Novabase SGPS

Annual / Quarterly Financial Statement • Apr 12, 2018

Consolidated Financial Statements for the year ended 31 December 2017

NOVABASE S.G.P.S., S.A.

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	INDEX
I.	CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2017	5
	● Consolidated Statement of Financial Position as at 31 December 2017	6
	● Consolidated Statement of Profit and Loss for the year ended 31 December 2017	7
	● Consolidated Statement of Comprehensive Income for the year ended 31 December 2017	8
	● Consolidated Statement of Changes in Equity for the year ended 31 December 2017	9
	● Consolidated Statement of Cash Flows for the year ended 31 December 2017	10
	● Notes to the Consolidated Financial Statements for the year ended 31 December 2017	11
	Note 1. General information	11
	Note 2. Significant accounting policies	11
	Note 3. Financial risk management policy	23
	Note 4. Critical accounting estimates and judgements	27
	Note 5. Segment information	28
	Note 6. Companies included in consolidation	30
	Note 7. Property, plant and equipment	32
	Note 8. Intangible assets	33
	Note 9. Investments in associates	35
	Note 10. Financial assets at fair value through profit or loss Note 11. Deferred tax assets and liabilities	35 36
	Note 12. Other non-current assets	37
	Note 13. Inventories	38
	Note 14. Financial instruments by category	38
	Note 15. Trade and other receivables	39
	Note 16. Accrued income	40
	Note 17. Derivative financial instruments	41
	Note 18. Other current assets	41
	Note 19. Held-to-maturity investments	41
	Note 20. Cash and cash equivalents	42
	Note 21. Share Capital, share premium, treasury shares and stock options	42
	Note 22. Reserves and retained earnings	43
	Note 23. Non-controlling interests	43
	Note 24. Borrowings	43
	Note 25. Provisions	45
	Note 26. Other non-current liabilities	46
	Note 27. Trade and other payables	46
	Note 28. Deferred income and other current liabilities	46
	Note 29. External supplies and services Note 30. Employee benefit expense	47 47
	Note 31. Other gains/(losses) - net	47
	Note 32. Depreciation and amortisation	48
	Note 33. Finance income	48
	Note 34. Finance costs	48
	Note 35. Share of loss of associates	48
	Note 36. Income tax expense	49
	Note 37. Earnings per share	50
	Note 38. Dividends per share	50
	Note 39. Commitments	50
	Note 40. Related parties	51
	Note 41. Discontinued operations	54
	Note 42. Contingencies	54
	Note 43. Additional information required by law	55
	Note 44. Events after the reporting period Note 45. Note added for translation	55 55
II.	REPORTS ISSUED BY THE SUPERVISORY BOARD AND BY THE CMVM REGISTERED AUDITOR	57
	● Report and Opinion of the Supervisory Board - Consolidated Financial Statements ● Auditors' Report - Consolidated Financial Statements	59 63
III.	SECURITIES ISSUED BY THE COMPANY AND OTHER GROUP COMPANIES, HELD BY BOARD MEMBERS	71
	● Detail of securities issued by the Company and other group companies, held by board members of Novabase S.G.P.S.	73

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I. CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2017

Consolidated Statement of Financial Position as at 31 December 2017

	Note	31.12.17	31.12.16
Assets
Non-Current Assets
Property, plant and equipment	7	10,019	8,899
Intangible assets	8	17,162	18,104
Investments in associates	9	314	575
Financial assets at fair value through profit or loss	10	2,796	4,353
Held-to-maturity investments	19	7,713	4,859
Deferred tax assets Other non-current assets	11 12	10,448 3,256	9,545 5,132
Total Non-Current Assets		51,708	51,467
Current Assets
Inventories	13	46	486
Trade and other receivables	15	49,745	92,712
Accrued income	16	16,356	15,081
Income tax receivable		1,318	3,394
Derivative financial instruments	17	18	19
Other current assets	18	1,546	1,886
Held-to-maturity investments	19	7,353	4,441
Cash and cash equivalents	20	56,136	35,703
Total Current Assets		132,518	153,722
Assets from discontinued operations	41	-	-
Total Assets		184,226	205,189
Equity
Share capital	21	15,701	15,701
Treasury shares	21	(188)	(4)
Share premium	21	43,560	43,560
Reserves and retained earnings		3,722	16,071
Profit for the year		4,774	9,577
Total Equity attributable to owners of the parent		67,569	84,905
Non-controlling interests	23	13,597	8,151
Total Equity		81,166	93,056
Liabilities
Non-Current Liabilities
Borrowings	24	16,837	18,897
Provisions	25	10,369	9,109
Other non-current liabilities	26	744	-
Total Non-Current Liabilities		27,950	28,006
Current Liabilities
Borrowings	24	6,907	6,916
Trade and other payables	27	41,619	47,414
Income tax payable		578	6
Derivative financial instruments	17	-	82
Deferred income and other current liabilities	28	25,103	27,709
Total Current Liabilities		74,207	82,127
Liabilities from discontinued operations	41	903	2,000
Total Liabilities		103,060	112,133
Total Equity and Liabilities		184,226	205,189

THE CERTIFIED ACOUNTANT THE BOARD OF DIRECTORS

(Amounts expressed in thousands of Euros)

The accompanying notes are an integral part of these consolidated financial statements

Consolidated Statement of Profit and Loss for the year ended 31 December 2017

		12 M *
	Note	31.12.17	31.12.16
Continuing Operations
Sales	5	159	101
Services rendered	5	139,563	135,553
Cost of sales		(31)	(25)
External supplies and services	29	(51,201)	(46,563)
Employee benefit expense	30	(82,155)	(79,050)
Other gains/(losses) - net	31	4,580	(4,111)
Depreciation and amortisation	32	(3,210)	(3,785)
Operating Profit		7,705	2,120
Finance income	33	6,199	3,816
Finance costs	34	(6,776)	(4,721)
Share of loss of associates	35	(261)	(46)
Gain on net monetary position	2	955	-
Profit Before Income Tax		7,822	1,169
Income tax expense	36	(1,382)	(3,002)
Profit from continuing operations		6,440	(1,833)
Discontinued operations
Profit from discontinued operations	41	2,696	12,881
Profit for the Year		9,136	11,048
Profit attributable to:
Owners of the parent		4,774	9,577
Non-controlling interests	23	4,362	1,471
		9,136	11,048
Earnings per share from continuing and discontinued operations
attributable to owners of the parent (Euros per share)
Basic earnings per share
From continuing operations	37	0.07 Euros	(0.11) Euros
From discontinued operations	37	0.09 Euros	0.41 Euros
From profit for the year	37	0.15 Euros	0.31 Euros
Diluted earnings per share
From continuing operations	37	0.07 Euros	(0.11) Euros
From discontinued operations	37	0.09 Euros	0.41 Euros
From profit for the year	37	0.15 Euros	0.31 Euros
12 M * - period of 12 months ended

THE CERTIFIED ACOUNTANT THE BOARD OF DIRECTORS

(Amounts expressed in thousands of Euros)

The accompanying notes are an integral part of these consolidated financial statements

7

Consolidated Statement of Comprehensive Income for the year ended 31 December 2017

		12 M *
	Note	31.12.17	31.12.16
Profit for the Year		9,136	11,048
Other comprehensive income for the year Items that may be reclassified to profit or loss
Exchange differences on foreign operations, net of tax	11	(467)	(3,317)
Other comprehensive income for the year		(467)	(3,317)
Total comprehensive income for the year		8,669	7,731
Total comprehensive income attributable to:
Owners of the parent		4,533	7,189
Non-controlling interests		4,136	542
		8,669	7,731

12 M * - period of 12 months ended

THE CERTIFIED ACOUNTANT THE BOARD OF DIRECTORS

(Amounts expressed in thousands of Euros)

The accompanying notes are an integral part of these consolidated financial statements

Consolidated Statement of Changes in Equity for the year ended 31 December 2017

(Amounts expressed in thousands of Euros)

		Attributable to owners of the parent
					Exchange dif. Reserves			Non
	Note	Share capital	Treasury shares	Share premium	Legal reserves	operations	on foreign and retained -controlling earnings	interests	Total Equity
Balance at 1 January, 2016		15,701	(6)	43,560	3,140	(6,268)	25,345	8,194	89,666
Profit for the year		-	-	-	-	-	9,577	1,471	11,048
Other comprehensive income for the year	23	-	-	-	-	(2,388)	-	(929)	(3,317)
Total comprehensive income for the year		-	-	-	-	(2,388)	9,577	542	7,731
Transactions with owners
Dividends	22, 23	-	-	-	-	-	(3,767)	(585)	(4,352)
Treasury shares movements	21	-	2	-	-	-	9	-	11
Transactions with owners		-	2	-	-	-	(3,758)	(585)	(4,341)
Changes in ownership interests in subsidiaries that do not result in a loss of control
Transactions with non-controlling interests		-	-	-	-	-	-	-	-
Balance at 31 December, 2016		15,701	(4)	43,560	3,140	(8,656)	31,164	8,151	93,056
Balance at 1 January, 2017		15,701	(4)	43,560	3,140	(8,656)	31,164	8,151	93,056
Impact accordingly IAS 29	2	-	-	-	-	-	(693)	(710)	(1,403)
Restated Balance at 1 January, 2017		15,701	(4)	43,560	3,140	(8,656)	30,471	7,441	91,653
Profit for the year		-	-	-	-	-	4,774	4,362	9,136
Other comprehensive income for the year	23	-	-	-	-	(241)	-	(226)	(467)
Total comprehensive income for the year		-	-	-	-	(241)	4,774	4,136	8,669
Transactions with owners
Dividends	22, 23	-	-	-	-	-	(20,166)	(1,272)	(21,438)
Treasury shares movements	21	-	(184)	-	-	-	(826)	-	(1,010)
Change in consolidation perimeter	23	-	-	-	-	-	-	3,292	3,292
Transactions with owners		-	(184)	-	-	-	(20,992)	2,020	(19,156)
Changes in ownership interests in subsidiaries that do not result in a loss of control
Transactions with non-controlling interests		-	-	-	-	-	-	-	-
Balance at 31 December, 2017		15,701	(188)	43,560	3,140	(8,897)	14,253	13,597	81,166

THE CERTIFIED ACOUNTANT THE BOARD OF DIRECTORS

The accompanying notes are an integral part of these consolidated financial statements

9

Consolidated Statement of Cash Flows for the year ended 31 December 2017

		(Amounts expressed in thousands of Euros)
		12 M *
	Note	31.12.17	31.12.16
Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees		140,289 (135,426)	222,443 (194,936)
Cash generated from operations		4,863	27,507
Income taxes received / (paid) Other operating proceeds / (payments)		2,016 643	(3,509) (156)
		2,659	(3,665)
Net Cash from operating activities		7,522	23,842
Cash flows from investing activities
Proceeds: Sale of subsidiaries, associates and other partic. companies Loans granted to associates and participated companies Disposal of financial assets held-to-maturity Sale of property, plant and equipment Interest received	10, 41 40 iii) 19	45,636 2,154 3,903 140 1,278	77 - 1,802 113 945
Payments:		53,111	2,937
Acquisition of subsidiaries, assoc. and other partic. companies Purchases of financial assets held-to-maturity Purchases of property, plant and equipment Purchases of intangible assets	34 19	(371) (11,139) (721) (324)	(28) (4,869) (1,988) (189)
		(12,555)	(7,074)
Net Cash from / (used in) investing activities		40,556	(4,137)
Cash flows from financing activities
Proceeds: Proceeds from borrowings Capital contribution by non-controlling interests (i)	24 (a)	2,700 883	5,041 -
		3,583	5,041
Payments: Repayments of borrowings Dividends paid Payment of finance lease liabilities Interest paid Purchase of treasury shares	24 (a) 22, 23 24 (a) 21	(6,331) (21,438) (788) (884) (1,010)	(4,112) (4,976) (1,077) (1,013) (40)
		(30,451)	(11,218)
Net Cash used in financing activities		(26,868)	(6,177)
Cash and cash equivalents at the beginning of period	20	35,703	24,293
Net increase / (decrease) of cash and cash equivalents		21,210	13,528
Effects of change in consolidation perimeter		-	(303)
Effects of exchange rate changes on cash and cash equiv.		(777)	(1,815)
Cash and cash equivalents at the end of period	20	56,136	35,703

(i) Capital contribution by the NCI of the Venture Capital Fund created in 2017: FCR NB Capital + Inovação.

THE CERTIFIED ACOUNTANT THE BOARD OF DIRECTORS

12 M * - period of 12 months ended

The accompanying notes are an integral part of these consolidated financial statements

10

Notes to the Consolidated Financial Statements for the year ended 31 December 2017

1. General information

Novabase, Sociedade Gestora de Participações Sociais, SA (hereinafter referred to as Novabase or Group), with its head office in Av. D. João II, 34, Parque das Nações, 1998-031 Lisbon, Portugal, holds and manages financial holdings in other companies as an indirect way of doing business, being the Holding Company of Novabase Group.

Novabase's activity is aggregated into 2 business areas:

(i) Business Solutions (BS) - This area of Novabase incorporates a number of competencies with technology, management, design and business expertise.

(ii) Venture Capital (VC) - This area develops a corporate venture capital activity throughout Novabase Capital, Sociedade de Capital de Risco, S.A., whose main purpose is to identify and support Portuguese ICT business projects, in early development or expanding, with high value potential and synergies with Novabase.

Novabase is listed on the Euronext Lisbon.

The share capital is represented by 31,401,394 shares (2016: 31,401,394 shares), and all shares have a nominal value of 0.5 Euros each.

These consolidated financial statements were approved and authorized for issuance by the Board of Directors on April 12, 2018. In the opinion of the Board of Directors these financial statements fairly present the Group operations, as well as its financial position, financial performance and cash flows.

These financial statements will be subject to approval at the Shareholders' General Meeting scheduled for May 10, 2018.

2. Significant accounting policies

At the end of 2017, Angola was considered a hyperinflationary economy, under IAS 29 - Financial Reporting in Hyperinflationary Economies, based on the inflation registered in the last three years. Thus, as of 31 December 2017, the cumulative inflation rate over the last three years is close to, or exceeds, 100%, depending on the index used, and there is also the expectation that it will continue to cumulatively exceed 100% in 2018, which is an objective quantitative condition that leads us to consider, in addition to the verification of other conditions set forth in IAS 29, that Angola is, as of 31 December 2017, a hyperinflationary economy.

This standard applies to the individual financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy, and is applicable from the beginning of the reporting period in which the entity identifies its functional currency as hyperinflationary. IAS 29 is applicable to non-monetary assets and liabilities, its application is retrospective and requires the use of a general price index that reflects changes in general purchasing power.

Considering the Group's exposure to Angola through its subsidiary NBASIT-Sist. de Inf. and Telecomunic., S.A., Novabase applied IAS 29 in its consolidated accounts, with the following impacts as at 31 December 2017:

	31.12.17
Assets	7
Share capital	721
Reserves and retained earnings	(2,125)
Exchange differences on foreign operations (included in OCI)	263
Profit for the Year	1,148
Of which : Gain on net monetary position	955

This standard states that comparatives should be restated in the measuring unit currency at the reporting date, however, if an entity's presentation currency is not hyperinflationary, then IAS 21 - The Effects of Changes in Foreign Exchange Rates requires the comparative amounts to be those that were presented as current-year amounts in prior-year financial statements.

Novabase did not restate its comparatives, having recognised directly in equity the loss on the net monetary position related to price changes in prior periods, in the total amount of EUR -1,403 thousand, of which EUR -693 thousand in 'Reserves and retained earnings' caption and EUR -710 thousand in 'Non-controlling interests'.

After measuring the impacts of IAS 29, Novabase carried out the translation of Angola subsidiary accounts in accordance with IAS 21.

The most significant accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented.

CONSOLIDATED FINANCIAL STATEMENTS 150

2.1. Basis of preparation

The consolidated financial statements of Novabase have been prepared in accordance with International Financial Reporting Standards - IFRS, as adopted by the European Union (EU) as at 31 December 2017.

These statements are presentend in thousands of euro (EUR thousand).

New standards, interpretations and amendments to existing standards, which became effective as of 1 January 2017

• IAS 7 (amendment), 'Disclosure Initiative'. This amendment introduces an additional disclosure on the changes in the funding liabilities, disaggregated between transactions that gave rise to cash flows and those that did not, and how this information reconciles with the cash flows from the financing activities of the Statement of Cash Flows.

• IAS 12 (amendment), 'Recognition of Deferred Tax Assets for Unrealised Losses'. This amendment clarifies: i) how to account active deferred taxes related to assets measured at fair value; ii) how to estimate future taxable income when there are temporary deductible differences; and iii) and how to assess the recoverability of active deferred taxes when there are restrictions in the tax law.

• 2014 - 2016 Annual cycle of improvements. This cycle of improvements affects the following standard: IFRS 12 - Disclosure of Interests in Other Entities (clarification of the scope of the standard).

The Group adopted the above mentioned amendments, and had no significant impact on its consolidated financial statements.

New standards, interpretations and amendments to existing standards that have been published and are mandatory for the accounting periods beginning after 1 January 2017 or later periods, but that the Group has not yet adopted

• IFRS 9 (new), 'Financial instruments' (effective for annual periods beginning on or after 1 January 2018). IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and Measurement and brings fundamental change to: (i) classification and measurement of financial assets, introducing a logical approach for the classification driven by the business model in which an asset is held; (ii) recognition in equity of an entity's own credit risk on liabilities elected to be measured at fair value; (iii) impairment recognition on financial assets, by applying the expected credit loss model instead of incurred credit loss model; and (iv) hedge accounting, that aligns the accounting treatment with risk management activities.

• IFRS 9 (amendment), 'Prepayment features with negative compensation' (effective for annual periods beginning on or after 1 January 2019). This amendment is still subject to endorsement by the European Union. This amendment enable companies to measure at amortised cost some prepayable financial assets with negative compensation, being an exemption from the requirements of IFRS 9. Negative compensation arises where the contractual terms permit the borrower to prepay the instrument before its contractual maturity, but the prepayment amount could be less than unpaid amounts of principal and interest. In addition, this amendment also clarifies that when a financial liability measured at amortised cost is modified without this resulting in derecognition, a gain or loss should be recognised in profit or loss.

• IFRS 15 (new), 'Revenue from contracts with customers' (effective for annual periods beginning on or after 1 January 2018). This new standard applies only to contracts for the delivery of products or services, and requires an entity to recognise revenue when the contractual obligation to deliver the goods or services is satisfied and for the amount that reflects the consideration the entity is entitled to, following a fivestep model.

• IFRS 15 (amendment), 'Revenue from contracts with customers - clarifications' (effective for annual periods beginning on or after 1 January 2018). This amendment comprises clarifications to IFRS 15 and provides guidance on: i) identification of the performance obligations in a contract; ii) determination of when revenue from a licence of intellectual property (IP) should be recognised; iii) identification of indicators for the classification of the principal versus agent guidance; and (iv) selection of the practical expedients on transition to IFRS 15.

• IFRS 16 (new), 'Leases' (effective for annual periods beginning on or after 1 January 2019). IFRS 16 replaces IAS 17 - Leases, with a significant impact on the accounting made by lessees that are required to recognise for all lease contracts, a lease liability, which reflects future lease payments and a "right of use" asset, except for certain short term leases (<12 months) and low value leases (<\$ 5,000). The definition of a lease has also been changed, based on the "right to control the use of an identified asset".

• IAS 40 (amendment), 'Transfers of Investment Property' (effective for annual periods beginning on or after 1 January 2018). This amendment is still subject to endorsement by the European Union. This amendment clarifies that assets can only be transferred to and from the investment property category when there is evidence of change in use. The sole change of management intention is not enough to make the transfer.

• IFRS 2 (amendment), 'Classification and measurement of share-based payment transactions' (effective for annual periods beginning on or after 1 January 2018). This amendment is still subject to endorsement by the European Union. This amendment clarifies the measurement basis for cash-settled share-based payment transactions and the accounting for changes to a share-based payment plan that change its cash-settled classification to be settled with equity (equity-settled). In addition, it introduces an exception to the principles of IFRS 2, which requires that an action-based payment plan be treated as if it were fully equity-settled, when the employer is required to withhold an amount of tax from the employee and to pay that amount to the tax authorities.

• IAS 28 (amendment), 'Long-term interests in associates and joint ventures' (effective for annual periods beginning on or after 1 January 2019). This amendment is still subject to endorsement by the European Union. This amendment clarifies that an entity should apply IFRS 9 to long-term interests in associates or joint ventures (components of the entity's interest in an associate or a joint venture) to which it does not apply the equity method. This amendment also clarifies that an entity applies the impairment requirements in IFRS 9 ('three-stage' model of expected losses) when indicators of impairment exist, to long-term interests, which, in substance, form part of the entity's net investment in an associate or joint venture, before applying the impairment requirements in IAS 28.

• 2014 - 2016 Annual cycle of improvements (effective, in general, for annual periods beginning on or after 1 January 2018). This cycle of improvements is still subject to endorsement by the European Union and affects the following standards: IFRS 1 - First-time adoption of IFRS and IAS 28 - Investments in associates and joint ventures.

