairment losses (note 17) | (35,015,000) | (34,995,000) |
| Total investments in Group companies | 58,271,587 | 52,291,587 |
The movements that occurred in investments in this caption during the years ended at 31 December 2017 and 2016 were as follows:
| Company | Balance at 31 December 2016 |
Additions | Disposals | Transfers and write offs |
Balance at 31 December 2017 |
|---|---|---|---|---|---|
| Sonae IM | 52,241,587 | - | - | - | 52,241,587 |
| Público | 21,305,000 | 2,000,000 | - | - | 23,305,000 |
| PCJ | 13,690,000 | 2,000,000 | - | - | 15,690,000 |
| Sonaecom SP | 50,000 | 2,000,000 | - | - | 2,050,000 |
| 87,286,587 | 6,000,000 | - | - | 93,286,587 | |
| Impairment losses (note 17) | (34,995,000) | - | - | (20,000) | (35,015,000) |
| Total investments in Group companies | 52,291,587 | 6,000,000 | - | (20,000) | 58,271,587 |
| Company | Balance at 31 December 2015 |
Additions | Disposals | Transfers and write offs |
Balance at 31 December 2016 |
|---|---|---|---|---|---|
| Sonaetelecom BV* | 73,460,618 | - | (73,460,618) | - | - |
| Sonae IM | 52,241,587 | - | - | - | 52,241,587 |
| PCJ | 11,850,555 | 1,839,445 | - | - | 13,690,000 |
| Sonaecom BV* | 10,100,000 | - | (10,100,000) | - | - |
| Público | 10,227,595 | 11,077,405 | - | - | 21,305,000 |
| Sonaecom SP | 50,000 | - | - | - | 50,000 |
| 157,930,355 | 12,916,850 | (83,560,618) | - | 87,286,587 | |
| Impairment losses (note 17) | (108,583,213) | (3,530,000) | 83,560,618 | (6,442,405) | (34,995,000) |
| Total investments in Group companies | 49,347,142 | 9,386,850 | - | (6,442,405) | 52,291,587 |
In the year ended at 31 December 2017, the amounts of Euro 2,000,000 in PCJ, Público and Sonaecom SP correspond to increases in capital paid up in cash.
In the year ended at 31 December 2017, the amount of Euro 20,000 refers to the reallocation of the impairment of of loans that were used to increase the capital (note 17).
In the year ended at 31 December 2016, the amount of Euro 6,442,405 refers to the reallocation of the impairment of loans that were used to increase the capital (note 17).
In the year ended at 31 December 2016, the additions on the amounts of Euro 11,077,405 and Euro 1,839,445 in Público and PCJ, respectively, correspond to increases in capital to cover losses.
In the year ended at 31 December 2016, the increases in the amount of Euro 3,530,000 corresponds to the impairment of financial investments in PCJ (note 17).
In the year ended at 31 December 2016, the amounts of Euro 73,460,618 and Euro 10,100,000 decreases correspond to the liquidation of Sonaetelecom BV and Sonaecom BV, respectively.
At 31 December 2017 and 2016, the main financial information regarding the subsidiaries and jointly controlled directly owned by the company is as follows (values in accordance with IFRS):
| (Amounts expressed in thounsand Euro) |
2017 | 2016 | |||||
|---|---|---|---|---|---|---|---|
| Company | Head office | % holding | Shareholders' funds | Net profit / (loss) | % holding | Shareholders' funds | Net profit / (loss) |
| ZOPT (a) (note 6)* | Matosinhos | 50% | 2,380,736 | 106,052 | 50% | 2,350,555 | 68,261 |
| Sonae IM (a) | Maia | 100% | 127,918 | 1,045 | 100% | 105,109 | 7,964 |
| PCJ | Maia | 100% | 1,955 | 229 | 100% | 26 | (3,151) |
| Sonaecom SP | Maia | 100% | 2,462 | 252 | 100% | 210 | 84 |
| Público | Maia | 100% | 1,368 | (4,202) | 100% | 70 | (3,704) |
(a) Consolidated Financial Statements
* At 31 December 2017, the market capitalization of NOS amounted to 2,824million euros.
** Companies liquidated in December 2017
The evaluation of the existence of impairment losses in Goodwill is made by taking into account the cash-generating units, based on the most recent business plans duly approved by the Group's Board of Directors, which are made on an annual basis unless there is evidence of impairment and prepared according to cash flow projections for periods of five years.
At 31 December 2017 and 2016, the assumptions used are based on the group's various businesses and the growth in the various geographic areas where the group operates:
| Average | |||||
|---|---|---|---|---|---|
| Assumptions | Telecomunications | Retail | Cybersecurity | Others | |
| Basis of recoverable amount | Value in use | Value in use | Value in use | Value in use | Value in use |
| Discount rate | 6.75% - 16.75% | 10.5% | 7.5% - 10.75% | 9% - 13.5% | 8.50% |
| Growth rate in perpetuity | 1.0% | 3.0% | 3.0% | 1% - 2% | 0.0% |
The analyses of the impairment indices and the review of the impairment projections and tests have not lead to clearance losses, during the year ended at 31 December 2017.
At 31 December 2017 and 2016, this caption included the following investments in companies jointly controlled:
| Company | 2017 | 2016 |
|---|---|---|
| ZOPT SGPS S.A. ('ZOPT') | 597,666,944 | 597,666,944 |
There were no movements in this caption during the years ended December 31, 2017 and 2016.
ZOPT is a joint venture of Sonaecom, Kento Holding Limited and Unitel International Holdings BV, created for detention of the participation in NOS SGPS, SA ("NOS"). At the period ended at 31 December 2017 and 2016 ZOPT held 52.15% of participation in NOS. At 14 June 2016, Sonaecom sold all its direct participation in NOS (2.14%) to ZOPT, as established in the shareholders agreement between Sonaecom, Kento Holding Limited and Jadeium BV (currently named Unitel International Holdings, BV), for the amount of Euro 82,840,847. This operation resulted in the change of the title of attribution of the participation voting rights and ZOPT became a direct holder of 52.15% of the share capital of NOS (note 7).
The recoverable amount of this asset and its associates and the average valuation made by external analysts (researches) was about 1% above its book value, and the measurement of the existence or not of impairment was determined in consideration of various information such as the business plan approved by the Board of the NOS, which implied an average growth rate of operating margin amounts to 3.4%.
| NOS SGPS | |
|---|---|
| Assumptions | |
| Basis of recoverable amount Discount rate Growth rate in perpetuity |
Value in use 7.4% 1.4% |
In addition, ZOPT's consolidated financial statements present significant exposure to the African market, in particular through financial holdings held by the group in affiliates operating in the Angolan and Mozambican markets, which are mainly engaged in the provision of satellite television services and by fiber. The net book value of the Angolan associates in the financial statements as of December 31, 2017 amounts to approximately Euro 195 million. These participations were subjected to impairment tests in the sensitivity analyses for which ranges above the usual were used, in which variations of 2 pp in WACC and 0.5 pp in the perpetuity growth rate allow us to conclude that in extreme situations, with a high inflation rate and a lower capacity of the company to reflect a higher price increase, the valuation carried out would not support the value of the assets, ranging from 61% to 156% of the book value.
The analysis of impairment and review of the projections and impairment tests did not lead to the calculation of losses in the year ended at 31 December 2017.
The movements occurred in this caption during the year ended at 31 December 2016 were as follows:
| 2016 | |||||
|---|---|---|---|---|---|
| Fair value adjustments |
Increase and decrease in fair value of shares intended to |
||||
| Financial assets at fair value through profit or loss | Opening balance | Decreases | (note 23) | cover MTIP | Closing balance |
| NOS | 79,796,807 | (64,114,961) | (15,681,846) | - | - |
| Sonae SGPS | 144,477 | (146,683) | 2,206 | - | - |
| 79,941,284 | (64,261,643) | (15,679,640) | - | - |
The fair value adjustments are recorded under the caption "Gains and losses of investments recorded at fair value through profit or loss" in Profit and Loss Statement (note 24). With the exception of the increases and decreases in the fair value of shares allocated to cover the medium-term incentive plans whose value is recorded under "Other operating expenses" and "Other financial expenses" in the income statement.