12

• 2015 – 2017 Annual cycle of improvements (effective, in general, for annual periods beginning on or after 1 January 2019). This cycle of improvements is still subject to endorsement by the European Union and affects the following standards: IAS 23 - Borrowing costs, IAS 12 - Income taxes, and IFRS 3 - Business combinations and IFRS 11 - Joint agreements.

• IFRIC 22, 'Foreign Currency Transactions and Advance Consideration' (effective for annual periods beginning on or after 1 January 2018). This interpretation is still subject to endorsement by the European Union. This is an interpretation of IAS 21 - The effects of changes in foreign exchange rates and refers to the determination of the 'transaction date' when an entity pays or receives in advance the consideration of contracts denominated in foreign currency. The 'transaction date' determines the exchange rate to be used for currency translation of transactions in foreign currency.

• IFRIC 23, 'Uncertainty over income taxes treatments' (effective for annual periods beginning on or after 1 January 2019). This interpretation is still subject to endorsement by the European Union. IFRIC 23 clarifies application of recognition and measurement requirements in IAS 12 - Income Taxes when there is uncertainty on the acceptance of a certain tax treatment by the Tax Administration. If there is uncertainty whether the tax administration will accept tax treatment in a particular transaction, the entity shall make its best estimate and record the income tax assets or liabilities according to IAS 12 instead of IAS 37 - Provisions, contingent liabilities and contingent assets, based on the expected value or the most probable value. IFRIC 23 may be applied using a retrospective approach or a modified retrospective approach.

It is not expected for new standards, amendments to existing standards and interpretations not yet mandatory and not early adopted, to have a significant impact on the consolidated financial statements, considering the mentioned below on IFRS 9, IFRS 15 and IFRS 16.

IFRS 9

On 24 July 2014, the International Accounting Standards Board (IASB) issued IFRS 9 - Financial Instruments (endorsed by European Commission Regulation 2067/2016 of 22 November 2016), mandatorily effective for periods beginning on or after 1 January 2018. This standard introduces fundamental changes in accounting for financial instruments and replaces IAS 39 - Financial Instruments: recognition and measurement.

IFRS 9 brings together all three aspects of the accounting for financial instruments: classification and measurement, impairment of financial assets and hedge accounting.

Novabase will adopt the new standard on the required effective date and will not restate comparative information. Novabase is analysing both qualitative and quantitative impacts of this Standard adoption on all its aspects based on currently available information, and is also assessing the practical expedients according to the standard.

Novabase considers that IFRS 9 may change the way of recognition for impairment on receivables and the classification and measurement of financial assets. However, overall, Novabase expects no significant impacts on its consolidated and individual statement of financial position. This assessment may be subject to changes until its adoption, since new accounting policies are subject to change until the Group presents its first financial statements that include the date of initial application.

(a) Classification and measurement

IFRS 9 determines that the classification and measurement of financial assets shall be based on the business model used to manage them and on the characteristics of their contractual cash flows. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, being the remain financial assets measured at fair value recognised through other comprehensive income (if there is also an intention to sell the assets) or through profit or loss (if they are not classified in any of the previous models and are, for example, managed on the basis of their fair value). Regarding the classification and measurement of financial liabilities, the changes to IAS 39 introduced by IFRS 9 are residual.

Novabase does not expect a significant impact on its financial position or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value mostly all financial assets currently held at fair value.

Loans and trade receivables are generally held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. From the analysis carried out up to this date to the contractual cash flow characteristics of these instruments, is expected for they to meet the criteria for amortised cost measurement under IFRS 9.

(b) Impairment

The most significant impact on the Group's income statement resulting from the implementation of IFRS 9 is expected to arise from the new impairment requirements.

Considering the relevance of the receivables resulting from transactions under IFRS15, Novabase will apply the simplified approach and record lifetime expected losses on all trade receivables. The estimated ECL's (expected credit losses) will be determined based on actual credit loss experience over a period that, per business or type of customers, is considered statistically relevant and representative of the specific characteristics of the underlying credit risk.

For held-to-maturity investments, Novabase estimates, at the time of adoption of IFRS 9 on 1 January 2018, a negative impact on shareholders' equity approximately between EUR 400 thousand and EUR 800 thousand.

At an individual level, concerning intercompany financial assets, there is no evidence of significant historical losses. Nevertheless, Novabase is assessing eventual impacts of the application of the expected credit loss model.

(c) Hedge accounting

Novabase uses derivative financial instruments to hedge exchange rate risk to which is exposed to. The financial instruments used are forward foreign exchange contracts. These instruments do not meet the requirements of hedge accounting. In this sense, Novabase does not expect impacts on its financial position or equity arising from this component.

IFRS 15

The International Accounting Standards Board (IASB) issued IFRS 15 - Revenue from contracts with customers on 28 May 2014, and clarifying amendments on 12 April 2016 (endorsed by European Commission Regulation 1905/2016 of 22 September 2016). This standard replaces the current requirements for revenue recognition and applies to annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

This new standard establishes the principles that an entity should apply in the reporting of useful information to the users of financial statements, on the nature, amount, term and uncertainty of revenue and cash flows arising from a contract with a customer. The basic principle of IFRS 15 is for an entity to recognise the revenue to reflect the transfer of goods and services contracted to customers, in an amount that reflects the consideration that the entity expects to be entitled to receive as consideration for the delivery of those goods or services, based on a five step model, namely:

• identify the contract with a customer;
• identify the performance obligations of a contract;
• determine the transaction price;
• allocate the transaction price to performance obligations; and
• recognise the revenue when or as the entity satisfies a performance obligation.

Novabase will adopt IFRS 15 in the consolidated financial statements for the year ended on 31 December 2018, using the modified retrospective approach, with the cumulative effect of the initial application of the standard recognised in Equity at the date of initial application. Under this approach, Novabase will apply IFRS 15 retrospectively only to contracts that are not completed at the date of initial application (1 January 2018).

As at 31 December 2017, Novabase's revenue breakdown by project typology is as follows: 48% refers to time and materials projects, 39% is related to turn-key projects, 8% are revenues in maintenance projects and the remaining 5% refers to others. Most turn-key projects are shortterm, with Work In Progress (WIP) representing around 10% of total revenues. Thus, IFRS 15 will mainly impact the revenue recognition in turnkey projects, which represent just over 1/3 of total revenue and only 10% are related to ongoing projects.

The revenue recognition related with services rendered is currently based on the percentage of completion of the transaction at the reporting date. This occurs when (i) the amount of revenue can be reliably measured; (ii) it is probable that the economic benefits associated with the transaction will flow to the entity; (iii) tthe percentage of completion of the transaction at the reporting date can be reliably measured; and (iv) the costs incurred with the transaction and the costs to be incurred to complete the transaction can be reliably measured. Whenever it is not possible to reliably measure the completion of a transaction involving services rendered, revenue is only recognised to the extent of the expenses recognised as recoverable.

For 'time and materials' projects, revenue inherent to the services will continue to be recognised over time, given that the customer simultaneously receives and consumes the benefits provided. In cases where it is verified that the customer does not receive or consume goods and services over time, the Group will recognise revenue when the performance obligation is met.

By applying the percentage of completion method, the Group currently recognises revenue and 'Trade and other receivables', even if receipt of the total consideration is conditional on successful completion of the rendered services. Under IFRS 15, earned consideration that is conditional should be recognised as a contract asset rather than receivable.

Additionally, the Group began evaluating the allocation of the transaction price to each performance obligation in accordance with IFRS 15, which must be made based on the stand-alone selling prices, therefore this allocation and, consequently, the amount of revenue and timing of revenue recognition is expected to involve a slight deferral of revenue and its margin.

Accordingly, based on the preliminary assessment under IFRS 15, the Group estimates a decrease on shareholders' equity at 1 January 2018 up to EUR 1,500 thousand.

IFRS 16

The International Accounting Standards Board (IASB) issued, in January 2016, IFRS 16 - Leases, with effective date of mandatory application for periods beginning on or after 1 January 2019, with earlier adoption permitted for entities that have also adopted IFRS 15 - Revenue from Contracts with Customers.

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases, and supersedes IAS 17 - Leases and its associated interpretative guidance. The objective is to ensure that lessors and lessees provide relevant information to the users of financial statements, namely about the effect that leases have on the financial position, financial performance and cash flows.

The most important aspects are as follows:

• introduction of some considerations in order to distinguish leases from service contracts, based on the existence of control of the underlying asset at the time that it is available for use by the lessee; and

• a single lessee accounting model, which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. As a consequence, a lessee recognises depreciation costs and interest costs separately in the income statement.

At the date of the publication of these consolidated financial statements, Novabase has already carried out an inventory of the existing lease contracts and is currently performing a technical analysis considering the principles of IFRS 16. Additionally, it is revising the existing information systems in order to assess to what extent will be necessary to adapt them to the requirements of this standard. At this stage, it is not possible to estimate the magnitude of the impacts inherent to the adoption of this standard.

The Group's consolidated financial statements have been prepared on a going concern basis, based on the historical cost convention except for 'Financial assets at fair value through profit or loss' and 'Derivative financial instruments', which are measured at its fair value (notes 10 and 17).

The preparation of financial statements in accordance with the accounting policies referred above requires the use of certain critical estimates and assumptions which impact on the reported values for assets and liabilities, and for income and expenses presented for the year. Although these estimates are based on the Management's best knowledge at the time of the decision, the final results can differ from the estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.

The Board of Directors believes that the estimates and assumptions adopted do not bear significant risks from which can result material adjustments to assets and liabilities value.

2.2. Consolidation

The consolidated financial statements, as of 31 December 2017, include assets, liabilities and results of the Group companies, understood as Novabase and its subsidiaries and associates, which are presented in note 6.

(1) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has the power to manage the relevant activities, that is, is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. These are de-consolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group, and the fair value of the acquirer's previously held equity interest in the acquiree before control is transferred to the Group. Acquisition-related costs are expensed as incurred. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any non-controlling interests. The excess of the acquisition cost, the fair value of the acquirer's previously held equity interest in the acquiree before control is transferred to the Group and the fair value of non-controlling interest, over the net identifiable assets acquired and liabilities assumed is recorded as goodwill. If the acquisition cost, the fair value of the acquirer's previously held equity interest in the acquiree before control is transferred to the Group and the fair value of non-controlling interest, is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date, regardless of the probability of occurrence. Subsequent changes to the fair value of the contingent consideration do not affect goodwill.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries are changed when necessary to ensure consistency with the policies adopted by the Group.

(2) Transactions with non-controlling interests

Non-controlling interests corresponds to the proportion of the fair value of assets, liabilities and contingent liabilities of acquired subsidiaries, which are not directly or indirectly attributable to Novabase. Transactions with non-controlling interests are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners.

The Group recognises any non-controlling interest in a business combination either at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.

In any acquisition to non-controlling interests, the difference between any consideration paid and the carrying amount of the relevant share acquired is recorded in equity. Gains or losses on disposals to non-controlling interests that do not result in a loss of control are also recorded in equity.

When the Group ceases to have control or significant influence, any retained interest in the entity is re-measured at its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as a financial asset.

(3) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted by the equity method and are initially recognised at cost. The Group's investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.

The Group's share of its associates' post-acquisition profits or losses is recognised in the statement of profit or loss, and its share of postacquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of associates are changed when necessary to ensure consistency with the policies adopted by the Group.

2.3. Segment reporting

Operating segments are reported consistently with the internal reporting provided to the Management.

An operating segment is a component or a set of components of the Group that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the Management and for which discrete financial information is available.

Novabase monitors the performance of its operations according to the nature of the business, having identified its reportable operating segments based on the activity developed by each of them: the Business Solutions segment, which develops a consulting activity, and the Venture Capital segment, which develops a venture capital activity, and did not aggregate operating segments (see note 5).

General information on how Novabase identified its reportable operating segments, including the organizational basis, activities developed by each segment, as well as the types of products and services from which each operating segment derives its revenues are presented in note 5.

2.4. Foreign currency translation

(1) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in thousands of euros (EUR thousand). Euro is the Company's functional and presentation currency.

The subsidiaries included in consolidation with a functional currency different from the Group's presentation currency are those operating in Angola, in Mozambique, in Turkey and in the United Kingdom, as shown in the table of note 6.

(2) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Translation differences on non-monetary financial assets such as equities held at fair value through profit or loss are recognised in profit or loss in the consolidated statement of profit and loss. Translation differences on monetary items are included in other comprehensive income in the consolidated statement of comprehensive income.

The main exchange rates applied on the reporting date are those listed below:

	Euro foreign exchange reference rates	Rate on		Average rate
	(x foreign exchange units per 1 Euro)	31.12.17	31.12.16	2017	2016
•	Angolan Kwanza (AOA)	205.9815	181.0204	196.9427	175.3945
•	Mozambican Metical (MZN)	71.1905	75.2838	70.8421	74.1217
•	Turkish Lira (TRY)	4.5464	3.7072	4.6086	3.3316
•	US Dollar (USD)	1.1993	1.0541	1.1247	1.1091
•	British Pound (GBP)	0.8872	0.8562	0.8999	0.7779

With the exception of AOA and MZN, all exchange rates used are the official EUR exchange rate at 31.12.17 as published on 'Banco de Portugal' website. Regarding the AOA and the MZN exchange rates, it was used the most appropriate exchange rate as if the transactions were settled at the reporting date, according to IAS 21.26.

(3) Group companies

The results and financial position of all the Group's entities that have a functional currency different from the presentation currency that is not the currency of a hyperinflationary economy, are translated into the presentation currency as follows:

(i) assets and liabilities at the reporting date are translated at the closing exchange rate in force at the reporting date;

(ii) income and expenses in results are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of equity.

When an entity has foreign operations whose functional currency is the currency of a hyperinflationary economy, its financial statements are restated before being translated and included in the consolidated financial statements as described above. The assets, liabilities, equity, income and expenses are first restated in accordance with IAS 29, using a general price index that reflects changes in general purchasing power, as follows:

(ii) assets and liabilities linked by agreement to changes in prices are adjusted in accordance with the agreement in order to ascertain the amount outstanding at the end of the reporting period; (i) monetary items are not restated because they are already expressed in terms of the monetary unit current at the end of the reporting period;

(iii) all other assets and liabilities are non-monetary and are restated (with the exception of some non-monetary items that are carried at amounts current at the end of the reporting period, such as net realisable value and market value);

(iv) all items of the income statement are restated by applying the change in the general price index from the dates when the items of income and expenses were initially recorded in the financial statements.

The gain or loss on the net monetary position is included in profit or loss and separately disclosed.

The Group applied this standard in the financial statements of its Angolan subsidiary NBASIT-Sist. de Inf. e Telecomunic., S.A. (which are based on a historical cost approach) to reflect the changes in general purchasing power of the respective functional currency, with the effects disclosed in the introductory part of note 2. The gain computed considers a 23.7% inflation rate in Angola in 2017.

The price index used was the National Consumer Price Index (NCPI) released by the National Statistics Institute of Angola (INE), in its Quick Information Sheet for the month of December 2017. The table below presents the price index and the cumulative percentage variation at the end of each of the periods presented:

	31.12.17	31.12.16
• Index (Base: dec. 2014 = 100)	195.63	158.19
• Cumulative percentage variation	23.7%	41.1%

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments, are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in results as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.5. Property, plant and equipment

Property, plant and equipment comprise mainly buildings and other constructions (construction works done in 'Edifício Caribe', the Company's headquarter), basic and transport equipment. Property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items (purchase price and all the expenses supported direct or indirectly to bring the asset to its current condition).

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit and loss during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method, over their estimated useful lives, as follows:

		No. of years
•	Buildings and other constructions	3 to 50
•	Basic equipment	3 to 4
•	Transport equipment	4
•	Tools and utensils	4
•	Furniture, fittings and equipment	3 to 10

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

An asset's carrying amount is written down to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount, and are included in profit or loss.

2.6. Intangible assets

(1) Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'Intangible assets'. Goodwill on acquisitions of associates is included in 'Investments in associates'.

Goodwill (that has an undetermined useful life), is carried at cost less accumulated impairment losses, being tested annually for impairment, in the second half of the year. Impairment losses on Goodwill are recognised whenever its carrying amount exceeds its recoverable amount, and are not reversed. Gains and losses on the disposal of an entity include the carrying amount of Goodwill relating to the entity sold.

For the purpose of performing impairment tests, goodwiil is allocated to cash generating units (CGUs). Cash generating units represent the lowest level within the entity at which the goodwill is monitored for internal management purposes and not be larger than an operating segment before aggregation.

The cash generating units identified by Novabase represent the Group's investment in the operating segments in which Novabase operates: Business Solutions and Venture Capital. There is no Goodwill not allocated to those cash-generating units. Note 8 gives information on Goodwill's allocation to the CGU's.

(2) Internally generated intangible assets

Research expenses in the search for new technical or scientific knowledge are recognised in the statement of profit and loss as and when incurred. Development expenses are accounted as intangible fixed assets when: i) it is technically feasible to complete the asset or process; ii) the Group has the intention and capacity to complete its development; iii) market viability is assured and iv) its cost can be reliably measured.

These assets are recorded at its production or acquisition cost, which include the acquisition cost of the assets plus employee costs directly involved in the production or outsourcing costs incurred for the same purpose, as well as an appropriate portion of relevant overheads.

Amortisation is calculated using the straight-line method, for periods between 3 to 10 years. Impairment of internally generated assets in progress is tested at each reporting date.

(3) Industrial property and other rights

Industrial property and other rights are recorded at acquisition cost. These assets have a finite useful life and are recognised at cost less accumulated amortisation for a period between 3 to 10 years. Amortisation is calculated using the straight-line method to allocate the cost of the industrial property and other rights over their estimated useful lives.

(4) Work in progress

Intangible assets in progress refer to, mainly, the ongoing internal development of software products.

2.7. Financial assets and liabilities

Financial assets and liabilities are recognised on the date of the negotiation or contract, regardless of the date of their financial settlement.

A financial asset or financial liability is measured initially at fair value. The fair value is the amount that a determined asset or liability can be transferred or paid in an orderly transaction between market participants at the measurement date. In the contracted date, the fair value is usually the amount of the transaction.

The subsequent measurement depends on the category of the investment, Level 1, Level 2 or Level 3, which are described in note 14.

These assets are derecognised when i) contractual rights to receive cash flows have expired, ii) the Group has transferred substantially all risks and rewards of ownership or iii) nevertheless, retains a portion but not substantially all the risks and rewards of ownership, the Group has transferred the control of the assets.

The fair value is based in current bid prices, or in valuation methods and techniques (if the market for the financial asset is not active). A market is considered active if regular transactions occur.

The Group classifies its financial assets and liabilities in the following categories: (i) financial assets at fair value through profit or loss, (ii) loans and receivables and (iii) held-to-maturity financial assets. The classification depends on the intention inherent to the investment's acquisition. Management determines the classification of its investments at initial recognition and reappreciate this classification on each reporting date (considering the reclassification rules).

In what concerns to changes in fair value measurement from period to period, Novabase considers whether the inputs of the models initially used in its measurement became, for instance, observable and whether they have adherence to the financial assets and liabilities under analysis. If inputs are observable and representative, the entity reclassifies from Level 3 to Level 2.

(1) Financial assets and liabilities at fair value through profit or loss

A financial asset or financial liability at fair value through profit or loss is a financial asset that, at the time of initial recognition, is managed and its performance evaluated on a fair value basis, in accordance with a documented risk or investment management. Information about the group is provided internally to key elements in the Group management on that basis. Except in cases where fair value is observable in the market, the fair value is calculated using the method of discounted cash flows, with the changes in fair value recognised in profit or loss in the period in which they occur.

(2) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Loans and receivables are subsequently measured at amortised cost accordingly to the effective interest method. These are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group's loans and receivables are included in the current assets in 'Trade and other receivables' and 'Accrued income' captions and in non-current assets in 'Other non-current assets' caption.

(3) Held-to-maturity financial assets

A held-to-maturity investment is a nonderivative financial asset that has either fixed or determinable payments and a fixed maturity, and for which an entity has the intention to collect the original principal, and not to sell or trade in the market. This class of financial instrument is recorded at amortised cost.

2.8. Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and depreciation and are tested annually for impairment. Assets that are subject to amortisation and depreciation are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

The value in use is the present value of the estimated future cash flows from the continuous use of the asset and from its sale at the end of its useful life. In determining the value in use, estimated future cash flows are discounted using a pre-tax rate that reflects current market assessments of the time value of money and the specific risks of the asset in question.

For the purposes of assessing impairment, assets are allocated by segment, given that it is at this level that management monitors its return on investment.

2.9. Impairment of financial assets

The Group assesses at each reporting date whether there is objective evidence that a financial or a group of financial assets is impaired.