The decreases at 31 December 2016, in the investment in Sonae SGPS shares, correspond essentially to the payment of the mediumterm incentive plan, which expired in the year ended at 31 December 2016.
At 31 December 2016, the decreases in investment in NOS shares corresponds to the sold of all the direct participation of Sonaecom in NOS (2.14%) to ZOPT, as mentioned in note 6 "Investments in companies jointly controlled". For the determination of the fair value of the NOS shares at the date of sale, it was used the share price of the day on 14 June 2016 (5.822) for the 11,012,532 treasury shares in the portfolio at the moment of sale. Consequently, operation resulted in a capital again of Euro 18,725,886 recorded under the caption 'Gains and losses on investments at fair value through profit or loss' (note 24).
At 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Financial assets | ||
| Medium and long-term loans granted to group companies and joint-ventures: | ||
| Sonae IM | 32,025,000 | 32,415,000 |
| PCJ | 70,000 | - |
| Público | - | 2,335,000 |
| 32,095,000 | 34,750,000 | |
| Supplementary capital: | ||
| Zopt | 115,000,000 | 115,000,000 |
| Sonae IM | 88,536,618 | 64,049,791 |
| Público | 7,240,000 | 3,740,000 |
| PCJ | 2,850,000 | 3,150,000 |
| 213,626,618 | 185,939,791 | |
| 245,721,618 | 220,689,791 | |
| Accumulated impairment losses (note 17) | (9,046,994) | (8,222,436) |
| Others | 216,196 | - |
| 236,890,820 | 212,467,355 |
During the years ended at 31 December 2017 and 2016, the movements that occurred in 'Medium and long-term loans granted' to Group companies and companies jointly controlled were as follows:
| 2017 | ||||
|---|---|---|---|---|
| Company | Opening balance | Increases | Decreases | Closing balance |
| Sonae IM | 32,415,000 | - | (390,000) | 32,025,000 |
| PCJ | - | 70,000 | 70,000 | |
| Público | 2,335,000 | (2,335,000) | - | |
| 34,750,000 | 70,000 | (2,725,000) | 32,095,000 | |
| 2016 | ||||
| Company | Opening balance | Increases | Decreases | Closing balance |
| Sonae IM | 15,315,000 | 18,665,000 | (1,565,000) | 32,415,000 |
| PCJ | 3,690,000 | - | (3,690,000) | - |
| Público | 165,000 | 3,010,000 | (840,000) | 2,335,000 |
| Sonaecom SP | 160,000 | - | (160,000) | - |
| 19,330,000 | 21,675,000 | (6,255,000) | 34,750,000 |
In 2016 there were Euro 3,890,000 (Euro 840,000 in Publico and Euro 3,050,000 in PCJ) of reduction of loans by conversion in increase of supplementary capital.
During the years ended at 31 December 2017 and 2016, the movements in 'Supplementary capital' were as follows:
| 2017 | ||||
|---|---|---|---|---|
| Company | Opening balance | Increases | Decreases | Closing balance |
| ZOPT | 115,000,000 | - | - | 115,000,000 |
| Sonae IM | 64,049,791 | 24,486,827 | - | 88,536,618 |
| Público | 3,740,000 | 3,500,000 | - | 7,240,000 |
| PCJ | 3,150,000 | - | (300,000) | 2,850,000 |
| 185,939,791 | 27,986,827 | (300,000) | 213,626,618 |
| 2016 | ||||
|---|---|---|---|---|
| Company | Opening balance | Increases | Decreases | Closing balance |
| ZOPT | 115,000,000 | - | - | 115,000,000 |
| Sonae IM | 29,519,791 | 34,530,000 | - | 64,049,791 |
| Público | 11,077,405 | 3,740,000 | (11,077,405) | 3,740,000 |
| PCJ | 1,839,445 | 3,150,000 | (1,839,445) | 3,150,000 |
| 157,436,641 | 41,420,000 | (12,916,850) | 185,939,791 |
Loans granted to Group companies and Supplementary capital, do not have a defined maturity, therefore no information about the aging of these loans is presented.
During the year ended at 31 December 2017 and 2016, the loans granted to Group companies and companies jointly controlled earned interest at market rates with an average interest rate of 2.31% and 2.48%, respectively. Supplementary capital is non-interest bearing and have no reimbursement turn.
In the year ended at 31 December 2017, the amount of Euro 300,000 of decreases in PCJ, correspond to the reimbursement of supplementary capital.
In the year ended at 31 December 2016 the amounts of Euro 11,077,405 and Euro 1,839,445 of decreases in Publico and PCJ, respectively, correspond to the reimbursement of supplementary capital.
The evaluation of the existence of impairment losses for the loans made to Group companies was based on the most up-to-date business plans duly approved by the Group's Board of Directors, which include projected cash flows for periods of five years. The discount rates used and the perpetuity growth considered are presented in the note 5 and 6. .
The changes in deferred tax assets for the years ended at 31 December 2017 and 2016 were as follows:
| 2017 | 2016 | |
|---|---|---|
| Opening balance | 94,475 | - |
| Movement in provisions not accepted for tax purposes and other temporary differences | 20,231 | 94,475 |
| Closing balance | 114,706 | 94,475 |
At 31 December 2017 and 2016, assessments of the deferred tax assets to be recovered and recognised were made. Potential deferred tax assets were recorded to the extent that future taxable profits were expected to be generated against which the tax losses and deductible tax differences could be used. These assessments were made based on the most recent business plans duly approved by the Board of Directors of the Group companies, which are periodically reviewed and updated.
At 31 December 2017 and 2016, the value of deferred taxes assets not recorded were Euro 1,989,007 - generated in 2014 and available for use until 2026. In addition there are impairment losses in amount of Euro 44,061,994 (Euro 43,577,323 in 2016) that did not give rise to the registration of deferred tax assets, but which could be used in the case of liquidation of the companies.
At 31 December 2017 and 2016, the tax rate used to calculate deferred tax assets related to tax losses was 21%. In the case of temporary differences, in particular of provisions not accepted and impairment losses, the rate used in 2017 and 2016 was 22.5%.
Tax benefits, related to deductions from taxable income, are considered at 100%, and in some cases, their full acceptance is dependent on the approval of the authorities that concede such tax benefits.
It wasn't considered the state surcharge, as it was understood to be unlikely the taxation of temporary differences during the estimated period when the referred rate will be applicable.
The reconciliation between the earnings before tax and the tax recorded for the years ended at 31 December 2017 and 2016 is as follows:
| 2017 | 2016 | |
|---|---|---|
| Earnings before tax | 15,838,722 | 16,841,912 |
| Tax (21%) | (3,326,132) | (3,536,802) |
| Adjustments of results not tax deductible | 3,278,692 | 4,847,302 |
| Autonomous taxation surcharge and correction of the tax of the previous year | (21,910) | 709,178 |
| Temporary differences from the exercise without record deferred tax assets | (19,096) | (1,563,632) |
| Recorded of deferred tax assets | 20,231 | 94,475 |
| Tax provision (notes 17 and 26) | - | 63,539 |
| Impact of the liquidation of companies | - | 17,547,730 |
| Use of losses carried forward which deferred taxes were not recorded | - | - |
| Income taxation recorded in the year (note 26) | (68,215) | 18,161,790 |
The tax rate used to reconcile the tax expense and the accounting profit was 21% in the year of 2017 and 2016 because it are the standards rates of the corporate income tax in Portugal in 2017 and 2016.