(1) Trade receivables, other debtors and other financial assets

In the case of other financial assets that show objective impairment evidence, their present value is determined, and an impairment loss (which is considered the difference between the asset's present value of estimated future cash flows and the carrying amount) is recognised in the statement of profit and loss. Several indicators are used to identify if there is objective evidence of impairment, such as:

(i) the Group is not able to collect amounts according to the original terms of the receivables;

• (ii) the Group is not able to collect amounts due over 6 months;
• (iii) significant financial difficulties of the debtor;
• (iv) it becomes probable that the debtor will enter bankruptcy or other financial reorganization.

The amount of the impairment allowance is measured as the difference between the asset's present value of estimated future cash flows, discounted at the financial asset's original effective interest rate, and its carrying amount and is recognised in the statement of profit and loss within 'Other gains/(losses) - net'. The carrying amount of the asset is reduced through the use of an allowance account. When a trade receivable is unrecoverable, it is written off against the same allowance account. Subsequent recoveries of amounts previously written off are credited against 'Other gains/(losses) - net' in the statement of profit and loss.

2.10. Trade and other receivables

Trade and other receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less impairment losses.

2.11. Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term highly liquid investments with original maturities of three months or less, which are subject to an insignificant risk of change in value.

For the purpose of presentation in the statement of cash flows, this caption also includes bank overdrafts. Bank overdrafts are shown within 'Borrowings' in current liabilities in the statement of financial position.

2.12. Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or stock options of the Company and its subsidiaries are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or stock options, or for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration.

Where the Company or any Group companies acquire treasury shares of parent company, they are recorded at cost and the consideration paid is deducted from the equity attributable to owners of the parent until the shares are cancelled, reissued or sold. When such shares are subsequently sold or reissued, any consideration received is included in equity attributable to owners of the parent.

2.13. Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

Interest costs on borrowings are included in the statement of profit and loss under 'Finance costs' caption.

2.14. Current and deferred tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of profit and loss, except to the extent that it relates to items recognised directly in equity. The current income tax charge is calculated on the basis of profit before income tax, adjusted according to the tax laws enacted at the reporting date.

Deferred tax is recognised, using the liability method at the reporting date, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not accounted for if it arises from the recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax is determined using tax rates that are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be used.

Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.15. Employee benefits

Personnel expenses are recognised when the service is rendered by employees regardless of their date of payment. Some specificities are disclosed below:

Bonus

The Group recognises a liability and an expense for bonuses, based on a formula that takes into consideration the profit attributable to the Company's employees after adjustments.

Obligations for holiday, holiday allowance and Christmas allowance

In accordance with Portuguese legislation, employees have, annually, the right to receive two months of salary, for a holiday period and a holiday allowance, right earned in the previous year to its settlement. The employees also have, annually, the right to a Christmas allowance, which is earned over the year and paid each December. These obligations are recorded in the respective period in which the right is earned, regardless its payment date.

Labor Compensation Fund (FCT) and Labour Compensation Guarantee Fund (FGCT)

Based on the publication of Law No. 70/2013 and subsequent regulation by Order No. 294-A /2013, entered into force on 1 October the Labor Compensation Fund schemes (FCT) and the Guarantee Fund Compensation of Labor (FGCT). In this context, companies that hire a new employee are required to deduct a percentage of the respective salary for these two new funds (0.925% to FCT and 0.075% for FGCT), in order to ensure, in the future, the partial payment the compensation in the event of dismissal. Considering the characteristics of each Fund, the following is considered:

• the monthly deliveries to FGCT, made by Novabase, are recognised as an expense in the period to which they relate;

• the monthly deliveries to FCT, made by Novabase, are recognised as a financial asset, measured at fair value with changes recognised in the income statement.

Long term incentive (LTI)

Under its senior talent retention policies, the Group approved a LTI program (Long term incentive) where an executive may take an equity interest in the business under its management. Along with this interest, which tends to be residual, there is a plan for the development of the business under his direct responsibility. Such holding may be repurchased after a certain period and subject to certain conditions. At the closing date of these accounts, no executive had signed any agreement but two negotiations for signature were approved by the Management after the closing, and the expected impacts were provisioned.

2.16. Provisions

Provisions are recognised at the reporting date when: i) the Group has a present legal or constructive obligation as a result of past events; ii) it is probable that an outflow of resources will be required to settle the obligation and; iii) the amount has been reliably estimated. Provisions for restructuring include all liabilities to be paid, namely employee termination payments. These provisions do not include any estimated future operating losses or estimated profits from the disposal of assets.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any of the items included in the same class of obligations may be small. Note 25 gives information about the type of provisions.

Provisions are reviewed at each reporting date and adjusted to reflect the best estimate at that date. Whenever possible, the time effect is taken into account in the annual adjustment of provisions. For those in which there is no predictability of the moment of reversal, the Group does not proceed with the financial update.

Onerous contracts

The Group recognises a provision for onerous contracts on the date on which it is established that the costs to be incurred to satisfy the obligation assumed exceed the future economic benefits. This analysis is made on an individual basis.

Legal claims in progress

Provisions relating to legal proceedings brought against Novabase and which essentially relate to contractual disagreements with third parties. Provisions for legal proceedings in progress are recorded for the amounts estimated to represent future outflows in accordance with the risk assessments made by Management based on the opinions of its legal and internal experts and counselors, based on success.

For legal proceedings where the probability of having an unfavorable outcome is less than probable, the Group does not recognise provisions, as described in note 42, unless the possibility of an outflow of resources is remote, in which case it is not disclosed. For each legal proceeding a brief description of the process is given, as well as an estimate of its financial effect, and when practicable an indication of the uncertainties that relate to the moment of any outflow. If any repayment is possible, this information is also included in the 'Contingencies' note.

2.17. Trade and other payables

Trade and other payables balances are obligations to pay goods or services that have been acquired in the ordinary course of the business. They are initially recognised at fair value and subsequently at amortised cost accordingly with the effective interest rate method.

2.18. Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of Value Added Tax (V.A.T.), rebates and discounts and after eliminating sales within the Group, when all the following conditions are satisfied:

• the amount of revenue can be measured reliably;
• it is probable that the economic benefits associated with the transaction will flow to the entity;
• the costs incurred or to be incurred in respect of the transaction/rendering of services can be measured reliably;
• the percentage of completion of the transaction/rendering of services at the end of the reporting period can be measured reliably, in situations in which the transaction/rendering of services is recognised based on the percentage of completion.

The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Novabase's revenues derive from: (a) sales of goods, (b) services rendered, (c) interest and (d) dividend income. The recognition of revenue is detailed below, by type of revenue:

(a) Sales of goods

Sales of goods are recognised when a Group entity has delivered products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured.

Software products are usually sold without a right of return. However, if there is any chance of return, accumulated experience is used to estimate and provide for such returns at the time of sale.

(b) Services rendered

Revenue from consulting projects classified as "time and materials" is recognised in the accounting period in which the services are rendered.

In turn-key consulting projects, the Group recognises income and costs associated with contracts, on an individual basis, according to the percentage of completion method, which is understood as the ratio between costs incurred up to the financial position date and the total estimated contract costs. The assessment of the percentage of completion of each contract is reviewed periodically taking into account the most recent information available from project managers and subject to further review by the respective controllers. The differences between the amounts resulting from the application of the percentage of completion to the estimated income and the amounts invoiced are recorded under 'Accrued income' and 'Deferred income and other current liabilities' captions, respectively. When it is probable that the total estimated costs to complete the project exceed the income defined therein, the expected loss is immediately recognised in profit or loss.

Revenue from outsourcing and maintenance projects is recognised linearly over the period of the contract, where there are no significant and specific activities foreseen.

(c) Interest income

Interest received is recognised on the accrual basis, taking into account the outstanding balance and the effective rate during the period up to maturity. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount (estimated future cash flows, discounted at the original effective rate of the instrument), and records the discount as a financial gain.

(d) Dividend income

Dividend income is recognised when the right to receive payment is established.

2.19. Grants

Government grants are recognised at fair value, when there is high likelihood that the grant will be received and the Group fulfils all the requirements to receive it.

Non-refundable grants to finance development projects are recorded as a liability at the reporting date, in 'Other non-current liabilities' caption, if the remaining maturity is greater than 12 months or under 'Deferred income and other current liabilities' if the maturity is less than 12 months, and are recognised in profit or loss of each period by the useful life of the financed assets.

Operating grants are aimed to recovering the costs, incurred and recorded, with training initiatives and projects of research for new technological or scientific knowledge, and are recognised in the statement of profit and loss as the related expenses are incurred, regardless of when the grant is received.

2.20. Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are expensed over the period of the lease.

Lease contracts for tangible assets where the Group has substantially all the risks and benefits of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are recorded under liabilities (current and non-current). The interest element of the finance cost is expensed over the lease period so as to produce a constant periodic rate of interest on the remaining balance of liability for each period. Tangible assets acquired under finance leases are depreciated over the shorter of the useful life and the lease term.

2.21. Derivative financial instruments

Novabase uses derivative financial instruments to hedge foreign exchange risks to which is exposed. The financial instruments used to manage this risk are the forward foreign exchange contracts. Novabase does not take speculative positions. The treasury department is responsible for managing derivative financial instruments, under the guidance of the Executive Committee. Derivative financial instruments are measured initial and subsequently by its fair value. The method of recognising the resulting gain or loss depends on the nature and objective of the item being hedged.

(1) Hedging derivatives

The possibility of qualifying a derivative financial instrument as a hedging instrument meets the criteria of IAS 39, namely, in what respect to the documentation required and effectiveness assessment, which is performed at the inception of the hedge and on an ongoing basis.

For hedging relationships designated as a net investment in a foreign operation hedge and that are determined to be an effective hedge, the gain or loss in the fair value of the hedging instrument is recognised in other comprehensive income. The ineffective portion is recognised immediately as a financial result of the period.

The cumulative foreign exchange gains and losses relating to a net investment and its respective hedging operation, both registered in other comprehensive income, are included in the consolidated statement of profit and loss when the foreign operation is disposed of, liquidated or discontinued, as an integral part of the gain or loss on sale.

Where the hedging relationship fails to comply with the qualifying criteria to be designated as hedge accounting, the fair value changes of the hedging instrument are recognised in profit or loss.

(2) Trading derivatives

Regarding derivative financial instruments that, although complying with the Group's financial risk management policies, do not comply with all the requirements of IAS 39 to qualify for hedge accounting, the respective changes in fair value are included in the consolidated statement of profit and loss, under financial results, in the period in which they occur.

2.22. Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which dividends are approved by the Company's shareholders.

2.23. Discontinued operations

•

A discontinued operation is a component of the Group's business that comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Group, and:

• represents either a separate major line of business or a geographical area of operations;
• is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
• is a subsidiary acquired exclusively with a view to resale and the disposal involves loss of control.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale.

When an operation is classified as a discontinued operation, the comparatives of the statement of profit and loss and of the statement of other comprehensive income are re-presented as if the operation had been discontinued from the start of the comparative year.

In terms of income statement, the profit or loss is recognised in 'Profit from discontinued operations' and, in terms of the statement of financial position, under the captions 'Assets from discontinued operations' and 'Liabilities from discontinued operations'.

For the Group, discontinued operations correspond to the IMS segment, discontinued at the end of 2016, as the result of the sale agreement of the Infrastructures & Managed Services business to VINCI Energies Portugal, SGPS, S.A. - see note 41.

2.24. Comparatives

The consolidated financial statements for the year ended 31 December 2017, except as referred at the beginning of this note, are comparable in all material aspects with 2016, and no changes in accounting policies have occurred when compared to those used for preparation of the financial statements of the previous year, presented for comparative effects.

3. Financial risk management policy

The Group's activities expose it to a variety of financial risks, namely, Foreign exchange risk, Interest rate risk (cash flows and fair value), Credit Risk, Liquidity risk and Capital management risk.

The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

a) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk, mainly arising from U.S. Dollar, Kwanza and Metical exposures, since some subsidiaries perform transactions in these currencies.

The finance department is responsible for monitoring the evolution of the exchange rate of the currencies mentioned above, in order to reduce the impact of their fluctuations in consolidated results. The Group uses derivative financial instruments to hedge certain risk exposures (see note 17). These financial instruments do not comply with hedge accounting requirements therefore being classified as trading derivatives, with changes in fair value recognised in profit or loss.

With reference to the rates disclosed in note 2.4. (2) Transactions and balances, the most significant changes observed after the reporting date were in the EUR/AOA and in the EUR/MZN exchange rates. From the reporting date until February 28, Kwanza depreciated against the Euro 22.51%, with the EUR/AOA exchange rate recording the highest value of the last 4 years. In the same direction, from the reporting date until February 28, Metical depreciated against the Euro 6.62%. This depreciation partially cancels a recovery that the MZN had been making since the end of the third quarter of 2016, when it reached its 4-year maximum value.

The table below summarises the Group's exposure to foreign currency exchange rate risk at 31 December based on the amounts of the consolidated statement of financial position of the Group's financial assets and liabilities:

At 31 December 2016	Euro	Dollar	Kwanza	Metical	Other	Total
Assets
Other non-current assets	5,132	-	-	-	-	5,132
Financial assets at fair value through profit or loss	4,353	-	-	-	-	4,353
Held-to-maturity investments - non-current	-	-	4,859	-	-	4,859
Trade and other receivables	72,587	6,397	7,312	3,431	31	89,758
Accrued income	14,460	-	248	253	120	15,081
Derivative financial instruments	19	-	-	-	-	19
Held-to-maturity investments - current	-	-	4,441	-	-	4,441
Cash and cash equivalents	22,791	27	9,722	2,696	467	35,703
	119,342	6,424	26,582	6,380	618	159,346
Liabilities
Other non-current liabilities	-	-	-	-	-	-
Borrowings	24,772	-	1,041	-	-	25,813
Trade and other payables	40,319	708	5,027	1,104	256	47,414
Derivative financial instruments	82	-	-	-	-	82
Deferred income and other current liabilities	20,443	-	3,253	4,013	-	27,709
	85,616	708	9,321	5,117	256	101,018
At 31 December 2017	Euro	Dollar	Kwanza	Metical	Other	Total
Assets
Other non-current assets	3,256	-	-	-	-	3,256
Financial assets at fair value through profit or loss	2,796	-	-	-	-	2,796
Held-to-maturity investments - non-current	-	-	7,713	-	-	7,713
Trade and other receivables	38,384	2,513	358	6,564	12	47,831
Accrued income	15,809	-	492	-	55	16,356
Derivative financial instruments	18	-	-	-	-	18
Held-to-maturity investments - current	-	-	7,353	-	-	7,353
Cash and cash equivalents	51,667	27	3,814	365	263	56,136
	111,930	2,540	19,730	6,929	330	141,459
Liabilities
Other non-current liabilities	744	-	-	-	-	744
Borrowings	23,744	-	-	-	-	23,744
Trade and other payables	36,468	523	2,870	1,402	356	41,619
Derivative financial instruments	-	-	-	-	-	-
Deferred income and other current liabilities	20,266	-	362	4,475	-	25,103
	81,222	523	3,232	5,877	356	91,210

The Group uses a sensitivity analysis technique that measures the estimated changes in profit or loss and shareholders' equity of either an instantaneous 10% strengthening or weakening in Euro against all other currencies, from the rates applicable at 31 December 2017, for each class of financial instrument with all other variables held constant. This analysis has illustrative purposes only, as in practice market rates rarely change alone.

Under this assumption, with a 10% strengthening or weakening of Euro against all exchange rates, profit before income tax (and inherent capital) would have increased or decreased, respectively, by EUR 1,954 thousand in 2017 (2016: EUR 2,460 thousand). There are no direct impacts on equity since the Group does not hold financial instruments with fair value changes recognised in equity nor is applying hedge accounting.

b) Interest rate risk (cash flows and fair value)

Interest rate risk reflects the possibility of changes in future interest charges in loans obtained as a result of changes in market interest rate levels.

Novabase Group's financial liabilities are indexed to short-term reference interest rates, revised in periods shorter than one year plus duly negotiated risk spreads. Hence, changes in interest rates can impact the Group's earnings.

The Group's exposure to interest rates is related to financial liabilities contracted with a fixed and/or floating rate. In the first case, the Group faces a risk of fair value variation in these assets or liabilities, since every change in market rates involves an opportunity cost. In the second case, such change has a direct impact on interest value, consequently causing cash variations.

Exposure to interest rate risk is monitored continuously by the finance department. The purpose of managing interest rate risk is to reduce the volatility of financial costs in the income statement.

Novabase's exposure to interest rate risk is currently very low, not only because of the expected maintenance of very low indexes but also because it is in a cash surplus position. As at 31 December 2017, approximately 13% of bank borrowings are contracted at fixed rates (2016: 15%). However, as a result of the negative indexes during the year, this amount rises to 43%, bearing in mind that some of the borrowings are negotiated at variable rates but with minimum index level conditions.

The Group uses a sensitivity analysis technique that measures the estimated changes in profit or loss and shareholders' equity of either an instantaneous increase or decrease of 0.5% (50 basis points) in market interest rates, from the rates applicable at 31 December 2017, for each class of financial instrument with all other variables held constant. This analysis has illustrative purposes only, as in practice market rates rarely change alone. The sensitivity analysis is based on the following assumptions:

• (i) Changes in market interest rates affect the interest income or expense of variable interest financial instruments;
• (ii) Changes in market interest rates only affect interest income or expense in relation to financial instruments with fixed interest rates if these are recognised at their fair value;
• (iii) Changes in market interest rates affect the fair value of derivative financial instruments and other financial assets and liabilities;

(iv) Changes in the fair values of derivative financial instruments and other financial assets and liabilities are estimated by discounting the future cash flows of net present values using appropriate market rates prevailing at the year end.

Under these assumptions, an increase or decrease of 0.5% in market interest rates, would impact respectively in an increase or decrease of profit before income tax of approximately EUR 80 thousand in 2017, and in an increase or decrease, respectively, of approximately EUR 63 thousand in 2016. There are no impacts on shareholders' equity without being those inherent to the impact on results.

c) Credit Risk

Credit risk is managed, simultaneously, on business units' level, for the amounts of outstanding trade and other receivables, and on Group basis, for financial instruments. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently well rated parties are accepted. Credit risk management of trade and other receivables is based in credit limits, taking into account the financial position of the customer and past experience.

At 31 December 2017, the 60 customers with greater balances of the Group represented approximately 82% of the total balance (2016: 90%).

The distribution by geographical market of those customers is shown in the table below:

	31.12.17	31.12.16
Portugal	38%	35%
Europe	31%	28%
Africa	27%	31%
Middle East	2%	4%
Asia	1%	2%
North America	1%	-
	100%	100%

The distribution by business sector of those customers is shown in the table below:

	31.12.17	31.12.16
Public Administration	32%	17%
Telecommunications	30%	33%
Financial Services	14%	26%
Information Technology	13%	7%
Energy	6%	9%
Transport	1%	1%
Aeronautics	1%	1%
Consumer electronics	-	1%
Other	3%	5%
	100%	100%

The table below shows the ratings attributed by Moody's Investors Services to the financial institutions and to the Government of Angola with whom the Group as higher balances of bank deposits at 31 December 2017 (note 20) and Treasury Bonds (note 19), respectively:

	31.12.17	31.12.16
A1	5,248	5,077
Baa1	3,218	-
Baa3	25,999	-
Ba3	-	5,978
B1	13,130	12,871
B2	15,066	-
Caa1	3,006	-
	65,667	23,926

All bank deposits are highly liquid, readily convertible to known amounts of cash.

d) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions.

Management monitors rolling forecasts of the Group's liquidity reserve (which comprises undrawn committed borrowing facilities and cash and cash equivalents) on the basis of expected cash flows, taking into account the analysis of the remaining contractual maturity of the financial liabilities and the expected date of financial assets inflows, and taking into account the cash transfer restrictions from Angola (see also note 20). Additionally, the maturity concentration of derivative financial instruments, borrowings and liabilities of the Group are regularly monitored. Notes 17 and 24 present those Novabase's liabilities, respectively, by intervals of contractual residual maturity at 31 December 2017 and 31 December 2016.

The short term lines of credit contracted by the Group are shown in the table below:

	Borrowings
	Euro	Kwanza
Novo Banco	7,000	-
Banco BPI (BPI)	13,000	-
Banco Europeu de Investimento (BEI)	9,000	-
Caixa Geral de Depósitos (CGD)	5,000	-
Banco Santander Totta (Santander)	4,000	-
Bankinter	7,000	-
Novo Banco ES	1,000	-
Banco de Fomento de Angola (BFA)	-	200,000
Banco Popular (POP) (*)	5,000	-
	51,000	200,000

(*) Since 28 December 2017, Banco Popular Portugal was bought and integrated into Santander Totta.

As stated in the consolidated statement of cash flows, Novabase finances itself through cash flows generated by its operations. Additionally, and as shown in the analysis of the table above, the Group maintains a diversified portfolio of loans and has access to credit amounts that are not fully used but that are at its disposal. These credits can cover all loans that are repayable in 12 months.