In the year ended at 31 December 2017, the caption "Adjustments of results not tax deductible" refers essentially to dividends received in the amount of Euro 16,512,004 (note 24), which do not contribute to the formation of taxable income of the Company period.
In the year ended at 31 December 2016, the "Adjustments of results not tax deductible" item includes the amount of Euro 3,932,436 related to the capital gain generated by the sale of the direct participation of Sonaecom in NOS (2.14%) to Zopt (note 7). In addition, in 2016 this caption includes the negative amount of Euro 3,293,188, related to the impact of the fair value of the NOS shares (note 7) and also Euro 4,215,530, to dividends received from ZOPT and NOS (note 24), among other adjustments that do not contribute to the formation of taxable income for the year.
Tax administration can review the income tax returns of the Company for a period of four years (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 progress, in which circumstances, the periods are extended or suspended. The Board of Directors believes that any correction that may arise as a result of such review would not produce a significant impact in the accompanying financial statements.
Supported by the Company's lawyers and tax consultants, the Board of Directors believes that there are no liabilities not provisioned in the financial statements, associated to probable tax contingencies that should have been recorded or disclosed in the accompanying financial statements, at 31 December 2017.
At 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Special account payment | 701,200 | 701,200 |
| Corporate income tax | 26,241 | 87,425 |
| Withholdings | 10,192 | 14,984 |
| 737,633 | 803,609 |
Special prepayments are included in the item Special on account payment, amounts prior to RETGS Sonae SGPS (essentially PECs for which reimbursement is requested).
At 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| State and other public entities | 110,191 | 115,825 |
| Trade debtors ( note 27) | 599,242 | 17,681,309 |
| 709,433 | 17,797,134 |
At 31 December 2016, the caption "Other debtors" includes the amount of Euro 17,285,277 to be received from Sonae, in relation to tax rate from companies that include in the special regime for the taxation of groups of companies, whose this company is leader. The amount receivable for 2016 is associated to the tax effect of Sonaecom BV and Sonaetelecom BV liquidation's (Euro 17,547,730).
At 31 December 2017 and 2016, the caption 'Tarde debtors' included amounts to be received from Group companies related to interests receivable from subsidiaries on Shareholders' loans, interest on treasury applications and services rendered (notes 25 and 27).
At 31 December 2017 and 2016, the caption 'State and other public entities' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Value added tax | 110,191 | 115,825 |
| 110,191 | 115,825 |
At 31 December 2017 and 2016 the caption 'Other debtors' by age at 31 December 2017 and 2016 are as follows:
| Due without impairment | Due and with impairment | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| More than 90 | From 90 to | From 180 to | More than 360 | ||||||
| Total | Not due | Until 30 days | From 30 to 90 days | days | Until 90 days | 180 days | 360 days | days | |
| 2017 | |||||||||
| Other debtors | 599,242 | 235,962 | 259,422 | 69,761 | 34,097 | - | - | - | - |
| 2016 | |||||||||
| Other debtors | 17,681,309 | 16,726,119 | 913,635 | 6,485 | 35,070 | - | - | - | - |
At the year ended at 31 December 2017 and 2016, the amounts due without impairment to more than 90 days correspond, mostly, to amounts receiving from Group companies.
The debts of the state and other public entities were not subject detail above, for not being financial assets.
At 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Accrued income | ||
| Interest receivable | 116,060 | 223,818 |
| Invoices to be issued | 287,807 | 213,377 |
| Other accrued income | 2,291 | 3,159 |
| 406,158 | 440,354 | |
| Pluriannual costs | ||
| Insurance | 28,157 | 31,274 |
| Other pluriannual costs | 7,250 | 7,233 |
| 35,407 | 38,507 | |
| 441,565 | 478,861 |
At 31 December 2017 and 2016, the breakdown of cash and cash equivalents was as follows:
| 2017 | 2016 | |
|---|---|---|
| Cash | 639 | 679 |
| Bank deposits repayable on demand | 120,900,531 | 83,913,044 |
| Treasury applications | 70,000,000 | 127,020,000 |
| 190,901,170 | 210,933,723 | |
| 190,901,170 | 210,933,723 |
At 31 December 2017 and 2016, the caption 'Treasury applications' had the following breakdown:
| 2017 | 2016 | |
|---|---|---|
| Bank applications | 70,000,000 | 123,000,000 |
| Sonae IM | - | 3,165,000 |
| Público | - | 855,000 |
| 70,000,000 | 127,020,000 |
In the year ended at 31 December 2017 and 2016, Sonaecom entered into financial transaction contracts with Sonae, Sonae IM, Público, PCJ and Sonaecom SP. The treasury applications immediately available, mentioned above, are remunerated during the years ended at 31 December 2017 and 2016, with an interest average rate of 0.386% (0.76% in 2016).
At 31 December 2017 and 2016, the share capital of Sonaecom was comprised by 311,340,037 ordinary shares registered of Euro 0.74 each. At those dates, the Shareholder structure was as follows:
| 2017 | 2016 | |||
|---|---|---|---|---|
| Number of shares | % | Number of shares | % | |
| Sontel BV | 194,063,119 | 62.33% | 194,063,119 | 62.33% |
| Sonae SGPS | 81,022,964 | 26.02% | 81,022,964 | 26.02% |
| Shares traded on the Portuguese Stock Exchange ('Free Float') | 30,682,940 | 9.86% | 30,682,940 | 9.86% |
| Own shares (note 15) | 5,571,014 | 1.79% | 5,571,014 | 1.79% |
| 311,340,037 | 100.00% | 311,340,037 | 100.00% |
All shares that comprise the share capital of Sonaecom, are authorised, subscribed and paid. All shares have the same rights and each share corresponds to one vote.
During the years ended at 31 December 2017 and 2016, Sonaecom did not acquire, sold or delivered own shares, whereby the amount held in the end of each of exercises, is of 5,571,014 own shares representing 1.79% of its share capital, at an average price of Euro 1.515.
At 31 December 2017 and 2016, The Sonaecom is not using a short-term credit lines, although it has a bank credit line in the form of current or overdraft account commitments, in the amount of Euro 1 million.This credit line has maturities up to one year, automatically renewable, except in case of termination by either party, with some periods of notice.
The credit line bear interest at market rates, indexed to the EURIBOR of the respective term.
At 31 December 2017 and 2016, the available credit lines are as follows:
| Maturity | |||||
|---|---|---|---|---|---|
| Amount | More than 12 | ||||
| Credit | Limit | outstanding | Amount available | Until 12 months | months |
| 2017 | |||||
| Authorised overdrafts | 1,000,000 | - | 1,000,000 | x | |
| 1,000,000 | - | 1,000,000 | |||
| 2016 | |||||
| Authorised overdrafts | 1,000,000 | - | 1,000,000 | x | |
| 1,000,000 | - | 1,000,000 |
At 31 December 2017 and 2016, there are no financial instruments of interest rate hedging.
The movements in provisions and in accumulated impairment losses in the years ended at 31 December 2017 and 2016 were as follows:
| Opening balance | Increases | Reductions | Transfers and utilizations |
Closing balance | |
|---|---|---|---|---|---|
| 2017 | |||||
| Accumulated impairment losses on investments in Group companies (notes 5 and 24) |
34,995,000 | - | - | 20,000 | 35,015,000 |
| Accumulated impairment losses on other non-current assets (notes 8 and 24) |
8,222,436 | 844,558 | - | (20,000) | 9,046,994 |
| Provisions for other liabilities and charges | 214,777 | 54,888 | - | - | 269,665 |
| 43,432,213 | 899,446 | - | - | 44,331,659 | |
| 2016 | |||||
| Accumulated impairment losses on investments in Group companies (notes 5 and 24) |
108,583,213 | 3,530,000 | (83,560,618) | 6,442,405 | 34,995,000 |
| Accumulated impairment losses on other non-current assets (notes 8 and 24) |
10,917,405 | 3,747,436 | - | (6,442,405) | 8,222,436 |
| Provisions for other liabilities and charges | 241,811 | 36,505 | (63,539) | - | 214,777 |
| 119,742,429 | 7,313,941 | (83,624,157) | - | 43,432,213 |
The increases in provisions and impairment losses are recorded under the caption "Provisions and impairment losses" in the profit and loss statement with the exception of the impairment losses in investments in Group companies and other non-current assets, which, due to their nature, are recorded under the caption "Gains and losses on Group companies" (note 24).