The available short term lines of credit that are not being used, amount to approximately EUR 36,445 thousand as at 31 December 2017 and are sufficient to meet any immediate demand. In addition to these credits, the Group has EUR 56,136 thousand of cash and cash equivalents as at 31 December 2017, as stated in the statement of financial position, which combined with the credit facilities amounts to EUR 92,581 thousand of liquidity.

e) Capital management risk

The Group's objectives when managing capital, which is a broader concept than 'equity' in the consolidated statement of financial position, are:

(i) To safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders;

(ii) Changes in market interest rates only affect interest income or expense in relation to financial instruments with fixed interest rates if (ii) To maintain a solid capital structure to support the development of its business;

(iii) To maintain an optimal capital structure to reduce the cost of capital.

Management monitors the Return on Capital (ROC) ratio, which the Group defines as the 'Operating Profit' divided by 'Total Equity', to measure the Group ability to generate cash flows related to the capital invested in its business.

	31.12.17	31.12.16
Operating Profit Total Equity	7,705 81,166	2,120 93,056
Return on Capital	9.5 %	2.3 %

The Group has the objective to maintain ROC above the cost of capital (measured by WACC - weighted average cost of capital), which allows the Group to add value. The Group's WACC in 2017 is around 7.4% (2016: 9.3%). In 2017, the objective was achieved.

4. Critical accounting estimates and judgements

The preparation of financial statements requires the use of certain critical accounting estimates by the Management, that affect assets, liabilities, and the disclosure of assets and contingent liabilities at the reporting date in the financial statements, as well as income and expenses during the reporting period, consequently future results can differ from the estimated ones. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and judgments considered more relevant in the preparation of these financial statements are presented below.

a) Goodwill impairment analysis

The Group tests annually, on the second half of the year, whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.6. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates, to forecast the cash flows of each cash-generating units, and the choice of a discount rate and a perpetual grow rate (see note 8).

b) Financial instruments measured at fair value

The fair value of financial instruments not quoted on an active market is determined based on valuation methods and financial theories. The use of valuation methodologies requires using assumptions, with some assumptions requiring the use of estimates. Therefore, changes in those assumptions could result in a change in the fair value reported.

c) Income taxes and deferred taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and the use of deferred tax assets and liabilities. Deferred tax assets and liabilities were determined based on tax legislation currently in effect for the Group's companies, or on legislation already published for future application. Changes in the tax legislation may influence the value of deferred taxes.

The Group recognises deferred tax assets related to tax incentives obtained under SIFIDE based on estimates. The final amount of these tax incentives is only known in future years based on the approval by the competent body of the Group's applications to these incentives. The booked amount of tax credits not yet approved reach EUR 3,796 thousand (2015: EUR 3,567 thousand).

Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets and liabilities in the period in which such determination is made.

d) Revenue recognition

Revenue recognition in respect of turn-key projects is made by Management recurring to analysis and estimates of the current and future developments of consulting projects in place. These projections could have a different development in the future, from the present estimates performed by Management.

Eventual changes in the estimates would be reflected under 'Accrued income' and 'Deferred income and other current liabilities' captions in the statement of financial position and under 'Services rendered' in the statement of profit and loss, however, historically there have been no material deviations in the estimates of costs to be incurred in ongoing projects from the year before (which represent around 10% in 2017 and in 2016) nor in the outcome of the transaction.

e) Provisions for impairment of trade and other receivables

Management maintains a provision for impairment of trade and other receivables, in order to reflect the estimated losses that result from clients' inability to make the required payments. When assuming the adequacy of an allowance for doubtful accounts, Management bases its estimates on the ageing of accounts receivable balances and historical write-off experience, customer credit worthiness and changes in customer payment terms. If the customer's financial conditions deteriorate, actual write-offs might be higher than expected.

f) Legal claims provisions

The Group exercises judgment in measuring and recognising provisions and its exposure to contingent liabilities related to legal proceedings, based on the assessment of its specialists and legal advisers (internal and/or external). This judgment is necessary to determine the probability of the outcome for each lawsuit. Provisions are recognised when the Group expects that the proceedings in progress will result in cash outflows or disclose it in the notes when the probability of having an unfavourable outcome is less than probable - unless the possibility of an outflow of resources is remote, where disclosure is not required. These estimates are subject to changes as new information becomes available. Due to the uncertainties inherent in the evaluation process, real losses may be different from those originally estimated.

The Group discloses in 'Contingencies' (note 42) all the legal proceedings in which it considers that there is a possibility of an outflow of resources, although it is not probable, reason why no liabilities have been recognised. The Management believes, based on the opinions of its specialists and legal advisors (internal and/or external), that there is sufficient substance for its defence in court and therefore considers that such actions will have a successful outcome.

g) Bonus

The Group recognises on a monthly basis an estimate for bonus and other variable remunerations, which considers the theoretical amounts agreed with employees, the monitoring of the expected objective's achievement rates and the general situation of the Company's business. The variable remuneration of the elements of the Board of Directors is set by the Remuneration Committee based on the evaluation of the previous year performance. Therefore, the cost estimate for the current exercise booked under 'Trade and other payables' caption, is prepared based on the Management's best estimate to the performance of the current year, where the actual final outcome is only known in the following exercise, after the Remuneration Committee's deliberation. More information about the Shareholders' remuneration can be found in the point regarding Remuneration, included in the Corporate Governance Report, which is an integral part of the Consolidated Annual Report, and in note 40.

5. Segment information

At the end of 2016, as the result of the sale of Infrastructures & Managed Services business, Novabase identified the following operating segments:

• Business Solutions
• Venture Capital

Operating segments are reported consistently with the internal reporting that is provided to the management, namely to the Board of Directors. Based on this report, the Management evaluates the performance of each segment and allocates the available resources. Novabase identified its reportable operating segments based on the activity developed by each segment and did not aggregate operating segments.

The Business Solutions segment develops an activity of consulting and services in the IT area. There is several business units included in this segment, set out based on the industries for which the solutions are oriented, that combine teams of specialists with a mix of competencies with technology, management, design and business expertise, as follows:

• Financial Services Vertical business solutions for Banks, Insurance Companies and Stock Markets
• Government Vertical business solutions for Government
• Transport Vertical solutions for Transport
• Energy Vertical solutions for Energy
• Telecommunications Vertical solutions for Telecommunications Operators

These business units share structures, such as resources and technologies, but they do not represent an isolated segment. In fact, Management monitors the performance of the Business Solutions segment and allocates available resources as a single area, which is specialized in business process consulting and in the design and implementation of software solutions to support them. This segment derives its revenues mainly from time and materials consulting projects, turn-key consulting projects and outsourcing and maintenance projects, and may also include a small component of sales.

The Venture Capital segment develops a venture capital activity through Novabase Capital, Sociedade de Capital de Risco, S.A., which is substantially different from the rest of Novabase's activity, and whose operating results are monitored by Management as an isolated area for decision-making purposes, performance evaluation and resource allocation. Although this segment has immaterial expression in the total activity of the Group, Management considers that information on this operating segment is useful to the users of financial statements and should therefore be reportable and disclosed separately. Venture Capital segment derives its revenues mainly from the valuation and sale of Venture Capital Fund investees and advisory services in purchase and sale and M&A processes.

The companies considered in each operating segment are presented in note 6. Novabase SGPS, S.A. and Novabase Serviços, S.A. appear isolated in the referred note, to highlight the Parent Company which includes the top management of the Group and the company that includes the Group's shared services, respectively. However, for the purposes of preparing segment information, both belong to Business Solutions segment.

Revenues from operating segments, as well as other measures of profit or loss and material items within the consolidated income statement, can be analysed as follows:

	Business	Venture		Disc. operations
	Solutions	Capital	NOVABASE	IMS
At 31 December 2016
Total segment sales and services rendered	193,086	4,828	197,914	80,751
Inter-segment sales and services rendered	61,457	803	62,260	8,834
Sales and services rendered	131,629	4,025	135,654	71,917
Depreciation and amortisation	(3,173)	(612)	(3,785)	(785)
Operating profit/(loss)	2,911	(791)	2,120	18,101
Finance costs – net	(1,040)	135	(905)	1,008
Share of loss of associates (note 35)	-	(46)	(46)	-
Income tax expense	(1,923)	(1,079)	(3,002)	(6,228)
Profit/(Loss) from operations	(52)	(1,781)	(1,833)	12,881
Other information:
(Provisions) / Provisions reversal	640	(9)	631	1,330
Impairment of receivables	(5,581)	(21)	(5,602)	(3,608)
Inventory impairment	-	-	-	(120)
	Business Solutions	Venture Capital	NOVABASE	Disc. operations IMS
At 31 December 2017
Total segment sales and services rendered Inter-segment sales and services rendered	190,596 56,092	5,895 677	196,491 56,769	- -
Sales and services rendered	134,504	5,218	139,722	-
Depreciation and amortisation	(2,821)	(389)	(3,210)	-
Operating profit/(loss)	8,598	(893)	7,705	2,696
Finance costs – net	(1,668)	1,091	(577)	-
Share of loss of associates (note 35)	-	(261)	(261)	-
Gain on net monetary position	955	-	955	-
Income tax expense	(1,310)	(72)	(1,382)	-
Profit/(Loss) from operations	6,575	(135)	6,440	2,696
Other information:
(Provisions) / Provisions reversal	(1,241)	(19)	(1,260)	-

In 2017, the amount recorded in the results from discontinued operations reflects the adjustment on gain generated by the sale of IMS Business (see note 41).

Inventory impairment 30 - 30 -

Novabase does not disclose information on assets and liabilities for each reportable segment since it does not provide such information to those responsible for operational decision making.

In 2016, Sales and services rendered to external clients, by destination geography, are analysed as follows: Management monitors Turnover in countries outside Portugal. These amounts are generally obtained through Portugal-based subsidiaries.

	Portugal	Europe	Others	Novabase
Sales and services rendered	56,244	52,797	26,613	135,654

In 2017, Sales and services rendered to external clients, by destination geography, are analysed as follows:

	Portugal	Europe	Others	Novabase
Sales and services rendered	64,182	51,895	23,645	139,722

Novabase does not disclose geographical information of non-current assets since the cost of preparing this information, which is not used by the Management, would be excessive (see note 6 - A. Subsidiaries with material non-controlling interests, for some information on non-current assets in Angola and Mozambique).

6. Companies included in consolidation

The companies consolidated by the full method, as at 31 December 2017, were the following:

Holding company	Principal place	Share capital	% Interest held
and Subsidiaries	of business	31.12.17	31.12.17	31.12.16
Parent company:
Novabase S.G.P.S., S.A.	Portugal	15,700,697 €	-	-
Business Solutions:
Novabase Business Solutions, S.A.	Portugal	3,366,000 €	100.0%	100.0%
Novabase Neotalent, S.A.	Portugal	50,000 €	100.0%	100.0%
Novabase Consulting SGPS, S.A.	Portugal	11,629,475 €	100.0%	100.0%
Novabase E.A., S.A.	Portugal	150,000 €	100.0%	100.0%
CelFocus, S.A.	Portugal	100,000 €	55.0%	55.0%
Nbase International Investments B.V.	The Netherlands	1,220,800 €	100.0%	100.0%
Novabase Solutions Middle East FZ-LLC	Dubai	699,670 €	100.0%	100.0%
(a1) Novabase Digital, S.A.	Portugal	3,100,000 €	100.0%	100.0%
Evolvespace Solutions, Lda.	Portugal	5,000 €	100.0%	100.0%
Binómio, Lda.	Portugal	2,626 €	100.0%	100.0%
NBMSIT, Sist. de Inf. e Tecnol., S.A.	Mozambique	8,235,000 MZN	74.0%	74.0%
Celfocus B. T. T. H. T. Limited Ş.	Turkey	100,000 TRY	55.0%	55.0%
NBASE SGPS	Portugal	50,000 €	100.0%	100.0%
Celfocus LTD	UK	15,000 GBP	55.0%	55.0%
Novabase Sistemas de Informacion, S.A.	Spain	1,000,000 €	100.0%	100.0%
(c1) (d1) Novabase Infraestruturas, SGPS, S.A.	Portugal		-	100.0%
(c2) (d1) Novabase Infr. Integracion S. Inf., S.A.	Spain		-	100.0%
(*) (d1) NBASIT-Sist. de Inf. e Telecomunic., S.A.	Angola	47,500,000 AOA	49.4%	49.4%
(d1) Novabase Interactive TV SGPS, S.A.	Portugal	278,125 €	100.0%	100.0%
(a2) (d1) NOVABASE IMS 2, S.A.	Portugal	220,500 €	100.0%	100.0%
(d1) TVLab, S.A.	Portugal	52,517 €	70.0%	70.0%
Venture Capital:
Novabase Capital SCR, S.A.	Portugal	2,500,000 €	100.0%	100.0%
COLLAB – Sol. I. Com. e Colab., S.A.	Portugal	61,333 €	81.0%	81.0%
FCR NB Capital Inovação e Internacionalização	-	11,360,000 €	51.6%	51.6%
(b1) FCR Novabase Capital +Inovação	-	7,021,278 €	53.1%	-
Novabase Shared Services:
Novabase Serviços, S.A.	Portugal	€ 50,000	100.0%	100.0%

(*) Novabase has control of this company, as described in note 2.2, therefore it is fully consolidated.

In 2017, the following changes occurred in the consolidation perimeter:

a) Changes in social designations:

• (a1) In 2016, this company had the designation of Octal - Engenharia de Sistemas, S.A ..
• (a2) In 2016, this company had the designation of Novabase Digital TV E.S. Tel. Inter., S.A ..

b) Entries in the consolidation perimeter:

(b1) In the Venture Capital area, a new venture capital fund 'FCR Novabase Capital + Inovação' was established on October 3, 2017. This Fund is held in 53.1% by Novabase Capital SGCR, S.A. and in 46.9% by Fundo de Capital e Quase Capital (FC&QC) - see note 23. Through this Fund, Novabase Capital intends to respond to the constraints on SME financing in the ICT market and to contribute to the stimulation and orientation of business investment and job creation, in line with the investment objectives and priorities defined in the Portugal 2020.

c) Exits from the consolidation perimeter:

• (c1) Novabase Infraestruturas, SGPS, S.A. was dissolved in the last quarter of 2017.
• (c2) Novabase Infr. Integracion S. Inf., S.A. was dissolved in the last quarter of 2017.

d) Other changes in the consolidation perimeter:

(d1) As a result of the sale of the IMS Business at the end of 2016, this company is no longer reported in the IMS segment (where it was previously considered) and in 2017 it is reported in the Business Solutions segment, since the current recurring operations relate to BS business.

The companies consolidated using the equity method, as at 31 December 2017, were the following:

Associates	Principal placeShare capital		% Interest held		Equity	Net Profit
(see note 9)	of business	31.12.17	31.12.17	31.12.16	31.12.17	31.12.17
Fundo Capital Risco NB Capital	Portugal	€ 7,142,857	30.0%	30.0%	1,084	(871)
(**) Novabase Digital TV Technologies GmbH	Germany	unavailable info	-			51.0% unavailable info unavailable info

(**) Novabase did not have control over Novabase Digital TV Technologies GmbH, as described in note 2.2., therefore it was considered an associate. In 2017, the company was sold (see note 9).

A. Subsidiaries with material non-controlling interests

Novabase considers that the principal subsidiaries with material non-controlling interests at 31 December 2017 are those set out below, which jointly account for 95% of the amount of Non-controlling interests of profit or loss. They have share capital consisting solely of ordinary shares that are held directly by the group, and the proportion of ownership interests held equals the voting rights held by the group. The country of incorporation or registration is also their principal place of business.

Subsidiary	Principal activity
NBMSIT, Sist. de Inf. e Tecnol., S.A.	Consulting services and the development and implementation of information systems, applications, computer software and equipment
NBASIT-Sist. de Inf. e Telecomunic., S.A.	Production, commercialization, import and export of goods and IT services and related activities, and information systems
CelFocus, S.A.	Services and information systems solutions for the Telecommunications industry
COLLAB – Sol. I. Com. e Colab., S.A.	Design, production, commercialization and consulting services of communication systems and professional collaboration

Summarised financial information on subsidiaries with significant Non-controlling interests (amounts before inter-company eliminations):

Balance at 31 December 2016			NBMSIT S.A. NBASIT S.A. CelFocus, S.A. Collab, S.A.
Total Non-Current Assets Total Current Assets	658 6,965	90 30,782	3,310 38,636	3,932 4,885
Total Non-Current Liabilities Total Current Liabilities	- (10,894)	- (36,208)	(1,477) (23,877)	(1,334) (2,080)
Net Assets	(3,271)	(5,336)	16,592	5,403
Net Assets attrib. to NCI	(1,087)	(3,570)	7,519	1,079
Sales and Services rendered	8,312 (1,996)	15,065 (2,443)	59,211 6,081	4,039 (801)
Profit for the year Total Comprehensive Income
Comprehensive Income attrib. to NCI	(1,996) 295	(2,443) (972)	6,081 2,737	(801) 197
Cash and cash equiv. at beg. of year Cash and cash equiv. at end of year	3,811 2,708	7,081 9,812	2,399 7,984	3 1
Change in cash and cash equiv.	(1,103)	2,731	5,585	(2)
Dividends paid to NCI (i)	-	-	1,209	-
Balance at 31 December 2017			NBMSIT S.A. NBASIT S.A. CelFocus, S.A. Collab, S.A.
Total Non-Current Assets Total Current Assets Total Non-Current Liabilities Total Current Liabilities	530 7,281 - (10,454)	15 20,636 (2) (23,383)	4,063 36,063 (1,827) (20,606)	3,487 5,195 (1,212) (3,068)
Net Assets
Net Assets attrib. to NCI	(2,643) (977)	(2,734) (2,149)	17,693 8,031	4,402 954
Sales and Services rendered Profit for the year	6,724 820	7,143 3,212	54,597 3,965	5,040 (505)
Total Comprehensive Income	820	3,212	3,965	(505)
Comprehensive Income attrib. to NCI	126	2,374	1,784	(124)
Cash and cash equiv. at beg. of year Cash and cash equiv. at end of year	2,708 376	9,812 3,849	7,984 10,734	1 1,787
Change in cash and cash equiv.	(2,332)	(5,963)	2,750	1,786

(i) In 2016, the disclosure made under the caption 'Dividends paid to NCI' refers to the dividends attributed to non-controlling interests. In 2017, this disclosure was replaced by dividends paid to NCI, in a cash flow perspective.

B. Interests in associates that are material

Novabase considers that its 30% ownership interest in Fundo de Capital de Risco NB Capital is not a material interest to the Group (see note 9). However, in order to provide useful information to the users of the financial statements, some financial information on this associate is disclosed below, in addition to that presented in the table of the companies included in the consolidation by the equity method.

'Fundo de Capital de Risco NB Capital' presents in its financial statements as at 31 December 2017 a Total Non-Current Assets of EUR 705 thousand and a Total Current Assets of EUR 433 thousand. Liabilities (all Current) amounts to EUR 54 thousand, for a Total Net Asset of EUR 1,084 thousand. Given the venture capital activity developed by this associate, Turnover is nil, while Net Profit for the year is equal to Earnings Before Taxes, in the amount of EUR -871 thousand. In 2017, there was a Net increase in Cash and cash equivalents in the amount EUR 28 thousand, for a balance at the end of the period of EUR 372 thousand. This associate did not attribute or pay dividends in any of the periods of this report.

7. Property, plant and equipment

		31.12.17			31.12.16
	Cost	Accumulated depreciation	Net book value	Cost	Accumulated depreciation	Net book value
Buildings and other constructions	3,155	2,772	383	3,160	2,487	673
Basic equipment	6,517	5,103	1,414	6,095	4,629	1,466
Transport equipment	10,048	2,202	7,846	8,319	2,059	6,260
Furniture, fittings and equipment	1,807	1,432	375	1,826	1,329	497
Other tangible assets	12	11	1	17	14	3
	21,539	11,520	10,019	19,417	10,518	8,899

During 2016, movements in property, plant and equipment were as follows:

					Change in
	Balance at	Acquisitions		Exchange	consolidation	Balance at
	01.01.16	/ increases	Write-offs	differences	perimeter	31.12.16
Cost:
Buildings and other constructions	4,082	172	(8)	-	(1,086)	3,160
Basic equipment	8,050	1,567	(58)	(13)	(3,451)	6,095
Transport equipment	7,788	1,955	(1,375)	(49)	-	8,319
Furniture, fittings and equipment	1,893	197	(18)	(7)	(239)	1,826
Other tangible assets	17	1	-	-	(1)	17
	21,830	3,892	(1,459)	(69)	(4,777)	19,417
Accumulated depreciation:
Buildings and other constructions	2,832	364	(8)	-	(701)	2,487
Basic equipment	6,034	868	(54)	(7)	(2,212)	4,629
Transport equipment	1,874	734	(517)	(32)	-	2,059
Furniture, fittings and equipment	1,373	174	(17)	(3)	(198)	1,329
Other tangible assets	13	2	-	-	(1)	14
	12,126	2,142	(596)	(42)	(3,112)	10,518

During 2017, movements in property, plant and equipment were as follows:

						Change in
	Balance at	Application	Acquisitions		Exchange	consolidation	Balance at
	01.01.17	IAS 29	/ increases	Write-offs	differences	perimeter	31.12.17
Cost:
Buildings and other constructions	3,160	-	1	(6)	-	-	3,155
Basic equipment	6,095	28	648	(254)	-	-	6,517
Transport equipment	8,319	153	3,706	(2,087)	(43)	-	10,048
Furniture, fittings and equipment	1,826	6	72	(92)	(5)	-	1,807
Other tangible assets	17	-	-	(5)	-	-	12
	19,417	187	4,427	(2,444)	(48)	-	21,539
Accumulated depreciation:
Buildings and other constructions	2,487	-	291	(6)	-	-	2,772
Basic equipment	4,629	27	649	(174)	(28)	-	5,103
Transport equipment	2,059	149	821	(741)	(86)	-	2,202
Furniture, fittings and equipment	1,329	4	181	(71)	(11)	-	1,432
Other tangible assets	14	-	2	(3)	(2)	-	11
	10,518	180	1,944	(995)	(127)	-	11,520

'Change in Consolidation Perimeter' column reflects the effect of the exit of the consolidation perimeter of the subsidiaries sold in the IMS Business in 2016.

In 2017, IAS 29 was applied to the financial statements of the subsidiary in Angola, before being translated into the presentation currency of the Group, as mentioned in note 2.4. (3) Group companies. The application of the hyperinflation standard to the Angolan accounts at 31 December 2017 had a net impact on property, plant and equipment of EUR +7 thousand (see note 2), with an increase both in gross assets and accumulated depreciation of EUR +187 thousand and EUR +180 thousand, respectively.

Property, plant and equipment increases during the year were mainly in the Group's fleet, which had an increase of 82 vehicles, representing a EUR 3.7 Million rise in the 'Transport equipment' class of assets.

In 2017, no events or circumstances that indicated that the carrying amount of tangible assets exceeded its recoverable amount were identified; consequently, no impairment tests have been carried out.

The amount of depreciation recognised in profit and loss and included in 'Depreciation and amortisation' is EUR 1,944 thousand (2016: EUR 1,599 thousand), and included in 'Profit from discontinued operations' is EUR 0,0 thousand (2016: EUR 543 thousand).

8. Intangible assets

	31.12.17				31.12.16
	Cost	Accumulated amortisation	Net book value	Cost	Accumulated amortisation	Net book value
Internally generated intangible assets	14,020	12,117	1,903	13,950	10,866	3,084
Industrial property and other rights	11,059	11,043	16	11,049	11,028	21
Work in progress	357	-	357	113	-	113
Goodwill	14,886	-	14,886	14,886	-	14,886
	40,322	23,160	17,162	39,998	21,894	18,104

During 2016, movements in intangible assets were as follows:

					Change in
	Balance at		Acquisitions Impairm. ch.		consolidation	Balance at
	01.01.16	/ increases	/ Write-offs	Transfers	perimeter	31.12.16
Cost:
Internally generated intangible assets	13,987	-	-	72	(109)	13,950
Industrial property and other rights	11,169	4	(77)	-	(47)	11,049
Work in progress	-	185	-	(72)	-	113
Goodwill	23,739	-	(8,853)	-	-	14,886
	48,895	189	(8,930)	-	(156)	39,998
Accumulated amortisation:
Internally generated intangible assets	8,488	2,387	-	-	(9)	10,866
Industrial property and other rights	11,103	41	(77)	-	(39)	11,028
	19,591	2,428	(77)	-	(48)	21,894

During 2017, movements in intangible assets were as follows:

					Change in
	Balance at	Acquisitions Impairm. ch.			consolidation	Balance at
	01.01.17	/ increases	/ Write-offs	Transfers	perimeter	31.12.17
Cost:
Internally generated intangible assets	13,950	70	-	-	-	14,020
Industrial property and other rights	11,049	10	-	-	-	11,059
Work in progress	113	244	-	-	-	357
Goodwill	14,886	-	-	-	-	14,886
	39,998	324	-	-	-	40,322
Accumulated amortisation:
Internally generated intangible assets	10,866	1,251	-	-	-	12,117
Industrial property and other rights	11,028	15	-	-	-	11,043
	21,894	1,266	-	-	-	23,160

'Change in Consolidation Perimeter' column reflects the effect of the exit of the consolidation perimeter of the subsidiaries sold in the IMS Business in 2016.

The amount of amortisation recognised in profit and loss and included in 'Depreciation and amortisation' is EUR 1,266 thousand (2016: EUR 2,186 thousand), and included in 'Profit from discontinued operations' is EUR 0,0 thousand (2016: EUR 242 thousand).

The captions 'Internally generated intangible assets' and 'Work in progress' include costs incurred in software development projects.

The amount with research and development recognised as a cost, related to the main research projects, reached EUR 4.9 Million (2016: EUR 5.6 Million).

Movements in goodwill were as follows:

	31.12.17	31.12.16
Balance at 1 January	16,413	25,358
Discontinued operations (IMS)	-	(8,945)
Balance at 31 December	16,413	16,413
Movements in goodwill impairment were as follows:
	31.12.17	31.12.16
Balance at 1 January	(1,527)	(1,619)
Discontinued operations (IMS)	-	92
Balance at 31 December	(1,527)	(1,527)

Impairment tests for goodwill

Goodwill is allocated to the Group's Cash-Generating Units (CGUs) identified according to operating segments.

	31.12.17	31.12.16
Business Solutions	14,886	14,886
	14,886	14,886

The impairment test for goodwill was performed based on the discounted cash flow method, using a 5 year business plan forecasted by Management, with the following key assumptions:

	Business
	Solutions
Discount rate (post-tax)	7.4%
Perpetual growth rate	2.0%
Annual growth rate of turnover	5.0%

The application of the previously described method generates a recoverable amount (determined by value in use) of assets that exceeds its carrying amount, concluding therefore that there is no need for an impairment charge to the goodwill allocated to the Cash-Generating Units. A possible increase or decrease of 1 percentage point in the WACC would result in an Enterprise Value of EUR 110 thousand and EUR 153 thousand, respectively, not becoming lower than the carrying amount of assets.

34

9. Investments in associates

			% Interest held directly	Amount
		31.12.17	31.12.16	31.12.17	31.12.16
	Fundo Capital Risco NB Capital (notes 6 and 35)	30.0%	30.0%	314	575
(*)	Novabase Digital TV Technologies GmbH (note 6)	-	51.0%	-	-
				314	575

(*) Company sold at the end of 2017. This company was inactive and no additional contingencies were expected, so its fair value was nil for the Group.

10. Financial assets at fair value through profit or loss

				% Holding
31.12.17	31.12.16	31.12.17	31.12.16
		345	50
		2,796	4,353
	11.6% 1.7% 88.9% 90.0% 25.1%	% Interest held directly 11.6% 3.6% 88.9% 90.0% 25.1%	296 1,569 - 23 563	Amount 380 3,112 - 80 731

• (i) Venture Capital Fund established in 2011 and held by Novabase Capital SCR, S.A., focused on creating proofs-of-concept and prototypes and developing intellectual property and business models. This Fund is managed by Armilar Venture Partners SCR.
• (ii) Company, held by FCR NB Capital Inovação e Internacionalização, dedicated to the development of solutions for processing large volumes of data in real time.
• (iii) Company, held by FCR NB Capital Inovação e Internacionalização, focused on developing an application platform for SmartGrids.
• (iv) Company specialized in incubate projects in the area of Information and Communication Technologies (ICT) and provide integrated services in the administrative and financial areas, training and assistance for ICT SMEs applications, supported by a multi-channel platform. This company is held by FCR NB Capital Inovação e Internacionalização.
• (v) Held by Novabase Business Solutions S.A., this company is a technology-based company in the area of information systems and telecommunications engineering.
• (vi) In 2017, the amount of this caption refers to FCT - Labor Compensation Fund. This item also includes the companies held by FCR NB Capital Inovação e Internacionalização, PowerData and Radical Innovation ("RI"), with a fair value of nil.

Novabase does not have control of the companies held by FCR NB Capital Inovação e Internacionalização, understood as the power to manage the relevant activities of an entity, being exposed to the risks of variation of the return obtained and having the capacity to affect those returns through its power over the entity, therefore they were not considered subsidiaries or associates.

Movements in this caption were as follows:

	31.12.17	31.12.16
Balance at 1 January	4,353	3,165
Transfers	345	-
Disposals / share capital decrease	(1,566)	(77)
Profit or loss charge (see notes 33 and 34)	(336)	1,265
Balance at 31 December	2,796	4,353

The item 'Transfers' relates to FCT - Labor Compensation Fund, reclassified from the caption 'Trade and other receivables' where it was considered in 2016 (see accounting policy in note 2.15.).

In September 2017, FCR Novabase Capital Inovação e Internacionalização sold part of its investment in the company Feedzai by the amount of EUR 4,564 thousand, to the North American companies Sapphire Ventures and Sapphire Sap, obtaining a gain of EUR 3,008 thousand (see note 33). The amount of the sale was fully received in the year.

In the year there was also the sale of shares held by Novabase Business Solutions in 'WRC' company and of its holding in 'ACE - SAP/Novabase', as well as the sale by FCR Novabase Capital Inovação e Internacionalização of its investee, SmartGeo, by a total amount of EUR 11 thousand. The companies Wizdee, Livian Technologies and City Pulse were also dissolved by this Fund. In aggregate, these operations generated a net gain on disposals of EUR 8 thousand (see notes 33 and 34).

A. Fair value measurements

Note 14 provides information on the fair value hierarchy of these financial assets.

There were no transfers between levels 3 and 2 for recurring fair value measurements during 2017, considering the below mentioned about Feedzai.

The transaction that took place on 18 September 2017, of the sale of 369,591 preferred shares of category A (representing 1.7% of the fully diluted capital) of the company Feedzai - Consultoria e Inovação Tecnológica, S.A., was not considered a transaction materially relevant for the purpose of valuation given that:

• It only involved a total of 3.93% of the capital of the company (fully diluted);
• The shareholder FCR Novabase Capital Inovação e Internacionalização, after the referred transaction and following a recent search of a new category C capital round, renounced relevant rights and lost priority in liquidation events faced with the new shares.

For the FCT valuation, the fair value was determined with reference to observable input data: the value of 'Participation Units' at the reporting date (level 1 in the fair value hierarchy).

For the valuation of the companies held by FCR NB Capital Inovação e Internacionalização, the discounted cash flow method was used, considering a 5-year business plan forecasted by Management, with the following key assumptions:

	Feedzai	Powergrid	BI	Powerdata	RI
Discount rate (post-tax)	14.4%	14.1%	13.0%	14.1%	13.0%
Perpetual growth rate	0.5%	0.5%	0.5%	0.5%	0.5%
Annual growth rate of turnover	16.4%	10.0%	3.0%	5.0%	3.0%

According to the sensitivity analysis performed on these companies, a possible increase or decrease of 1 percentage point in WACC would not result in a significant fair value change since most of them have a nil fair value as at 31 December 2017 (Powergrid, Powerdata and Radical Innovation) or immaterial (Bright Innovation). In Feedzai's case, a possible increase or decrease of 1 percentage point in the WACC would result in a fair value change of approximately EUR -70 thousand and EUR +81 thousand, respectively.

11. Deferred tax assets and liabilities

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts were determined after its offsetting:

	31.12.17	31.12.16
Deferred tax assets
To be recovered within 12 months	1,375	1,065
To be recovered after more than 12 months	9,073	8,480
	10,448	9,545
Deferred tax liabilities
To be recovered within 12 months	-	-
To be recovered after more than 12 months	-	-
	-	-
The movement in the deferred tax assets was as follows:
	31.12.17	31.12.16

Balance at 1 January	9,545	16,352
Change in consolidation perimeter	-	(542)
Exchange differences	23	(478)
Other comprehensive income charge	302	-
Profit or loss charge (see note 36)	578	(5,787)
Balance at 31 December	10,448	9,545

The amount recognised in profit and loss and included in 'Income tax expense' is EUR 578 thousand (2016: EUR -1,364 thousand), and included in 'Profit from discontinued operations' is EUR 0,0 thousand (2016: EUR -4,423 thousand).

The amount recognised in other comprehensive income of EUR 302 thousand in 2017, refers to the tax related to the net investment accounting and to the economic hedge of the operations in Angola (see note 19).

The movement in deferred tax assets during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

	Tax Losses /	Tax	Provisions /
	Other	Incentives	Adjustments	Total
Balance at 1 January 2016	3,993	9,867	2,492	16,352
Profit or loss charge Change in consolidation perimeter Exchange differences	(2,845) (542) (478)	(3,467) - -	525 - -	(5,787) (542) (478)
Balance at 31 December 2016	128	6,400	3,017	9,545
Profit or loss charge Other comprehensive income charge Exchange differences	(1,276) 302 23	3,354 - -	(1,500) - -	578 302 23
Balance at 31 December 2017	(823)	9,754	1,517	10,448

Deferred tax assets related to tax incentives result from projects of research and development submitted under the incentive program SIFIDE. The expiry date of the deferred tax assets can be analysed as follows:

	Tax Losses /	Tax	Provisions /
	Other	Incentives	Adjustments	Total
No later than 1 year	-	-	-	-
Between 1 and 2 years	-	1,199	-	1,199
Between 2 and 3 years	-	-	-	-
Between 3 and 4 years	-	-	-	-
Between 4 and 5 years	109	2,382	-	2,491
Between 5 and 6 years	130	1,610	-	1,740
Over 6 years	5	4,563	-	4,568
With no defined date	(1,067)	-	1,517	450
	(823)	9,754	1,517	10,448

12. Other non-current assets

	31.12.17	31.12.16
Loans to related parties (note 40 iii)	4,769	8,570
Capital subscribers of Fundo de Capital de Risco NB Capital +Inovação	1,234	-
Provision for impairment of loans to related parties (note 40 iii)	(2,747)	(3,438)
	3,256	5,132

Under the conditions set out in Article 2 of the Management Regulation of the Fund established in 2017, 'Fundo de Capital de Risco NB Capital + Inovação' (see note 6), the capital subscribed was only partially paid (25%), with the remaining amount to be paid in two tranches upon request of the Fund's management company (Novabase Capital SCR, S.A.), after certain conditions are met (use of a certain percentage of the paid-up share capital in investments within the FCR investment policy). Based on expectations of the Fund's management company at the reporting date, the first tranche, in the amount of EUR 1,174 thousand in the non-controlling interests part, will be carried out within a maximum of one year, and is recognised in 'Trade and other receivables' caption (see note 15) and the second tranche, in the amount of EUR 1,234 thousand, will be paid after 31 December 2018, therefore being classified as non-current and presented in this note.

The fair value of 'Other non-current assets' balance approximates its carrying amount.

Movements in the provision for impairment of loans to related parties are analysed as follows:

	31.12.17	31.12.16
Balance at 1 January	3,438	2,292
Impairment (note 34)	1,753	1,756
Impairment reversal (note 33)	-	(610)
Usage / write-offs	(2,444)	-
Balance at 31 December	2,747	3,438

The amount of 'Usage / write-offs' is related to the dissolution and sale of the companies Livian Technologies, City Pulse and SmartGeo, held by FCR NB Capital Inovação e Internacionalização. This amount was considered in the computation of the gains or losses on disposal of these financial assets (disclosed in notes 33 and 34).

13. Inventories

	31.12.17	31.12.16
Merchandise	62	527
Raw materials, subsidiary goods and consumables	119	119
	181	646
Inventory impairment	(135)	(160)
	46	486
Movements in inventory impairment are analysed as follows:
	31.12.17	31.12.16
Balance at 1 January	160	406
Impairment (see note 31)	18	215
Impairment reversal (see note 31)	(48)	(95)
Change in consolidation perimeter	-	(366)
Exchange differences	5	-
Balance at 31 December	135	160

The amount of impairment and impairment reversal of inventories recognised in profit and loss and included in 'Other gains/(losses) - net' is EUR 30 thousand (2016: EUR 0 thousand), and included in 'Profit from discontinued operations' is EUR 0 thousand (2016: EUR -120 thousand).

14. Financial instruments by category

	Loans and	Assets/liabilit. at fair value	Other financial	Non-financial assets/
At 31 December 2016	receivables	through P&L	liabilities	liabilities	Total
Assets
Other non-current assets	5,132	-	-	-	5,132
Financial assets at fair value through profit or loss	-	4,353	-	-	4,353
Held-to-maturity investments - non-current	4,859	-	-	-	4,859
Trade and other receivables	89,758	-	-	2,954	92,712
Accrued income	15,081	-	-	-	15,081
Derivative financial instruments	-	19	-	-	19
Other current assets	-	-	-	1,886	1,886
Held-to-maturity investments - current	4,441	-	-	-	4,441
Cash and cash equivalents	35,703	-	-	-	35,703
	154,974	4,372	-	4,840	164,186
Liabilities
Borrowings	-	-	25,813	-	25,813
Trade and other payables	-	-	47,414	-	47,414
Derivative financial instruments	-	82	-	-	82
Deferred income and other current liabilities	-	-	27,709	-	27,709
	-	82	100,936	-	101,018

At 31 December 2017	Loans and receivables	Assets/liabilit. at fair value through P&L	Other financial liabilities	Non-financial assets/ liabilities	Total
Assets
Other non-current assets	3,256	-	-	-	3,256
Financial assets at fair value through profit or loss	-	2,796	-	-	2,796
Held-to-maturity investments - non-current	7,713	-	-	-	7,713
Trade and other receivables	47,831	-	-	1,914	49,745
Accrued income	16,356	-	-	-	16,356
Derivative financial instruments	-	18	-	-	18
Other current assets	-	-	-	1,546	1,546
Held-to-maturity investments - current	7,353	-	-	-	7,353
Cash and cash equivalents	56,136	-	-	-	56,136
	138,645	2,814	-	3,460	144,919
Liabilities
Other non-current liabilities	-	-	744	-	744
Borrowings	-	-	23,744	-	23,744
Trade and other payables	-	-	41,619	-	41,619
Deferred income and other current liabilities	-	-	25,103	-	25,103
	-	-	91,210	-	91,210

The following table shows the Group's financial assets and liabilities that are measured at fair value according to the following hierarchy levels:

- Level 1: The fair value of financial instruments is based on quoted prices in active and liquid markets at reporting date.

- Level 2: The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Main inputs used on these valuation models are based on observable market data.

- Level 3: The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques, and main inputs are not based on observable market data.

	31.12.17			31.12.16
	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
Financial assets at fair value
(*) Financial assets at fair value through profit or loss	345 -	- -	- 2,451	- -	- -	- 4,353
Financial assets at fair value through profit or loss Derivative financial instruments	-	18	-	-	19	-
	345	18	2,451	-	19	4,353
Financial liabilities at fair value
Derivative financial instruments	-	-	-	-	82	-
	-	-	-	-	82	-

(*) Refers to FCT - Labor Compensation Fund (see note 10).

15. Trade and other receivables

	31.12.17	31.12.16
Trade receivables	48,088	60,199
Provision for impairment of trade receivables	(2,802)	(11,160)
	45,286	49,039
Prepayments to suppliers	419	562
Employees	86	95
Value added tax	1,409	2,297
Receivables from related parties (note 40 iii)	15	1,215
Financial holdings disposal	-	38,365
Receivables from financed projects	1,660	1,449
Capital subscribers of Fundo de Capital de Risco NB Capital +Inovação	1,174	-
Other receivables	901	821
Provision for impairment of other receivables	(1,205)	(1,131)
	4,459	43,673
	49,745	92,712

At 31 December 2016, the balance of 'Financial holdings disposal' caption reflects the price agreed on the sale of IMS Business. At the beginning of 2017, the final price was revised to EUR 41,061 thousand, which was fully received - see notes 20 and 41.

The balance of 'Capital subscribers of Fundo de Capital de Risco NB Capital +Inovação' refers to the amount expected to be received until 31 December 2018, regarding the first tranche of the called-up share capital of this Fund, due for shares issued but not fully paid, as established in Article 2 of its Management Regulation (see note 12).

The fair value of 'Trade and other receivables' balance approximates its carrying amount.

The carrying amount of this caption plus the balance of 'Accrued income' (see note 16) and the amount of EUR 1,234 thousand included in 'Other non-current assets' (see note 12), represents the maximum exposure to credit risk.

The ageing analysis of the carrying amounts of trade receivables is as follows:

	31.12.17	31.12.16
Carrying amount of receivables not due	29,130	30,008
Carrying amount of receivables not impaired
Past due for less than 6 months	15,454	13,164
Past due for more than 6 months	587	5,350
Carrying amount of receivables due and not impaired	16,041	18,514
Carrying amount of receivables impaired
Past due for less than 6 months	-	833
Past due for more than 6 months	2,917	10,844
Carrying amount of receivables due and impaired	2,917	11,677
	48,088	60,199

80% of trade receivables not due and trade receivables past due and not impaired is owed by entities with which there is no past experience of default, although might have had some punctual delay in the invoices payment. The remaining 20% are distributed by 179 entities with an average balance of EUR 50 thousand, that the credit department has no information that leads to suppose that there is a high risk of default.