At 31 December 2016, the decreases in the caption "Accumulated impairment losses on investments in group companies" correspond to the liquidation of Sonaetelecom BV and Sonaecom BV in the amounts of Euro 73,460,618 and Euro 10,100,000, respectively.
At 31 December 2017, the change in caption 'Provision for other liabilities and charges' includes the amount of Euro 54,888 recorded in the profit loss statement in 'Provisions and impairment losses'.
At 31 December 2016, the change in the caption "Provisions for other liabilities and charges" includes the amount of Euro 63,539 recorded, in the profit and loss statement, in "Income taxation", due to its nature (note 26), and the negative amount of Euro 36,505, recorded in the profit and loss statement in "Provisions and impairment losses".
At 31 December 2017 and 2016, the increase in the caption 'Accumulated impairment losses on other non-current assets' includes amounts related to impairment and adjustments of financial investments in Publico and PCJ.
At 31 December 2017, the amount of Euro 20,000 refers to the reallocation of the impairment of loans that were used to increase capital.
At 31 December 2016, the amount of Euro 6,442,405 refers to the reallocation of the impairment of loans that were used increase capital.
This caption, in the amounts of Euro 224,758 and Euro 133,633 at 31 December 2017 and 2016, respectively, corresponds to the medium and long-term amounts associated with the Medium Term Incentive Plans (note 30).
At 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Other creditors | 1,090,052 | 332,169 |
| State and other public entities | 32,204 | 27,254 |
| 1,122,256 | 359,423 |
At 31 December 2017, the caption 'Other creditors' includes the amount of Euro 401,328.77 to be paid to Sonae, in relation to the IRC payable and special account payment by the companies that include the RETGS of which this company is the leader.
At 31 December 2017 and 2016, the caption 'State and other public entities' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Social security contributions | 16,651 | 13,195 |
| Personal income tax | 15,553 | 14,059 |
| 32,204 | 27,254 |
The liability to other creditors matures as follows:
| Total | Until 90 days | From 90 to 180 days | More than 180 days | |
|---|---|---|---|---|
| 2017 | ||||
| Other creditors | 1,090,052 | 1,090,052 | - | – |
| 1,090,052 | 1,090,052 | – | – | |
| 2016 | ||||
| Other creditors | 332,169 | 332,169 | - | – |
| 332,169 | 332,169 | – | – |
At 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Accrued costs | ||
| Staff expenses | 298,521 | 176,888 |
| Medium Term Incentive Plans (note 30) | 191,152 | 246,232 |
| Consultancy | 91,437 | 75,582 |
| Other accrued costs | 132,112 | 153,031 |
| 713,222 | 651,733 |
At 31 December 2017, the caption 'Services rendered' was comprised by the charge of management fees to subsidiaries and fees for legal services. As of December 31, 2016, the Services rendered corresponded only to the debit, to the investees, of management fees (note 27).
At 31 December 2017 and 2016, the caption 'Other operating revenues' was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Supplementary income | 24,743 | 20,229 |
| Others | 68,130 | 118,772 |
| 92,873 | 139,001 |
At 31 December 2017 and 2016, the heading 'Supplementary income' is, mostly, composed of income associated with guarantees that Sonaecom secured on behalf of its subsidiaries.
At 31 December 2017 and 2016, this caption was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Specialised work | 321,510 | 492,383 |
| Travel and accommodation | 65,005 | 86,279 |
| Other external supplies and services | 40,181 | 84,863 |
| Insurance | 49,823 | 48,980 |
| Rents | 35,153 | 34,056 |
| Communications | 29,553 | 31,341 |
| 541,225 | 777,902 |
The commitments assumed by the company at 31 December 2017 and 2016 related to operational leases are as follows:
| 2017 | 2016 | |
|---|---|---|
| Minimum payments of operational leases: | ||
| 2017 | - | 22,429 |
| 2018 | 28,958 | 24,880 |
| 2019 | 31,223 | 24,880 |
| 2020 | 26,057 | 24,880 |
| 2021 | 22,577 | 24,880 |
| 2022 | 22,577 | - |
| Renewable by periods of one year | - | - |
| 131,392 | 121,949 |
At 31 December 2017 and 2016, these captions "Gains and losses on investments in group companies and joint ventures" and "Gains and losses on investments recorded at fair value through profit or loss" were made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Gains and losses on investments in Group companies and joint ventures | ||
| Losses related to Group companies (notes 5, 8 and 17) | (844,558) | (7,284,746) |
| Gains related to Group companies (note 17) | - | 92,608 |
| Dividends obtained (note 27) | 16,512,004 | 18,311,947 |
| 15,667,446 | 11,119,809 | |
| Gains and losses on financial assets at fair value through profit or loss | ||
| Gains and losses on financial assets at fair value through profit or loss (note 7) | - | (15,679,641) |
| Dividends obtained (note 27) | - | 1,762,005 |
| Gains on disposals of financial assets at fair value through profit or loss (note 7) | - | 18,725,886 |
| - | 4,808,250 |
At 31 December 2017, losses on the Group companies include the reinforcement of impairment losses in other non-current assets (notes 8 and 17).
At 31 December2016, losses on the Group companies include the reinforcement of impairment losses on other non-current assets (notes 8 and 17), in the amount of Euro 3,747,436 and the reinforcement of impairment losses on investments in companies Group in the amount of Euro 3,530,000 (notes 5 and 17) and also the loss resulting from the liquidation of Sonae Telecom BV in the amount of Euro 7,310.
At 31 December 2016, gains related to Group companies include the gain resulting from the liquidation of Sonaecom BV in the amount of Euro 92,608.
In the year ended at 31 December2016, the caption 'Gains from disposal of investments recorded at fair value through profit or loss' includes the capital gain generated by the sale of NOS shares (18,725,886 euros) as described in note 7 'Investments recorded at fair value through profit or loss'.
At 31 December 2017 and 2016, gains related to dividends received from investments in Group companies and in join companies jointly controlled are associated with dividends received from Zopt. The gains related to dividends received from investments at fair value through profit or loss are associated with dividends received from NOS (note 27).