Movements in provisions for impairment of trade and other receivables are analysed as follows:

	Trade receivables		Other receivables		Total
	31.12.17	31.12.16	31.12.17	31.12.16	31.12.17	31.12.16
Balance at 1 January	11,160	5,763	1,131	3,356	12,291	9,119
Change in consolidation perimeter	-	(1,835)	-	(5)	-	(1,840)
Impairment (note 31)	885	10,306	91	992	976	11,298
Impairment reversal (note 31)	(8,639)	(2,088)	-	-	(8,639)	(2,088)
Exchange differences	(115)	(2)	(17)	(6)	(132)	(8)
Write-offs	(489)	(984)	-	(3,206)	(489)	(4,190)
Balance at 31 December	2,802	11,160	1,205	1,131	4,007	12,291

The impairment and impairment reversal of trade and other receivables recognised in profit and loss and included in 'Other gains/(losses) - net' is EUR 7,663 thousand (2016: EUR -5,602 thousand), and included in 'Profit from discontinued operations' is EUR 0 thousand (2016: EUR -3,608 thousand). The main reason for the trade receivables impairment reversal recorded this year is set in note 31.

16. Accrued income

	31.12.17	31.12.16
- Ongoing projects - Other accrued income	14,087 2,269	14,209 872
	16,356	15,081

In 2017, there were no situations that caused material misstatements in the estimated costs to be incurred to complete the previous year ongoing projects, nor in the outcome of the transaction.

17. Derivative financial instruments

The fair value of derivative financial instruments can be analysed as follows:

		Assets
	31.12.17	31.12.16	31.12.17	31.12.16
- Forward foreign exchange contracts	18	19	-	82
	18	19	-	82

The Group is exposed to foreign exchange risk in sales and purchases in various currencies, primarily with respect to the U.S. Dollar, Kwanza and Metical. Novabase's exposure to currency risk mainly results from the presence of several of its subsidiaries in various markets, namely, Angola and Mozambique.

The forward foreign exchange contracts are the financial instruments used to manage this risk, and they are contracted on the net exposure to currencies, according to the terms of receipts and payments agreed with third parties, in order to set the exchange rate associated with these operations. The nature of the hedged risk is the exchange variation recorded in foreign currency denominated transactions.

The fair value is classified as a non-current asset or liability if the remaining maturity is greater than 12 months and as current asset or liability if the remaining maturity is less than 12 months. In 2017, derivative financial instruments were classified as current assets. Although contracted with the purpose of economic hedge in accordance with the Group's risk management policies, changes in the fair value of these derivatives were recognised in profit or loss (see note 2.21. (2)). Note 14 provides information on the fair value hierarchy of these financial assets and liabilities.

At 31 December 2017, the Group had forward foreign exchange contracts of EUR Call / USD Put with the notional amount of USD 4,654,649 and forward foreign exchange contracts of EUR Put / USD Call with the notional amount of USD 265,888.

18. Other current assets

The amounts recorded regarding prepayments of contracted services are as follows:

	31.12.17	31.12.16
- Rents	513	608
- Software licensing	40	90
- Hardware and software maintenance and specialized services	993	1,188
	1,546	1,886

In order to ensure the proper balancing of the services provided by third parties, expenses and revenues were deferred and will be recognised in profit or loss in the next period.

19. Held-to-maturity investments

	31.12.17	31.12.16
Non-Current
Government of Angola treasury bonds	7,713	4,859
	7,713	4,859
Current Government of Angola treasury bonds	7,353	4,441
	7,353	4,441

The Group invests part of the cash surplus of its Angolan subsidiary in Government of Angola treasury bonds indexed to USD. At 31 December 2017, the Group has 17 Treasury Bonds, most of them purchased from BFA, in the total amount of EUR 15,066 thousand, with maturities in 2018 (EUR 7,353 thousands) and in 2020 (EUR 7,713 thousands).

As disclosed in note 2.4. (3) Group companies, the Group is applying the net investment in foreign entities. Since the purpose of contracting these Government of Angola treasury bonds is to provide economic hedge of the Angolan operation, the impact of this hedge was recognised in other comprehensive income, in the amount of EUR 586 thousand in 2017.

20. Cash and cash equivalents

With reference to the consolidated statement of cash flows, the detail and description of Cash and cash equivalents is analysed as follows:

	31.12.17	31.12.16
- Cash	13	8
- Short term bank deposits	56,123	35,695
Cash and cash equivalents Caixa e equivalentes a caixa	56,136	35,703
- Overdrafts	-	-
	56,136	35,703

'Cash and cash equivalents' evolution in 2017 reflects mainly two effects: the cash inflow from IMS Business disposal, in the amount of EUR 41,061 thousand (see notes 15 and 41) and the payment of dividends to shareholders and non-controlling interests, in a total amount of EUR 21,438 thousand (see notes 22 and 23).

53% of the balance of cash and cash equivalents refers to wholly-owned Novabase subsidiaries. Of the remainder, 17% is related to subsidiaries based outside Portugal.

As 31 December 2017 and 31 December 2016, no restrictions exist as to the usage of the amounts recorded in the caption 'Cash and cash equivalents', considering the text below about Angola.

'Short-term bank deposits' caption includes EUR 3,848 thousand from Novabase's Angola-based subsidiary which, due to the financial and foreign currency crisis in the country, are subject to restrictions on transfers out of Angola, with a slowdown in the repatriation of capital being observed. However, there are no restrictions on its usage.

The ratings attributed to the financial institutions with which the Group has higher balances of bank deposits are detailed in note 3 c).

The fair value of 'Cash and cash equivalents' balance approximates its carrying amount.

21. Share Capital, share premium, treasury shares and stock options

The share capital at 31 December 2017, fully subscribed and paid of 15,700,697 Euros, is represented by 31,401,394 shares with a nominal value of 0.5 Euros each.

	Number of shares (thousands)	Share capital	Treasury shares	Share premium	Total
Balance at 1 January 2016	31,401	15,701	(6)	43,560	59,255
Treasury shares purchased	-	-	(10)	-	(10)
Treasury shares transferred	-	-	12	-	12
Balance at 31 December 2016	31,401	15,701	(4)	43,560	59,257
Treasury shares purchased	-	-	(184)	-	(184)
Treasury shares transferred	-	-	-	-	-
Balance at 31 December 2017	31,401	15,701	(188)	43,560	59,073

'Treasury shares' caption reflects the number of shares held by the Group at its nominal value.

According to the legislation in force, by deliberation of the General Meeting of Shareholders held on 12 April 2007, the purchase of treasury shares by Novabase S.G.P.S. is permitted up to a maximum of 10% of its share capital.

At 31 December 2016, Novabase S.G.P.S. held 8,615 treasury shares, representing 0.03% of its share capital.

During 2017, the Company acquired on the market 367,996 shares (1.17% of the subscribed capital) at the average price of 2.745 Euros. Treasury shares acquisitions were performed because they were considered to be in the Company's best interest.

At 31 December 2017, Novabase S.G.P.S. held 376,611 treasury shares, representing 1.20% of its share capital.

Issuance share premiums resulted from gains obtained with share capital increases. According to the current legislation, the amounts included under this caption can be used only to increase share capital or to absorb losses carried forward (no need for prior use of other reserves), but it cannot be used for attribution of dividends or purchase of treasury shares.

22. Reserves and retained earnings

According to legislation in force, Portuguese based companies that integrate Novabase Group are required to transfer a minimum of 5% of annual net profit to legal reserves until this balance reaches at least 20% of the share capital. This reserve cannot be distributed to shareholders, though it may be used to absorb losses carried forward or to increase share capital.

There is also a reserve of an amount equal to the one by which the treasury shares are accounted for, which, in accordance with the article 324 (1) b) of the Portuguese Companies Code, is unavailable for distribution.

In the General Meeting of Shareholders held on May 2017, it was approved the payment to shareholders of an amount of EUR 4,710 thousand, corresponding to 0.15 Euros per share. The payment occurred in May 2017.

In the General Meeting of Shareholders held on 26 October 2017, it was approved the distribution to the shareholders of reserves and retained earnings in the amount of EUR 15,701 thousand, corresponding to 0.50 Euros per share. The payment occurred in November 2017.

		31.12.17	31.12.16
	Payment to shareholders	20,166	3,767
	Remuneration of the treasury shares held by the Company	245	1
		20,411	3,768
	23. Non-controlling interests
		31.12.17	31.12.16
	Balance at 1 January	8,151	8,194
	Restated accordingly IAS 29 - see note 2	(710)	-
(*)	Change in consolidation perimeter	3,292	-
(**)	Distribution of dividends to non-controlling interests	(1,272)	(585)
	Exchange differences on foreign operations	(226)	(929)
	Profit attributable to non-controlling interests	4,362	1,471
	Balance at 31 December	13,597	8,151

(*) In 2017, it was established a new venture capital fund, 'FCR Novabase Capital +Inovação' (see note 6).

(**) In 2017 and 2016, Celfocus approved dividends to its shareholders. These dividends were paid in the year of their attribution (see note 6 - A. Subsidiaries with material non-controlling interests).

24. Borrowings

	31.12.17	31.12.16
Non-current
Bank borrowings	10,563	13,907
Finance lease liabilities	6,274	4,990
	16,837	18,897
Current
Bank borrowings	4,963	5,376
Finance lease liabilities	1,944	1,540
	6,907	6,916
Total borrowings	23,744	25,813
The periods in which the current bank borrowings will be paid are as follows:
	31.12.17	31.12.16

6 to 12 months 2,132 2,370

6 months or less 2,831 3,006

43

4,963 5,376

The maturity of non-current bank borrowings is as follows:

	31.12.17	31.12.16
Between 1 and 2 years Between 2 and 5 years Over 5 years	4,269 6,294 -	4,407 9,100 400
	10,563	13,907
The effective interest rates at the reporting date were as follows:
	31.12.17	31.12.16
Bank borrowings	2.092%	3.124%
Gross finance lease liabilities – minimum lease payments:
	31.12.17	31.12.16
No later than 1 year Between 1 and 5 years	2,182 6,947	1,770 5,224
	9,129	6,994
Future finance charges on finance leases	(911)	(464)
Present value of finance lease liabilities	8,218	6,530
The present value of finance lease liabilities is analysed as follows:
	31.12.17	31.12.16
No later than 1 year Between 1 and 5 years	1,944 6,274	1,540 4,990
	8,218	6,530

The covenants of the Group's bank borrowings are as follows:

• Solvability ratio ≥40%; Net Debt / EBITDA ≤3
• Solvability ratio ≥35%; Net Debt / EBITDA ≤2.5 ; Net Debt / Total Equity ≤0.5
• Solvability ratio ≥40%; Net Debt / EBITDA <2; Net Debt / Total Equity <0.5; EBIT / Interest paid >3
• An aggregate amount of Cash and Cash Equivalent Investments of at least EUR 15,000,000 (fifteen million euros)
• Bond seniority determined pari passu
• Cross Default
• Good standing with tax and social security authorities
• Published accounts
• Information disclosure obligations regarding court disputes
• Active insurance policies
• At 31 December 2017, the Group was complying with the covenants.

(a) Net Debt reconciliation

This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.

	31.12.17	31.12.16
Cash and cash equivalents	56,136	35,703
Borrowings - repayable within one year (including overdraft)	(6,907)	(6,916)
Borrowings - repayable after one year	(16,837)	(18,897)
Net Debt	32,392	9,890

	Cash and Cash	Bank borrow. Bank borrow. due within	due after	Finance lease liab. due within	Finance lease liab. due after
	equivalents	1 year	1 year	1 year	1 year	Total
Net debt at 31 December 2016	35,703	(5,376)	(13,907)	(1,540)	(4,990)	9,890
Cash flows	21,210	413	3,218	788	-	25,629
Acquisitions - finance lease liabilities	-	-	-	-	(3,706)	(3,706)
Exchange rate changes	(777)	-	126	-	-	(651)
Change in consolidation perimeter	-	-	-	-	-	-
Other non-cash movements	-	-	-	(1,192)	2,422	1,230
Net debt at 31 December 2017	56,136	(4,963)	(10,563)	(1,944)	(6,274)	32,392

25. Provisions

Movements in provisions are analysed as follows:

		Legal		Other Risks
	Warranties	Claims	Restructuring and Charges		Total
Balance at 1 January 2016	199	50	60	11,188	11,497
Additional provisions (note 31)	4	130	-	2,475	2,609
Reversals / utilisations (note 31)	(148)	(50)	(60)	(4,373)	(4,631)
Change in consolidation perimeter	(55)	-	-	(312)	(367)
Exchange differences	-	-	-	1	1
Balance at 31 December 2016	-	130	-	8,979	9,109
Additional provisions (note 31)	-	-	-	4,917	4,917
Reversals / utilisations (note 31)	-	(130)	-	(3,527)	(3,657)
Exchange differences	-	-	-	-	-
Balance at 31 December 2017	-	-	-	10,369	10,369

Provisions balance includes, among others, the following matters:

Warranties - Liabilities related to third parties subcontracts in the supply of hardware for the TV business (previous IMS segment), to cover the clients' warranty period. Cash outflows relative to such liabilities occurs in the moment the guarantee is exercised.

Legal Claims - Responsibility with indemnities to third parties related to the legal processes in progress that are estimated to represent future disbursements, based on the assessment of the effectiveness of the probability of payment supported by the opinion of experts and legal counselors (internal and/or external). The payment of this liability depends on the outcome of the referred legal actions.

Restructuring - Responsibility with indemnities to employees, resulting from the restructuring process implemented in the end of 2014. This provision was totally canceled/used at the end of 2016.

Other Risks and Charges - Refers mainly to responsibilities with costs to be incurred with possible contractual penalties relative to ongoing projects and other probable risks. In 2017, it also includes the responsibilities with costs to be incurred related to the LTI Program (Long term incentive).

There were no movements in provisions for warranties in 2017, which were related to the IMS segment, discontinued and sold at the end of the previous year (in 2016, it was recognised EUR 144 thousand in 'Profit from discontinued operations') .

The amount of provision for legal claims recognised in profit or loss and included in 'Other gains/(losses) - net' is EUR 130 thousand (2016: EUR -80 thousand).

The amount of provisions for other risks and charges recognised in profit or loss and included in 'Other gains/(losses) - net' is EUR -1,390 thousand (2016: EUR 711 thousand), and included in 'Profit from discontinued operations' is EUR 0 thousand (2016: EUR 1,186 thousand).

26. Other non-current liabilities

	31.12.17	31.12.16
Research and development grants	744	-
	744	-

This caption corresponds to the amount of grants for research and development with a maturity of more than 12 months. The fair value of 'Other non-current liabilities' balance approximates its carrying amount.

27. Trade and other payables

31.12.17	31.12.16
5,616	7,242
8,062	8,567
9,684	8,583
3,841	3,335
3,394	3,334
2,040	2,051
1,334	1,579
5	5
320	528
13	5
6,943	6,835
367	5,350
41,619	47,414

The fair value of 'Trade and other payables' balance approximates its carrying amount.

The maturity of these liabilities is as follows:

	31.12.17	31.12.16
No later than 1 year	41,619	47,414
	41,619	47,414

28. Deferred income and other current liabilities

	31.12.17	31.12.16
Research and development grants	461	1,518
Consulting projects	24,642	26,191
	25,103	27,709

The table below shows the financial incentives for research and development at 31 December 2017, by type of incentive program:

	Contracted Acum. received
	amount	amount
Grants:
- NSRF - National Strategic Reference Framework	293	201
- P2020 - Portugal 2020	635	53
- FAI - Innovation Support Fund	1,705	719
	2,633	973

29. External supplies and services

	31.12.17	31.12.16
Subcontracts	28,684	26,201
Supplies and services
Commissions and consultancy fees	8,236	5,217
Transportation, travel and accommodation expenses	6,387	8,350
Rents	3,520	2,937
Freight	229	33
Advertising and promotion	947	1,038
Water, electricity and fuel	653	536
Communications	675	606
Insurance	417	332
Utensils, office supplies and technical documentation	424	206
Other supplies and services	1,029	1,107
	22,517	20,362
	51,201	46,563

30. Employee benefit expense

	31.12.17	31.12.16
Board members remuneration	4,379	3,073
Salaries and wages	61,559	62,060
Social security charges	11,238	11,350
Other personnel expenses	4,979	2,567
	82,155	79,050

Other personnel expenses include labour accident insurance, social responsibility costs, training costs, and indemnities.

Average number of personnel is analysed as follows:

	31.12.17	31.12.16
Business Solutions	1,899	1,936
IMS (Discontinued operations)	-	397
Venture Capital	52	55
Novabase Shared Services	81	96
	2,032	2,484

The average number of employee's evolution reflects mainly the disposal of the IMS business at the end of 2016.

The number of employees at the end of the year was 1,991 (2016: 2,138), 30% of whom are women (2016: 28%).

31. Other gains/(losses) - net

	31.12.17	31.12.16
Impairment and impairment reversal of trade and other receivables (note 15) (*)	7,663	(5,602)
Impairment and impairment reversal of inventories (note 13)	30	-
Warranties provision (note 25)	-	-
Legal claims provision (note 25)	130	(80)
Provisions for other risks and charges (note 25) (*)	(1,390)	711
Other operating income and expense (*)	(1,853)	860
	4,580	(4,111)

(*) In 2017, the caption 'Other operating income and expense' includes EUR -5,785 thousand of extraordinary costs associated with a project, for which provisions had been made at the end of 2016. On the other hand, the amounts of EUR 4,905 thousand of impairment of trade receivables and EUR 1,537 thousand of provisions for other risks and charges were reversed during the year, related to this client/project.

32. Depreciation and amortisation

	31.12.17	31.12.16
Property, plant and equipment (note 7):
Buildings and other constructions	291	364
Basic equipment	649	612
Transport equipment	821	455
Furniture, fittings and equipment	181	167
Other tangible assets	2	1
	1,944	1,599
Intangible assets (note 8):
Internally generated intangible assets	1,251	2,155
Industrial property and other rights	15	31
	1,266	2,186
	3,210	3,785

33. Finance income

	31.12.17	31.12.16
Interest received	438	419
Foreign exchange gains	2,300	1,268
Fair value of financial assets adjustment (note 10)	70	1,519
Provisions for loans to related parties (note 12)	-	610
Gain on disposal of financial assets (*)	3,391	-
	6,199	3,816

(*) Refers to the disposal by FCR NB Capital Inovação e Internacionalização of part of its investment in Feedzai (EUR 3,008 thousand), as well as the sale of SmartGeo (EUR 100 thousand) and the dissolution of Livian Technologies (EUR 283 thousand) - see note 10.

34. Finance costs

	31.12.17	31.12.16
Interest expenses
- Borrowings	(446)	(485)
- Finance lease liabilities	(289)	(175)
- Other interest	(2)	(8)
Bank guarantees charges	(92)	(80)
Bank services	(186)	(112)
Foreign exchange losses	(3,141)	(1,851)
Fair value of financial assets adjustment (note 10)	(406)	(254)
Provisions for loans to related parties (note 12)	(1,753)	(1,756)
Loss on disposal of financial assets (*)	(375)	-
Fair value adjustment for contingent consideration (**)	(86)	-
	(6,776)	(4,721)

(*) Refers to the result of the dissolution of City Pulse (EUR -368 thousand) and the loss on the disposal of the shares held by Novabase Business Solutions in the company WRC (EUR -7 thousand) - see note 10.

(**) Corresponds to the final assessment of the contingent consideration for the acquisition of Binómio, Lda occurred in the first half of 2012, which provided an amount to be paid until 2017 depending on goals to be achieved by the subsidiary in terms of Free Cash Flow. The payment amounted to EUR 371 thousand.

35. Share of loss of associates

	31.12.17	31.12.16
Fundo Capital Risco NB Capital (notes 5 and 9)	(261)	(46)
	(261)	(46)

48

36. Income tax expense

Novabase and its subsidiaries with head offices in Portugal are subject to Corporate Income Tax at the nominal rate of 21%, which can be increased by a Municipal Surcharge up to a maximum rate of 1.5% of taxable income, resulting in a total tax rate of 22.5%. Additionally, taxable income exceeding EUR 1,500 thousand and up to EUR 7,500 thousand is subject to a State Surcharge at the rate of 3%, from EUR 7,500 thousand and up to EUR 35,000 thousand is subject to a State Surcharge at the rate of 5%, and the part of taxable income exceeding EUR 35,000 thousand is subject to a State Surcharge at the rate of 7%.

Since 1 January 2009, Novabase is being taxed in Corporate Income Tax under the Special Taxation Regime for Groups of Companies (Group taxation relief). For taxation purposes, this group includes companies detained in 75% or more by Novabase S.G.P.S. which comply with the further requirements under article 69º and following of the Corporate Income Tax Code.

The remaining subsidiaries, not contemplated by this mechanism, are taxed individually, based on their taxable profits and the tax rates applicable.

The net income generated by foreign subsidiaries is taxed at local tax rates, namely, those generated in Spain, in Angola, in Mozambique, in The Netherlands, in the United Kingdom and in Turkey are taxed at 25%, 30%, 32%, 20%, 19% and 20% respectively.

According to the current tax legislation, in general terms tax returns can be reviewed by the tax authorities during a subsequent period. In Portugal, this period is 4 years or, if any deduction is made or tax benefit granted, the exercise term of that right. Therefore, all annual tax returns for the year 2014 through 2017 are still open to such review.

Legislative changes that became effective on 1 January 2017

In Portugal, the 2016 State Budget (Law no. 7-A, of March 30) reduced the carry forward period for tax losses that are computed from fiscal year 2017 onwards, from 12 to 5 years.

In addition, the rules within the scope of the general regime for determining the taxable income (Article 52.15) and the Special Taxation Regime for Groups of Companies (Article 71.6) were suspended, which required to deduct, first, the longest-computed carried forward losses.

These changes had no impact on the Group's income tax expense.

Legislative changes introduced by 2018 State Budget

With regard to the changes introduced by 2018 State Budget, the Management considered that there were no changes with a significant impact on the income tax expense of Novabase's Group.

This caption is analysed as follows:

	31.12.17	31.12.16
Current tax	1,960	1,638
Deferred tax on temporary differences (note 11)	(578)	1,364
	1,382	3,002

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average rate applicable to profits of the consolidated entities as follows:

	31.12.17	31.12.16
Profit before income tax	7,822	1,169
Income tax expense at nominal rate (21% in 2017 and 2016)	1,643	245
Tax benefit on the net creation of employment for young and long term unemployed people	(274)	(312)
Provisions and amortisations not considered for tax purposes	718	1,300
Recognition of tax on the events of previous years	147	(11)
Associates' results reported net of tax	55	9
Autonomous taxation	515	621
Losses in companies where no deferred tax is recognised	(1,125)	(59)
Expenses not deductible for tax purposes	1,836	(242)
Differential tax rate on companies located abroad	408	(233)
Research & Development tax benefit	(3,253)	641
Municipal surcharge and State surcharge	346	267
Impairment of Special Payment on Account, tax losses and withholding taxes	366	862
Other	-	(86)
Income tax expense	1,382	3,002
Effective tax rate	17.7%	256.8%

37. Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares (note 21).

Diluted

Diluted earnings per share corresponds to basic earnings per share, since both in 2017 and in 2016 there are no dilutive potential ordinary shares.

Earnings per share are analysed as follows:

	31.12.17	31.12.16
Weighted average number of ordinary shares in issue	31,037,282	31,390,277
Profit attributable to owners of the parent	4,774	9,577
Basic earnings per share (Euros per share)	0.15 Euros	0.31 Euros
Diluted earnings per share (Euros per share)	0.15 Euros	0.31 Euros
Profit from continuing operations attributable to owners of the parent	2,078	(3,304)
Basic earnings per share (Euros per share)	0.07 Euros	(0.11) Euros
Diluted earnings per share (Euros per share)	0.07 Euros	(0.11) Euros
Profit from discontinued operations attributable to owners of the parent	2,696	12,881
Basic earnings per share (Euros per share)	0.09 Euros	0.41 Euros
Diluted earnings per share (Euros per share)	0.09 Euros	0.41 Euros

38. Dividends per share

The amounts distributed in 2017 and 2016 reached EUR 20,411 thousand (0.65 Euros per share), corresponding to a distribution of reserves amounting to EUR 4,710 thousand (0.15 Euros per share) and to an extraordinary shareholder remuneration in the amount of EUR 15,701 thousand (0.50 Euros per share), and EUR 3,768 thousand (0.12 Euros per share), respectively. These amounts differ from the ones shown in the consolidated statement of cash flows due to the remuneration of the treasury shares held by the Company, which remained in Novabase (note 22). In respect to the year 2017, the Board of Directors will propose to the Annual General Meeting of Shareholders of 2018, the payment of 0.15 Euros per share, that is, a total amount of EUR 4,710 thousand. These financial statements do not reflect this dividend payable.

39. Commitments

The financial commitments not included in the consolidated statement of financial position related with bank guarantees provided to third parties for ongoing projects, are detailed as follows:

	Bank	31.12.17	31.12.16
Novabase S.G.P.S., S.A.	BTA	5,000	-
Novabase Business Solutions, S.A.	BPI	33	33
Novabase Business Solutions, S.A.	Novo Banco	241	296
Novabase Business Solutions, S.A.	BCP	4,717	4,892
Novabase Business Solutions, S.A.	BAR	-	242
Novabase Business Solutions, S.A.	BTA	21	35
Novabase Serviços, S.A.	Novo Banco	484	485
CelFocus, S.A.	Novo Banco	27	27
CelFocus, S.A.	BAR	511	581
CelFocus, S.A.	POP	50	50
CelFocus, S.A.	BPI	72	72
Novabase Digital, S.A.	BCP	82	-
NOVABASE IMS 2, S.A.	BCP	4	12
Novabase Sistemas de Informacion, S.A.	Novo Banco	108	81
NBASIT-Sist. de Inf. e Telecomunic., S.A.	BFA	-	-
NBMSIT, Sist. de Inf. e Tecnol., S.A.	BIM	201	220
		11,551	7,026

Novabase Capital holds an option to purchase all the units held by IAPMEI in Fundo Capital de Risco NB Capital, and may exercise this option at any time after 31 December 2008, under the conditions established in Article 21 of its Management Regulation.

Novabase Capital holds an option to purchase all the units held by FINOVA in FCR NB Capital Inovação e Internacionalização, and may exercise this option at any time after 30 September 2015, under the conditions established in Article 22 of its Management Regulation.

Novabase Capital also holds an option to purchase all the units held by FC&QC in FCR Novabase Capital +Inovação, and may exercise this option during the first year of activity of this Fund, that is, until 17 October 2018, under the conditions established in article 21 of its Management Regulation.

EDA - Eletricidade dos Açores holds a call option to repurchase Globaleda shares held by NB Business Solutions, S.A. by its carrying amount, and may exercise this option until 30 days after 28 February 2018. The exercise term has expired prior to the issuance date of this report, and this option has not been exercised.

To ensure compliance with the responsibilities associated with the December 19, 2014 finance contract between the European Investment Bank (EIB) and Novabase SGPS, there is a Promissory Note signed by Novabase SGPS and endorsed by the remaining Guarantors in favour of EIB. At 31 December 2017, the guarantors are: Novabase Business Solutions, S.A.; Novabase Neotalent, S.A.; Novabase E.A., S.A.; NOVABASE IMS 2, S.A.; Novabase Serviços, S.A.; Novabase Digital, S.A.; and Binómio, Lda. (Novabase IMS Infr. & Manag. Services, SA ceased to be a guarantor at December 23, 2016, as a result of the sale of IMS Business, as established in the 1st Consent and Amendment Agreement relating to the Finance Contract and Guarantee and Indemnity Agreement).

Following the sale of IMS Business, Novabase undertook the following commitments:

• A Liability Cap of EUR 5 Million by irrevocable bank guarantee of equal amount for a period of 18 months (duration of guarantees), that is, between 5 January 2017 and 5 July 2018, and EUR 2.5 Million between 18 months and 5 years (expiry of tax and Social Security guarantees), that is, between 6 July 2018 and 5 January 2022;
• Constitution of a basket deductible for further corrections in the amount of EUR 400 thousand, minimis of EUR 40 thousand, until the end of the period, that is, 5 January 2022;
• Non-competition obligation for 3 years between VINCI Energies Portugal, SGPS, S.A. and Novabase in its core business areas, that is, until 5 January 2020.

In 2017, the Group had the following grouped credit line contracted:

Group of companies	Plafond
Novabase S.G.P.S.; NB Business Solutions, S.A.	EUR 5.0 Million
Novabase S.G.P.S.; Novabase Serviços, S.A.; Novabase Neotalent, S.A.; NB Business Solutions, S.A.	EUR 7.0 Million

There are commitments resulting from operating leases. These obligations refers mainly to the lease of the Company's headquarter, which is close to its term, and to lease agreements of other facilities where Novabase operates. The initial term of these contracts is between 1 and 5 years, with an option to renegotiate them after this period. The payments are updated annually, reflecting inflation and/or market valuation.

The future payments related to these operating lease agreements are as follows:

	31.12.17	31.12.16
No later than 1 year Between 1 and 5 years	2,081 720	2,049 2,431
	2,801	4,480

40. Related parties

For reporting purposes, related parties include subsidiaries and associates (identified in note 6), other participated companies classified as financial assets at fair value through profit or loss (identified in note 10), shareholders and key elements in the management of the Group, and companies related to them that provide management services to the Group (Autonomy Mastery and Purpose, S.A. and Groovesnore Investimentos Imobiliários, Lda).

i) Key management compensation

Remuneration assigned to the Board of Directors, other key management personnel and related companies providing management services to the Group, during the years ended and 31 December 2016, are as follows:

31.12.17
4,455	3,463
1,238	859
5,693	4,322
		31.12.16

Of the total amount of short-term employee benefits, which includes remuneration, social security charges and other costs, EUR 4,759 thousand were recognised in 'Employee benefit expense' (2016: EUR 3,501 thousand) and EUR 934 thousand in 'External supplies and services' (2016: EUR 821 thousand).

'Other long-term benefits' caption corresponds to 50% of the variable remuneration recognised in the year on the accrual basis (the final amount is only known in the following exercise), with payment to be deferred for more than 1 year after the reporting date.

The total variable remuneration assigned to the Board of Directors of Novabase S.G.P.S. and other key management elements of the Group, regardless the year of allocation, which payment is deferred, amounts to EUR 1,661 thousand (2016: EUR 1,430 thousand).

In addition, there are outstanding current account balances with key management personnel in the amount of EUR 9 thousand at 31 December 2017 (31.12.16: EUR 3 thousand).

The remuneration policy of the Board of Directors and of the Supervisory Board of Novabase S.G.P.S. is stated in this Consolidated Report and Accounts, in the Remuneration Chapter of the Corporate Governance Report, which is reproduced below.

By unanimous decision of the Remuneration Committee, fixed remuneration components were set for members of the Novabase Board of Directors in 2017, along with annual variable remuneration, as shown in the chart below. These remunerations are distributed among the members of the Board of Directors in accordance with the breakdown stipulated by the Remuneration Committee, whereby the directors earn (i) a fixed portion in cash, and (ii) a variable portion in cash. This remuneration is shared among the directors as indicated in the chart below, in accordance with the responsibilities assumed by them at Novabase, and as indicated by the Remuneration Committee.

The remuneration of non-executive, non-independent directors includes a variable component. The performance of remunerated duties by these members of the Board of Directors allows Novabase to continue to leverage their extensive know-how acquired as company founders and accumulated over more than 20 years, especially since these directors continue to play key roles in the Group.

The variable portion in cash of directors' remuneration is determined with a view to align this portion with the organization's performance in the year concerned, measured by the net profits generated, and correlates with the responsibility and performance of each director in particular. A proper balance is also ensured between the fixed and variable portions of these remunerations. The variable remuneration in cash paid in 2017 corresponds to only 50% of the amount due for 2016, 1/6 of the amount allocated for 2015 in 2016, 1/6 of the amount allocated for 2014 in 2015 and 1/6 of the amount allocated for 2013 in 2014. The remaining 50% of the amount allocated for 2016 is subject to deferred payments in the following 3 years (2018, 2019 and 2020) in equal parts (corresponding to 1/6 of each year's total), conditional upon positive company performance during this time period.

Director	Fixed annual remuner. (€)	Annual variable remuner. in cash paid in 2017 (€)1, 2	Total Partial (Fixed + Variable in cash paid in 2017) (€)	Variable in cash paid in 2017 / Partial Total (%)	Deferred annual variable remuner. (€)3
Luís Paulo Cardoso Salvado	267,000	301,909	568,909	53.07	322,134
Francisco Paulo Figueiredo Morais Antunes	114,000	146,426	260,426	56.23	159,726
Executives Total	381,000	448,335	829,335	54.06	481,860
(% total)	90.07 -	79.53 -	84.05	- -	79.60 -
José Afonso Oom Ferreira de Sousa	21,000	57,704	78,704	73.32	61,754
Pedro Miguel Quinteiro de Marques Carvalho	21,000	57,704	78,704	73.32	61,754
Non-executive Total	42,000	115,408	157,408	73.32	123,508
(% total)	9.93	20.47	15.95	-	20.40
TOTAL	423,000	563,743	986,743	57.13	605,368

1 The amount shown represents the total amount paid to each director in 2017: 50% of the amount allocated for 2016 in 2017, plus 1/6 of the amount allocated for 2015 in 2016, 1/6 of the amount allocated for 2014 in 2015 and 1/6 of the amount allocated for 2013 in 2014. The remaining 50% of the amount allocated for 2016 in 2017 will be paid in the following 3 years (2018, 2019 and 2020) in equal parts (corresponding to 1/6 of each year's total), conditional upon positive company performance during this time period.

2 Amount used to increase contributions of endowment policy currently in effect at the company.

3 Amounts allocated for 2016 in 2017 but deferred for the next 3 years. There are also deferrals for amounts allocated in 2015 for 2016 and allocated for 2014 in 2015, per the criteria shown in the Corporate Governance Reports for the years in question.

In 2017, an additional amount of EUR 6,782 thousand was paid to the members of the Board of Directors in meal allowances. There are no relevant amounts of non-monetary benefits considered as remuneration and not covered by the previous situations.

Novabase's current directors are paid exclusively by this entity, and do not receive additional remuneration of any kind from other companies that are controlled by or part of the Novabase Group, nor from any company exercising control over Novabase.

In 2017, no additional remuneration was awarded in the form of profit sharing and/or payment of bonuses.

No compensations were paid, nor are any compensations owed, to former executive directors as a result of their duties no longer being performed in 2017.

52

ii) Balances and transactions with related parties

Group companies have commercial relations with each other that qualify as related parties transactions. All of these transactions are performed on an arm's length basis, meaning, the transaction value corresponds to prices that would be applicable between non-related parties.

In consolidation all of these transactions are eliminated, since the consolidated financial statements disclose information regarding the holding company and its subsidiaries as if they were a single entity.

Balances and transactions of Group Companies with related parties are as follows:

	Trade and other receivables		Trade and other payables
	31.12.17	31.12.16	31.12.17	31.12.16
Associates	47	56	-	-
Other participated companies	886	561	409	726
Shareholders and other entities	-	-	-	-
	933	617	409	726
Provision for impairment of trade and other receivables	-	(6)
	933	611

	Services rendered		Supplementary income		Interest received
	31.12.17	31.12.16	31.12.17	31.12.16	31.12.17	31.12.16
Associates	198	214	-	-	-	-
Other participated companies	974	770	57	33	32	36
Shareholders and other entities	-	-	-	-	-	-
	1,172	984	57	33	32	36
					Purchases (*)
					31.12.17	31.12.16
Associates					-	-
Other participated companies					2,651	2,569
Shareholders and other entities					-	-
					2,651	2,569

(*) In 2017, purchases include EUR 2,385 thousand of passing-through invoicing on behalf of Globaleda S.A. to external client. Once the Group acted as an agent on behalf of the principal, the purchases (and the associated turnover) were eliminated in the consolidated financial statements.

In addition to the balances and transactions described in the tables above and below, no other balances or transactions exist with the Group's related parties.

Outstanding balances of accounts receivable and payable between Group Companies and related parties will be cash settled and are not covered by any guarantees.

iii) Other balances with related parties

		Non-current (note 12)		Current (note 15)
	31.12.17	31.12.16	31.12.17	31.12.16
Associates	-	-	-	-
Other participated companies
Loan to Powergrid, Lda	2,050	2,050	-	-
Loan to Bright Innovation, Lda	1,477	1,477	-	-
Loan to Smartgeo Solutions, Lda	-	99	-	-
Loan to Radical Innovation, Lda	994	994	-	-
Loan to Power Data, Lda	248	248	-	-
Loan to City Pulse, Lda	-	2,410	-	-
Loan to Livian Technologies, Lda	-	1,292	-	1,200
Shareholders and other entities
Loans to other shareholders	-	-	15	15
	4,769	8,570	15	1,215
Provisions for impairment of loans to related parties	(2,747)	(3,438)	-	-
	2,022	5,132	15	1,215

In 2017, the decrease in the balance of loans to related parties essentially refers to City Pulse and Livian Technologies. The amounts of EUR 750 thousand and EUR 1,404 thousand were received from these participated companies, respectively, and the remaining balance, net of the associated impairment, was canceled and considered in the computation of the gains or losses recorded by the occasion of the dissolution of these companies.

41. Discontinued operations

At October 12, 2016, Novabase has entered into a sale and purchase agreement with VINCI Energies Portugal, SGPS, S.A. ("VINCI Energies"), to sell its Infrastructures & Managed Services business ("IMS Business"), through the sale of the shares representing the whole share capital of Novabase IMS (further to the carve-out of the assets which were not part of the IMS Business), and two other companies to which the IMS Business developed by Novabase Digital TV (currently, NOVABASE IMS 2, S.A.) and by Novabase Serviços would be transferred. The price agreed was EUR 38,365 thousand, to be paid on the date of completion of the transaction, subject to certain adjustments, as established in the sale and purchase agreement.

The sale was substantially completed, namely through the approval of the Competition Authority, at the end of 2016. As a result, Novabase recorded, with reference to December 31, 2016, the gain generated by the sale of the IMS Business to VEP, in the amount of EUR 17,567 thousand.

In the first half of 2017, the final calculation of working capital and net debt as established in the purchase and sale agreement took place, and the final price was revised to EUR 41,061 thousand, resulting in an adjustment to the gain generated by the sale of the IMS business in the amount of EUR 2,696 thousand.

A. Results of discontinued operations

	31.12.17	31.12.16
Revenue Expenses	- -	72,604 (71,062)
Results from operating activities	-	1,542
Income tax	-	(6,228)
Results from operating activities, net of tax	-	(4,686)
Gain on sale of IMS Business Income tax on gain on sale of IMS Business	2,696 -	17,567 -
Profit from discontinued operations, net of tax	2,696	12,881
B. Cash flows from (used in) discontinued operations
	31.12.17	31.12.16
Cash flows from (used in) operating activities	(1,036)	7,509
Cash flows used in investing activities	-	(3,087)
Cash flows used in financing activities	(61)	(307)

At the end of 2016, a provision of EUR 2 Million was recorded for responsibilities associated with the disposal of the IMS Business, under the caption 'Liabilities from discontinued operations' in the consolidated statement of financial position. During the year 2017, it was used the amount of EUR 1,097 thousand, and 'Liabilities from discontinued operations' caption was reduced to EUR 0.9 thousand.

Net cash flows for the period from discontinued operations (1,097) 4,115

42. Contingencies

At 31 December 2017, the Group was part intervenient in the following legal process:

• Novabase Business Solutions has been served with a procedure from the Instituto de Gestão Financeira da Segurança Social regarding the alleged absence of payment of social security contributions and interests of some months of 2014, 2015 and 2016, in the amount of 59,290 Euros. The company has filed opposition regarding the allegations demonstrating compliance with applicable laws, payment of all amounts due and providing documents to that respect. The procedure is pending analysis and decision from the IGFSS.
• Novabase Digital has been served with a procedure from the Instituto de Gestão Financeira da Segurança Social regarding the alleged absence of payment of social security contributions and interests of some months of the years 2012, 2013 and 2014, in the amount of 3,763 Euros. The company has filed opposition regarding the allegations demonstrating compliance with applicable laws, payment of all amounts due and providing documents to that respect. The procedure is pending analysis and decision from the IGFSS.
• Novabase S.G.P.S. has been served with a procedure from the Instituto de Gestão Financeira da Segurança Social regarding the alleged absence of payment of social security contributions of some months of 2015, in the amount of 25,758 Euros. The company has filed opposition regarding the allegations demonstrating compliance with applicable laws, payment of all amounts due and providing documents to that respect. The procedure is pending analysis and decision from the IGFSS.

Celfocus S.A. has been served with a procedure from the Instituto de Gestão Financeira da Segurança Social regarding the alleged absence of payment of social security contributions of some months of the years 2015 and 2016 in the total amount of 72,148 Euros. The company has filed opposition regarding the allegations demonstrating compliance with applicable laws, payment of all amounts due and providing documents to that respect. The procedure is pending analysis and decision from the IGFSS.

43. Additional information required by law

In accordance with article 508-F of the Portuguese Commercial Companies Code, we hereby inform of the following:

• (i) In addition to all operations described in the notes above, as well as in the Management's Report, there are no other operations considered relevant which are not already contained either in the consolidated statement of financial position or its notes;
• (ii) The total remuneration of the Statutory Auditor in 2017 was 110,000 Euros (2016: 110,000 Euros), which corresponds in full to the legal accounts audit services;
• (iii) Note 40 of the Notes to the Consolidated Financial Statements includes all the related parties' disclosures, in accordance with the International Financial Reporting Standards.