Net financial results for the years ended at 31 December 2017 and 2016 are made up as follows ((costs)/gains):
| 2017 | 2016 | |
|---|---|---|
| Other financial expenses | ||
| Interest expenses | (4,098) | - |
| (4,098) | - | |
| Foreign currency exchange losses | (200) | (669) |
| Other financial expenses | (78,197) | (97,788) |
| (78,397) | (98,457) | |
| (82,495) | (98,457) | |
| Other financial income | ||
| Interest income (note 27) | 1,585,101 | 2,188,901 |
| Other financial income | - | 85,102 |
| 1,585,101 | 2,274,003 |
Income taxes recognized during the years ended at 31 December 2017 and 2016 were made up as follows ((costs) / gains):
| 2017 | 2016 | |
|---|---|---|
| Current tax (note 9) | (88,446) | 18,003,776 |
| Tax provision (notes 9 and 17) | - | 63,539 |
| Deferred tax assets | 20,231 | 94,475 |
| Closing balance | (68,215) | 18,161,790 |
The most significant balances and transactions with related parties at 31 December 2017 and 2016 were as follows:
| Balances at 31 December 2017 |
||||||
|---|---|---|---|---|---|---|
| Accounts receivable | Accounts payable | Treasury applications | Outros assets | Other liabilities | Loans granted | |
| (note 11) | (note 19) | (note 13) | (note 12) | (note 20) | (note 8) | |
| Parent Company | - | 86,507 | - | 215,557 | 157,433 | - |
| Companies jointly controlled | 13,869 | - | - | - | - | - |
| Others related parties | 3,147 | 23,334 | - | 326,970 | 1,867 | - |
| Subsidiaries | 548,645 | 887,554 | - | 83,577 | - | 32,095,000 |
| 565,661 | 997,395 | - | 626,104 | 159,300 | 32,095,000 |
| Balances at 31 December 2016 |
||||||
|---|---|---|---|---|---|---|
| Accounts receivable (note 11) |
Accounts payable (note 19) |
Treasury applications (note 13) |
Outros assets (note 12) |
Other liabilities (note 20) |
Loans granted (note 8) |
|
| Parent Company | 17,500,764 | - | - | - | 153 | - |
| Companies jointly controlled | 657,869 | - | - | - | - | - |
| Others related parties | (14,210) | 15,161 | - | 239,389 | (455,912) | - |
| Subsidiaries | (471,224) | 40,209 | 4,020,000 | 182,744 | 634,998 | 34,750,000 |
| 17,673,199 | 55,370 | 4,020,000 | 422,133 | 179,239 | 34,750,000 |
| Transactions at 31 December 2017 |
|||||
|---|---|---|---|---|---|
| Sales and services | Supplies and services | ||||
| rendered | received | Interest and similar | Interest and similar | Supplementary income | |
| (note 21) | (note 23) | income (note 25) | expense (note 25) | (note 22) | |
| Parent Company | - | 100,000 | 490,299 | - | - |
| Others related parties | - | 113,429 | - | - | 22,090 |
| Subsidiaries | 514,483 | 89,726 | 1,063,469 | 116 | 2,291 |
| 514,483 | 303,155 | 1,553,768 | 116 | 24,381 |
| Transactions at 31 December 2016 |
|||||
|---|---|---|---|---|---|
| Sales and services | Supplies and services | ||||
| rendered | received | Interest and similar | Interest and similar | Supplementary income | |
| (note 21) | (note 23) | income (note 25) | expense (note 25) | (note 22) | |
| Parent Company | - | - | 1,192,276 | - | (26) |
| Companies jointly controlled | - | - | 6,842 | - | - |
| Others related parties | - | 131,773 | - | - | 14,891 |
| Subsidiaries | 253,325 | 103,932 | 945,761 | - | 3,133 |
| 253,325 | 235,705 | 2,144,879 | - | 17,998 |
During the year ended at 31 December 2016, Sonaecom sold its direct participation in NOS (2.14%) to ZOPT. This operation generated an added value of Euro 18,725,886 recorded under 'Gains and losses on investments recorded at fair value through results' (note 24).
During the year ended at 31 December 2017, the company distributed dividends, in the amount of Euro 6,238,768 to Sonae (Euro 4,699,332 at 31 December 2016) and Euro 14,942,860 to Sontel BV (Euro 11,255,661 at 31 December 2016).
During the years ended at 31 December 2017 and 2016, Sonaecom recognized in the amount of Euro 16,512,004 and Euro 18,311,947, respectively, related to dividends of Zopt (note 24).
During the year ended at 31 December 2016, Sonaecom recognized in the amount of Euro 1,762,005, related to dividends of NOS (note 24).
All the above transactions were made at market prices.
Accounts receivable and payable to related companies will be settled in cash and are not covered by guarantees.
Remuneration attributed to "key personnel" is disclosed in note 31.
Guarantees provided to third parties at 31 December 2017 and 2016 were as follows:
| Beneficiary | Description | 2017 | 2016 |
|---|---|---|---|
| Direção de Contribuições e Impostos (Portuguese tax authorities) | Additional tax assessments (VAT Stamp and Income tax) | 1,558,985 | 222,622 |
| 1,558,985 | 222,622 |
In addition to these guarantees were set up sureties for the current fiscal processes. The Sonae consisted of Sonaecom surety to the amount of Euro 27,546,999 and Sonaecom of Público surety for the amount of Euro 564,900.
At 31 December 2017, the Board of Directors of the Company believes that the decision of the court proceedings and ongoing tax assessments in progress will not have significant impacts on the financial statements.
At 31 December 2017 and 2016, the contingencies for which guarantees and sureties exist were considered as remote.
Earnings per share, basic and diluted, are calculated by dividing the net income of the year (Euro 15,770,507 in 2017 and Euro 35,003,700 in 2016) by the average number of shares outstanding during the years ended at 31 December 2017 and 2016, net of own shares (305,769,023 in 2017 and 2016).
In June 2000, the Company created a discretionary Medium Term Incentive Plan for more senior employees, based on Sonaecom options and shares and Sonae shares which on 10 March 2014 Sonaecom plans been converted to Sonae shares. The vesting occurs three years after the award of each plan, assuming that the employees are still employed in the Company.
The 2012 plan was delivered in March 2016 and the 2013 plan was delivered in March 2017.
Therefore, the outstanding plans at 31 December 2017 are as follows:
| Vesting period | 31 December 2017 | ||||
|---|---|---|---|---|---|
| Share price 31.12.2017 | Award date | Vesting date | Aggregate number of participations |
Number of shares | |
| Sonae SGPS shares | |||||
| 2014 Plan | 1.126 | 10-Mar-15 | 10-Mar-18 | 4 | 186,501 |
| 2015 Plan | 1.126 | 10-Mar-16 | 10-Mar-19 | 4 | 248,608 |
| 2016 Plan | 1.126 | 10-Mar-17 | 10-Mar-20 | 2 | 236,029 |
During the year ended at 31 December 2017, the movements that occurred in the plans can be summarized as follows:
| Sonae SGPS shares | ||
|---|---|---|
| Aggregate number of participations | Number of shares | |
| Outstanding at 31 December 2016: | ||
| Unvested | 6 | 698,821 |
| Total | 6 | 698,821 |
| Movements in year: | ||
| Awarded | 2 | 226,635 |
| Vested | (3) | (310,298) |
| Transferred / Converted / Corrected * | 5 | 55,980 |
| Outstanding at 31 December 2017: | ||
| Unvested | 10 | 671,138 |
| Total | 10 | 671,138 |
* The corrections are made based on the dividend paid and on the employee transfers and exits during the plan period.
The responsibility for all plans was recognized under 'Other current liabilities' and 'Other non-current liabilities'.
Share plan costs are recognised in the accounts over the period between the award and the vesting date of those plans. The costs recognised in previous years and in the period ended at 31 December 2017, were as follows:
| Value | |
|---|---|
| Costs recognised in previous years | 374,730 |
| Costs recognised in the year | 332,162 |
| Costs of plans vested in the year | (290,982) |
| Total cost of the plans | 415,910 |
| Recorded in 'Other current liabilities´ (note 20) | 191,152 |
| Recorded in 'Other non-current liabilities´ (note 18) | 224,758 |
During the years ended at 31 December 2017 and 2016, the caption "Staff expenses" was made up as follows:
| 2017 | 2016 | |
|---|---|---|
| Remuneration | 774,236 | 431,172 |
| Charges on remuneration | 152,385 | 113,261 |
| Medium Term Incentive Plan (note 30) | 322,162 | 135,419 |
| Others | 37,170 | 16,619 |
| 1,285,953 | 696,471 |
During 2017 and 2016, the remunerations paid to Directors and other members of key management in functions were as follows:
| 2017 | 2016 | |
|---|---|---|
| Short-term employee benefits | 625,629 | 569,100 |
| Share-based payments | 212,986 | 205,400 |
| 838,615 | 774,500 |
The short-term employee benefits, which include the salary and performance bonus, were calculated on an accruals basis. The sharebased payments for 2017 and 2016 correspond to the value of the Medium Term Incentive Plan and will be awarded in 2018, in respect of performance during 2017 (and the Medium Term Incentive Plan awarded in 2017 in respect of performance during 2016, for the 2016 amounts), whose shares, or the cash equivalent, will be delivered in March 2021 and March 2020, respectively and for which expenses is recorded over the period 2018 to 2021 (2017 to 2020 for 2016).
During the years ended at 31 December 2017 and 2016, the company employed an average number of 6 and 3, respectively. At 31 December 2017, the number of employees was 6.
During the year ended at 31 December 2017 the company paid, as a fee to the ROC, PricewaterhouseCoopers SROC the amount of Euro 18,926 (Euro 17,138 in 2016), the total amount related to statutory audit.
There were no relevant subsequent events.
These financial statements were approved by the Board of Directors on 12 March 2018, being its conviction that these will be approved at Shareholders General Meeting.
These financial statements are a translation of financial statements originally issued in Portuguese in accordance with International Financial Reporting Standards (IAS / IFRS) as adopted by the European Union and the format and disclosures required by those Standards, some of which may not conform to or be required by generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.
We have audited the accompanying consolidated financial statements of Sonaecom, S.G.P.S., S.A. (the Group), which comprise the consolidated statement of financial position as at 31st December 2017 (which shows total assets of Euro 1,105,608,849 and total shareholders' equity of Euro 1,031,877,517 including a net profit of Euro 22,765,966), the consolidated statement of income by nature, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly in all material respects, the consolidated financial position of Sonaecom, S.G.P.S., S.A. as at 31st December 2017, and their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and recommendations issued by the Institute of Statutory Auditors. Our responsibilities under those standards are described in the "Auditor's responsibilities for the audit of the consolidated financial statements" section below. In accordance with the law we are independent of the entities that are included in the Group and we have fulfilled our other ethical responsibilities in accordance with the ethics code of the Institute of Statutory Auditors.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. o′Porto Bessa Leite Complex, Rua António Bessa Leite, 1430 - 5º, 4150-074 Porto, Portugal Tel +351 225 433 000 Fax +351 225 433 499, www.pwc.pt Matriculada na CRC sob o NUPC 506 628 752, Capital Social Euros 314.000 Inscrita na lista das Sociedades de Revisores Oficiais de Contas sob o nº 183 e na CMVM sob o nº 20161485
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. pertence à rede de entidades que são membros da PricewaterhouseCoopers International Limited, cada uma das quais é uma entidade legal autónoma e independente. Sede: Palácio Sottomayor, Rua Sousa Martins, 1 - 3º, 1069-316 Lisboa, Portugal
As mentioned in Note 8 to the consolidated financial statements, the group holds investments in the joint venture ZOPT in the amount of Euro 688.2 million, which holds investments in Angolan and Mozambican associates Finstar, Mstar and Zap Media, in the amount of Euro 195 million, and the Angola economy was considered hyperinflationary in 2017. The group also holds investments in the associated companies Armilar II, Armilar III and AVP I + I in the amount of Euro 78.7 million, which are investment entities, and measure their financial investments at fair value. These associated companies were acquired in the end of 2016, and the fair value was provisionally determined in the financial statements for that year.
As mentioned in Note 1.b), investments in associates and joint ventures are recorded under the equity method. As recommended in IAS 36, impairment tests are performed whenever there is evidence of impairment, and business plans are prepared for this purpose.
Considering the inherent subjectivity of the assumptions used in determining the recoverability of the referred values, which in the case of Angola and Mozambique are still subject to country-specific issues, as well as to the assumptions used in determining the associated companies' financial investments fair value, we consider these investments to be a key audit matter.
The disclosures are presented in Notes 1.b), 3.c), 8 and 35 to the consolidated financial statements.
Key Audit Matter Summary of the Audit Approach
We have obtained the financial statements of associated companies and jointly controlled companies, as well as their respective audit reports, issued by another auditor.
As the financial statements of the joint venture and associated companies are audited by other auditors, we have sent audit instructions, interacted with the respective auditors, evaluated the strategy and the audit plan, as well as the tests performed for the significant areas and the conclusions reached.
In relation to the joint venture, we have also performed some auditing procedures, from which we highlight:
analysis of the validation procedures of the adjustments resulting from Angola being considered a hyperinflationary economy, in accordance with IAS 29;
reasonableness analysis of the assumptions used in the impairment tests of the joint venture. As mentioned in Note 8 to the consolidated financial statements, the current economic uncertainty conditions in those markets may significantly impact these estimates;
comparing the book value with the market value of NOS;
validation of the application of the equity method.
In relation to the associated companies we performed the following procedures:
we have analyzed the final fair value determination as of December 31, 2016, and the respective negative Goodwill calculation, without material differences;
validation of the application of the equity method.
We have also verified the adequacy of disclosures relating to joint ventures and associates.
As disclosed in Note 7 to the consolidated financial statements, the statement of financial position has a Goodwill of Euro 23.4 million. As mentioned in Note 1.f), Goodwill is not amortized and it is tested annually, or whenever there are signs of impairment, to verify if there are any losses to be recognized. The recoverable amount is determined based on the business plans used by Sonaecom's management. Considering the significance of this amount and the complexity and level of inherent judgment in the model adopted for the calculation of impairment and the identification and aggregation of cash-generating units (CGUs), this issue was a key matter for the purposes of our audit.
In order to assess Management's conclusions in relation to the recovery of Goodwill, we have obtained and analyzed the impairment tests prepared by the Group.
Considering the identification and aggregation of the CGUs, we performed the following auditing procedures:
reasonableness analysis of the assumptions used in the forecasts made, the market conditions, the sensitivity analysis and the historical accuracy of the Group in preparing forecasts and budgets;
analysis of the reasonableness of the discount rates used, as well as the growth rates;
recalculation of the model.
We have also validate the disclosures related to this matter.
The consolidated financial statements include revenue from projects in the segment of information systems in the amount of Euro 83.6 million. The consolidated financial statements also present revenue to be invoiced to customers of Euro 7.1 million and projects invoiced in advance of Euro 9.4 million.
As mentioned in Accounting Policies, the income and expenses of consulting projects are recognized each year, based on the percentage of completion, which is obtained through the percentage of expenses incurred on the estimated costs of the transaction, based on budgets prepared for this purpose, according to management's best knowledge for each project.
To validate the reasonableness of the adjustments related to the application of the percentage of completion, we have obtained the project schedules and performed the following audit procedures:
reconciliation of the schedules with the values of the statement of financial position and the income statement;
review of contracts to support project schedules;
reasonableness analysis of the stage of completion considered, taking into account the underlying assumptions;
comparison of the results obtained with the recognized revenue;
to validate management's assumptions, regarding the recognized margin, analysis of available information, essentially as it relates to the terms of the contracts, the latest projections, the completion status of the projects, the billings made and the reasonableness of the budgets in the past, compared to actual values.
| Key Audit Matter | Summary of the Audit Approach |
|---|---|
| Project schedules supporting the revenue recognition based on the stage of completion of consulting projects have several assumptions, essentially relating to the overall budget of project expenditures and expenses to be incurred. Given the inherent uncertainty in the estimates of the expenses to be incurred, they have to be continually reviewed and, as such, we consider this a key matter for the purposes of our audit. The disclosures are presented in Notes 1.s), 16, 29 and 30. |
We have also validate the disclosures related to this matter. |
| Development expenses capitalization | In order to validate the reasonableness of the |
| The group has internally developed intangible assets, on which, capitalized expenses in 2017 amounted to Euro 5.5 million. As mentioned in Accounting Policies, expenditures on internally generated intangible assets are capitalized to the extent that the ability to complete the asset is demonstrated, so that it will be available for use or commercialization. The decision to capitalize or expend the associated expenses involves a significant judgment by management, in assessing the moment in which the development of the project begins, its economic viability and the determination of the amount of expenses to be capitalized. |
capitalized amounts, we performed the following auditing procedures: - evaluation of the relevant controls in the process for capitalization of assets; - measurement of the adequacy of the capitalization policies for expenses, in accordance with the applicable accounting regulations; - evaluation of the nature of capitalized expenditures and their classification as development of intangible assets; - performing detailed tests on the amounts of expenses capitalized in the period. We have also validated the disclosures associated with development expenses capitalization, included in the Notes to the consolidated financial statements. |
| The disclosures are included in Notes 1.d), 6 and |
42.