44. Events after the reporting period

The following relevant facts occurred in 2018 by the date of issue of this report, details of which have been adequately disclosed as privileged information via Novabase S.G.P.S. and CMVM websites, or is public knowledge:

Dividend to shareholders

Novabase informed the intention of the Board of Directors to propose, at the 2018 Annual General Meeting of Shareholders, the distribution of EUR 4.7 Million to shareholders. This payment, equal to 98.7% of the consolidated net profit, represents a dividend of 15 euro cents per share.

Novabase exit from PSI20 Index as of 19 March 2017

As part of the annual review of the national stock exchange index, Euronext - the managing entity of the Lisbon stock exchange - announced in a news item dated from March 6, 2018, that Novabase will leave the main index of the Lisbon Stock Exchange, PSI20, from March 19, where it was trading since March 20, 2017. The PSI20 index is revised quarterly in June, September and December, with the full annual review taking place in March.

45. Note added for translation

These financial statements are a translation of financial statements originally issued in Portuguese. In the event of discrepancies, the Portuguese language version will prevail.

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REPORT AND OPINION OF THE AUDIT BOARD ON THE CONSOLIDATED FINANCIAL STATEMENTS OF NOVABASE – SOCIEDADE GESTORA DE PARTICIPAÇÕES SOCIAIS, S.A. FOR THE FINANCIAL YEAR ENDED ON DECEMBER 31, 2017

To the Shareholders

INTRODUCTION

In compliance with the Law and for the purposes of paragraph g) of article 420 of the Portuguese Companies Code and the Company's bylaws, the Audit Board hereby presents for appreciation its Report on the supervising activity that was carried out and issues its Opinion on the Management Report and Consolidated Financial Statements of Novabase – Sociedade Gestora de Participações Sociais, S.A. for the financial year ended on December 31, 2017.

ACTIVITIES CARRIED OUT

Supervision of the Company

During the financial year, the Audit Board regularly followed up the evolution of the company's business and the business of its subsidiaries, ensuring compliance with the law and the relevant bylaws, and monitored the Company's management, the efficiency of the risk management and internal control systems and the preparation and disclosure of financial information, as well as the regularity of the accounting records, the accuracy of the consolidated financial statements and the accounting policies and metrical valuation criteria adopted by the company, in order to verify that they lead to an adequate expression of its consolidated assets, results and cash flows.

During the year, the Audit Board met eight times and the respective meetings were formally recorded in minutes. At these meetings there was always attendance of 100% of the respective members. In addition, the Audit Board took part in the meeting of the Board of Directors that approved the Management Report and the Consolidated Financial Statements for the 2017 financial year.

Within its duties, the Audit Board maintained the necessary contacts with the representatives of the Chartered Accountants Company and External Auditor, in order to monitor the planning and audit work that was carried out and to take note of the respective findings. The meetings held with the representatives of the Chartered Accountants Company and External Auditor enabled the Audit Board to reach a positive opinion on the integrity, rigor, skill, quality of work and objectivity with which they carried out their work, as well as the reliability of the financial information.

Relevant matters concerning auditing were also analyzed with the representatives of the Chartered Accountants Company and External Auditor; the Audit Board refers to their report on the consolidated financial statements for the description of the essential elements subject to analysis.

During the meetings of the Audit Board, the main risks affecting Novabase - Sociedade Gestora de Participações Sociais, S.A. and the companies included in the consolidation perimeter were analyzed and discussed with Management and the Statutory Auditor, based on presentations prepared by these corporate bodies. The Audit Board considers that it has obtained the explanations and clarifications considered relevant.

Whistleblowing procedures

During 2017, the Audit Board did not receive any communications on irregularities through the means established for this purpose.

Related Party Transactions

During the 2017 financial year, no related party transactions, in accordance with the regulation in force, were submitted to assessment by the Audit Board.

Independence of the External Auditor

The Audit Board received the statement by the Statutory Auditor confirming its independence in relation to the Company and communicating all relationships that may be perceived as a threat to its independence, as well as the safeguards that were implemented.

RESPONSIBILITY STATEMENT

Pursuant to paragraph 1/c) of article 245 of the Portuguese Securities Code, applicable by virtue of paragraph 1/a) of article 8 of the CMVM Regulation no. 5/2008 (Information Duties), we hereby declare that, to the best of our knowledge and belief, the aforementioned financial statements were prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union, giving a true and appropriate view of the assets and liabilities, financial position and results of Novabase - Sociedade Gestora de Participações Sociais, S.A. and the companies included in the consolidation perimeter, and the management report faithfully describes the evolution of the business, performance and position of Novabase - Sociedade Gestora de Participações Sociais, S.A. and the companies included in the consolidation perimeter, containing an adequate description of the main risks and uncertainties which they face.

OPINION

The Audit Board analyzed the Management Report and the Consolidated Financial Statements for the 2017 financial year, which comprise the Consolidated Statement on the Financial Position as of December 31, 2017, the Consolidated Income

Statement, the Consolidated Statement on Comprehensive Income, the Consolidated Statement on the Changes to Equity and the Consolidated Statement on the Cash Flows, as well as the accompanying notes, which were prepared in accordance with the International Financial Reporting Standards, as adopted in the European Union.

Within its duties the Audit Board has analyzed the Legal Certification of Accounts and the Audit Report on the Consolidated Financial Information for the 2017 financial year, prepared by the Statutory Auditor, document which does not present any reservation and with which the Audit Board agrees.

The Audit Board further analyzed the Corporate Governance Report for the 2017 financial year, which is attached to the Management Report prepared by the Board of Directors in compliance with the CMVM Regulation no. 4/2013 (Corporate Governance of Listed Companies), and the Audit Board certifies that it includes all the elements referred to in article 245-A of the Portuguese Securities Code.

In this context, it is the Audit Board's opinion that:

• There are no objections to the approval of the Management Report for the 2017 financial year;
• There are no objections to the approval of the Consolidated Financial Statements for the 2017 financial year.

Lisbon, April 12, 2018

The Audit Board

Paulo Soares de Pinho – Chairman

Fátima Farinha – Member

Nuno Pires – Member

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KPMG & Associados - Sociedade de Revisores Oficiais de Contas, S.A. Edifício Monumental - Av. Praia da Vitória, 71 - A, 8º 1069-006 Lisboa - Portugal +351 210 110 000 | www.kpmg.pt

STATUTORY AUDITORS' REPORT AND AUDITORS' REPORT

(Free translation to English from a report originally issued in Portuguese language. In case of doubt the Portuguese version will always prevail.)

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion

We have audited the accompanying consolidated financial statements of Novabase, SGPS, S.A. (the Group), which comprise the consolidated statement of financial position as at 31 December 2017 (showing a total of 184,226 thousand euros and equity of 81,166 thousand euros, including non-controlling interests of 13,597 thousand euros and a net profit attributable to the shareholders of Novabase of 4,774 thousand euros), the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the accompanying notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements give a true and fair view, in all material respects, of the consolidated financial position of Novabase, SGPS, S.A. as at 31 December 2017 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) and further technical and ethical standards and guidelines as issued by Ordem dos Revisores Oficiais de Contas the Portuguese Institute of Statutory Auditors. Our responsibilities under those standards are further described in the "Auditors' responsibilities for the audit of the financial statements" section below. We are independent of the entities that comprise the Group in accordance with the law and we have fulfilled other ethical requirements in accordance with the Ordem dos Revisores Oficiais de Contas' code of ethics.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KPMG & Associados – Sociedade de Revisores Oficiais de Contas, S.A., a Portuguese company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

KPMG & Associados - S.R.O.C., S.A. Capital Social: 3.916.000 Euros - Pessoa Colectiva Nº PT 502 161 078 - Inscrito na O.R.O.C. Nº 189 - Inscrito na C.M.V.M. Nº 20161489 Matriculada na Conservatória do registo Comercial de Lisboa sob o Nº PT 502 161 078

Key audit matters

Key audit matters are those matters that, in our professional judgment, 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.

Revenue recognition

Risk

Response

The revenue recognition policy regarding turnkey consulting projects, which represent a significant part of the Group's business, requires judgment as disclosed in note 4(d) of the notes to the consolidated financial statements. The recognition of such projects in accordance with the percentage of completion method, as described in note 2.19(b), involves a number of qualitative factors such as estimated billing, estimated costs, including contingency values for contractual risks, which justify the consideration of this issue as a relevant matter to the audit of the Group's consolidated financial statements as at 31 December 2017.

We have analyzed the revenue recognition policy adopted by the Group with reference to the applicable accounting standards. Our audit procedures included, among others, the following:  We have tested the relevant controls, including application controls and general IT controls, related to the revenue recognition process;  Critical analysis of estimates and assumptions made by management, namely regarding estimated billing, estimated costs and contingencies;  Substantive analytical procedures and tests of detail regarding the accounting records in order to identify and test the risk of fraud and eventual override of controls implemented; and,

Assessment of the Group's disclosure adequacy over revenue recognition considering the applicable accounting standards.

International exposure

Risk Response The Group's operations outside Portugal represented more than 50% of total consolidated revenue in 2017. The internationalization process exposes the Group to the risk of foreign exchange fluctuation, mainly to the dollar, kwanza and metical. As disclosed in notes 3(a) and 3(d), increased exposure to these currencies and geographies results in increased risks for the Group, mainly: Foreign exchange risk, in result of the strong devaluation of local currencies against the euro; and, Our audit procedures included, among others, the following: We have assessed the degree of exposure We have critically assessed estimates and

Liquidity risk, in result of the difficulty of capital repatriation from those geographies;

which justify the consideration of this issue as a relevant matter to the audit of the Group's consolidated financial statements as at 31 December 2017.

• to geographies of high exchange and liquidity risks, namely at the level of receivables impairment and going concern;
• assumptions performed by management, particularly regarding the impairment of receivables and the feasibility of implementing the business plans associated with these geographies units;
• We have analyzed the valuation of financial instruments used by the Group to hedge the exchange rate risk;
• We have analyzed the currency translation of the financial statements of the subsidiaries located in these geographies by reference to the applicable accounting standards; and,
• We have assessed the adequacy of the Group's disclosure over financial risk management policy, considering the applicable accounting standards.

Valuation of intangible assets and goodwill

Risk Response

As disclosed in note 8, as at 31 December 2017, the net book value of intangible assets amounted to 17,162 thousand euros of which 14,886 thousand euros related to the goodwill of the Business Solutions segment.

The determination of the recoverable value of these assets is subjective due to the uncertainty inherent to the financial projections and to the discount of future cash flows, since many key assumptions are based on management expectations, not observable in the market.

The Group performs, on an annual basis, goodwill impairment tests based on the discounted cash flows method, considering a 5 year business plan estimated by management, as mentioned in notes 2.6(1), 4(a) and 8.

In addition, the Group has been capitalizing expenses with the development of software projects based on expectations of future revenues, as mentioned in notes 2.6(2) and 8.

The complexity and the inherent degree of judgment justify the consideration of this issue as a relevant matter to the audit of the Group's consolidated financial statements as at 31 December 2017.

Our audit procedures included, among others, the following:

• We have analyzed the budgeting procedures on which the projections are based, by comparing current performance with estimates made in prior periods;
• We have analyzed the assumptions and methodology used by management to assess the recoverability of deferred tax assets, namely projections of taxable income; and,
• We have assessed the adequacy of the Group's disclosure regarding the recognition of deferred tax assets considering the applicable accounting standards.

Recoverability of deferred tax assets

Risk Response

As disclosed in note 11, as at 31 December 2017, the amount of deferred tax assets was of 10,448 thousand euros, of which 9,754 thousand euros related to tax benefits arising from Research and Development projects presented under the SIFIDE incentive scheme.

The deferred tax assets recorded by management are based on its best estimate on the timing and future amounts required for its recovery, using assumptions that require judgment, as mentioned in notes 2.15 and 4(c).

The level of uncertainty associated and the inherent degree of judgment justify the consideration of this issue as a relevant matter to the audit of the Group's consolidated financial statements as at 31 December 2017.

Our audit procedures included, among others, the following:

• We have analyzed the budgeting procedures on which the projections are based, by comparing current performance with estimates made in prior periods;
• We have analyzed the assumptions and methodology used by management to assess the recoverability of deferred tax assets, namely projections of taxable income; and,
• We have assessed the adequacy of the Group's disclosure over recognition of deferred tax assets considering the applicable accounting standards.

Responsibilities of Management and the Supervisory Board for the Consolidated Financial Statements

Management is responsible for:

• the preparation of consolidated financial statements that give a true and fair view of the Group's financial position, financial performance and the cash flows, in accordance with the International Financial Reporting Standards, as adopted by the European Union;
• the preparation of the management report and the corporate governance report, in accordance with applicable laws;
• designing and maintaining an appropriate internal control system to enable the preparation of consolidated financial statements that are free from material misstatement whether due to fraud or error;
• the adoption of accounting policies and principles appropriate in the circumstances; and
• assessing the Group's ability to continue as a going concern and disclosing, as applicable, the matters that may cast significant doubt about the Group's ability to continue as a going concern.

The Supervisory Board is responsible for overseeing the Group's financial reporting process.

Auditor´s responsibilities for the audit of the consolidated financial statements

Our responsibility is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements whether due to fraud or error, and to issue an auditors' 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 skepticism throughout the audit. We also:

• 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;
• 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;

• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;

• 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 auditors' report to the related disclosures in the consolidated 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 auditors' report. However, future events or conditions may cause the Group to cease to continue as a going concern;

• 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;
• 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;
• communicate with those charged with governance, including the supervisory body 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;
• determine, from the matters communicated with those charged with governance, including the supervisory body, those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes their public disclosure; and,
• provide the supervisory body with a statement, that we have complied with the relevant ethical requirements regarding independence, and communicate all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

Our responsibility also includes the verification that the information contained in the management report is consistent with the financial statements and the verification of the requirements as provided in numbers 4 and 5 of article 451 of the Portuguese Companies' Code, as well as the verification that the non-financial information was presented.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

On the management report

Pursuant to article 451, nr. 3, e) of the Portuguese Companies' Code, it is our opinion that the management report was prepared in accordance with the applicable legal and regulatory requirements and, the information contained therein is consistent with the audited consolidated financial statements and, having regard to our knowledge and assessment of the Group, we have not identified any material misstatements.

On the corporate governance report

Pursuant to article 451, nr. 4, of the Portuguese Companies Code, it is our opinion that the corporate governance report includes the information required to the Group to provide under the article 245 – A of the Securities Code, and we have not identified any material misstatements on the information provided therein in compliance, with paragraphs c), d) , f), h), i) and m) of that article.

On the non-financial information defined in the article 508-G of the Portuguese Companies' Code

Pursuant to article 451, nr. 6, of the Portuguese Companies' Code, we inform that the Group has included in its management report the non-financial statement defined in article 508-G of the Portuguese Companies' Code.

On the additional matters provided in article 10 of the Regulation (EU) nr. 537/2014

Pursuant to article 10 of the Regulation (EU) nr. 537/2014 of the European Parliament and of the Council of 16 April 2014, and in addition to the key audit matters mentioned above, we also report the following:

• We were appointed auditors of Novabase, SGPS, S.A. for the first time at the shareholders' meeting held on 29 April 2015 for the current term from 2015 to 2017;
• The Executive Board of Directors confirmed to us that they are not aware of any fraud or suspicion of fraud having occurred that has a material effect on the financial statements. In planning and executing our audit in accordance with ISAs we maintained professional skepticism and we designed audit procedures to respond to the possibility of material misstatement in the consolidated financial statements due to fraud. As a result of our work, we have not identified any material misstatement of the consolidated financial statements due to fraud;
• We confirm that the audit opinion we issue is consistent with the additional report that we prepared and delivered to the Group's supervisory body on 12 April 2018; and,
• We declare that we have not provided any prohibited services as described in article nr. 77, nr. 8 of the Ordem dos Revisores Oficiais de Contas' statutes, and we have maintained independent of the Group in conducting the audit.

Lisbon, 12 April 2018

SIGNED ON THE ORIGINAL

KPMG & Associados - Sociedade de Revisores Oficiais de Contas, S.A. (nr. 189) represented by Paulo Alexandre Martins Quintas Paixão (ROC nr. 1427)

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DETAIL ON SECURITIES ISSUED BY THE COMPANY AND OTHER GROUP COMPANIES, HELD BY BOARD MEMBERS OF NOVABASE S.G.P.S.

	Share Capital	Total Number of Shares / Quotas	Number of Shares / Quotas held by Board Members at 31.12.16	Transactions	Number of Shares / Quotas held by Board Members at 31.12.17	% held by Board Members at 31.12.17
Novabase S.G.P.S., S.A.	15,700,697 €	31,401,394	10,715,761	1,865,039	12,580,800	40.1%
José Afonso Oom Ferreira de Sousa			10,057	(10,056)	1	0.0%
Pedro Miguel Quinteiro Marques de Carvalho			2,289,068	0	2,289,068	7.3%
Luís Paulo Cardoso Salvado			65,282	(65,281)	1	0.0%
Francisco Antunes			30,335	0	30,335	0.1%
HNB - S.G.P.S., S.A. (a)			8,321,019	1,940,376	10,261,395	32.7%
NBASIT - Sist. Inf e Telecomunicações, S.A. 47,500,000 AOA		100,000	400	0	400	0.4%
Francisco Paulo Figueiredo Morais Antunes			200	0	200	0.2%
Luís Paulo Cardoso Salvado			200	0	200	0.2%
CelFocus, S.A.	100,000 €	100,000	1	0	1	0.0%
José Afonso Oom Ferreira de Sousa			1	0	1	0.0%
FeedZai, S.A.	170,154 €	21,768,183	225,001	(112,501)	112,500	0.5%
Pedro Miguel Quinteiro Marques de Carvalho			225,001	(112,501)	112,500	0.5%

(a) José Afonso Oom Ferreira de Sousa and Luís Paulo Cardoso Salvado are shareholders of this company.

Novabase reports as directors the company HNB - S.G.P.S., S.A. and the board members of the Company.

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STATEMENT OF COMPLIANCE

NOVABASE S.G.P.S., S.A.

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Statement of the Board of Directors (Free translation from the original version in Portuguese) SIGNED ON THE ORIGINAL

According to the terms of sub-paragraph c), paragraph 1 of article 245 of the Portuguese Securities Code, the undersigned below identified, as members of the Board of Directors of Novabase S.G.P.S., S.A., declare that to the best of their knowledge:

(i) the information contained in the management report, annual accounts, Auditors' Report and all other accounting documentation required by law or regulation, regarding the year ended 31 December 2017, was prepared in compliance with the applicable accounting standards and gives a true and fair view of the assets and liabilities, financial position and results of Novabase S.G.P.S., S.A. and the companies included in the consolidation perimeter; and

(ii) the management report faithfully states the evolution of the businesses, performance and position of Novabase S.G.P.S., S.A. and the companies included in the consolidation perimeter, containing (namely) an accurate description of the main risks and uncertainties which they face.

Lisbon, April 12, 2018

Luís Paulo Cardoso Salvado Chairman and CEO

Francisco Paulo Figueiredo Morais Antunes CFO

José Afonso Oom Ferreira de Sousa Non-Executive member of the Board

Pedro Miguel Quinteiro Marques de Carvalho Non-Executive member of the Board

Paulo Soares de Pinho, chairman of the Audit Board of Novabase S.G.P.S. S.A. declares that, to the best of his knowledge, the information contained in the management report, the annual accounts, the chartered accountant legal certification and all other financial statement documentation was drafted in accordance with the applicable accounting standards, give a true and appropriate view of the assets and liabilities, the financial position and the results of the issuer and, when applicable, of the companies included in the consolidation perimeter, and the management reports faithfully state the evolution of the businesses, performance and position of the issuer and, when applicable, of the companies included in the consolidation perimeter, containing a description of the main risks and uncertainties which they face.

Lisbon, April 12, 2018

Fátima Farinha, member of the Audit Board of Novabase S.G.P.S. S.A. declares that, to the best of her knowledge, the information contained in the management report, the annual accounts, the chartered accountant legal certification and all other financial statement documentation was drafted in accordance with the applicable accounting standards, give a true and appropriate view of the assets and liabilities, the financial position and the results of the issuer and, when applicable, of the companies included in the consolidation perimeter, and the management reports faithfully state the evolution of the businesses, performance and position of the issuer and, when applicable, of the companies included in the consolidation perimeter, containing a description of the main risks and uncertainties which they face.

Lisbon, April 12, 2018

Nuno Miguel Dias Pires, member of the Audit Board of Novabase S.G.P.S. S.A. declares that, to the best of his knowledge, the information contained in the management report, the annual accounts, the chartered accountant legal certification and all other financial statement documentation was drafted in accordance with the applicable accounting standards, give a true and appropriate view of the assets and liabilities, the financial position and the results of the issuer and, when applicable, of the companies included in the consolidation perimeter, and the management reports faithfully state the evolution of the businesses, performance and position of the issuer and, when applicable, of the companies included in the consolidation perimeter, containing a description of the main risks and uncertainties which they face.

Lisbon, April 12, 2018

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