Management is responsible for:
a) the preparation of the consolidated financial statements, which present fairly the financial position, the financial performance and the cash flows of the Group in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union;
b) the preparation of the Directors' Report, including the Corporate governance Report, in accordance with the applicable law and regulations;
c) the creation and maintenance of an appropriate system of internal control to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error;
d) the adoption of appropriate accounting policies and criteria; and
e) the assessment of the Group's ability to continue as a going concern, disclosing, as applicable, events or conditions that may cast significant doubt on the Group's ability to continue its activities.
The supervisory board is responsible for overseeing the process of preparation and disclosure of the Group's financial information.
Our responsibility is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
a) identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
b) obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control;
c) evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
d) conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern;
e) evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
f) obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion;
g) communicate with those charged with governance, including the supervisory board, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit;
h) of the matters we have communicated to those charged with governance, including the supervisory board, we determine which one's were the most important in the audit of the consolidated financial statements of the current year, these being the key audit matters. We describe these matters in our report, except when the law or regulation prohibits their public disclosure; and
i) confirm to the supervisory board that we comply with the relevant ethical requirements regarding independence and communicate all relationships and other matters that may be perceived as threats to our independence and, where applicable, the respective safeguards.
Our responsibility also includes verifying that the information included in the Directors' report is consistent with the consolidated financial statements and the verification set forth in paragraphs 4 and 5 of article No. 451 of the Portuguese Company Law.
In compliance with paragraph 3 e) of article No. 451 of the Portuguese Company Law, it is our opinion that the Director's report has been prepared in accordance with applicable requirements of the law and regulation, that the information included in the Directors' report is consistent with the audited consolidated financial statements and, taking into account the knowledge and assessment about the Group, no material misstatements were identified.
In compliance with paragraph 6 of article No. 451 of the Portuguese Company Law, we hereby inform that the Group stated in its Director's report that that parent company Sonae, S.G.P.S., S.A. will include the non-financial information set forth in article No. 508. º-G of the Portuguese Company Law in the Sonae group sustainability report, which should be published on its website until the legal deadline.
In compliance with paragraph 4 of article No. 451 of the Portuguese Company Law, it is our understanding that the Corporate governance report includes the information required under article No. 245-A of the Portuguese Securities Market Code, that no material misstatements were identified in the information disclosed in this report and that it complies with paragraphs c), d), f), h), i) and m) of that article.
In accordance with article No. 10 of Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, 2014, and in addition to the key audit matters referred to above, we also provide the following information:
a) We were first appointed auditors of Sonaecom S.G.P.S., S.A in the Shareholders' General Meeting of 29th April 2016 for the period from 2016 to 2019.
b) The management has confirmed to us it has no knowledge of any allegation of fraud or suspicions of fraud with material effect in the financial statements. We have maintained professional scepticism throughout the audit and determined overall responses to address the risk of material misstatement due to fraud in the consolidated financial statements. Based on the work performed, we have not identified any material misstatement in the consolidated financial statements due to fraud.
c) We confirm that our audit opinion is consistent with the additional report that was prepared by us and issued to the Group's supervisory board as of 27th March 2018.
d) We declare that we did not provide any prohibited non-audit services referred to in paragraph 8 of article No. 77 of the by-laws of the Institute of Statutory Auditors ("Estatutos da Ordem dos Revisores Oficiais de Contas") and that we remain independent of the Group in conducting our audit.
27th March 2018
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. representada por:
Hermínio António Paulos Afonso, R.O.C.
We have audited the accompanying financial statements of Sonaecom, S.G.P.S., S.A. (the Entity), which comprise the statement of financial position as at 31st December 2017 (which shows total assets of Euro 1,085,745,936 and total shareholders' equity of Euro 1,083,416,035 including a net profit of Euro 15,770,507), the statement of income by nature, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and the notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly in all material respects, the financial position of Sonaecom, S.G.P.S., S.A. as at 31st December 2017, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
We conducted our audit in accordance with International Standards on Auditing (ISAs) and other technical and ethical standards and recommendations issued by the Institute of Statutory Auditors. Our responsibilities under those standards are described in the "Auditor's responsibilities for the audit of the financial statements" section below. In accordance with the law we are independent of the Entity and we have fulfilled our other ethical responsibilities in accordance with the ethics code of the Institute of Statutory Auditors.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. o′Porto Bessa Leite Complex, Rua António Bessa Leite, 1430 - 5º, 4150-074 Porto, Portugal Tel +351 225 433 000 Fax +351 225 433 499, www.pwc.pt Matriculada na CRC sob o NUPC 506 628 752, Capital Social Euros 314.000 Inscrita na lista das Sociedades de Revisores Oficiais de Contas sob o nº 183 e na CMVM sob o nº 20161485
Sonaecom, SGPS, SA, on 31st December 2017, holds financial interests in group companies and joint ventures in the amount of Euro 58,3 million and Euro 597,7 million, respectively, which are measured at acquisition cost.
As mentioned in the accounting policies, a valuation of the investments is made when there are indicators that the asset may be impaired or when the impairments recognized in previous years cease to exist.
The valuation of financial investments is considered to be a key audit matter, given that changes caused by events or circumstances that adversely influence the performance of the investees may result in the non-recoverability of the book value of these assets. The valuation model used is the discounted cash flow model. To prepare this model, management incorporates judgments based on assumptions in the cash flows forecasts, growth rates and discount rates to be applied.
The disclosures are presented in Notes 1.c), 1.d), 5 e 6.
In order to validate the assumptions and judgments made by management in the valuation of financial investments, we performed the following procedures:
assessment of whether or not there is evidence of impairment in financial investments; and
obtaining and analyzing the impairment tests for financial investments, when applicable.
The analysis of impairment tests, based on discounted cash flow models, involved auditing procedures that included (a) the evaluation of the method used to quantify the fair value of the investment, as well as; (b) evaluation of the assumptions used in the calculation, in order to assess the reasonableness of these assumptions, in particular the sales growth, gross margin and discount rate implicit in the valuation model. We compared the recoverable amount obtained in the valuations with the book value of the investment and assessed the reasonableness of the impairment losses recorded by the Entity.
Emphasis was also placed on the adequacy of disclosures, presented in the financial statements notes.
Management is responsible for:
a) the preparation of the financial statements, which present fairly the financial position, the financial performance and the cash flows of the Entity in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union;
b) the preparation of the Directors' Report, including the Corporate governance Report, in accordance with the applicable law and regulations;
c) the creation and maintenance of an appropriate system of internal control to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error;
d) the adoption of appropriate accounting policies and criteria; and
e) the assessment of the Entity's ability to continue as a going concern, disclosing, as applicable, events or conditions that may cast significant doubt on the Entity's ability to continue its activities.
The supervisory board is responsible for overseeing the process of preparation and disclosure of the Entity's financial information.
Our responsibility is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
a) identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
b) obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control;
c) evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
d) conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern;
e) evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
f) communicate with those charged with governance, including the supervisory board, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit;
g) of the matters we have communicated to those charged with governance, including the supervisory board, we determine which one's were the most important in the audit of the financial statements of the current year, these being the key audit matters. We describe these matters in our report, except when the law or regulation prohibits their public disclosure; and
h) confirm to the supervisory board that we comply with the relevant ethical requirements regarding independence and communicate all relationships and other matters that may be perceived as threats to our independence and, where applicable, the respective safeguards.
Our responsibility also includes verifying that the information included in the Directors' report is consistent with the financial statements and the verification set forth in paragraphs 4 and 5 of article No. 451 of the Portuguese Company Law.
In compliance with paragraph 3 e) of article No. 451 of the Portuguese Company Law, it is our opinion that the Director's report has been prepared in accordance with applicable requirements of the law and regulation, that the information included in the Directors' report is consistent with the audited financial statements and, taking into account the knowledge and assessment about the Entity, no material misstatements were identified.
In compliance with paragraph 4 of article No. 451 of the Portuguese Company Law, it is our understanding that the Corporate governance report includes the information required under article No. 245-A of the Portuguese Securities Market Code, that no material misstatements were identified in the information disclosed in this report and that it complies with paragraphs c), d), f), h), i) and m) of that article.
In accordance with article No. 10 of Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, 2014, and in addition to the key audit matters referred to above, we also provide the following information:
a) We were first appointed auditors of Sonaecom S.G.P.S., S.A in the Shareholders' General Meeting of 29th April 2016 for the period from 2016 to 2019.
b) The management has confirmed to us it has no knowledge of any allegation of fraud or suspicions of fraud with material effect in the financial statements. We have maintained professional scepticism throughout the audit and determined overall responses to address the risk of material misstatement due to fraud in the financial statements. Based on the work performed, we have not identified any material misstatement in the financial statements due to fraud.
c) We confirm that our audit opinion is consistent with the additional report that was prepared by us and issued to the Entity's supervisory board as of 27th March 2018.
d) We declare that we did not provide any prohibited non-audit services referred to in paragraph 8 of article No. 77 of the by-laws of the Institute of Statutory Auditors ("Estatutos da Ordem dos Revisores Oficiais de Contas") and that we remain independent of the Entity in conducting our audit.
27th March 2018
PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. representada por:
Hermínio António Paulos Afonso, R.O.C.
In compliance with the applicable legislation and the mandate given to the Statutory Audit Board, we hereby issues our Report and Opinion of the audit performed, as well the documentation concerning the individual and consolidated accounts, for the year ended at 31 December 2017, which are of the responsibility of the Company's Board of Directors.
During the year under analysis, the Statutory Audit Board, in accordance with its competence, accompanied the management of the Company and its affiliated companies, and has oversaw, with the required scope, the evolution of the operations, the adequacy of the accounting records, the quality and appropriateness regarding the process of preparation and disclosure of financial information, corresponding accounting policies, valuation criteria used as well as the compliance with legal and regulatory requirements.
In the exercise of its competences, the Statutory Audit Board had regular quarterly meetings, as well as other extraordinary meetings, in which matters subject to its attributions and competencies were analyzed. In accordance with the nature of the matters to be discussed, the meetings were attended by the Board and head of Planning and Control department, Financial and Administrative department, Internal Audit department and the Society of Statutory and External Auditor. In addition, the Statutory Audit Board participated in the Board of Directors' meeting that approved the report and accounts for the year.
The Statutory Audit Board verified the effectiveness of the risk management and internal control, analyzed the planning and the results of external and internal auditors' activity, accompanied the system involving the reception and follow up of reported irregularities. The Statutory Audit Board has also assessed the process of preparing the individual and consolidated statements, communicated to the Board of Directors information regarding the conclusion and quality of the financial statements audit and its intervention in the process, has pronounced itself in favor of the rendering of nonaudit services by the Statutory and External Auditor, having exercised its mandate in what concerns the evaluation of the competence and independence of external auditors, as well as to the supervision of the establishment of the Statutory and External Auditor remuneration.
During the year, the Statutory Audit Board accompanied, with special care, the accounting treatment of transactions that had had material impact on the evolution of operations and on the individual and consolidated financial position of Sonaecom SGPS, S.A..
Within the scope of its attributions, the Statutory Audit Board examined the individual and consolidated balance sheets, the individual and consolidated profit and loss accounts by nature, cash flows, comprehensive income, changes in equity and related annexes for the year end 2017, having received from the Statutory and External Auditor all the information and clarifications requested, as well as the Additional Audit Report provided for in article 24 of Law 148/2015, of 9 September.
The Statutory Audit Board has complied with CMVM Recommendation V.2, in order to characterize the relevant level of transactions concluded with shareholders holding qualifying holdings or with entities in any of the relations established in paragraph 1 of article 20 of the Securities Market Code (Código dos Valores Mobiliários), not having identified any relevant transactions in the light of those criteria or any conflicts of interest.
The Statutory Audit Board has complied with CMVM Recommendations II.2.1, II.2.2, II.2.3, II.2.4 and II.2.5, relating to Corporate Governance. As a fully integrated body of independent members in the light of legal criteria and professionally qualified to perform their duties, the Statutory Audit Board developed its skills and interrelationships with the other board members and services of the company in accordance with the principles and conduct recommended in those devices.
Furthermore, the Statutory Audit Board appreciated the Corporate Governance Report which is attached to the company's Management Report, regarding the consolidated financial accounts, under the terms and for the purpose of No. 5 of Art. 420 of the Portuguese Commercial Code (Código das Sociedades Comerciais), having concluded that the report includes the elements referred to in Art. 245 – A of the Securities Market Code (Código dos Valores Mobiliários).
Still, in the fulfilment of its duties, the Statutory Audit Board reviewed the Report of the Board of Directors, including the Corporate Governance Report, and remaining individual and consolidated documents of account prepared by the Board of Directors, concluding that these information was prepared in accordance with the applicable legislation and that it is appropriate to the understanding of the financial position and results of the Company and the consolidation perimeter, and has reviewed the Statutory Audit and Auditors' Report issued by the Statutory Auditor and agreed with its content.
Considering the above, in the opinion of the Statutory Audit Board, that all the necessary conditions are fulfilled in order for the Shareholders' General Meeting to approve:
a) the Report of the Board of Directors;
b) the individual and consolidated statements of financial position, profit and loss by natures, comprehensive income, changes in equity and of cash flows and related notes for the year ended 31 December 2017;
c) the proposal of net profit appropriation presented by the Board of Directors.
In accordance with paragraph a), number 1 of article 8º of the Regulation of CMVM nr. 5/2008 and with the terms defined in paragraph c) nº 1 of the article 245º of the Portuguese Securities Market Code, the members of the Statutory Audit Board declare that, to their knowledge, the information contained individual and consolidated financial statements were prepared in accordance with applicable accounting standards, giving a true and fair view of the assets and liabilities, financial position and the results of the Sonaecom, SGPS, S.A. and companies included in the consolidation. Also, it is their understanding that the Board of Directors Report faithfully describes the business evolution, performance and financial position of Sonaecom, S.G.P.S., S.A. and of the companies included in the consolidation perimeter and contains a description of the major risks and uncertainties that they face. It is also declared that the Corporate Governance Report complies with article 245º A of the Portuguese Securities Market Code.
Maia, 27 March 2018
The Statutory Audit Board
João Manuel Gonçalves Bastos
Óscar José Alçada da Quinta
Maria José Martins Lourenço da Fonseca
Sonaecom SGPS is listed on the Euronext Stock Exchange. Information is available on Reuters under the symbol SNC.LS and on Bloomberg under the symbol SNC:PL.
This document may contain forward-looking information and statements, based on management's current expectations or beliefs. Forward-looking statements are statements that are not historical facts.
These forward-looking statements are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including, but not limited to, changes in regulation, the telecommunications industry and economic conditions; and the effects of competition. Forward-looking statements may be identified by words such as "believes", "expects", "anticipates", "projects", "intends", "should", "seeks", "estimates", "future" or similar expressions.
Although these statements reflect our current expectations, which we believe are reasonable, investors, analysts and, generally, the recipients of this document are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. You are cautioned not to put undue reliance on any forward-looking information or statements. We do not undertake any obligation to update any forward-looking information or statements.
Report available on Sonaecom's corporate website
www.sonae.com
Tlf: +351 22 013 23 49
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